UBS Sees Large Cap Internet Stocks Dominating the Market

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Year to date, the UBS Internet Index has outperformed the broader market by 25%. The reasons for this outperformance have varied, ranging from growing addressable markets, improved monetization and/or stability, consistent growth at a reasonable price and a variety of other reasons. The good thing for investors is that. looking ahead, the UBS analysts continue to expect outperformance for the Internet sector as a whole.

The Internet sector continues to be dominated by swings in sentiment as investors discern leaders from laggards with a diminished focus on valuation metrics. Broadly across the space, the UBS team sees little deviation from current Wall Street estimates in their own modeling and think that stock price movements over the next month and through the end of the year likely will be determined by the reaction to guidance, operating momentum, secular positioning and management commentary. With that in mind, here are the top Internet stocks to buy at UBS.

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AOL Inc. (AOL) continues to add new services and content to stem losses in subscribers. The company also has an outstanding track record of returning cash to shareholders. The UBS price target for the stock is $45. The Thomson/First Call estimate is $42. AOL closed Friday at $33.95.

Activision Blizzard Inc. (ATVI) recently completed its $8.2 billion buyout from Vivendi. The company, which is now independent after five years as a unit of Vivendi, gains the freedom to consider acquisitions and growth opportunities without the uncertainty of a struggling parent. With their popular Call of Duty video game remaining one of the industry’s best-selling titles, continued growth is expected. UBS has a $21 price target. The consensus number is posted at $21 as well. Investors are paid a 1.1% dividend. Activision closed Friday at $17.08.

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Expedia Inc. (EXPE) has almost totally revamped its website technology, and the UBS analysts say it is paying off with increased traffic and bookings. They also highlight Expedia's track record for innovation in the travel industry. Improving economic conditions are also a tailwind. The UBS target for the stock is $67, and the consensus is at $60. Investors are paid a 1.2% dividend. Expedia closed Friday at $51.73.

eBay Inc. (EBAY) dominates the Internet auction market and may soon dominate cyber payments with its PayPal segment. The company also is poised to continue strong growth with timely and strategic acquisitions. The UBS price target for the stock is $64, the same as the consensus target. eBay closed Friday at $54.37.

Facebook Inc. (FB) has gone from the doghouse to the penthouse. After a botched initial public offering and stumbling out of the gate, the wildly popular social media site has improved its mobile advertising sales. The company also boasts more than 1 billion regular users, and that number continues to grow daily. UBS has a $60 price target, while the consensus figure is at $52.50. Facebook closed Friday at $49.11.

Google Inc. (GOOG) continues to dominate Internet search and has the kind of cash on hand to make a staggering splash in almost any segment of technology that it chooses to. UBS acknowledges the company is the digital advertising leader, and that will only continue to grow as its mobile efforts are expanded. UBS has a $1,020 price target for the stock. The consensus target is listed at $1,000. Google closed Friday at $871.99.

Priceline.com Inc. (PCLN) is now trading above levels that it rose to before the dot-com collapse in 2000. The company provides hotel reservation services on a worldwide basis, with approximately 275,000 properties in 175 countries and territories under the Booking.com and Agoda.com brands, as well as car rental services in approximately 6,000 locations worldwide through Rentalcars.com. UBS has a $1,060 price target, and the consensus target is posted at $1,110. The stock closed on Friday at $1,010.63.

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Yahoo! Inc. (YHOO) has doubled in price over the past year, and the UBS team says more gains are in store. The stakes in Yahoo! Japan and Alibaba are expected to prove to be huge for investors. The UBS analysts also expect cash to be returned to shareholders in a variety of fashions over the coming years. The UBS price target for the stock is $37. The consensus target is much lower at $30. Yahoo! closed Friday at $34.15.

The growth of the Internet and consumer usage of it is expected to continue unabated. As each new generation of users come online, the market leaders are expected to continue to dominate. The more mature the Internet becomes, the higher the barriers to entry are as start-ups face the market leaders. Based on the UBS research, investors would be wise to continue buying the stock of the leaders.

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