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3 Internet Stocks to Be Bullish On

Nicolas Chahine

The internet is a magical thing and it continues to improve our lives in ways we did not imagine. For example, we can now communicate face to face with friends and family across the globe easier than ever. Because of the internet, we conduct business remotely from almost any place on earth. And best of all, this is only the beginning. The concept is still so new that we continue to find new applications.

And therein lies today’s opportunity. Even though equity markets seem top heavy, there still are internet stocks that have a lot more upside to offer. I focus on three of them today that still are going higher: Facebook (NASDAQ:FB), Disney (NYSE:DIS) and Square (NYSE:SQ).

Equity markets are nervous going into a U.S. Federal Reserve rate decision and the G20 summit. What makes matters worse is that stocks are near their all-time highs and the bulls are edgy; no one wants to be left holding the proverbial bag.

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Emotions are high and the opinions are bifurcated. The bulls want to set new highs but they are worried about the geopolitical headlines. The bears, on the other hand, have a ton of reasons why they should continue to short stocks.

So much can go wrong with the economic war with China. And the situation in the Middle East is still unstable. Headlines are misleading so I ignore them and focus on the individual stock thesis instead.

The U.S. has full employment, so basically everyone who wants a job has one. And the cherry on top is that the Fed has recommitted to cut rates to defend the economy if it needs it. So the macroeconomic environment is still strong to support healthy company profit and loss statements that I can bet on.

Under this prism, there are exciting trends that have more upside potential. Today, I discuss three specific winning concepts where the rallies are strong and still not done.

Arguably the internet is the most important change we’ve had in recent generations. Most of the world now has access to a smartphone. We are all connected, independent of time and place. Case in point — FB has 2.4 billion monthly active users world wide who share their lives remotely, unbound by borders.

Suddenly “the cloud” in conversations no longer refers to weather. The world is in a massive trend to move all transactions online, and companies like Square (NASDAQ:SQ) are facilitating the process. Amazon (NASDAQ:AMZN) created the cloud in its current size. Others, like Netflix (NASDAQ:NFLX), used it to change how the world consumes media.

They have rallied a lot, but the opportunity isn’t gone. There is still plenty of upside potential to go in these stocks to buy.

Internet Stocks to Buy: Facebook (FB)

Internet Stocks to Buy: Facebook (FB)

Source: Shutterstock

Facebook is the prime example of a company that took the world by storm. After a rough start, its stock is now up over 180% in five years. This years it’s up 44%, which is three times better than the S&P 500. This kind of momentum is hard to chase because it perpetually seems ready for a correction.

In this case, however, there is plenty of upside room to go as we clearly saw this week.

Just yesterday, FB stock spiked 4%, and buyers are adding to it today on speculation that it will launch a cryptocurrency marketplace. This could be a game changer. It’s not a coincidence that Bitcoin rallied hugely of late and is now over $9,000. So where there is smoke there is fire, and this will get global interest. There are plenty of areas outside of the U.S. that need blockchain service like this.

Facebook’s globally reach is so vast that we cannot really forecast the contribution that a new coin can deliver to the bottom line. The scope is so large that this is reason enough to buy Facebook stock and hold it. The company is humble about the monetary reward from it, but I bet it will come.

Although critics will try, I bet that it will be hard for bears to emphatically kill this new thesis. The concept is murky enough that it will linger for a few weeks. Shorting FB becomes a hazardous endeavor while Wall Street digests the fuzziness over the crypto effect on its bottom line. I was already bullish on Facebook and this new chapter just adds fuel to the fire.

Disney (DIS)

Internet Stocks to Buy: Disney (DIS)

Source: Baron Valium via Flickr

The second stock in focus today is one that has completely obliterated the shorts of late: Disney.

It’s up 30% this year, and I bet still has more to go.

When a stock rallies this fast, especially one as “normal” as DIS stock, it’s easy to want to short it. After all, this is not a cloud stock but it certainly making the transition into one. It is almost ready to enter the streaming race with its own service. Netflix has the first-mover advantage there but DIS will hit the market with an absolute winner. I bet that every kid on the planet will pressure their parent into subscribing to Disney’s new streaming service.

Wall Street is trying to price that potential in, but I still think they are underestimating its impact on the bottom line. Disney already owns a ton of content that is still in high demand. Even after the spike, DIS stock still sells at a 16x trailing price-to-earnings ratio. It is important to note that this doesn’t include any forward speculation, it’s based on actual past-12-months results.

I bet that DIS will blow away all membership estimates and the feeding frenzy for Disney stock will kick into hyper gear.

Square (SQ)

Internet Stocks to Buy: Square (SQ)

Source: Via Square

The third opportunity of the day is Square.

Some financial tech, or fintech, stocks are soaring. SQ stock is one of them lately. It used to lead the sector, but recently it has fallen behind its more mature competitors like Visa (NYSE:V), MasterCard (NYSE:MA) and Paypal (NASDAQ:PYPL). This is not through any fault of its fundamentals, so I bet that there is a catch-up trade unfolding.

Once SQ stock crossed $68, it triggered a bullish pattern to target $84 per share. There will be resistance around $76, but if markets continue higher then SQ should fill the potential. From there, it could regain its upward momentum and join V and MA at their all-time highs.

Unlike FB and DIS, SQ stock is not cheap from the traditional sense. It still loses money but it’s relatively new so it needs time to grow into its valuation. As long as it continues to deliver the growth then Wall Street will continue to ignore its high valuation for now.

The bottom line is that Facebook, Disney and SQ are three internet stocks to buy that are proven winners and will continue to shine. Under these favorable macroeconomic conditions, they will continue to rally because they truly have even better futures ahead. Their management teams are executing on plans very well as they aim to thrive in this new technology world.

Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room free here.

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