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Investment Ideas

Markets are hanging around all-time highs and some internet names are putting up impressive numbers quarter over quarter. Almost halfway through earnings season and I have found four specific names that have reported EPS above expectations. In addition, there have been positive actions by analysts, giving these stocks a Zacks Rank #1 (Strong Buy) or #2 (Buy).

GrubHub (GRUB - Free Report) is aZacks Rank #1 (Strong Buy) provides an online and mobile platform for restaurant pick-up and delivery orders in the United States. The company connects approximately 40,000 local restaurants with diners in approximately 1,000 cities where it assists diners in searching for local restaurants, tracking orders and re-orders for convenience. 

GrubHub has a market cap of $3.25 Billion and a Forward PE of 56. The company sports a Zacks Style Score of “A” in Momentum, but “F” in Value. Because of this high valuation the stock has been a favorite with short sellers, with 40% of the float holding short. The company’s valuation is something investors have questioned in the past, but a recent earnings beat might force the shorts to cover.

On July 28th the company reported Q2 earnings of $0.23 a share versus the $0.19 expected. Revenue came in higher for the quarter at $120.2 Million versus the $114 Million expected. In addition, the company went on to raise fiscal year 2016 revenue $480-88 Million versus $469 Million expected. Active dinners are up 24% year over year to 7.35 Million, a sign of the GrubHub’s ability to grow.

The stock surged over 20% higher after the numbers. All-time highs are another 23% higher and if the momentum continue shorts will have to cover, taking the stock to April 2015 levels.

Analysts were forced to take estimates higher since the EPS beat and raise. For 2016 estimates have been revised 15% higher from $0.59 to $0.68. For 2017, revisions have also gone up 15% from $0.76 to $0.88.

Stamps.com (STMP - Free Report) is aZacks Rank #1 (Strong Buy) that provides Internet-based postage solutions in the United States. It offers solutions for mailing and shipping various mail pieces, such as postcards, envelopes, flats, and packages using a range of United States Postal Service (USPS) mail classes, including First Class Mail, Priority Mail, Priority Mail Express, Media Mail, Parcel Select, and others.

The company has a market cap of $1.3 Billion and a Forward PE 16. The stock sports a Zacks Style Score of “A” in Growth and scores of “B” in Momentum. Like GrubHub, the shorts have been attacking the stock with 20% of the float short.

On July 28th, the company reported Q2 earnings of $1.94 a share versus the $1.34 expected. Revenue came in higher for the quarter at $84 Million versus the $73.2 Million expected. Stamps went to raise guidance for fiscal year 2016 to $7.00-7.50 versus $6.26 expected. Strangely enough the stock sold off on these numbers, perhaps some more pressure from short sellers being the motivation.

Looking at a recent analysis from both Northland and B.Riley  there seems to be no reason for the selloff. In fact, current levels in the $70 area look to be a buying opportunity as B.Riley raised their price target to $160.

The volatility of this stock is fairly impressive of late as it has had a 50-point range so far this year. While short term headwinds will be a bearish argument short term, longer term investors will be rewarded as the company comes off its ninth straight EPS beat.

Facebook (FB - Free Report) is apopular social media website and aZacks Rank #1(Strong Buy). The Company's products for users are free of charge and available on the Web, mobile Web, and mobile platforms, such as Android and iOS. Its website enables users to connect, share, discover, and communicate with each other.

Facebook has a market cap of $355 Billion and a Forward PE of 40. The stock sports Zacks Style Scores of “B” in Growth and “A” in Momentum. The high PE has earned the stock a “F” in Value but looking at the stock performance, it is perceived that the company will grow into the multiple.

On July 27th, the company reported Q2 earnings of $0.97 a share versus the $0.81 expected. Revenue came in higher for the quarter at $6.44 Billion versus the $6.01 Billion expected. Monthly active users continue to trend higher, up 15% year over year.

The EPS beat was Facebooks fourth in a row, causing the stock to hit all-time highs once again. Since earnings the stock has received upgrades form MKM ($165 PT), Jefferies ($170 PT), JMP ($165 PT), Cantor Fitzgerald ($160) and JP Morgan ($170 PT).

Elli Mae (ELLI - Free Report) is a Zacks Rank #2 (Buy) that operates electronic mortgage origination networks and processes almost a quarter of all mortgage applications in the United States. The Company's network and technology-enabled solutions help streamline and automate the mortgage origination process.

Elli has a market cap of $2.9 Billion and a Forward PE of 90. The stock sports Zacks Style Scores of “A” in both Growth and Momentum. However, the high PE gives I an “F” in Value.

On July 28th, the company reported Q2 earnings of $0.64 a share versus the $0.55 expected. Revenue came in higher for the quarter at $80.1 Million versus the $85.4 expected. The company also guided higher, seeing $0.56-0.59 versus the $0.54 expected.

The stock reacted negatively to the numbers, down almost 10%. This was most likely profit taking after the stock has rallied over 60% from February lows.

In summary

Top ranked names in the internet space that are beating earnings is a winning formula for high returns. This approached has worked all year and should continue to do so into the fall months. Make sure to follow the Zacks Rank and estimate revisions to determine continued strength in a specific stock.

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