Barclays: Own Large-Cap Internet Into Last Month Of 2015

• Paul Vogel of Barclays commented in a note that the "FANG" trade -- Facebook Inc FB, Amazon.com, Inc. AMZN, Netflix, Inc. NFLX, Alphabet Inc GOOG -- has "been the place to be" for large-cap Internet stocks throughout 2015.
• Vogel noted the four stocks have "materially" outperformed most of the sector, including the overall Nasdaq index.
• The analyst added that the four names will "continue to work" in 2016 and investors should be buyers of the name heading into the new year.

According to Paul Vogel, the FANG trade has outperformed the broader indices throughout 2015. Both Amazon and Netflix realized a triple-digit percentage return year-to-date, while Facebook and Google both solidly outperformed the Nasdaq index's gains.

Vogel continued that while stock price performance can be driven by "market dynamics" (i.e., a flight to quality or a shift to large cap) 2015 was a unique year in the sense that Amazon, Facebook, and Google showed revenue growth with top line surprises nearly every quarter. At the same time, Netflix's stock price performance has been driven mostly by subscriber trends while its financials have been "in line to modestly disappointing."

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Heading into 2016, Vogel suggested that the FANG trade will "continue to work" despite the fact that all of the stocks are "widely owned," a bullish tone from the Street and high expectations to continue growing. Nevertheless, the analyst suggested that the fundamentals will remain strong into 2016, with potential relative to estimates.

Stick With Top Internet Names

According to Vogel, it is "interesting" how 2015 was characterized by relative strength in the large-cap Internet space and weakness in almost every other sector within the technology media and telecom sector. As such, until sectors other than Internet show "leadership," it is "tough" to argue for investors to sell out of internet and shift money into other segments.

As an example, Vogel stated that Twitter Inc TWTR's product and advertising changes will help in 2016, but with limited growth in users and engagement, incremental ad spend "may be difficult to achieve." In addition, Twitter's revenue has decelerated significantly over the past four quarters.

Some investors consider Priceline Group Inc PCLN to be part of the large-cap Internet names to hold into the new year, but Vogel isn't necessary convinced. According to the analyst, Priceline is expected to continue showing a deceleration in bookings growth as "the law of large numbers gets harder to overcome." In addition, increased sales and marketing spend will "keep a lid" on margins.