Trump overhang may weigh on FANG stocks through the end of the year, UBS says

Published Tue, Nov 15 20168:57 AM EST

Shares of Facebook , Alphabet and Amazon may continue to struggle into 2017 until the companies release strong fourth-quarter earnings that outweigh concerns of some sort of crackdown by President-elect Donald Trump against the internet sector, according to UBS. "During the election, many of our large cap names (AMZN, GOOG, FB) were targeted by the President-elect & investors are struggling to determine the ramifications on antitrust policy, privacy/data in enterprise/consumer, net neutrality & taxation," UBS Internet analyst Eric Sheridan wrote in a note to clients Monday. "Among large cap names, we continue to reiterate our top recommendations (in order) for FB, GOOG, BABA, PCLN & AMZN (though fully acknowledge that forward investment curves & the election results may overhang those shares until Q4 earnings season)." Shares of Facebook and Google-parent Alphabet are down 5 percent and 6 percent, respectively, since the election. Amazon and Netflix (which Sheridan does not cover) are down more than 8 percent each since Trump's win. FANG stocks since election Source: CNBC.com Here's the real reason why Sheridan, one of the top-ranked analysts in the space, thinks internet shares are falling and why they can be bought at these levels. "Based on this past week's client conversations, the recent underperformance seems almost exclusively due to de-grossing overweight positions (esp. large cap names) & lower implied multiples given potential overhangs (but almost no questioning of forward fundamentals in terms of growth)," wrote Sheridan, whose recommendations since 2013 had an average one-year return of 9 percent, according to TipRanks.com . Facebook shares peaked at about $133 a share in late October, starting its retreat from that record price after its third quarter earnings report raised questions about slowing advertising revenue growth. The stock closed Monday at $115.08. "Despite uncertainty on the investment/cost curve, we believe Facebook remains poised as a key long-term holding for investors (now pricing in very negative sentiment on forward trends) with several ad revs growth levers (video ads, Instagram ... ) and large pools of opportunities around eCommerce, messaging, and off-platform advertising & media," Sheridan wrote. Shares of Alphabet also began a decline on slowing revenue growth concerns before the election and are down almost 10 percent from a record $839 a share. "We see potential for upside on improved mobile search & YouTube monetization & continued cost management balancing against the most promising long-term initiatives," Sheridan wrote. For these internet stocks, UBS ultimately sees Trump policies positively affecting the space. "On issues that President-Elect Trump might tackle, our stocks seem most positively positioned for any tax repatriation moves (most have overseas cash & current prices show little value ascribed to it)," UBS said.

Presidential elect Donald Trump

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"During the election, many of our large cap names (AMZN, GOOG, FB) were targeted by the President-elect & investors are struggling to determine the ramifications on antitrust policy, privacy/data in enterprise/consumer, net neutrality & taxation," UBS Internet analyst Eric Sheridan wrote in a note to clients Monday. "Among large cap names, we continue to reiterate our top recommendations (in order) for FB, GOOG, BABA, PCLN & AMZN (though fully acknowledge that forward investment curves & the election results may overhang those shares until Q4 earnings season)."

Shares of Facebook and Google-parent Alphabet are down 5 percent and 6 percent, respectively, since the election. Amazon and Netflix (which Sheridan does not cover) are down more than 8 percent each since Trump's win.

FANG stocks since election

Source: CNBC.com

Here's the real reason why Sheridan, one of the top-ranked analysts in the space, thinks internet shares are falling and why they can be bought at these levels.