Trading Nation

Stock that’s up more than 170% over the last year has more room to run, says technical analyst

Web 2.0 trade: Red-hot internet stocks are soaring, but the rally could fade

While investors were busy watching the rally in splashy FANG names, smaller internet players have surged.

Companies like GrubHub, Zillow, Angi Homeservices and IAC have posted double-digit gains this year, while one of the best performers, Etsy, has rocketed by as much as 112 percent.

Mark Newton, president and founder of Newton Advisors, only has eyes for one of the names.

"I like GrubHub technically. It's very attractive," Newton told CNBC's "Trading Nation" on Friday.

Shares of the online delivery and takeout company have climbed close to 64 percent for the year, the bulk of those gains seen during a massive February rally while the rest of the market sold off.

"It just recently this past Tuesday moved back to new high territory," said Newton. "It's not necessarily an ideal entry for those short term in nature, but I would certainly be a buyer really on any pullback down to near $112, $113."

GrubHub's relative strength index, a momentum measure, spiked to 72 to end last week as its stock scored another intraday record on Friday. A level above 70 indicates overbought conditions. A pullback to $112 would mark a nearly 7 percent drop from its all-time high of $120.07.

"Technically it's a very beautiful basing formation and it just broke out on decent volume so I like it for intermediate-term purposes," added Newton.

As for the rest of the group, Mike Binger of Gradient Investments is a skeptic.

"We don't own any of these smaller cap tech plays right now in the web 2.0 area," Binger said on Friday's "Trading Nation." "Frankly, outside of GrubHub, all of them have had spotty performance over the last couple of years. Their stocks have bounced around a lot."

Larger cap names outside of the FANG stocks Facebook, Amazon, Netflix and Google parent Alphabet look like more of a buy to Binger. He has identified potential in three growth areas — Chinese web companies such as Alibaba, financial-technology payments stocks like Visa and PayPal, and cloud software developers including Salesforce and Adobe.

"These names have a lot more consistent performance, they're appreciating on a rapid rate, too, and the valuations, although slightly higher than what we're looking at here in these web 2.0, I think it's worth paying a premium for," said Binger.

Alibaba is up 20 percent this year, Visa 19 percent, PayPal 17 percent, 36 percent and Adobe 46 percent.