Bernstein’s got a new strategy for trading internet stocks following a brutal year for the sector. To be sure, shares of many popular names have rebounded off their lows in recent weeks, but the tides could shift as the yield on the 10-year pushes higher and fears of a hawkish Federal Reserve mount. Over the last two and a half months, the group of internet stocks watched by Bernstein has rallied 11% from June’s low, with higher beta and heavily shorted growth names outperforming. At the same time, multiples have come down, with the firm’s median 2-year EV/Adjusted EBIDTA multiple down from 28 times to 14 times. Despite these trying times, Bernstein expects continued healthy growth over the next twelve months, albeit at a softer rate than pre-pandemic. “In other words, the stocks have de-risked significantly,” wrote analyst Nikhil Devnani in a note to clients Wednesday. “However, it’s also hard to argue that we’re fully pricing in the downside case, as Street models continue to embed decent growth, and we tend to see multiples bottom lower when full fear is being priced in.” Amid this backdrop, Bernstein is taking a selective stance on the sector going forward. “Our preferred playbook is to stick with market leaders in fast-growing categories, and companies that we think can emerge from this period as better businesses — namely, Uber , DoorDash , and Etsy ,” Devnani wrote. Shares of ridesharing giant Uber have toppled about 30.4% since the beginning of the year as investors move out of growth stocks. That said, shares are up more than 24% this month on the back of strong quarterly results . Bernstein believes continued EBITDA improvement will serve as a catalyst for the stock going forward. But Uber isn’t the only ridesharing stock Bernstein is betting on. The firm also expects Lyft to experience margin expansion and strong growth over the next year although it has more confidence in the trajectory for Uber going forward. “Relative to peers, Uber offers above-average growth and margin expansion, the right combination for this market,” Devnani wrote. “Despite another solid quarter, rideshare remains one of the most crowded shorts in the group per our Quant team’s analysis, leaving room to surprise to the upside if the industry can execute well.” Other strong internet performers since mid-June include Amazon and Pinterest . The firm expects downside ahead for names like like Wayfair and Zillow as the housing cycle softens.
