UBS says some companies in tech, media, and telecom are benefiting from a “megatrend” that means they have a lot of untapped potential even if they’ve made strong runs in 2020.
Bhanu Baweja, the chief strategist at UBS Investment Bank, says these companies can benefit from the growing shift away from commodities and toward technological services.
Combining those trends, Baweja and UBS identified companies that have long-term potential and upside of 20% or more based on the firm’s 12-month price targets.
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You know the story: There’s an e-commerce and work-from-home revolution happening, and it’s sending certain types of tech stocks skyward.
But investors have had three or four months to absorb that truth by now. Is there really that much promise left in those new-world companies? According to UBS, the answer is “a lot,” especially for people who are looking further into the future.
Bhanu Baweja, the chief strategist at UBS Investment Bank, ties that into one of his group’s seven “megatrends of the future.” The idea is that some companies in media, telecom, and technology will be long-term winners as virtual services replace companies that make and sell physical commodities.
“It’s a very strong theme that has lasted a long time and will probably accelerate from here from this major growth shock,” Baweja said in a video chat posted on July 27.
On the same video call, Eric Sheridan, UBS’ head of internet research, said that while a few companies like Netflix and Spotify have risen to rich valuations, many other companies that will benefit from that shift are still underappreciated.
“There’s still a lot of investor skepticism over the sustainability of these trends on the other side of COVID-19,” he said. “Other large tech names that are leveraged to either private computing or media consumption or digital advertising, we think, still have upside both on operating estimates and on valuations.”
Sheridan and Navin Killa, who covers Asian telecom, media, and internet companies, say that the online shopping and remote work trends will keep growing even after the current crisis ends, and they’re far from exhausting their potential.
“You basically have had four years of e-commerce penetration in Europe and the US in the last eight to ten weeks,” said Sheridan. He added that the shift to e-commerce will continue at more or less its previous rate from that much higher starting point.
Baweja elaborated in a recent note to clients about the ways the shifts will affect other parts of global tech and communications.
“E-commerce penetration keeps rising, even after the lockdown had begun to be lifted, with the strongest growth expected in un- or under-penetrated segments,” he said. “The adoption of artificial intelligence, augmented reality, online collaboration and communication tools, and cloud technologies is set to rise also.”
Familiar names like Microsoft and Nvidia stand to benefit from those trends, but Baweja and UBS are also identifying some companies who marry that long-term potential …read more
Source:: Business Insider