“This sector is (largely) about innovation over infrastructure…code over cement…and we think this has been and will continue to be a good recipe for investors…and the economy,” said RBC analyst Mark Mahaney in a recent note posted by Alex Eule of Barron’s.
Since 1999, online sales have grown at 20% compound annual growth rate while brick-and-mortar stores have actually seen sales dip. According to the US Department of Commerce’s latest quarterly retail e-commerce report, 7.5% of all U.S. retail sales are being done via e-commerce, so the industry has a lot of room to grow.
ETF investors can also take the sector-specific approach through the Amplify Online Retail ETF (NasdaqGM: IBUY), which targets the performance of the EQM Online Retail Index. IBUY is comprised of global companies that generate at least 70% of revenue from online or virtual sales.
“Mahaney sees 10 factors that could continue to drive Internet stocks higher, including the still-ongoing behavioral shift to mobile, the continued rise of cloud-based computing, the likelihood of more acquisitions, a surge in Internet-based video, and more transparent earnings reports,” according to Barron’s.
The analyst’s favorite Internet names are Amazon, Facebook (NASDAQ: FB) and Netflix (NASDAQ: NFLX). Those stocks combine for about a quarter of FDN’s weight. PNQI, the PowerShares Internet ETF, allocates nearly a quarter of its weight to those names as well.