Citigroup goes all in on the 'FANG' bet

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For the first time in six years, Citigroup is going all-in on four of the best-known internet stocks.

The firm said Monday it now has a “buy” rating on Facebook, Amazon, Netflix and Alphabet (formerly called Google), which are often referred to by the acronym “FANG.” These technology stocks led a record-breaking bull run of the last nine years.

They began stumbling in the fourth quarter of 2018 though, dragging down their sky-high valuations and presenting a buying opportunity, according to Citigroup.

“The recent correction combined with continued strong fundamentals has resulted in Internet valuations, on average, currently being at their lowest premium to the markets in at least 5 years,” Citigroup analyst Mark May said in a note to clients Monday.

With internet valuations now near historical averages and some at historical lows, earnings expectations largely reset, and with “Citi’s equity strategists being modestly bullish,” May said the group is “selectively constructive on Internet stocks as we begin the New Year.”

Facebook is down more than 20 percent year over year, while Alphabet has dropped about 6 percent. Amazon is up 23 percent in the same time period, while Netflix has surged 50 percent.

Amazon is the firm’s top pick of the group, based on underlying trends at Amazon Retail being “actually quite strong.” Citi has a $2,125 price target on the stock, roughly 30 percent above where it was trading on Monday. Netflix is the firm’s second pick, with a $400 price target.

“All-in, we believe Internet topline fundamentals remain strong,” May said.

Citi raised its rating on Facebook, Twitter and brought Snap from “sell” to “neutral.” The firm lowered ratings on Expedia, Yelp, Ebay and Grubhub.

May said the firm generally favors large-cap Internet over small-mid sized tech companies, which he said will likely continue to face competitive pressure.

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