Raymond James analyst Aaron Kessler recently conducted an investor survey to find their opinion on what they expect from large-cap and small cap Internet stocks in 2014. Participants in the survey mostly included hedge funds and mutual funds. Overall, investors expect the S&P 500 Index to return about 8% this year. As the figure below shows, 8% of respondents said the index may go up by 16% or more, 36% said it will jump 10-15% in 2014. Another 28% expect the index to surge 6-10%. About 12% of respondents said the S&P 500 will remain flat, while another 4% are pessimistic, expecting the index to sink 1-5%. The S&P 500 index returned about 30% last year.
Best large-cap and small-cap Internet stocks
When asked about their opinion of large-cap and small-cap Internet stocks, most of them said large-caps are fairly valued, but small-cap stocks are overvalued. Among all respondents, 48% said large-cap Internet stocks are fairly valued, 26% found the overvalued, while another 26% thought they are undervalued. In contrast, 70% of respondents think small-cap Internet stocks are highly overvalued. Only 9% of respondents find small-caps undervalued.
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Which large-cap stock is going to outperform this year? Obviously Facebook Inc (NASDAQ:FB), say survey respondents. But 17% of respondents expect Amazon.com, Inc. (NASDAQ:AMZN) and Google Inc (NASDAQ:GOOG) each to outperform all others. When Raymond James asked participants to rank large-cap stocks on a scale of 1-5, Facebook Inc (NASDAQ:FB), Google Inc (NASDAQ:GOOG) and Amazon.com, Inc. (NASDAQ:AMZN) occupied the top three spots. But Twitter Inc (NYSE:TWTR), Netflix, Inc. (NASDAQ:NFLX) and LinkedIn Corp (NYSE:LNKD) were at the bottom.
But, as the chart below shows, responses were pretty mixed about small-cap stock outperformance. Shutterfly, Inc. (NASDAQ:SFLY), Zillow Inc (NASDAQ:Z), Pandora Media Inc (NYSE:P), and Mercadolibre Inc (NASDAQ:MELI) each were favored by 14.3% respondents. Trulia Inc (NYSE:TRLA), Angie’s List Inc (NASDAQ:ANGI) and Groupon Inc (NASDAQ:GRPN) were at the bottom of small-cap Internet stocks.
Internet stocks may be acquired this year
Survey participants said Yelp Inc (NYSE:YELP) is most likely to be acquired this year. About 43% respondents think Yelp Inc (NYSE:YELP) will become an acquisition target, 19% believe HomeAway, Inc. (NASDAQ:AWAY) will be swallowed up, while another 19% think Groupon Inc (NASDAQ:GRPN) is also a potential acquisition target.
Alibaba.com Limited (HKG:1688), which is expected to go public this year, is expected to be valued at about $180 billion by the end of this year. More than 31% of respondents said its valuation will touch $200 billion at the end of this year. About one-fourth expect it to surpass $225 billion, while another 25% think its market capitalization should be about $150 billion. Raymond James itself estimates the Chinese Internet giant’s valuation to reach $170 billion by 2015.
Amazon’s margins unlikely to exceed 6% in long-term
Amazon.com, Inc. (NASDAQ:AMZN)’s razor-thin profit margins have long been an issue of intense debate. The stock has soared amid expectations that its margins will improve over the long term. So, Raymond James asked participants about their expectations of Amazon.com, Inc. (NASDAQ:AMZN)’s long-term profit margins. About 71% respondents said its non-GAAP operating margins will never exceed 6%. Only 4.2% respondents said the online retailer’s long-term margins may surpass 11%.