We recently compiled a list of the 8 Best Communication Stocks To Buy According to Analysts. In this article, we are going to take a look at where NetEase, Inc. (NASDAQ:NTES) stands against the other communication stocks.
The communication sector seems to be performing well through this year as the sector ETFs are slightly outperforming the broader market. While XLC and VOX are up over 25% year-to-date as of October 17, the S&P has gained slightly over 23%. Chris Grisanti, chief market strategist at MAI Capital Management also sees significant opportunities in the tech and communications sector despite him being a value investor.
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He told CNBC on October 17 that the economy appears to be in very strong shape, with positive earnings reports from financial companies. Economic indicators are looking solid, and the upcoming election could have a positive effect regardless of the outcome. Moving forward, the strongest earnings are likely to come from technology and communication stocks, despite them typically being outside value-focused investments.
Adapting to Consumer Behavior in Media and Telecom
According to PwC’s Media and Telecommunications: US Deals 2024 Midyear Outlook, media and telecommunications deal activity remained subdued due to high interest rates and uncertain regulations, with deal volumes declining despite a slight rebound in values in 1H 2024. Consumer preferences are shifting towards short-form, user-generated content platforms like TikTok, where influencers play a significant role in attracting brand partnerships. Streaming platforms are evolving through bundling and partnerships to manage rising content costs while improving subscriber retention.
AI, especially generative AI, is increasingly influencing content creation and ad tech, which are making campaigns more efficient and optimizing ad spending. Private equity investors are showing renewed interest, especially in consumer-focused deals, although regulatory obstacles and privacy concerns continue to complicate the market. As companies navigate these challenges, maintaining a strong consumer value proposition is crucial to retaining subscribers and driving growth.
Our Methodology
For this article, we identified over 40 communications services stocks with a market cap above $10 billion through the Finviz stock screener. Next, we narrowed our list to 8 stocks most favored by analysts. We listed the stocks in ascending order of their average price target upside as of October 17. We also mentioned the hedge fund sentiment around each stock which was taken from Insider Monkey’s Q2 database of 912 elite hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Two gamers enjoying an immersive experience playing together online via their gaming console.
NetEase, Inc. (NASDAQ:NTES)
Average Price Target Upside: 42.01%
Number of Hedge Fund Holders: 35
NetEase, Inc. (NASDAQ:NTES) is a provider of internet and gaming services, known for creating premium content. It operates a wide range of popular mobile and PC games, both in China and globally. It has one of the largest internal R&D teams for mobile, PC, and console games.
The company integrates culture and education into its games and aims to create a more engaging and informed world. In addition to gaming, it also has key subsidiaries including Youdao, an intelligent learning platform, Cloud Music, a popular online music service, and Yanxuan, its private label lifestyle brand.
NetEase (NASDAQ:NTES) new releases have been quite popular among the masses as the multiplayer game, Once Human, saw over 230,000 peak users on Steam, while Naraka: Bladepoint Mobile hit number three on the iOS grossing chart in the second quarter. Established titles like Fantasy Westward Journey also performed well, achieving record-high quarterly revenue.
The company continued to improve its gaming portfolio, with new updates to Justice Mobile and future releases like Where Winds Meet and Marvel Rivals. The company remains committed to expanding its global reach through partnerships and innovative content.
On October 14, NetEase (NASDAQ:NTES) announced Destiny: Rising, a free-to-play mobile sci-fi RPG shooter set within an alternate timeline of the Destiny universe, licensed by Bungie. This new game offers players a rich narrative set in the post-Dark Age era, with a variety of playable hero characters, dynamic gameplay modes, and a blend of single, co-op, and multiplayer experiences.
NetEase (NASDAQ:NTES) tops our list of best communications stocks to buy according to analysts. On October 7, The Fly reported that Macquarie raised its price target for the company from $120 to $125 while maintaining an Outperform rating. The firm expects more growth for China’s internet sector and noted that stock valuations are still at half of Q1 2023 levels despite improved fundamentals.
The firm highlighted that China’s economic policies and careful corporate strategies boost earnings potential for 2025. Macquarie also pointed out that local services, e-commerce, and travel sectors offer strong value at a discount.
The company is also one of the most profitable gaming stocks with a TTM net income of $4 billion and a 5-year net income CAGR of nearly 27%.
Polen Capital stated the following regarding NetEase, Inc. (NASDAQ:NTES) in its first quarter 2024 investor letter:
“NetEase, Inc. (NASDAQ:NTES) is one of the top players in China’s video game industry and saw decent revenue growth in 2023, particularly in its games division, with profit growth close to 20%. The stock also continues to recover after gaming restrictions announced last quarter in China were not nearly as bad as first feared.”
Overall NTES ranks 1st on our list of the best communication stocks to buy according to analysts. While we acknowledge the potential of NTES as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NTES but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.