This analyst says Uber, Netflix are the top tech stocks to buy right now

Mark Mahaney, Evercore ISI Senior Managing Director & Head of Internet Research, joins Yahoo Finance Live to discuss his top stock picks in the second half of 2021 and weigh in on the outlook for the tech sector.

Video transcript

MARK MAHANEY: And there have been ebbs and flows. And I forget which is the positive and which is the negative. I think the ebbs, you know, the companies that have had really strong performance this year have been the ad names, you know, Google and Facebook. They had revenue growth acceleration. They had easy comps because of COVID.

But they were also dramatic beneficiaries of COVID. And then you had a lot of small businesses starting up. And they were advertising aggressively on both of these sites. And so, you know, they've been outperformers. They've been part of the big tech outperformance group.

There have been a few laggards however, and Amazon has been one of them. So, of the biggest tech names, you know, you've had the outperformance in your Microsofts, and in your ad names, and kind of middling performances in your Apple, and underperformance, I'd argue, in the case of Amazon. Now, they are getting into-- they're facing tough comps because they were clear early beneficiaries of COVID.

And then there's questions about, obviously, a major founder change. That's always a question. I'd love to look for founder-led companies. Bezos was phenomenal with this company.

The open questions about how well Andy Jassy will do, not maybe near-term, but long-term. So, there's a couple of other issues around Amazon. But we think they'll come out of the crisis, as Google and Facebook did out of the COVID crisis, probably structurally stronger in their advertising business, in their cloud business, and almost certainly in the retail business.

And then finally, there's Netflix, which has also underperformed as one of our top picks, but it's underperformed. They were an early COVID beneficiary, then they've had problems with their content slate in the first 1/2 of this year. Missed some subscriber numbers. But the stock's recently started to rally and it's broke through the all-time highs. I think there's still another leg of growth to go for it.

And just to encapsulate all that. Our top picks. We go Uber first. Amazon second. Netflix third.

BRIAN SOZZI: Mark, on Amazon, what's your price target, and when do you think the stock starts to outperform, and what would trigger that?

MARK MAHANEY: Yeah, you're asking the right question, Brian, because the stock, you know, gapped up dramatically at the beginning of the COVID crisis in the middle of last year to the third quarter of last year. And it's really gone flat line. It's flat lined since then. So, it's waiting for an unlock.

And I think in cases like this, a good asset like this, valuation by itself probably does the trick as frameworks get forward into 2023. Amazon won't stay at this stock price, but the market is also concerned near-term. The stock was starting to really work, and then they hit into this third quarter guidance, this outlook for margins coming down.

And in a report we did yesterday, I think Amazon is going into another investment cycle, particularly related to retail infrastructure, distribution. They're expanding their capacity, distribution capacity, by more in the last two years, 2020 and 2021, than they did in the entire 10 years prior. So, Amazon is accelerating its infrastructure push and they're really trying to lock in one-day delivery, and what I call, super same day delivery.

Anyway, if they can show that they get a return on that, which I think they will, that you'll see accelerated spend from customers, and because they're getting packages from Amazon quicker. So, it'll be a broader range of packages people buy from Amazon. If they get that, I think investors will look beyond the near-term margin pressure and the stock will go up.

So, that's kind of what we're waiting for. And I think we'll get that unlocked sometime in the next 6 to 12 months.

JULIE HYMAN: Yeah, and that's a pattern that we have seen periodically over the past really over the life cycle of Amazon, in terms of stepping on the gas like that. I want to turn into Uber for a second, because boy, holy headline risk for something like an Uber, right, in terms of regulatory risk, in terms of now there's a legal battle in New York over fees, a delivery fee cap.

So, that's affecting Uber Eats. And the company's CTO just departed. If you look under the headlines, what are you seeing operationally from this company that makes it your top pick?

MARK MAHANEY: Yeah, well, you know, when I'm trying to come up with a contrarian ideas, being contrarian by itself isn't useful, but you know, I do think there are going to be some headwinds for the lead internet ad names. And I look at a name like Uber. I mean, this is a COVID recovery play now. COVID's taking the-- taking longer to recover from COVID than we had all hoped and thought, but there will be a COVID recovery at some point.

We're going to start getting more into regular work commutes, more social outings, and business travel is going to recover. It may not be this quarter, but it's probably sometime in the next year. And Uber is one of your best plays off that. In the meantime, you've got its food order delivery business, its delivery business, that's been a huge winner from the COVID crisis. And then as a company as a whole, kind of the unlock on the stock is I think they turn profitable in the back 1/2 of this year.

There's been so much-- I think that's really been the overhanging debate on Uber since its IPO. Can this business possibly turn profitable? And if they prove it, if they prove that in either the third or the fourth quarter of this year, I think that just creates a much greater and easier investment narrative for companies.

You're not betting on whether or not it will be profitable. You're betting on just how profitable they can be. That's a different stock.

And right now, the stock, I would argue, is very derated. The multiple here, I think, can double in a space of 12 to 18 months. I've seen stories like this. When a narrative changes and companies can turn profitable and show reaccelerating revenue growth, those kind of fundamentals can lead to a really powerful rerating in the stock.

So, I think it's just a lot of upside to Uber. Frankly, more than any of the other stocks. That's why it's our top pick.

BRIAN SOZZI: And Mark, lastly on Netflix. The stock's up 12% in a month. It's been on absolute fire. A lot of optimism on the content slate for them.

Now, they're holding an event, a fan only event on September 25. Do you think that event is a sell the news type of event or we might get another rally here in Netflix after that?

MARK MAHANEY: Well, I guess it depends on what they're going to do with the event. So, it's the first time they've ever done a content entertainment event like this. There's a three-hour webcast of all the content that they've got. There's been some previews out and all the actors that you know and love are going to be pitching their 70 new movies and series, including the next version of "Stranger Things," "Ozark," et cetera.

So, you know, at the end of the day, Netflix's stock moves on one and one metric only, subscribers. If this content slate is strong enough to cause the subscriber growth to reaccelerate, the stock goes higher from here. It goes from being an all-time high and it goes all-time higher. I think the content slate will be strong enough, whether this event makes it clear that that's going to happen or not, I don't know. I don't know how well it's going to be produced. And I don't know frankly exactly what they're going to talk about.

But our thesis is, we like the stock, even though it's broken out. We like the stock still because we think there's more room on the multiple on the stock. And I think if the company can show people that they're back to pre-COVID like growth rates, I think that's good enough, and I think the shares go higher.

JULIE HYMAN: It's funny. I don't recognize a lot of the stuff that we're showing, in terms of video for Netflix stuff coming. I'm excited about the new Adam McKay movie that they just released a trailer for recently. But I'm already subscribed. So, that does Netflix no good. Mark Mahaney, it is always good to catch up with you. We will check in with you hopefully very soon.