As the resurgence of COVID-19 cases globally leads to the reimposition of lockdowns and social distancing mandates, the internet industry is gaining traction. As the rapid spread of the Delta variant has pushed the number of infected people and hospitalizations to a six-month high in the United States, internet-based platform providers are well-positioned to benefit from the resumption of increased remote activities. The continued digital transformation of almost all industries has also fed into optimistic investor sentiment regarding the internet industry.

Given the increasing reliance on technology, the recently approved $1 trillion bipartisan infrastructure bill has allocated approximately $75 billion to the internet industry. Furthermore, the government plans to invest heavily in technology segments, such as broadband, cybersecurity, and electric vehicles. The global internet services market is expected to grow at a 15.4% CAGR  over the next five years to hit $1.40 trillion by 2026.

Thus, if one plans to invest $2,500 right now, we think betting on fundamentally sound internet stocks CarGurus, Inc. (CARG) and Blucora, Inc. (BCOR) could be rewarding. These companies’ robust growth prospects should help their shares deliver substantial returns in the coming months.

CarGurus, Inc. (CARG)

CARG is an online platform that matches buyers and sellers of new or used cars. It leverages advanced technology-based data analytics and search algorithms to match buyers and sellers in the same region. In addition to the U.S. market, the company has operations in Canada and the U.K. CARG is based in Cambridge, Mass.

On July 30, CARG launched Max Cash Offer, which allows sellers to sell their vehicles entirely online. Also, the new offering matches consumers with the highest offer available from thousands of dealerships in the CARG network. This should strengthen CARG’s dominance in the used car industry. A month earlier, the company launched an advertisement campaign on television to address the lack of Canadian consumers’ lack of confidence in in buying used cars.

In the second quarter. ended June 30, CARG’s revenue increased 129.8% year-over-year to $217.75 million. Its non-GAAP consolidated net income increased 152.6% from the same period last year to $53.80 million. Its  non-GAAP operating margin rose six percentage points from the year-ago value to 32%, and its non-GAAP EPS improved 115.8% from the prior-year quarter to $0.41.

A $1.28 consensus EPS estimate for its fiscal year 2021 indicates a 19.6% increase from the same period last year. Likewise, the $807.42 million consensus revenue estimate for the current year reflects a 46.4% increase year-over-year. Furthermore, CARG has an impressive earnings history; it topped consensus EPS estimates three out of the trailing four quarters. The stock has gained 1.1% in price over the past five days, outperforming the benchmark S&P 500 index’s 0.7% returns over this period.

CARG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

CARG has an A Quality grade and a Value grade of B. In the 73-stock Internet industry, it is ranked #5.

In total, we rate CARG on eight different levels. Beyond what we stated above, we have also given CARG grades for Growth, Momentum, Stability and Sentiment. Get all the CARG ratings here.

Blucora, Inc. (BCOR)

Cambridge, Mass.-based BCOR delivers technology-based financial solutions through two segments—Wealth Management and Tax Preparation. The company’s clients are consumers, small business owners, financial advisors, certified accounting firms, and tax professionals.

On August 2, BCOR’s wealth management segment Avantax announced  plans to acquire Headquarters Advisory Group, LLC. The acquisition is expected to close in the current quarter and should give BCOR access to Headquarters Advisory’s $1.10 billion in  client assets (as of June 30). Also, this acquisition is expected to expand Avantax’s nationwide footprint and accelerate its growth.

On August 9, BCOR’s sizable stockholder, Ancora, wrote a letter to its board of directors to highlight the need to run a credible review of strategic alternatives for TaxAct. Leading portfolio management company Ancora expects  the capital earned from the sale of TaxAct could be used to fund BCOR’s primary wealth management segment Avantax’s growth and reduce the company’s debt burden.

BCOR’s net sales increased 57.8% year-over-year to $254.31 million in its fiscal second quarter, ended June 30. Its Non-GAAP net income rose 1,314.3% year-over-year to $63.12 million, while non-GAAP EPS improved 1,322.2% from the year-ago value to $1.28.

A $1.64 consensus EPS estimate for its fiscal year 2021 reflects a 46.4% improvement from the same period last year. The company’s revenue is expected to increase 14.8% from the same period last year to $867.05 million in the current year. In addition, BCOR surpassed the Street’s EPS estimates in three of the four trailing quarters, which is impressive. The stock has gained 37% over the past year to close yesterday’s trading session at $16.12.

It’s no surprise that BCOR has an overall B rating, which equates to Buy in the POWR Ratings system. In addition, the stock has a B Grade in Growth, Value, Momentum, and Sentiment. Also,  it is ranked #6 in the Internet industry.

Click here to see additional POWR Ratings for BCOR (Stability and Quality).

CARG shares were trading at $27.88 per share on Tuesday morning, up $0.37 (+1.34%). Year-to-date, CARG has declined -12.13%, versus a 20.55% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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