The Zacks Analyst Blog Highlights: Amazon, eBay, AutoBytel, E-Commerce China Dangdang and Avago Technologies

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May 19, 2014, 09:30 ET

CHICAGO, May 19, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Amazon (Nasdaq:AMZN-Free Report), eBay (Nasdaq:EBAY-Free Report), AutoBytel (Nasdaq:ABTL-Free Report), E-Commerce China Dangdang (NYSE:DANG-Free Report) and Avago Technologies Limited (Nasdaq:AVGO-Free Report).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Friday's Analyst Blog:

Should Amazon Investors Worry About Alibaba?

Amazon (Nasdaq:AMZN-Free Report) and Chinese rival Alibaba have been in the news a lot since the Chinese ecommerce giant decided to go for a U.S. IPO.

But while Amazon is primarily a retailer, i.e. it buys and sells goods and services directly; Alibaba is a marketplace that helps buyers and sellers to connect. It also generates advertising revenues from its retailer partners based on the number of views. Therefore, Alibaba's revenue model is closer to eBay's (Nasdaq:EBAY-Free Report) than Amazon's. And while Amazon necessarily rivals traditional retailers, the Alibaba (or eBay) model treats them as allies.

This means that Amazon's model requires more work and higher expenses. Amazon needs to directly woo buyers, maintain warehouses and suitable inventory, ship products in record time and ensure that the buyer gets the best value for money. Amazon tries to increase stickiness of customers with its aggressive pricing strategy and Prime subscription model. The only reason it works is because of the significant scale of operations.

Because of the high cost of operation, Amazon needs high volume growth in order to succeed. Alibaba's strategy for capturing volumes is subtle. Although it's early days yet, Alibaba is taking pains to maintain a very low profile. It is downplaying the fact that it is a Chinese company (this can upset people because it will gain access to their credit card information). Instead, it is investing in small U.S. ecommerce companies like ShopRunner that could work as its American front. It has also got itself a very American-sounding store brand: 11 Main, which appears to be a high-end niche brand according to the description. So Alibaba is Americanizing and looking for niches where Amazon doesn't dominate in order to chip away at Amazon's market share.

The IPO filing has put the two companies in sharp contrast since Alibaba generates significantly higher margins than Amazon. It will be an interesting fight since both companies are giants in their own right and not averse to innovation. But Alibaba seems like a better place to put your money, at least for now.

Amazon shares carry a Zacks Rank #3 (Hold), similar to peers eBay, AutoBytel (Nasdaq:ABTL-Free Report) and Blue Nile. But E-Commerce China Dangdang (NYSE:DANG-Free Report), which has a Zacks Rank #2 (Buy) is another Chinese ecommerce company worth considering.

Avago Promoted to Strong Buy

On May 15, Zacks Investment Research upgraded leading analog semiconductor manufacturer Avago Technologies Limited (Nasdaq:AVGO-Free Report) to a Zacks Rank #1 (Strong Buy) from a Zacks Rank #2 (Buy) largely on the back of strong long-term fundamentals buoyed by the acquisition of LSI Corporation.

Avago's share prices have steadily been on the uptrend over the past one year and have more than doubled for a healthy year-over-year return of 100.3%. The stock is currently trading at a forward P/E of 22.3x and has long-term earnings growth expectation of 15.4%.

Why the Upgrade?

Avago recently completed the acquisition of LSI for $6.6 billion in cash. Avago acquired LSI to diversify its existing business line from wired infrastructure, wireless and industrial businesses into the storage chip market. The strategic move was aimed at augmenting its revenues, as the industry braces for more consolidation amid a challenging macroeconomic environment.

With annual revenues of approximately $5 billion, the combined company is expected to be one of the behemoths in the semiconductor industry, offering a complementary yet diversified product portfolio to a wider range of customers. Leveraging on economies of scale, Avago is expected to benefit from rapid increases in data center IP (Internet protocol) and mobile data traffic, to emerge as the undisputed leader in the enterprise storage market.

In addition to cost synergies from a combined resource pool as the cost of designing and building semiconductors rises, the acquisition is likely to improve the operating margin of the combined company, creating greater scale to further drive innovation into the datacenter. The transaction is expected to be accretive to Avago's free cash flow and recurring earnings, leading to annual cost savings of $200 million by fiscal 2015.

With the acquisition, Avago has replaced LSI on the S&P 500 after the close of trading on May 7. This has further raised investor confidence, who seek to own blue-chip stocks.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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