A Pair of Lesser-Known Internet Stocks to Consider

 | Apr 18, 2016 | 1:00 PM EDT
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Stock quotes in this article:

egov

,

angi

The Internet is a big place, and a number of companies have carved out niches that are both profitable and dynamic. Alphabet (GOOG) and LinkedIn (LNKD) are just a couple of the major success stories. But other, lesser-known companies have done well too, and they could make excellent additions to your investment portfolio.

One of these is NIC Inc. (EGOV), which designs and helps maintain government websites and provides other e-government services. Its sole market is the public sector, including federal, state and local agencies. For example, the company provides portals that allow automobile owners in various states to register their vehicles online while other portals enable hunters and fishermen to obtain required licenses online.

To choose stocks to recommend, I rely on automated strategies I created based on the thinking of some of Wall Street's greatest minds. One of these strategies, which mirrors the thinking of Warren Buffett, points to NIC for its well-established position in the e-government market, earnings per share, which have increased in each of the past 10 years, the lack of debt, an d high returns on both equity and total capital. In addition, this strategy projects an annual return over the coming decade for NIC of a strong 20.3%.

While NIC focuses on the government Internet market, Angie's List (ANGI) targets the consumer Internet market. It lists providers of local services, such as auto mechanics, health care providers and home improvement companies, all of whom Angie's list has done a background check. In addition, user reviews are verified and charged a membership fee to use Angie's List.

A strategy I based on the writings of James P. O'Shaughnessy recommends this recommender of local services. According to this strategy, the market cap and earnings per share have improved in each of the last five years, and it has a desirable price-to-sales ratio (which indicates a well-priced stock). Among those companies meeting the above criteria, the strategy then picks the top 50 based on relative strength, which measures how well a stock has performed during the past year relative to the overall market. Angie's List makes it into this top-50 cohort.

Angie's List has only a $457 million market cap, so if you see the stock spike up, be patient and let it return to its natural level before buying.

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