Facebook, Alphabet and Twitter are among the worst internet stocks for investors right now. These are the best, says Citi.

“Against a backdrop of stepped-up regulation, geopolitical tensions and yet to be fully contained COVID-19 cases, we believe the internet sector will remain one of the more attractive options in global portfolio allocation given technology innovation and scale efficiency, and as investors weigh growth potential vs. risks,” said Citi’s Global Internet team, in a recent conference call with clients.

But not all of those stocks are a sure thing. U.S. analyst Jason Bazinet notes that investment banks and institutional investors are “just too bullish” on the strength of advertising dollars going forward for U.S. internet stocks. After a big growth rebound from the second quarter of 2020, Wall Street banks see even stronger ad growth going forward — $107 billion this year and $70 to $75 billion in 2022 and 2023, he said.

While the institutional investors credit that growth to a “new era of higher ad intensity for every dollar of economic activity,” Bazinet says it’s really down to a rebound in economic activity, but that e-commerce has “already rolled over.” For that reason, he isn’t recommending investors buy Google parent Alphabet
GOOGL,
Facebook
FB,
Twitter
TWTR,
Pinterest
PINS
or Snapchat parent Snap
SNAP.

“We think investors would be far better served to buy Amazon
AMZN
where we’re just a few quarters away from locking those difficult comps, and the stock has sort of underperformed because of those difficult e-commerce comps,” says the analyst.

He also highlights an under-the-radar segment that plays into that advertising, with companies like IronSource
IS
or AppLovin
APP
that are “just thriving” in the area of mobile game advertising. Wall Street estimates aren’t too high on the sector either, he says.

Citi also came up with a few China picks, as analysts weighed on the regulatory pressures the tech sector has been seeing this year. With e-commerce a key cog in the domestic consumption wheel, it’s probably least at risk from Beijing moves, said analyst Alicia Yap. That said, online gaming is a riskier subset and least likely to find government support because that spending doesn’t recirculate back to society, only to companies.

Citi’s top China picks include buy-rated e-retailer JD.com
JD,
“because it still has the user growth story” for active transaction users, and is one of few companies likely to see margin improvement trends in the coming year.

Citi also recommends Baidu
BIDU,
which Yap sees as less exposed to regulatory headlines. The company is also being granted a few smart city projects — a government aim to use technology to improve urban infrastructure and services. “That should demonstrate Baidu’s ability on ensuring the protection of data transfer and data storage, etc.,” said Yap.

Elsewhere, analyst Brian Gong said regulatory pressure probably won’t hit China video-sharing website Bilibili
BILI
too bad. He’s positive on the stock “thanks to its healthy ecosystem, continuous growth on a user scale, and the decent potential on monetization.”

Other picks include Europe’s Delivery Hero
XE:DHER
and Just Eat Takeway
GRUB,
and mutilnational conglomerates Prosus
PROSY
and Yandex
YNDX
out of Russia.

The buzz

The Senate is due to vote Thursday on legislation that would narrowly avoid a government shutdown by keeping it funded into early December.

Federal Reserve Chair Jerome Powell will testify to a House panel on COVID-19 relief at 10 a.m. Eastern.

On the data front, weekly jobless claims rose by 11,000 to 362,000, while second-quarter gross domestic product was revised up slightly to 6.7% from 6.6%. In China, the official purchasing managers index contracted for the first time since early 2020, as the economy faces a power crunch and a property downturn.

Pharmaceutical group Merck & Co.
MRK
said it has agreed to acquire Acceleron Pharma
XLRN,
which focuses on treating rare diseases, in a deal with an equity value of $11.5 billion.

AstraZeneca
AZN

UK:AZN
and Oxford University’s COVID-19 vaccine, showed 74% efficacy at preventing illness in a big, late-stage trial in the U.S., Chile and Peru.

Virgin Galactic
SPCE
shares are surging after the space-tourism company announced the end of an Federal Aviation Administration probe into its test flight with founder Richard Branson on board.

Longtime Tesla
TSLA
bull Chamath Palihapitiya said he cashed out of the electric-car company “in the past year or so” in favor of new investment opportunities.

Rapper Kanye West’s “perfect hoodie” sold out within hours at retailer Gap
GPS,
and is now showing up on eBay, for well over the original $90 price tag.

Broadway hit “Aladdin” was canceled Wednesday night after breakthrough COVID-19 cases were reported among the cast, a day after the show reopened.

The markets

Major stock indexes
DJIA

SPX

COMP
are mostly higher as the quarter comes to a close, and the month, with European equities
XX:SXXP
getting a lift and Asian stocks mostly higher. The dollar
DXY
has eased off some, which is giving gold
GC00
a boost, and oil prices
CL00

BRN00
have turned lower.

The chart

Are U.S. households overdoing that stock allocation? In a note to clients, JPMorgan strategist Nikolaos Panigirtzoglou noted a fresh record high for that in a recently released second-quarter U.S. Flow of Funds report.

“This Flow of Funds metric shown in Figure 7 shows clear overextension among U.S. households in terms of their equity allocation, thus leaving them vulnerable in a risk scenario where the previous uptrend in equity markets starts reversing,” said Panigirtzoglou.

Random reads

Army vet Eugene Bozzi says he’s trying to trying to adjust to life in the limelight after catching an alligator in a trash can.

A fire devastated an Edinburgh cafe used by J.K. Rowling to write her early “Harry Potter” books, but her favorite table miraculously survived.

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