• by Joe Mandese  @mp_joemandese, January 6, 2012

The influential Wall Street equity research team at J.P. Morgan released a 2012 outlook for the online industry saying it “remains positive on the Internet sector,” and expects the medium to “be driven by strong secular growth, increased online accessibility through smartphones and tablets, and strengthening trends around social, local and video.” That said, the securities firm said its favorite picks for the year are not the Internet’s ad-supported biggies, but major e-commerce players Amazon and Priceline.

“Amazon and Priceline are our top picks for the year,” opined lead Internet analyst Doug Anmuth in a note to investors, adding: “We continue to like Google at current levels, but believe the risk/reward is now more favorable in these other large-cap names.”

While J.P. Morgan did not tout any specific online advertising players, it is positive on the overall sector, noting that online ad spending will continue to be driven by display and is expected to rise about 16% in 2012.

“We expect online advertising to continue to see strong growth, driven by increasing consumer consumption of digital media and increasing allocations of branded ad budgets online,” the report reads, adding: “Consumers have greater touchpoints to digital media through the rapid adoption of mobile devices and tablets, supported with higher engagement trends through the use of social media and networks. We believe consumer time spent online will continue to increase, and the online advertising dollars to follow.”

The equity research team projected that display ad spending would continue to expand faster than search through 2016, driven mainly by brand advertisers.

“We think brand advertisers are increasingly becoming aware of the effectiveness of engaging customers online. Ad formats have been increasing in variety and richness, and online media consumption is accelerating through social networks, online videos, and mobile devices,” the report concludes.