Further Weakness Seen In Web Stocks -- Analysts
dailynews.yahoo.com
Wednesday August 4 6:54 PM ET
Further Weakness Seen In Web Stocks -- Analysts
By Franklin Paul
NEW YORK (Reuters) - Once high-flying magnets for investor funds, Internet stocks have fallen to
earth, and technical analysts do not see them soaring again in coming weeks.
Chartists, who forecast stock activity based on past price performance, say share prices in the hot Web sector -- a chief
catalyst behind Wall Street's surge earlier this year -- could fall through key levels of support.
''The best that can be said is that they are certainly overdone ... and coming down to some rather crucial levels,'' said
Elaine Yager, manager of technical analysis at Herzog, Heine, Geduld.
She noted that TheStreet.com's Internet Sector index, which tracks the performance of 20 Web companies, broke
through a crucial psychological support level of 500 Wednesday to trade at 492, down sharply from 824 earlier this year.
''I think the market needs to sort itself out and look to see if there are any fundamental trending changes going on that we
are unaware of, such as whether the dollar will continue to weaken,'' she said.
Some of the Web's best known and most influential names have in recent months surrendered jaw-dropping chunks of
their market value.
For example, shares of blue chip Internet company America Online Inc. (NYSE:AOL - news) eased 81 cents to $88
Wednesday afternoon, about half its highest level of the year, which was achieved in April. At $121.25 a share, down
$4.125, Web media company Yahoo! Inc. was trading at less than half of its all-time high.
And online auctioneer eBay Inc.'s shares dipped $5.25 to $79.125, down sharply from its year high of $234, reached just
four months ago.
Broad economic issues, as well as concerns about slowing growth and profitability, have dogged the sector, fundamental
analysts say. Rising interest rates could also detour the money flowing into the Web sector, where most companies are still
losing money.
Take Amazon.com Inc. The Internet's biggest retailer in July reported second-quarter revenues that nearly tripled, and set
its second stock split of the year. But its losses deepened to about $83 million in the period, and its stock, at $90.50, off
$4.375 on the day, has given up about $40 in one month and $130 since April.
The online sector's slump sheds light on an ongoing and intense debate about Web companies, whose virtual walls and
dynamic business models are admired, but whose stock performance has proven hard to track.
Fundamental analysts are now looking for the sector's blue chips to lead a rebound, as consumer interest in shopping and
online lifestyle management ramps up in the fall. ''We believe the biggest companies will continue to get bigger, which is
why we continue to recommend overweighting stocks like AOL and Amazon,'' said BancBoston Robertson Stephens
analyst Keith Benjamin.
He said he expects the leading stocks to reach new highs by year-end, as people spend more on the Web on everything
from concert tickets to banking fees.
Technician Yager also sees AOL as a leader, one whose stock could eventually rally. But for now, AOL's momentum is
carrying it lower.
''The trend (for AOL) is still down, with a projection around the 80 mark,'' she said, noting that it passed through an
important level at $89. ''AOL's stock would have to rise to $130-$145 to suggest that there is a move to a new bull
market for this stock.''
William Raftery, technical analyst at Salomon Smith Barney, noted that even a chartist must take a step back when
approaching the relatively new genre of companies.
''Let's not be too negative at this stage of the game,'' he said. ''We've got some further damage to be done, and then we
go through a healing process. But at some point, the better companies will come to the fore.'' |
