Article in SmartMoney & Dow Jones: item 1 of 2
August 18, 1999
Part Two: Institutional Darlings
By Paul R. La Monica
DID YOU EVER notice that film critics tend to pan most
of the movies the general public flocks to? There weren't
too many glowing reviews of the latest Star Wars
installment, but the movie has grossed more than $415
million at the box office.
Americans also seem to be ignoring the judgments of
the pros when it comes to Internet stocks. Individual
investors, it seems, can't get enough Net stocks -- even
though professional money managers, the folks whose
job is to pick stocks for diversified mutual funds, have
scorned many high-profile dot-coms.
You're not going to see Fidelity's fund managers, for
example, rushing to buy a "hot" Internet stock just
because a Wall Street brokerage firm initiated coverage
with a Strong Buy and issued an outlandish price target.
Few fund managers are willing to bet their reputations on an unproven company in a business that is
in its infancy.
That's not to say fund managers are all hopeless antediluvians who will
never embrace the Internet. Institutions have to be buying some Net
stocks, right? So what do fund managers like in this volatile and still
unfledged sector? We decided to check by screening for Internet
companies that have at least 30% institutional ownership. (The average
percentage of institutional ownership for the 6,374 stocks in the Zacks
database is about 35%.) Of the 137 Internet companies tracked by Zacks,
20 made the cut.
Missing from this list of institutional darlings are several
high-profile Internet companies. Yahoo! (YHOO) and
Amazon.com (AMZN) fell short of our 30% threshold.
Institutions own 23% of Yahoo and 26% of Amazon.
Another big-name e-commerce company, online
auctioneer eBay (EBAY), is even less admired by the
pros. Just 12% of the shares are owned by institutions.
Maybe all those site outages have scared fund
managers away.
Some Internet blue chips did make the list. Institutions
own more than half of America Online (AOL) and
Internet software company BroadVision (BVSN).
Mutual-fund managers have also taken a shine to Net
investment-holding company CMGI (CMGI) and
search-engine software developer Inktomi (INKT). But
we thought it would be interesting to take a look at some
of the lesser-known Net stocks that mutual-fund
managers have been scooping up. |
