Net stocks boom as summer
slips away
By R. Scott Raynovich and Gracian Mack
Redherring.com
September 4, 1999
Internet and tech stocks roared forward on Friday in a
dramatic seasonal shift that may spell the end of the
summer doldrums.
The initial surge in the markets --
which included a rise of 231.76
points (2.14 percent) in the Dow
Jones Industrial Average and a
108.87-point gain (3.96 percent)
for the Nasdaq Composite -- was
attributed to positive new
economic data that shows that
inflation is under control.
The U.S. Department of Labor reported that job
growth was not as robust as expected and that
average hourly earnings rose 0.2 percent vs. most
estimates of 0.3 percent. The unemployment rate,
meanwhile, dipped to 4.2 percent, matching
expectations. This data reduced the threat of inflation
and therefore the threat of interest rate hikes. Some
analysts, however, said the surge in technology and
Internet stocks was indicative of a psychological shift
among individual investors.
With fears of rising interest rates
abating, followers of Internet
stocks predicted that seasonal
momentum was building in the
market.
"What's happening is everybody
is getting ready for people to
come back from vacation and
having a new optimism," says Phil
Leigh, Internet analyst with Raymond James (NYSE:
RJF). "In July and August there was a malaise for
Internet stocks became of concern about interest rates
and valuations. I think now there's optimism that when
people come back from Labor Day, things will be
more optimistic."
Some analysts credited individual investors -- rather
than institutional investors -- with the market moves.
Many of Wall Street's professionals were out during
the traditional New York vacation week leading up to
Labor Day weekend, so it was a good time for the
little guy to take control of the market. "Give an
individual investor access to a thin market and he/she
will make it pop every time," says Dan MacKeigan,
Internet analyst at Friedman Billings Ramsey (NYSE:
FBR).
MR. BENJAMIN THE BULL
Many of the Internet bulls are preparing for another
run as the pre-holiday e-commerce season kicks in.
BancBoston Robertson Stephens Internet analyst
Keith Benjamin, in his weekly Internet report, says that
the sector may be entering a period of renewed
momentum.
"We expect the whole group will generally rise through
September, heading toward old highs by year-end,"
wrote Mr. Benjamin. "We expect investors to focus on
improving fundamental trends, particularly related to
back-to-school and holiday shopping. We've also
begun to hear of higher advertising rates, particularly
for targeted banners."
Mr. Benjamin pointed to this week's dramatic rise in
the Internet Capital Group (Nasdaq: ICGE) and
Fatbrain.com (Nasdaq: FATB) as evidence of
renewed vitality in the sector. ICG is up nearly 40
percent on the week and Fatbrain.com, a distributor of
digital texts, is up nearly 30 percent.
Mr. Benjamin wrote in his report, issued Friday
morning, that he also expects "some of the lagging
stocks to rebound" in the next few months. These
stocks include CMGI (Nasdaq: CMGI), Lycos
(Nasdaq: LCOS), and Ticketmaster
Online-CitySearch (Nasdaq: TMCS).
On Friday, CMGI rose $6.13 (7.6 percent) to
$86.25, Lycos added $3.63 (8.8 percent) to close at
$44.75, and TMCS gained $1.13 (4.6 percent) to
close at $25.63.
"We also want to stick with Yahoo (Nasdaq: YHOO)
as the group's leader," wrote Mr. Benjamin. "And
Amazon.com (Nasdaq: AMZN) could be the biggest
turnaround, in our opinion."
BACK-TO-SCHOOL SALES
PaineWebber's (NYSE: PWJ) James Preissler and
Raymond James's Mr. Leigh also subscribed to the
popular holiday e-commerce theories (see "Beginning
to look a lot like e-Christmas").
"The real momentum in the sector will start building
next week. E-commerce and the shopping season is
beginning," says Mr. Preissler. "More PC buying leads
to more e-commerce and transactions."
Mr. Leigh touts the prospects of America Online's
(NYSE: AOL)'s e-commerce strategy, saying the
company typically benefits from the fall quarter.
"Beginning Tuesday, people are going to put the
summer behind them," he says. AOL rose $5.75 (6.3
percent) to close at $97 on Friday.
There was bad news for some e-commerce stocks,
however. Amazon.com announced that its vice
president for logistics, Jimmy Wright, was retiring,
which raises questions about the company's warehouse
operations. Nonetheless, Amazon.com closed at
$62.44, up nearly 4 percent from yesterday's close.
SILICON ALLEY SHINE
Some of the stocks of companies located in New
York's Silicon Alley also participated in the rally.
DoubleClick (Nasdaq: DCLK) moved on rumors
circulated in chat rooms that it would acquire 24/7
Media (Nasdaq: TFSM), but experts weren't biting. "I
wouldn't put much weight in that," says Mr.
MacKeigan, who follows DoubleClick for Friedman
Billings Ramsey. "It's just that they are the industry
leaders and -- well, idle minds, you know."
Interestingly, shares in both companies climbed on the
gossip. On Friday DoubleClick closed up 4.7 percent
at $97.88, and 24/7 stock rose 12.3 percent to
$36.44. Conventional wisdom holds that the company
that announces it will acquire another declines in
short-term trading, and the price of the target company
moves up. But this is the turn of the millennium, not a
conventional time.
GRASS-ROOT RALLY
The Internet stocks carry their own momentum. And
after the morning announcement that interest rates
would not move higher, people just started buying.
About.com (Nasdaq: BOUT) jumped 11.3 percent to
a close of $39.50, partly because of the Friday
exuberance and partly because Bear Stearns (NYSE:
BSC) analyst Scott Ehrens said the day before that he
raised his rating on the Internet media company to Buy
from Attractive.
IVillage (Nasdaq: IVIL) also posted gains on Friday.
The company announced that it would relaunch its
women's network consumer health channel, now called
"allHealth.com," with such new partnerships as the
Massachusetts Medical Society, publishers of the New
England Journal of Medicine; Healthwise
Knowledgebase; Reuters (Nasdaq: RTRSY); and
heart expert and physician Dr. Dean Ornish. Investors
drove the stock up 50 cents (1.5 percent) to a close of
$35.
"We had light volume all week, and suddenly, people
at home -- not day traders or anything like that, but
individuals -- had nothing to do but buy," Mr. Preissler
says.
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