PART 2
1. MARKET COMMENTARY AND OUTLOOK
>
> Another excellent week for high tech stocks. After a long weekend, investors
> are again in positive spirits and just as Ken Griffey, Jr. drives home run
> after home run out of the park, investors continue to drive internet stocks
> up and over the wall. The average Nasdaq listed stock was down almost 30%
> just recently and internet investors were the first to buy back in to the
> market. We apologize for the delay in our update. We have currently finished
> changing our location and have had to upgrade our computer network and
> internet connections to those of high-speed. We also apologize for the
> lengthiness of today's update. Please be patient. There is an abundance of
> news to go over. On Friday we saw weakness in the overall market as
> investors doubted the effectiveness of Japan's proposed tax cuts. It is
> clear that a greater solution will be needed to alleviate their financial
> problems. However, what is not clear is to what extent their problems will
> affect the U.S. economy. We would not be surprised to see at least a few
> analysts start to follow undervalued internet companies as many of these
> derive the majority of their revenues from the U.S. and Europe. Companies
> like Egghead and NewzEdge will have strong positions on the Internet as well
> as decent earnings growth but have yet to be found out by the irrational
> investors that the internet has drawn within the past year. Companies like
> Amazon continue to receive a heavy volume of investors at almost any level.
> We think a seven billion dollar market cap is extremely excessive to place
> on Amazon, but there are several factors that have contributed to the
> stock's run, and one cannot deny Amazon's already dominant position in
> internet commerce. Doubleclick is a prime example of irrational investor
> psychology. Infoseek, with its partnership with Disney, has an audience base
> including that of Starwave(ABC.com, ESPN, and others). Putting aside the
> float, however, Doubleclick announced that Media Matrix had named their
> network as one of the largest today and investors managed to run the stock
> price up to over $70 a share, almost twice the value of Infoseek. Although
> the company is the premiere Internet advertising agency with an extremely
> large advertising network, to compare them to Yahoo or AOL implies that
> investors just aren't doing their homework. DoubleClick does not own all of
> those sites but rather markets advertising for them. Of course all of those
> sites combined would have an audience reach near that of Yahoo or AOL. But
> then again, of course, if all investors did their homework we probably would
> see a different array of internet stocks leading the pack. Investor
> psychology seemed to have become sane during the correction that we
> experienced but, just as Internet investors were quick to buy back equities,
> irresponsible investing has led some stocks to consistently experience 10%
> or higher gains and losses on a daily basis. Although we feel that the
> market is overreacting to Internet-related news as investors place lofty
> valuations on companies based on projected 2001 and beyond earnings the
> deal-making and news is not going to end any time soon. There continues to
> be strong capital coming into the market as institutional money managers
> have had to dress their portfolios, as U.S. investors realize that they have
> overreacted to news about the Asian crisis, and as foreign capital flows
> into our markets in fear of an Asian depression. Although companies like
> Amazon and Yahoo are leading the way, we would continue to stick to value
> plays as well as emerging companies with niche services. This week's
> highlighted company is one that is familiar by many internet investors but
> is one that has yet to be given a valuation as extreme as those of Amazon,
> Doubleclick, and others. The Nasdaq is now over 1900 right where it was
> before the correction and is poised to move comfortably. Without any news
> affecting the markets adversely we should see a move to higher ground
> kicking off as we enjoy this summer rally. We continue to follow companies
> such as At Home, Real Networks, and Sportsline USA as we feel that these
> companies will provide a solid base for internet investors as they become
> household staples and receive an institutional following. |
