Auric,
Interesting viewpoint:
biz.yahoo.com
Thursday December 31, 2:48 pm Eastern Time
FUND VIEW - Some managers like internet stocks
By Cal Mankowski
NEW YORK, Dec 31 (Reuters) - Both value and growth oriented stock fund managers have been skeptical of Internet stocks given their enormous price-to-earnings ratios, but some are willing to make bets that electronic commerce is the wave of the future.
"On the face of it, these stocks look overvalued," said Courtney Smith, chief investment officer and portfolio manager for the Orbitex Group of Funds. "If we assume that a stock represents discounted future cash flows for that company, then these stocks are overvalued. But in fact they are not overvalued if you look at the stocks as a proxy for all future Internet stocks coming to market."
Smith likens the current Internet craze to what happened with electronics and computer stocks in the 1960's and 1970's and with biotechnology issues in the 1980s.
Valuations for Internet stocks will continue to look very high over the next two to five years but eventually, as the industry matures, price-earnings ratios will be more in line with other growth stocks, Smith argues.
David Kern, executive vice president of Kern Capital Management LLC and manager of the Fremont U.S. Small Cap Fund, believes a good way to invest in the growth of the Internet and electronic commerce is to find companies providing specialized technology that "enables" or facilitates other activity.
He cites as an example VeriSign Inc (Nasdaq:VRSN - news), a company that provides digital solutions and infrastructure for companies, government agencies and individuals to conduct secure communications and commerce on the Internet.
"It allows you, without face-to-face or voice-to-voice contact, to know that the person on the other end is who they say they are," Kern said. He expects VeriSign to reach a break-even point sometime in 1999. Beyond that he sees enormous growth potential.
Kern believes the "enabling" companies will not face the same degree of competition down the road that some other Internet companies might from companies rushing to adopt ".com" names and products.
"I think E-commerce is going to be very big and this is the way to take some of the 'low barrier to entry' risk out of the equation," Kern said.
Smith on the other hand leans to the market leaders, such as Yahoo! Inc. (Nasdaq:YHOO - news), America Online Inc. (NYSE:AOL - news) and Amazon.com Inc. (Nasdaq:AMZN - news).
But he also sees ways to invest in companies that are more directly involved in providing an infrastructure for the Internet. He compares that approach to selling pans to gold miners in the California gold rush days and in this group he includes Cisco Systems Inc. (Nasdaq:CSCO - news) and MCI WorldCom Inc. (Nasdaq:WCOM - news).
While many fund managers continue to look with skepticism on the Internet stocks because earnings are lacking or, if there are earnings, price-to-earnings ratios can be 100 or more, others on Wall Street are slowly beginning to reassess the outlook.
One trader, who did not want to be identified, said E-commerce has already grown far beyond what was predicted by analysts a few years ago. This trader said life style issues are a driving force as busy consumers pressed for time find that a few clicks of the mouse is an easy way to conduct business.
KJC |
