About My Schizophrenic Net Pieces
By James J. Cramer
1/7/99 8:21 AM ET
.....So let me categorize the worries and get you familiar with them. If
someone had to put them all in one sentence, like a thesis at college, it
would be, "Is the valuation of the Net stocks justified, based on present or
future fundamentals, or is it a mania ready to burst at any moment?"
Let's parse this, again, like the thesis we may have all had to write. First, is
the valuation of the Net justified? I have for a year now been saying that if
these companies execute, then indeed they could be worth what they are
trading for. There may be some gun-jumping, but they could make sense.
The fundamentals of Net companies are still unbelievably strong.
But those who think they are going to get in on the ground floor of the next
Dell (DELL:Nasdaq) or Intel (INTC:Nasdaq) are gravely mistaken. We are on
the eighth or ninth floor of what we hope will be the Sears Tower, or
whatever they call it now. The bet from these levels is that it better be the
tallest building in the world, or we have vastly overpaid to be on the ninth
floor. The mania phase has far more to do with what happens next, when
the not-as-good companies come public, the ones that weren't as exciting
and didn't have as much revenue growth as the Amazons (AMZN:Nasdaq)
and the America Onlines (AOL:NYSE).
Right now the market is confused between the mania and the tremendous
growth camps. Those who are thinking mania have, for the last year, put
their money where their mouths are and have been shorting the Net. They
have been wrong so far, dead wrong, but they know that if they catch the
top of the tulip-bulb biz they are set for life, so they are drawn to such a
trade.
These short-sellers have been victimized by two unforeseen factors: The
stock market had been very unkind to new offerings in the second half of
1998, virtually shutting the door on all new kinds of stock, Net or otherwise;
and the growth of Net traders who are not price-sensitive and are quick to
movE has caused the whole system of stock containment to break down.
The commodity of Net stocks is still in short supply. If we are in a mania, in
three months enough stock will have been created to alleviate the
short-selling problem, as bankers can always be counted on to issue
supply to meet demand. But the growth of Net trading, that is a different
story. Take a look at the Amazon top 100 books. After you get through the
books that have been written by TV anchormen, it looks like many of the
bestsellers are books that how to tell you to trade! These people, not wiped
out by the retreat of last September, seem to be here to stay.
They make the mania call that much tougher. To me, the answer is always
the same: own the good Nets, stay away from the bad ones, and don't
fabricate Net, don't play in the Borders Groups (BGP:NYSE) that want to
cross over. Own companies that enhance the speed and growth of the Net;
avoid those that could be hurt by the Net.
That's my mantra. |
