SKDS heres where i show it in BW..A Coming of Age for Dot.Coms
Revenues will rise--and there will be less red ink
Internet mania paid off big time for investors in 1999, and incredibly, the dot.coms have more room to run in 2000. Despite a prolonged midyear sell-off that ran from
April to August, Internet stocks are up an incredible 154% this year through Dec. 10, as measured by the Dow Jones Internet Composite Index of 40 stocks. Investment
pros doubt that Net stocks can repeat this kind of performance next year. Still, they see huge growth ahead for the Internet and believe that Net stocks will continue their
drive north. 'This is a turbocharged industry, and what you see in the next 12 months will dazzle and amaze you,' predicts Alberto W. Vilar, manager of the Amerindo
Technology Fund, Net-heavy and up 211% through Dec. 10.
BUMPER CROP. Indeed, key signposts are pointing in favor of the dot.com crowd in the next year. Revenue growth, not profits, is a widely used measure of Internet
companies' prospects. And of 250 Internet stocks tracked by I/B/E/S Inc., an earnings research firm, sales are expected to jump 45.9%. What's more, the bottom lines of
Net companies will get less red: Their losses are expected to drop 60% next year, to $1.1 billion, down from $2.1 billion in 1999.
And there's a bumper crop of new issues ready to go public in 2000, certainly keeping the sector in the headlines. Investors are hoping there will be more companies like
this year's big winners, including Phone.com Inc. (PHCM), up 1738%, and Commerce One Inc. (CMRC), up 1921% year-to-date. 'The big story right now is the
staggering number of IPOs...and there will be great values in a lot of these smaller companies,' says Ryan Jacob, manager of the Jacob Internet Fund.
Although the overall outlook is bright, Internet investing still holds enormous risks for investors. The Net is becoming increasingly crowded, and marginal players are
getting passed over for their flashier brethren. Indeed, more than a hundred Internet stocks are trading below their IPO price, says Cathy Baker, senior manager of the
RS Internet Age Fund. At the same time, many Net stocks are trading far above traditional valuation norms, and many investment pros think they carry exceptional risk.
For instance, Yahoo! Inc. (YHOO), which was just added to the Standard & Poor's 500-stock index, and America Online Inc. (AOL) are trading at 4785 and 273 times
forward earnings, respectively. 'This part of the market look like a national video lottery game,' says Garrett R. Van Wagoner, whose aggressive growth funds posted
huge gains from Internet stocks this year.
Another caveat: Some tech-fund managers expect another seasonal slowdown in the spring for technology stocks and Internet shares in particular. Some also worry about
carnage in overcrowded markets such as e-tailing. Indeed, smaller players--in particular e-tailers--won't attract enough traffic to turn a profit or will be pushed out by
traditional companies moving online. And there are fears that a sell-off could be triggered by an interest-rate hike or disappointing announcements by bellwether Internet
companies.
But despite these worries, there are some worthy individual Net stocks to be found. And there are even bargains among the dot.coms, investment pros say. They
recommend smaller Internet plays in niche markets such as online media companies, select e-tailers, Web consultants, and Internet infrastructure companies.
FIND A NICHE. Likely media-company bargains are iVillage Inc. (IVIL) and MarketWatch.com Inc. (MKTW), says Jacob. IVillage, an NBC company, is a Web site
for women that features relationship, parenting, and health advice, among other things. MarketWatch.com, jointly owned by CBS (CBS) and Data Broadcasting Corp.
(DBCC), delivers daily financial news. Jacob thinks these companies will become leaders in their markets because they are backed by powerful media companies. Both
command premium advertising rates, and their revenue growth stands to more than double next year, though they probably won't post profits. Both companies recently
traded far below their highs of earlier this year.
Van Wagoner likes two niche e-tailing stocks: Garden.com Inc. (GDEN) and SmarterKids.com Inc. (SKDS) Both companies are targeting affluent customers in their
respective markets of gardening and educational children's toys. While Van Wagoner says both companies 'won't make any money as far as the eye can see,' he thinks
their favorable demographics will rapidly accelerate revenues. And with stock prices close to, or below, their IPO price, they're cheap, he adds. |
