Washington Post Article-Mentioning MARG, SEVL...
All,
It seems that some institutions are putting more money into
these stocks than we think...makes you wonder exactly *who*
is following this thread. ;)
I got this off of news.com this afternoon. Kinda hits close
to home. *All* of the stocks mentioned are played from this
thread. Time to leverage...
-Paul
By Robert O'Harrow Jr. and Mark Leibovich
Washington Post Staff Writers
Thursday, April 23, 1998; Page A01
Even by the dizzying heights of today's stock market -- and the dizzying hype surrounding things Internet-related -- market watchers say a "buying panic" has seized Internet stocks.
Shares of an array of obscure companies have soared to unprecedented
levels in recent days. Some of the companies have no products. Others have no earnings. But they all have buyers.
After one company announced it would sell products on the World Wide
Web, its stock shot up from $6.50 a share to nearly $45. When a
research company said its data would be posted on America Online, its
stock nearly tripled.
A handful of other companies posted increases of 100 percent during a
speculative frenzy that started Tuesday in the shares of companies that had cemented some tie to the Internet, the global communications network.
"It's like a mania," said Michael Driscoll, chief stock trader at Hambrecht & Quist Group, a San Francisco brokerage firm that specializes in high technology. "Any way, shape or form it has ties to the Internet and they're buying it like bananas."
The sudden stampede into highly speculative stocks worries some veteran traders because similar frenzies in the past have preceded big drops in the overall market. Bill Riegel, who helps manage $286 billion for J.P. Morgan Investment Management, said the market may be close to topping out. "It's very unsettling," he said.
Other money managers explained they were willing to buy into some of
these small stocks because their cost per share is relatively low -- $2 for Alpha Microsystems Inc. before the run-up to more than $6, vs. $75 a share for one-time darling Coca-Cola.
"If one or two of them work, it'll make up for the five that likely will blow up," said Greg McCrickard, president of the T. Rowe Price Small Cap Stock Fund, which has more than $1 billion. McCrickard said he devotes a very small amount of that $1 billion to these speculative fliers but they do add some pizazz to his portfolio. "The attraction is they grow very rapidly.
They definitely are 'the field of dreams.' "
Some analysts and money managers fretted that the stock market has
entered a period in which too much money is now chasing too few stocks, driving those shares into a lofty realm they cannot sustain for long. Stocks that make up the Standard & Poor's Corp. 500-stock index already are at an all-time high, trading on average at 23 times 1998 estimate earnings.
The analysts said fundamental physics of the market will almost certainly take effect in the not-too-distant future: What goes up too fast can easily come down with a thud.
To get a measure of how strange this week's rally has been, recognize that some of the hot stocks this week are so obscure they don't even show up in the databases of companies such as First Call Corp., which track corporate earnings. That means there may be no Wall Street analysts keeping track of their performance, which in turn means they're all the more risky for investors who don't do their homework.
Consider K-Tel International Inc. It's likely to be a well-known name to the average mass-market consumer, a pop-music compilation company
that advertises on late-night television. K-Tel made a simple
announcement two weeks ago that it would begin to sell its compact discs on a corporate Web site. On Monday, shares of K-Tel International leapt by 125 percent to $41.62 1/2 with 14 million shares traded -- a big day for a company that until now often sold fewer than 2,000 shares a day at about 7 bucks each.
On Tuesday, shares of a research company called Market Guide Inc. rose
nearly 190 percent, to $23, after the Lake Success, N.Y., company said
it would provide financial information for America Online's investment site. Market Guide's stock fell back somewhat yesterday, to $19.51-9/16
Then a little-known software producer called 7th Level Inc. soared as
much as sixfold when the Texas company said its animation technology
would be distributed on the Internet.
"Naturally, we're very happy," said Richard Merrick, the company's chief strategist. Beyond the giddiness, market analysts are scared. By and large, Internet stocks are "concept stocks," which means investors are betting that the Internet will one day become something it generally is not today --profitable.
"This is a classic bull-market phenomenon," said David Simons, the
managing director at Digital Video Investors, an institutional research firm in New York. "People feel very rich on paper, and they say: 'What the hell? Maybe I'll take a flier on these companies that really haven't done anything.' "
Yahoo Inc., for instance, turned no profit in 1997. Yet, during that year, its share price quintupled. Last week, when the Internet search engine company reported first-quarter earnings that beat Wall Street's
expectations, its stock jumped to record levels. It closed yesterday at $118.37 1/2.
Yahoo's success helped spark a flash fire of interest in similar companies,in part because it has now become one of the de facto bellwether companies on the Internet. "There's a 'looks-like' syndrome. You're basically looking for the next company," said Mark Specker, vice president of research at SoundView Financial Group, a technology research firm.
Specker said people are so hungry to make money in stocks that they are betting on companies that have some link to the Internet, even if they have no business history, few investors and no profits to speak of. "We're going to bet on that intangible value that will be realized in the future," he said they reason.
Added Hambrecht's Driscoll: "I was joking around with someone the
other day that if U.S. Steel begins to sell steel on the Internet, you'd see their stock double in price."
Another hot company is Alpha Microsystems. It announced new software
that will be distributed on the Internet, and, sure enough, its shares rose 120 percent yesterday, to $6.18 3/4. It sold almost 19 million shares, close to 100 times its normal daily volume.
Stock analysts said the week's rocketing run-up in Internet stocks is
unprecedented, eclipsing other sector rallies -- such as periodic surges in biotechnology stocks or even the 1995 Internet bubble after Yahoo and Netscape Communications Corp. staggered the market with hugely successful initial public offerings.
"What we're seeing is a speculative spring gone mad here," said Michael Murphy, editor of the Overpriced Stock Service, a Half Moon Bay, Calif., investor newsletter.
Murphy and other Wall Street watchers worry this Internet stock frenzy
could signify the end of these heady days in the market. "This could be the classic sign of an aging bull market," Murphy said. Once all the other sectors have swelled to their limits, he said, investors turn to "concept" stocks as an almost desperate source of untapped riches, "People are stretching to make money," he said. "When it blows up, it's gonna hurt a lot of people."
c Copyright 1998 The Washington Post Company |
