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Technology Stocks : Zapata (ZAP) -- Ignore unavailable to you. Want to Upgrade?

To: Von who wrote (144)	7/12/1998 7:55:00 PM
From: bob s.	Read Replies (2) \| Respond to of 1206

PR Newswire, Sunday, July 12, 1998 at 16:40 HOUSTON, July 12 /PRNewswire/ -- Have the 'nets finally topped? That is clearly the question of the week for many technology investors, hot money traders, and short sellers. After putting in phenomenal asymptotic runs that remind many Wall Street veterans of the left side of the vertigo-inducing parabolic price spikes in everything from mobile home stocks in the late Sixties to casinos and biotechs in the early Nineties, many pros are now betting that the Internet stocks have begun their descent down the right side from their apexes. The pros see many signs that embolden them to make such a bet. From a technical analysis perspective, many of the names that ran the farthest and fastest do indeed appear to have put in classic blowoff tops, with climactic buying panic volume spikes that correspond with tops in price. Lycos'(NASDAQ:LCOS) daily chart offers the best textbook illustration of this pattern, making a new intraday price high on July 7 while trading a record level of daily volume that was more than double that of its previous daily volume spikes of approximately four million shares during April through June. But Yahoo! (NASDAQ:YHOO) is surely the 'net bears favorite poster boy, having (so far) failed to scale its July 7 intraday high of $207 1/2, even after reporting blowout earnings that handily trounced even the loudest whisper number. Even better for the bears, Yahoo!'s announcement of a prudent two for one stock split (probably intended to preserve the stock's triple-digit stock price and institutional cachet) could not work that old black magic and ramp the stock. You can almost sense their fervent hope that the stock will break below its July 8 intraday low and plummet as scripted. After all, who wouldn't want to the nail the top tick of "Tulipmania"? The 'nets also look a little toppy from a fundamental perspective. With YHOO trading at more than 37 times his estimate of 1999 revenues, Hambrecht & Quist analyst Paul Noglows decided to cut his rating on the stock from a "Buy" to a "Hold", even while raising his estimates. In a July 10 column in TheStreet.com, Mr. Noglows explained his downgrade was due to concerns that the company's current valuation had disconnected from the company's underlying near term business prospects due to a "Las Vegas" gambling mentality on the part of investors. And even fee-loving investment bankers are probably wondering how they can still pitch more portal/media deals at these prices. Perhaps Yahoo! should use its gilt-edged currency to make its own bid for an old-line media company. So, back to the question -- have the 'nets finally topped? I think the real answer to that question is that it is a meaningless question. But I posed it to illustrate that it is as meaningless a question as is asking if "technology" stocks had finally topped once it was clear that the sub-$1,000 PC and overcapacity were going to (temporarily, anyway) crush the semiconductor industry. Any technology portfolio manager who blew out Dell (NASDAQ:DELL), Microsoft (NASDAQ:MSFT), or Cisco (NASDAQ:CSCO) at the same time they correctly called the top in Intel (NASDAQ:INTC) has either bought those names back at higher prices or is now in another line of work. Perhaps the better question is: "have the portals topped?" Or: "have the names that trade at more than 15 times forward estimated revenues topped?" Perhaps 'net stocks are now undergoing a stratification akin to the one "technology" stocks underwent in the past few years. Perhaps it is too simplistic to suggest that the "Internet sector" will indeed always trade as a monolithic "group". Some signs of a possible stratification were clearly apparent last week as some second-tier companies that investors deemed still undervalued in relation to their future prospects, such as Egghead.com (NASDAQ:EGGS) and Zapata (NYSE:ZAP), topped or nearly topped the price gainers and volume leaders lists on the week, even as their blue-blooded e-commerce and portal brethren languished. While 'net bears will point to those moves as even more proof of speculative froth, bulls might decide that the "sector" is beginning to mature to the point that money may now "rotate" within the sector, rather than necessarily flood torrentially in or out of it. Time will tell whether last week's apparent rotation to cheaper second-tier names was another flash-in-the-pan surge of "Internet Mania" or the beginning of a true discernment of value and difference within the sector that goes beyond blindly pouring money into a handful of first-to-market and marquee brand names. For now I would suggest that investors remember that the "Internet stocks" are much more than the household name portal/search engine companies. They are also browser companies, Internet serviceproviders, e-tailers, content providers, infrastructure builders, security providers, advertising agencies, and niches that haven't even been named yet - and all with different salient measures of growth and valuation. I will leave you with this thought: if the Internet does indeed represent one of the most important advances in technology and business that the world has ever seen, I find it hard to believe that today's stock prices completely discount the revenue and earnings streams that lie ahead, or that the top is truly in. -- Louis Riley The Riley Report is written by Louis Riley, principal of Riley Capital Research. It will be distributed on an occasional basis to provide timely commentary and opinion on individual stocks or industries that are making news. Opinions expressed are subject to change without notice. Riley Capital Research is a research boutique that specializes in highlighting investment opportunities that have frequently been overlooked by most investors and that are not followed by the majority of Wall Street sell-side research organizations. This report should not be construed as a solicitation of any kind. Neither Riley Capital Research nor any of its affiliates have received any compensation of any kind from any of the companies mentioned in this report. Mr. Riley and affiliates of Riley Capital Research currently hold long positions in the common stock and derivatives of Egghead.com, and Riley Capital Research recently issued a "Strong Buy" recommendation on the company's shares. Mr. Riley and affiliates of Riley Capital Research may from time to time hold long or short positions in the other securities mentioned in this report. SOURCE Riley Capital Research -0- 07/12/98 /CONTACT: Louis Riley of Riley Capital Research, louisriley@aol.com/