Taxes!! I just got the bill. Ugh!! My translation project is a translation of my 1996 book "Law and Truth." Check it out on Amazon! AOL-- We love it! Basis of 40 in the LT account. Dell-- I want it to do well. really! Here is something that may interest you from tonight's Barrons:
April 6, 1999
Casting Their Net a Little Further
By Carolyn Whelan
As the Dow Jones Industrial Average tops 10,000 again, some household
Internet names like America Online are once more setting all-time highs.
The comeback in Internet stocks takes place in the wake of
a huge rally in the technology sector. Earlier in the year, the
Internet group corrected significantly as fund managers
took some money off the table (see Weekday Trader,
"Before Today's Selloff, Pros Cashed in Chips" January 12).
But as 'Net stocks rally again, money managers are once more playing "follow
the leader." "The Internet is going to create hundreds of billions of dollars of
wealth over the coming decade," says Huachen Chen, Managing Director of
the Dresdner RCM Global Technology Fund. "Investors don't want to miss
[out]."
George Gilbert, vice president of the Northern Technology Fund, is also
bullish on most of "the usual suspects," as well as @Home, Priceline, and
Broadcast.com. "You have to participate in these companies because they
could become the great companies of tomorrow," he says. Yet he still
questions current valuations of some of these stocks.
And there's the rub. While Wall Street
says "buy, buy, buy," one long-time
believer in the Internet with an excellent
track record is starting to worry that
investors are indiscriminately snapping
up whatever "dot coms" are out there --
regardless of their prospects or price.
"Many are not worth what they're selling
for, and the market will correct for it,"
warns Lawrence York, lead portfolio
manager for the WWW Internet Fund,
who calls the Web "simply another distribution channel."
That's why his fund, one of last year's best-performing mutual funds with a
total return of 70.5%, has already sold its stakes in such winners as Yahoo,
AOL, eBay and Amazon.com. Why? Valuations are just plain too high, he
explains.
"We invest in companies [with] good business models, that are doing
something unique, have good management in place and reasonable values," he
says -- versus those that got there first or spend lots of money on advertising.
In fact, York and other managers appear to be gravitating to some
less-familiar names, where values are likely to be better. Among companies he
likes are PSINet, Vari-L and Symantec, which owns the well-known Norton
Utilities program.
Of these stocks, analysts seem most bullish on PSINet: According to Baseline,
three brokerage firms upgraded their ratings on the stock to Buy or Strong
Buy over the last two months. It's also one of the purer plays on the Internet,
selling Internet services including Web design tools. Like the heavyweights, it
won't make money before 2000 and, at Tuesday's closing price of 45 1/8, is
brushing its 52-week high of 46 1/4. The company, however, has an
impressive 50% long-term growth rate, as estimated by First Call. It's a
midcap stock with a market capitalization of $2.3 billion.
On the other hand, Vari-L, a
telecommunications component
company, does make money -- a
projected 49 cents a share in 1999,
according to First Call. At a closing
price of 6 1/8 on Tuesday -- 55% off its
52-week high of 14 3/4 -- the stock
had a 1999 P/E of only 12x earnings,
much lower than its robust 30%
projected long-term growth rate.
And Symantec, which makes software
for multiple computing platforms, is perhaps the most defensive play. The
small-cap stock, whose share price based on Tuesday's close of 14 13/16 is
more than half off its 52-week high, is trading at only 11x consensus earnings
estimates of $1.44 a share for the fiscal year ended March 1999. That dips to
a mere eight times 2000 earnings estimates of $1.83, according to First Call,
compared with an estimated long-term projected growth rate of 19%.
Of course, most of the money is still flowing into the big names. Huachen Chen
prefers established leaders like Amazon, eBay, America Online, Yahoo and
Network Solutions. Mark Herskovitz, portfolio manager of the Dreyfus
Technology Growth Fund, likes Amazon and AOL, which he dubs the "Grand
Central Station of the Internet."
But both men have other favorites. Gilbert, for instance, likes Vignette, which
sells server software, and Chen favors small-cap Pegasus Systems, " a hybrid
ticketing company migrating to the Internet," which makes money and has a
healthy 26% projected long-term earnings growth.
Likewise, Herskovitz is bullish on
DoubleClick, an advertising aggregator
for some smaller Web sites that still get
steady traffic. Doubleclick, which set a
new all-time high of 121 on Tuesday
after a 26 percent one-day gain, is also
a mid-cap company that recently went
public. Though it will post negative
earnings for the next two years, that
doesn't deter the bulls. In February at
least one analyst upgraded his rating on
that stock to Buy.
What to avoid? Herskovitz suggests staying away from companies that sell
things differently from how people traditionally buy them, such as airline tickets
and hotel rooms sold through auction sites.
"Just because it's on the Internet doesn't necessarily mean that it's a huge
market," he says.
That's been true of some less-well-known Internet stocks, too. But if fund
managers like these put their money where their mouths are, maybe not for too
much longer. |
