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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank -- Ignore unavailable to you. Want to Upgrade?

To: Jenna who wrote (32169)	4/9/1999 10:55:00 AM
From: Susan G	Respond to of 120523

From Briefing.com Stock Brief Updated 09-Apr-99 Net Banking's Time Has Come Earlier this week, Briefing.com issued a favorable review of the money center baning industry. Today, we focus on the nascent Internet banking industry. Like most things Net related, the few stocks that comprise the industry have posted incredible gains over the past few months. But unlike most Net companies, Net.B@nk (NTBK) and TeleBanc Financial (TBFC) are profitable. And with growth over the next few years projected in the 50%-70% range, Briefing.com contends that the industry is in the early stages of a major up cycle. "Amazoning" the Banking World Just as Amazon.com (AMZN) is redefining how books, CDs, videos, pharmaceutical products, pet supplies, etc. are sold and distributed, Net.B@nk and TeleBanc Financial are redefining the banking industry. Traditional banks have very limited hours of operation. Net bank services are available 24 hours a day, 7 days a week. Traditional banks typically charge modest checking and ATM fees. Net banks currently offer free checking accounts and ATM transactions. Meanwhile, low overhead enables Net banks to offer much higher interest rates on checking/savings accounts and CDs, and lower rates/fees on mortgages. Quite frankly, the group has one of the more appealing business models within the Net universe. Like Amazon, low operating costs provide Internet banking firms the opportunity to aggressively compete against the notoriously conservative brick and mortar banks. Unlike Amazon, the group doesn't have to concern itself with constructing and maintaining distribution centers. In other words, Net banks have out-Amazoned, Amazon. A Couple of Hurdles While the Net banking companies have reported significant growth in recent months, the overall numbers are still relatively small. Whereas consumers exhibit little resistance to buying such items as books and videos on-line, it's a different story when it comes to investing their assets in a nonvisible bank. There's still something comforting to many people about going into their neighborhood bank and transacting business person to person. Maybe it's a sense of security or maybe it's simply the smell of money, but whatever the reason when it comes to banking most people still think in terms of the local branch of their bank. That is not to say that this mindset won't change. We have already witnessed the amazing growth of the online brokerage community. And people who invest their money through online brokers are prime candidates to do their banking online. But again, this is a relatively small percentage of the overall population. The good part is it's growing rapidly. In fact, by some estimates, Net Banking will capture 20% of all banking customers within the next 5 years. It will take time for the group to win the trust of consumers, but convenience, reduced fees and better returns certainly ease the transition. Industry Set to Grow Net.B@nk and TeleBanc Financial pretty much have the Internet banking industry to themselves. Not for long. A few of the money center and regional banks have established an Internet presence, though competition here is modest. Over the next several months, however, at least two Net Banks are expected to go public (monitor Briefing.com's IPO Calendar for details). Eventually increased competition will prove problematic for the current players, but not yet. The pie is still plenty get fat. From a trading standpoint, the introduction of couple new companies will likely bolster the entire group as it increases investor awareness of the sector. Valuations Relative to the traditional banking group, NTBK and TBFC sport extreme price to earnings ratios. But in Briefing.com's opinion the multiples are justified because the growth potential is so much greater than in the brick and mortar world. When you consider that the Net banking industry is expected to grow earnings at roughly 5x-6x the rate of traditional banks, the multiples for NTBK and TBFC seem somewhat discounted. And they are certainly discounted relative to the rest of the Internet world. Consider that both companies are expected to earn nearly $1.00 a share by FY00. That kind of profitability is unheard of in the Internet arena, where Amazon trades at nearly $200 a share with no earnings in sight for years. In fact, from a strict value standpoint one could argue that the Net banking stocks are some of the best buys in the Net universe.