Interesting article in today's Chicago Tribune:
Investors moderating Web
passion
Stock prices of some darlings have slumped
By Kathy Bergen
Tribune Staff Writer
May 16, 1999
Investor passion for all things Internet appears to be
cooling a bit, leading some market observers to
speculate that the mania may be ending.
"There are signs the frenzy is over already. . . . We are
very close to the end," Charles A. Morris, manager of
the T. Rowe Price Science & Technology Fund, said at
a recent investment conference held in Chicago by
mutual fund research firm Morningstar Inc.
Mark Basham, an analyst of initial public offerings for
Standard & Poor's in New York, also sees evidence
that Internet stocks may be topping out, though he
acknowledges such calls always are difficult to make.
"People like tops in the market to be an easily definable
event, and it's not usually that way," he said. "It can last
for weeks or months before we can get a clear signal."
To be sure, many would argue the recent evidence of
softening can be viewed merely as signs that investors
and traders are taking a short breather after some
spectacularly enriching rides.
"It's really a pause in an otherwise steep climb in market
values," Alexander C. Cheung, manager of the
Monument Internet Fund, said during a media briefing
last week. "Despite the recent sell-off, most
Internet-company stocks have risen sharply since the
beginning of the year, so it's natural for investors to lock
in profits."
Whether the signs represent a pause or a lasting pall
over the Internet arena, they are out there in plain view.
For starters, a good number of Internet stocks
experienced sell-offs in April and early May, and despite
better times lately, some remain bruised.
"The stocks are struggling; they can't seem to get above
prior highs," Morris said in a phone interview.
He cites the recent blows to Amazon.com Inc. as
representative of a shift in investor sentiment.
The price of those shares swooned late last month after
the retailer said it expects losses to mount as it continues
to invest heavily in new businesses.
"Investors got tired of the 'profits manana' story and
decided to take some money off the table," he said.
Amazon.com shares ended the week at $132.37, down
$88.87, or 40.2 percent, from its 52-week high of
$221.25 in just three weeks. Still, it is up 23.6 percent
since the start of 1999 and a staggering 801 percent in
the last 12 months.
Trading volume in internet shares has slumped since
mid-March, which also is seen as a sign of weakening
interest among once-manic investors.
As well, "the volume on up days doesn't seem to be as
strong as on down days," Morris noted.
Still, some observers advise against reading too much
into the decline in volume.
"Volumes have gone from insane to just unreasonable,"
said Tim Klein, an electronic commerce analyst for U.S.
Bancorp Piper Jaffray in Minneapolis.
"People are slowing down a little bit, but it's too early to
tell what that means," he said, other than that "people are
not buying as blindly as before."
Clearly, a ".com" in the corporate name no longer
guarantees a flight to the moon, as illustrated by some
recent less-than-spectacular IPOs.
On May 5, for example, shares of Comps.com, a San
Diego-based on-line real-estate company, closed lower
than the offering price, an almost-unheard of event in the
explosive world of Internet-stock IPOs.
"This tells you something," said Morris, "because this
stock was no better or worse than the others."
Part of the explanation is that the supply of IPO shares is
growing--more than 100 Internet-company IPOs are in
registration now with the Securities and Exchange
Commission.
"Initially, it was easier to go public when the market was
not so crowded," said Steven Harmon, senior
investment analyst with Internet.com, a New
York-based Internet information publisher.
"You need some sort of brand presence now, like
TheStreet.com," he said.
Shares of the Internet news service soared 216 percent
on opening day Tuesday, and Monument Internet Fund
manager Cheung saw that as an affirmation.
"The death-of-Internet-shares prediction is rather
premature," he said. "The market is alive and kicking."
And yet, while the IPO made a strong showing, it was
no match for the 474 percent first-day gain achieved by
rival MarketWatch.com in its January offering or for
some of last year's rockets, such as theglobe.com.
Indeed, part of the wariness toward the Internet sector
stems from the incredible run-ups in share prices, often
for companies that have yet to turn a profit. About 125
Internet companies are publicly traded, and only about
10 percent are earning profits yet, said Harmon, who
defines an Internet company as one that derives at least
50 percent of its business from the Internet. The market
capitalization for the group totals about $750 billion, he
said.
"The valuation of these companies deviates from or
ignores economic reality almost across the board," said
Morris, adding that most are overpriced by at least 30
to 50 percent.
Nearly half the current players will be viewed as
"extreme disasters" three years from now, he estimates.
This is not to say Morris is anti-Internet. To the
contrary, he sees it as a source of great wealth creation
in the future. His fund's $6 billion portfolio includes a
sprinkling of Internet companies, among them America
Online Inc. and PSINet Inc., as well as many big-name
tech firms that are riding the Internet wave, such as
Cisco Systems Inc., Ascend Communications Inc. and
Microsoft Corp.
"We've got some skin in the game, but we tell ourselves
to tread carefully in the near term," he said. "Most of
these (Internet) stocks are illiquid and volatile."
Individual investors who want to venture in "have to sift
through the rubble to find the diamonds in the rough,"
contends Cheung, who attempts to spot potential market
leaders for his Internet fund, which launched in
November and has $47 million under management.
His top holdings, as of Tuesday, included AOL, Yahoo!
Inc., Security First Technologies, C/Net Inc. and CMG
Information Services Inc.
Spotting winners is a tricky task in a universe where
track records are in the making and earnings have yet to
appear.
Still, many individual investors are eager to try after
hearing tales of quick riches from friends, neighbors and
colleagues, said Gary Bowyer, a Chicago-based
financial planner.
"To me, as a planner, that's scary," he said. For clients
who really want to try this route, he suggests setting up a
separate account with a small amount of money--money
they can afford to lose.
"I'll tell them to go play with it, but confine it . . . this is
not your serious money," he said.
Of course, there are many investors and traders who
take a different approach, among them J.D. Sun, a
29-year-old hotel manager who lives in Libertyville.
He says he invests his savings only in tech stocks,
"anything Internet-related," and he holds his positions for
relatively short periods, from days to weeks to months.
"I'm probably up a couple-hundred percent from late
October to now," said Sun, who trades on-line. "I don't
want to talk dollar amounts--it's the kiss of death--but
I'm very, very comfortable."
And he rejects the notion that the run-up in Internet
stocks has created an asset bubble.
"Everything is expanding, the economy is getting bigger,"
he said. "Someday in the distant future, is it going to
implode? Maybe, but probably not in my lifetime." |
