All....NEW YORK (CBS.MW) -- With Net stocks languishing sharply below
all-time highs and at levels some may characterize as screaming buys,
many Wall Street analysts recommend investors stick to quality names,
like America Online.
AOL (AOL: news, msgs), which started the year at
72 3/8, shot up to an intraday high of 175 in April
only to fall back to hover above 100, is the clear
favorite to either break out to the upside first or be
the best bargain among Street analysts surveyed by
CBS.MarketWatch.com.
Even compared to Yahoo (YHOO: news, msgs),
another so-called blue-chip, AOL appeared to
draw more supporters. Among the electronic
commerce companies, Priceline.com (PCLN:
news, msgs) and EBay (EBAY: news, msgs) stood
out as compelling buys.
Flight to quality
Goldman Sachs' Internet team, made up of two
senior analysts, Michael Parekh and Rakesh Sood,
chose AOL and EBay as their best Net pick. The
powerhouse team has been pounding the table on
these stocks all year and stepped up their conviction on May 27, saying in
a note that the "sell-off is overdone." On that day, AOL and EBay closed
at 116 and 169, respectively. Both stocks have since slipped further.
Goldman's argument: AOL will have "near-term catalysts" such as its
summer digital subscriber line (DSL) trial rollouts and the soon-to-be
available AOL Anywhere services accessible through Palm and Win CE
devices. They give EBay a star for the company's push into higher-end
auctions.
James Preissler, Internet analyst at PaineWebber, prefers to fly "to
quality" even if many Net stocks appear attractive because a "recovery
may never materialize," he said. "When times are tough... you have to
place your bets carefully."
With that in mind, he's sticking to AOL and stands firm on his 215 price
target. At the end of the day, customer loyalty is the key component, he
said, and AOL's subscribers stay on for 55 minutes a day, more than 10
times as long as Yahoo's customers.
Preissler said that AOL's $127 billion market cap is some 25 percent of
Microsoft's (MSFT: news, msgs) $400 billion-plus, yet "the opportunity
to own the interactive user is far greater than owning the desktop."
Michael Wallace, an Internet analyst at Warburg Dillon Read, put his
chips on AOL as well and still sees his 175 price goal being met. For
Wallace, AOL had the most "visibility" if only for its $20 monthly recurring
subscription revenues generated by its subscriber-base of 17 million. And
when times are uncertain, "visibility is safe."
Besides, he said, the "blue-chips will lead the Net group higher."
David Levy, Internet analyst at ING Furman Selz, also believes that AOL
will lead the rest of the Net group higher. He's placing his bets on the
Dulles, Va., company. Dain Rauscher Wessels likes AOL because it's a
definite mainstay.
Poised to break out first
But while AOL seemed to top the list, Yahoo (YHOO: news, msgs) and
Lycos (LCOS: news, msgs) were also chosen as favorites.
Alan Braverman, Internet analyst at NationsBanc Montgomery, views
Lycos as the stock poised to make any significant move higher. He
expects the Waltham, Mass.-based company to begin announcing key
partnerships fairly soon. As for the rest of the Net group, Braverman
cautions it will likely remain volatile in the summer without any major
gains until the fall.
Yahoo (YHOO: news, msgs) was Bruce Smith's, Internet analyst at
Jefferies & Co., favorite, at least in the short-term. He pointed to
continued momentum in the company's ability to grow its business and
noted that Yahoo's stock had been the early leader in past revivals.
Faced with either the choice between Yahoo or AOL, Safa Rastchy, an
Internet analyst at U.S. Bancorp Piper Jaffray, said he'd choose Yahoo
because of the company's business model. While both companies are
focused on turning their users into customers, Yahoo is "religiously"
concentrating on that strategu whereas AOL is distracted by access or the
ISP side of the business, he said.
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