Analysts' top Net picks
America Online is quality stock in uncertain times
By Bambi Francisco, CBS MarketWatch
Last Update: 9:22 AM ET Jun 4, 1999
Internet Daily
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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.
Priceline.com fans
Priceline.com, whose rocket-sized run-up to a high of 165 brought its
market cap to some $30 billion early last month, is also a Net favorite
among e-commerce analysts.
But shares of the newest e-commerce darling saw its paper gains
whittle away amid the broader market sell-off. On Thursday, shares
dropped to their lowest level since hitting their highs, falling to 84 1/2.
Analysts adored the stock at 165, and ostensibly view the current price
as a bargain.
Sara Zeilstra, e-commerce analyst at Warbrug Dillon Read, likes
Priceline.com, especially at these levels. BancBoston Robertson
Stephens, Lauren Cooks Levitan, the e-retailing analyst, chose
Priceline.com as her favorite as well.
Both analysts continue to extol the company's "unique"
consumer-demand driven business approach that empowers
consumers to name their own price, mostly for travel-related services.
Amazon.com (AMZN: news, msgs) has many big fans and Richard
Zandi, Internet analyst at Salomon Smith Barney, is one of them.
Despite some concern that the online bookseller has to overspend to
keep its lead, Zandi isn't swayed. Besides, investors have not only
sliced Amazon shares from their all-time highs but to levels below
where they began the year.
Bambi Francisco is Internet editor for CBS MarketWatch. She talks
stocks and Internet on AOL's MarketTa |
