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Hunting for cheap 'Nets
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January 19, 1999: 1:50 p.m. ET
Is Amazon.com too expensive for you? Experts offer some other names
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NEW YORK (CNNfn) - As Internet stocks soar in value, investors may be wondering if there are any undiscovered gems left.
After all, it wasn't too long ago that you could buy Amazon.com for $9 a share -- a mere pittance from the $140 you'd pay these days.
Unfortunately, investors have been so rabid about buying anything related to the Internet that there isn't much out there that won't cost you a fortune, Internet analysts said.
"Are there undiscovered gems? I wish," joked Scott Ehrens, managing director and Internet analyst at Bear Stearns in New York. "Put a '.com' on anything and it seems to soar, good or bad."
.com mania
Many Wall Street analysts have been warning for months about the "Internet bubble" of overvalued stocks. Shares of eBay (EBAY) have risen nearly 900 percent in the past year, while search engine Yahoo! (YHOO) jumped nearly 1,200 percent.
"I would urge people not to speculate in the Internet sector," James Awad, chairman of Awad & Associates in New York, said recently when asked about his top investing tips for 1999.
Abhishek Gami, an Internet analyst at William Blair in Chicago, said it's hard to say how long the market for Internet stocks will remain so hyper-inflated. Investors are so enthusiastic they're buying companies they shouldn't touch. (He declined to cite any examples).
Still, there are a few under-valued Internet stocks that might become the next Amazon.com, analysts said.
Gami likes Spyglass Inc. (SPYG), a maker of software for hand-held devices like cell phones and small computers that need Internet access. Spyglass's customers include IBM (IBM), Web TV Networks, a division of Microsoft (MSFT), and Nokia (NOK.A), Gami said.
While Spyglass recently issued a warning about earnings falling short of expectations, many advocates of the stock think the technologies will develop over time, he said.
"Everyone from Microsoft down is talking about wiring the home and everything together," Gami said.
Gami also is a fan of USWeb (USWB), a consulting firm that helps companies set up Internet programs and Web pages.
Yahoo! too expensive?
Lawrence York, manager of the WWW Internet Fund, agrees it's tough to find good values these days. He can't bring himself to buy Yahoo!, Amazon.com or eBay, but he mentioned several companies that have helped his fund earn 36.5 percent this year.
"We don't own any of the big names," York said. "Our whole effort is to buy good companies at the right price and continue owning those that are growing market share. If they get ridiculously priced, we'll let someone else own them."
York likes Pilot Network Services (PILT), a provider of servers for companies for e-commerce and e-mail. Pilot's clients include Newsweek and the Nasdaq, he said.
Another Internet play York recommends is Verio Inc. (VRIO), an Internet service provider for small and medium-sized companies.
And many people may overlook USA Networks (USAI), a diversified media and e-commerce company that is a majority owner of Ticketmaster Online-CitySearch (TMCS). When Ticketmaster went public, USA Networks sold a 10 percent stake.
For the same reason York likes Tech Squared, which trades over the counter under the symbol TSQD. Tech Squared, a small company that sells computers, owns a 20-percent stake in Digital River (DRIV), York said. While Tech Squares was trading at 5-3/8 early Tuesday, Digital River was selling for 41-1/2.
York also recommends Alpha Microsystems (ALMI), a software maker that has a stock-tracking program called Stock View.
"These are a few excellent values," York said. "You have to get your mind off what other people are thinking -- that the Internet is only for retailing."
-- by staff writer Martine Costello
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