Net Stocks, Under Pressure Last Week, Closely Watched
This could be a telling week for Internet stocks.
After an almost nonstop rally since October, Internet stocks were notably poor performers last week. Several big-name Net issues actually finished with losses.
The weakness was most evident Friday when Internet stocks remained under pressure even though the general market roared back from its early-week sell-off and yet another Internet IPO burst on the scene.
One day does not a trend make. And even Internet stocks don’t go up every day. But investors watching for danger signs amid the group’s blistering advance may have gotten them Friday.
Investing logic has always held that on a day when most sectors rise, investors should be wary of any group that’s not swept up by the tide. Sagging relative strength is a sign that money is rotating out of one sector and into others.
“The fact that the Internet market was a little weak may say that the pure-play Internet stocks are due for a bit of a breather,” said Paul Cook, who manages the NetNet Fund at Munder Capital Management.
The Nasdaq composite index vaulted more than 3.1% on Friday, but major Internet indexes failed to keep pace. The CBOE Internet index, for example, was up 1.6%.
Bellwether Internet stocks were particularly soft Friday. Yahoo fell 7.8%, Broadcast.com tumbled 9% and UBid slipped 6.6%.
The stocks were off on a day when the latest Internet-related initial public offering, Market-Watch.com, leaped 474% to the second-best launch in history.
To be sure, the Internets had a huge run in recent weeks that culminated with their wild gains Jan. 11. The CBOE index rocketed 18.9% that day, enormous even by Internet-stock standards. Some experts say the group is merely digesting all its gains.
Indeed, some market watchers say investors shouldn’t put any credence in Friday’s action. Internet stocks have flouted virtually every accepted law of Wall Street, so poor relative strength doesn’t mean much, said Scott Bleier, chief investment strategist at Prime Charter Ltd., a New York investment bank.
“I don’t want to bet against them here,” Bleier said. “Are they excessively valued? Absolutely. Does that mean anything to a trader? Absolutely not.”
Even if Internet stocks ease off, few people believe the group will wither away. Though they’ve never had as explosive a run, they’ve fallen in the past only to come back with greater fury.
Cook believes any slowdown could be short. Investors who missed out on the first ride might scoop up the stocks on a dip.
“Not only individual investors, but the institutions as well,” Cook said. “A lot of institutions ignored this sector, and they’re suffering as a result.”
Internet-stock market values have become so large that they now can be bought by professional investors who previously didn’t want to hold such small stocks.
Net stocks were driven in the last six months by generally good news, such as announcements about increased traffic on Web sites. But Cook noted that several stocks--including Yahoo, Broadcom, Excite and Lycos--were downgraded by analysts last week on concerns their prices had risen too steeply.
