| BUSINESSWEEK ONLINE : DECEMBER 27, 1999 ISSUE | ||||||||
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| WHERE TO INVEST -- STRATEGIES FOR STOCKS
Halfway into the Net ''Non-dot.coms'' are a less risky way to bet on the Web How about this? Many Internet plays actually make money. And they're not dot.com names. They're companies that benefit indirectly from the World Wide Web's explosive growth, from software developers to broadcasters to the outfits that deliver the goods that cybershoppers buy from eToys (ETYS) and Amazon.com (AMZN). Like most Net plays, these Net-related stocks are not cheap. But besides offering Internet-powered growth prospects, ''non-dot.coms'' have real profits and proven track records. ''It's easier to see how earnings justify the valuations,'' says Warren Lammert, who manages the Janus Mercury Fund. ''You have to take a bigger leap of faith with an Amazon.com.'' Another plus: Companies that build and service the Net should gain no matter which dot.coms win the war for e-commerce market share. ''It's a less risky way to play a risky sector,'' says Jeffrey Applegate, Lehman Brothers' chief investment strategist. STRATOSPHERIC VALUES. Recently, stocks deemed indirect Internet plays have been as high-octane as their dot.com cousins. Especially sizzling have been what Wall Street dubs ''infrastructure plays''--companies involved in building the data corridors and networks on which the Internet travels. For instance, shares of Oracle Corp. (ORCL), whose software is used by most of the biggest Web sites, have rocketed 220% in the past six months. Sun Microsystems (SUNW), a leading provider of network software and other products, has gained 176%, and Cisco Systems (CSCO), which also makes network equipment, is up 85%. So which non-dot.coms hold the most promise now? Investors are targeting a range of sectors and companies of all sizes. The most attractive areas are those that will benefit from the Internet's latest developments, especially the wireless Web and business-to-business e-commerce. Telecommunications equipment and service providers, software companies, and chip equipment makers are all favorites. Of course, investors shouldn't ignore the stratospheric valuations of many of these companies. But the pros argue that more important factors are whether the company has a big share of a potentially high-growth market and the quality of its management. ''Buy and hold the market leaders even if they look expensive,'' advises Brian Hayward, manager of the Invesco Worldwide Communications Fund. ''The pattern we've seen is that these companies continually beat expectations.'' If a stock seems pricey, Hayward suggests establishing a small position and then adding to it when the market dips. FOLLOW THE LEADER. Sticking to market leaders is how Janus Mercury's Lammert is playing his favorite investing theme: the Internet's expected shift away from PCs to mobile devices. Over the next two years, Lammert figures every mobile phone will provide Web access. As a result, consumers will clamor for the latest wireless devices and spend more time on them. The top beneficiaries of this development, he believes, will be Nokia (NOK), the mobile-phone maker; Texas Instruments, which manufactures chips that power cell phones; and Sprint PCS (PCS), a cellular-phone service provider. Another potentially big growth area is business-to-business e-commerce. With Y2K computer problems behind them, companies should spend liberally gearing up to do business online. Ford Motor (F) and General Motors (GM) recently said that they plan to buy all their goods and services from their suppliers via the Internet. ''You'll see thousands of companies doing the same thing,'' predicts Walter Price, co-manager of Dresdner RCM Global Technology Fund. Price believes Peregrine Systems (PRGN) will cash in on this trend. It makes asset-management software that lets a company buy office equipment online and then automatically tracks its operating costs. Although its shares have soared 323% in the past year, to 81 7/8 recently, Price believes Peregrine could hit 120 within six months because it has virtually no competition. As companies forge online relationships with customers, they'll be better able to serve those customers if they can access a record of past purchases and payments in an instant. That's why Price is also high on E.piphany, whose software does just that. ''If the customer bought modems last time and paid immediately, you can offer him a product upgrade and a discount on the purchase,'' he says. Another stock set to benefit from the Net's expansion is Applied Materials (AMAT), which makes machines that produce semiconductors. ''There's a need for more chip capacity because of the new wave of digital products. And every time you move to a new generation of chips, you need new machines,'' says Andrew Cupps, who manages the Strong Enterprise Fund. MEDIA SPILLOVER. There are also promising non-dot.com plays outside tech. Media companies, for instance, are expected to profit from the advertising blitz by Web sites vying for consumer attention. PaineWebber analyst Lee Westerfield likes Clear Channel Communications (CCU), which owns radio stations, and the New York Times Co. Meanwhile, Merrill Lynch analyst Jeff Kauffman likes Federal Express' parent, FDX (FDX), because he believes it could become a prime delivery service for business-to-business e-commerce. ''UPS (UPS) is better positioned in the home delivery market, but that's just 10% of e-commerce,'' he says. Buying non-dot.com companies is a terrific way to tap into the riches of the Net. But get 'em while they're hot, because this category isn't likely to last long. ''In five years, there won't be any difference between non-dot.coms and dot.coms,'' says Price of Dresdner RCM Global Technology. ''Every company will use the Internet to grow its business.'' By SUSAN SCHERREIK _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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RELATED ITEMS Halfway into the Net TABLE: Non-Net Net Plays For the Record: Warren Lammert INTERACT E-Mail to Business Week Online | |||
