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The Unplumbed Depths of Amazon


Amazon.com (AMZN) is one major Internet player that has outperformed Google (GOOG). Yes, mighty Google. Amazon's market cap of $37 billion is just 20% of Google's $198 billion, but so far this year, Amazon's stock has vaulted 129%, vs. Google's 29% rise. What does that mean? To pros like Bernie Schaeffer of Schaeffer's Investment Research, which owns shares, investors can double their money in Amazon much faster than with Google. Now at 90.55, Amazon has the vigor to blow past its former all-time high of 113, to more than 150, says Schaeffer. Its sharp rise from 36 in January has made Amazon a target of short-selling. The shorts hold 36.8 million shares, or 12% of shares in public hands. That could be good news: If the stock jumps, the shorts must scramble to buy more to cover losses, argues Schaeffer. Jeetil Patel of Deutsche Bank (DB), which owns shares, says that, in view of market volatility and a possible recession, "we continue to favor Amazon as our top pick in the Internet sector." Consistent growth "in the 23%-30% range has persisted for four consecutive years, a trend that should buck potentially weaker consumer spending." International sales (45% of the total) plus new initiatives like digital audio and video downloads will bolster sales, says Patel, who sees profits of $1.82 a share in 2007 and $2.21 in 2008, up from $1.09 in 2006.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Technology stocks are being born anew. This includes lesser-known small-caps such as Radware (RDWR), a maker of equipment to manage and direct Internet traffic among networks for continuous access to sites and Web services. Radware's stock has rebounded from 12.31 in May to 16.50 on Oct. 17 as the company put more focus on its lagging U.S. operations, where sales were flat for three years while foreign sales jumped 50%. Christopher McLeary, the new executive chairman, was named to chart long-term strategies. CEO Roy Zisapel, who owns 12% of the stock, says he is also looking for joint ventures and partnerships to boost sales and earnings. One venture is with IBM (IBM). Such pacts will drive growth, says Rami Rosen of investment firm Oscar Gruss, who rates Radware a buy, with a 12-month target of 20. Mark Sue of RBC Capital Markets says Radware has stumbled in the past but is now more energized with new products and an upgraded sales force. He rates the stock outperform.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

With airlines' costs jacked up by rocketing oil prices, the sector isn't favored on the Street. But US Airways Group (LCC) is getting buy ratings nonetheless, partly because it has been beaten down more than its peers, making it possible buyout bait. It has dropped 36% in the past six months, vs. 16% for the other major carriers. "We think the risk/reward favors a long position in US Airways," says Robert Barry of Goldman Sachs (GS), which owns shares. It hit 63 last November but is now at 28.81. Capacity cuts by carriers bode well for US Airways, says Barry, who sees it earning $5.75 in 2007. William Greene of Morgan Stanley (it owns shares), who rates it outperform, has a year's target of 44. Among the airlines, "US Airways is the cheapest," he says. Vincent Carrino of Brookhaven Capital, which also owns shares, says US Airways may soon attract a buyer.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.


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