Battered Net stocks rally

Battered Net stocks rally

NEW YORK (CBS.MW) — Internet stocks rebounded anew Friday after the curtain closed on the sector’s worst monthly performance ever.

The Goldman Sachs Internet Index rose 1.7 percent by the close. Merrill Lynch Internet Holdrs added 1.8 percent. The Amex Internet Index rallied 2.4 percent.

But the day’s activity was just modest relief after November’s Net wreckage. Many market participants did not expect a meaningful rally partly due to a presidential election that simply just won’t end.

“The two candidates have turned a win/win situation into a lose/lose situation,” said Larry Siebert, portfolio manager at Barrett Associates.

Of course, a life preserver for these sinking shares could come from Washington. The Federal Reserve could provide relief if policymakers showed a willingness to lower interest rates. “If they shift, the market is going up, regardless of what happens with earnings,” said Siebert.

Those earnings have been dragged down as a result of the slowing economy. The cooling off period, which is akin to a long, drawn-out hangover, is the perpetual concern plaguing the market.

It’s unclear how slow the economy will grow and to what extent that will dampen corporate and consumer spending. Signs of weak demand have been apparent across the board.

This has caused many analysts, investors and money managers to reassess the fair value of stocks in light of the slowdown.

For Internet shares, it’s been a conundrum. They’re the stocks that were in the hyper-growth stages and therefore assigned the highest valuations, reasonable or not.

Now, on the way down, it’s unclear just where those valuations should settle.

“The volatility proves that there is no agreement about proper valuations at this time,” said Bob Austrian, e-business software analyst at Banc of America Securities, who noted Ariba’s (ARBA) activity in the past year.

Ariba traded at $40 a year ago, climbed to $160 in March, ran back up to $160 in September and now is back down to $60. On Friday, shares fell another 2 percent to $60.81.

Ariba was among the hardest hit shares in November, falling 50 percent in the month. In fact, the B2B sector endured a significant pullback. Merrill Lynch B2B Internet Holdrs dropped 49 percent. Merrill Lynch Internet Holdrs fell 34 percent in the month.

The Goldman Net barometer, which closed Thursday at its lowest level in two years, gave up 37 percent for the month, the worst monthly performance ever.

See video report on November Net wreck.

Some of the shares gaining significant ground Friday include those that were ravaged the most in November.

Boing!

Critical Path (CPTH) surged 14 percent to $24.06. Shares of the messaging applications company crumbled 56 percent in November. Nuance Communications, which makes software to access the Internet by voice commands, saw shares jump 20 percent to $36.63. Nuance fell 65 percent last month.

While the upbeat day is encouraging, there are still signs that a slowing economy has corporate America less willing to spend on capital equipment and in some cases less willing to spend on new technology.

BroadVision Crossfire

BroadVision (BVSN) fell 11 percent to $20.13 after some bullish analysts countered a negative comment from CS First Boston.

Shares were down to $18.58 earlier after Brent Thill, an analyst at CS First Boston, downgraded the once high flier to a “buy” from a “strong buy.”

Thill cited BroadVision’s transition into a new product architecture and a slowdown in license growth as his reasons for concern.

“We believe new customers may hold off to deploy BroadVision’s solution,” he said. “We prefer to sit on the sidelines until we see tangible evidence of traction.”

Thill also pointed out that BroadVision sports a relatively rich valuation. As of Thursday’s close, BroadVision traded at 11 times calendar 2001 revenue vs. Art Technology (ARTG), at 6.8 times, Vignette (VIGN), at 6.1 times and Blue Martini (BLUE), at 9.1 times.

But other analysts weighed in on Thill’s negative comments about BroadVision. Greg Vogel, an analyst at Banc of America Securities, reiterated his “strong buy.”

With regards to BroadVision’s valuation, Vogel noted that only BroadVision and Art Technology are profitable. Vogel also said that BroadVision customers he’s checked in with plan on upgrading to the new software architecture. Moreover, BroadVision’s license revenue is not slowing down, he contended.

“On the surface, license growth looks like it’s slowing,” said Vogel. “But if you exclude the Interleaf acquisition, which closed in the second quarter, license revenue actually accelerated.”

This column is now available in an e-newsletter format. To sign up, click on our Free Market News Report page.