Net Stocks Snap Out Of Doldrums
SAN FRANCISCO (CBS.MW) – Net stocks snapped out of their earlier doldrums Thursday to end on an upbeat note as hosting and application service providers led the charge.
The Goldman Internet Index rose 1.3 percent, after spending much of the day in negative territory. The Nasdaq Composite rose 48 to 3,845.
The gains could extend into Friday’s trading action, according to some portfolio managers.
“The action by Hewlett-Packard and Lucent could really set up the high-tech sector to pop on Friday,†said Michael Holland of Holland & Co., referring to the rise in both stocks following positive company initiatives.
Still, high-tech bulls may not be chasing Internet stocks higher.
“These Net stocks had a run-and-a-half at the start of the month,†said James Glickenhaus at Manhattan-based Glickenhaus & Co., whose Delphi Fund is up 78.8 percent since January 1.
“Investors are saying: ‘Enough, I’ll take my profits and buy a house. Besides, since when did we figure out the appropriate valuations for this sector?’â€
Investors continued to place bets in the Web hosting and application service provider sectors.
Content and applications are moving off the desktop and onto the Net, said Michael Turits, an analyst at Prudential Volpe, in a note to clients. Turits started coverage on five companies in the Internet infrastructure, hosting and application services sector.
Coming of age
USinternetworking (USIX) rose 1 13/16, or 10 percent, to 20 5/16. Prudential Volpe analyst Michael Turits initiated coverage with a “strong buy.â€
USinternetworking provides hosting within its own data centers, network connection services as well as management of servers and applications.
Turits also put a 12- to18-month price target of $42 on the stock, giving the company an enterprise value (market capitalization plus the net debt) of $4.5 billion. By 2002, Turits expects USinternetworking to turn EBITDA (earnings before interest, taxes, depreciation and amortization) positive and generate $413 million in revenue for the full year. Turits expects USinternetworking to generate $107 million in sales this year.
Additionally, Turits started coverage on Exodus (EXDS) with a “strong buy†and a price target of $149; Digex (DIGX) was initiated with a price target of $102 and a “strong buy†rating. NaviSite (NAVI) and PSINet (PSIX) were started with an “accumulate†rating.
Exodus gained 4 3/4, or 5 percent, to 93 1/8; Digex rose 3 3/8, or 5 percent, to 69 3/8; NaviSite rose 5/8 to 45 9/16; PSINet was unchanged at 30 1/8.
Sobering music
CDNow (CDNW) fell 1 3/32, or 26 percent, to 3 13/16. The troubled online music retailer said it is not certain that the company will secure an investor or merger by June 30, or at any time.
On June 2, the stock soared 111 percent to 4 7/8 after the company said the process of seeking a merger partner or investor could be concluded by June. 30. Also, any offer received “may be below the current market price†the company said.Â
Bambi Francisco is Internet editor of CBS.MarketWatch.com.