Friday fatigue weighs on Net stocks

Friday fatigue weighs on Net stocks

Blodget: Year-end Net rally ‘appears less and less likely’

NEW YORK (CBS.MW) — Investor fatigue set in Friday as the prospects for a year-end rally grew grimmer every day after a series of unresolved issues rounded out a week’s worth of disappointing news.

The Goldman Sachs Internet Index gave up 5.7 percent on the day and lost 16 percent for the week, despite rising 2 percent on Election Day.

The Amex Internet Index fell 6 percent. Merrill Lynch Internet Holdrs gave up 4 percent on the day and 13 percent for the week.

Dell Computer’s warning issued late Thursday and the delay in the regulatory approval process over AOL and Time Warner’s merger reflected the lack of healthy news and certainty needed to inspire investors. The presidential stalemate, on its third day and counting, added another negative dimension.

“There is fatigue in terms of emotions,” said Brian Belski, a fundamental strategist at U.S. Bancorp Piper Jaffray. “We’re tired of trying to discount when this will be done. The decline has nothing to do with the presidential choice, but it has everything to do with lack of clarity. “The last thing the market needs is more confusion.”

Apparently, there isn’t much that’s capable of lifting this market out of its slump, as the prospects for a year-end Net rally look grimmer than ever, especially after the week’s blow-ups.

“We think a minor rally in consumer Net stocks is still possible,” said Merrill Lynch analyst Henry Blodget. “But it appears less and less likely.”

Sentiment is “currently awful,” he allowed.

Other analysts and money managers would probably throw in the terms “exasperating,” “painful” and “sobering,” as well.

Week’s miserable highlights

Shares of companies vulnerable to the advertising slowdown were the hardest hit this week. 24/7 Media (TFSM) lost 13 percent to $2.56 on the day, but plunged 55 percent on the week after the company missed quarterly expectations and warned of lower sales.

Merrill Lynch B2B Internet Holdrs, a measure of business-to-business stocks, fell 5 percent on the day but slumped 25 percent on the week. Leading the decline in the B2B gauge was Internet Capital Group (ICGE), a company with a portfolio of out-of-favor private and public Internet issues. Shares of ICG lost 5 percent to $10.69 on the day, but 43 percent for the week despite efforts by the company to shift its focus in order to realize a return on investments.

Investors, however, aren’t convinced the public market is ready for just any new offering.

At least not until the last dot-com bomb is gone. Pets.com (IPET) jumped 14 percent to 25 cents on Friday. But the stock, already severely depressed, swooned 58 percent for the week. The online pet retailer announced earlier this week that it was winding down operations.

Priceline.com (PCLN) added 13 cents, or 4 percent, to $3.34. For the week, shares flopped 29 percent.

The Net’s blue chippers

America Online (AOL) lost $2.23, or 4 percent, to $50.45. Time Warner (TWX) fell 3 percent to $76.35. The Federal Trade Commission has pushed out its vote on the merger for up to three weeks. Shares of both companies fell on Thursday in anticipation of a delay. The regulatory approval process that’s kept the final stamp of approval for the AOL and Time Warner deal on hold has also held back any share-price appreciation for both stocks. AOL’s 200-day moving average is $56.56, a few dollars above its current level. Time Warner shares traded above $100 in April.

A framework that opens Time Warner’s cable lines to Internet competitors had already been constructed, but regulators may insist that AOL Time Warner strike a deal with at least one major ISP, such as EarthLink or Microsoft’s MSN, according to published reports.

Shares of Yahoo and EBay (EBAY) attracted interest earlier in the session but both found that by the close the bids were gone.

Yahoo (YHOO) fell 4 percent to $56.44 and fell 18 percent for the week. EBay gave up 5 percent to $46.06 and lost 16 percent for the week.