It has been quite a run for search engine and Internet stocks.
As technology investors and fund managers take cover from the aftermath of warnings by bellwether companies Intel (INTC), Motorola (MOT), and Compaq (CPQ), search engine and Internet stocks haven't had to look hard for new trading highs.
The big four navigational companies each have leaped into record territory. Yahoo (YHOO) traded as high as 92-3/8 before ending the day off 5/16, at 87-1/2; Infoseek (SEEK) hit 22-7/8 before ending the day up about 3/8, at 20-3/4; Excite (XCIT) traded as high as 59-1/4 before ending up 2-3/8, at 55-7/8; and Lycos (LCOS) reached 48-3/4 before ending the day down 7/16, at 45-5/16.
These four companies charged along in a similar run-up last September and October, before the markets took a hit from the Asian economic crisis. Since then, they have charged back at full speed, more than doubling in valuation.
Other companies in the Internet sector that have produced some healthy stock jumps in recent days include Amazon.com (AMZN). The online bookseller's stock hit a record today, trading as high as 88-1/4 before falling back a notch to end at about 83-1/8. EarthLink Network (ELNK) traded as high as 58-7/16 today before losing 7/8 to close at 54-1/2. Online auctioneer OnSale (ONSL) gained 2 points to close at 35, up 28 percent this month.
A new player to the Internet-only arena, Egghead.com (EGGS), also has seen a big run-up in its stock recently, gaining over 7 percent to end today at 12-3/16. Since its decision to close its physical stores earlier this year, the software retailer's stock has more than doubled in value.
It's been little more than four months since the Nasdaq ($COMPQ) and the Dow Jones Industrials ($INDU) each lost about 7 percent in a single day. Since then, the markets have charged back into record territory, and search companies are breaking records. Including today's closing prices, Yahoo has gained 90 percent; InfoSeek has climbed 92 percent; Excite has jumped 118 percent; and Lycos has gained 66 percent.
The mass movement away from other large cap technology companies in recent days is sending Internet stocks on a balloon ride.
"This is a redistribution of tech assets, and valuation is disconnected from company fundamentals," said Lise Buyer, an Internet analyst at DMG Technology Group. "That doesn't mean [these prices] have peaked. Investors are playing a momentum game, and in this kind of game, there is always a correction. It is just a question of how much and when," she said, noting that the March earnings season is just around the corner.
Investors and technology fund managers are looking for places to put all this money, which apparently is insulated from Asia. For most search engine and Internet companies, the majority of their revenue comes from advertising by U.S. companies, so they are relatively sheltered from economic turmoil overseas, she said.
Compaq's woes also may be playing a role in boosting these search stocks.
Last week, Compaq warned that it would miss expectations due to slower-than-expected sales, pricing pressures, and increasing inventories in the North American market. To ease those ailments, the company said it would reduce prices and forge aggressive promotions during the first and second quarters, in order to reduce channel inventories.
Buyer said if Compaq sells PCs at cheaper prices, more people will have computers, which likely will bring more people to the Internet. More people online likely will translate to higher traffic for navigational sites, which in turn will lead to more ad dollars.
An industry analyst who asked not to be named added that other Internet access technologies, such as WebTV and digital cable, also are contributing to the fundamental growth behind the booming stock prices.
"It is tough to say that these companies are overvalued when you look at growth potential. These companies have shown continued execution by not missing estimates and expanding beyond banner relationships with retailers, like Amazon.com," he said. "They are now experiencing a longer-term business model."
Now may not be the best time to jump into these fast moving stocks, he said.
"These have been significant run-ups, and if a stock runs up 100 percent, you need to see some fundamental change before you get in." Now it is time to wait for earnings to come out to see that the business is progressing right along with the stock price, he said. "We need to see revenue move, too. Maybe it won't move up 100 percent like the stocks, but maybe 50-percent growth would justify this run."