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Net stocks are anybody's guess

A rhetorical question: Does anybody really know which way start-up Internet stocks are going?

A rhetorical question: Does anybody really know which way start-up Internet stocks are going?

Nowhere is this uncertainty more apparent than in the case of (IBUY), the e-commerce site founded by Bill Gross's Idealab, also known for launching well-known Net companies such as CitySearch and, which promises low-cost shopping online, launched its Web site in July 1997 and completed an initial public offering in November. The stock went public at 9 and now is trading at 32-1/8, gaining nearly 190 percent this year alone with a market capitalization of $129 million.

But today, instead of urging investors to buy shares in the company, the brokerage house Chatfield Dean initiated coverage of the stock with a "sell" recommendation--highly unusual in the business. (Last April, Volpe Brown Whelan initiated coverage of Netscape Communications with an "underperform" rating; it drew criticism but proved prescient.)

What's more, Chatfield called attention to its decision on with an eight-page press release that included a detailed analysis of the stock.

Its investment thesis: "With shares trading in the $25 to $29 range, we believe that IBUY shares are overvalued considering the company's slim margins and the large expenses as a percentage of revenue. In consideration of's near start-up stage status, we recommend that all but the most speculative investors sell shares of IBUY."

So what happened after that? Just the opposite.'s shares jumped almost 10 percent today to close at 32-1/8, up 2-13/16--a new 52-week high.

As it turned out, another brokerage, Waldron & Company, announced an immediate "buy" recommendation on the exact same stock. "The company has exceeded many of our preliminary expectations by positioning itself as an emerging e-tailer ('electronic retailer') to both the individual consumer and commercial trade marketplace," the report said.

It went on to say: "As the three other 'pure play' e-tailing companies that have traveled to record new highs, including, CDnow, and N2K, we are hopeful investors will seek an alternative company to invest in which is not fully valued when compared to these comps based upon the company's projections for this fiscal year ending January 31."

This buoyant recommendation comes despite a money-losing quarter and projections that losses will continue for some time.

As reported earlier, Internet and search-engine stocks surged at the beginning of this week, partly as many fund managers retreated form earnings warnings by bellwether companies such as Intel, Motorola, and Compaq Computer. As a result, some of them hit 52-week highs.

Since then, the stocks have retreated but still show healthy gains.

So what's an investor in Internet stocks supposed to think? On this point, all analysts agree: Be prepared for a roller-coaster ride.