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Palm soars on analyst upgrade

    Palm Inc.(Nasdaq: PALM) jumped 12 percent Thursday after a leading brokerage upgraded the stock and said it has been oversold.

    Morgan Stanley Dean Witter upped Palm from "outperform" to "strong buy."

    Shares were up 3 3/16 to 30 15/16. 3Com Corp. (Nasdaq: COMS), which recently spun Palm off, but is still a 90 percent owner, saw shares gain 2 13/16 to 42 3/4 Thursday. Palm has fallen sharply since hitting a high of 165 following its IPO. It didn't help that the company projected slower growth ahead.

    "The combination of a tough market, the arbitrage between Palm and 3Com, and some lack of investor knowledge have caused Palm shares to be oversold," said analyst Gillain Munson in a report. Munson said the upgrade was based on valuation, with Palm shares trading at nine times 2001 revenue estimates. Munson maintains a $70 price target on the stock and believes that the fourth fiscal quarter will be strong.

    Munson also said the rise of competitor Handspring, which has filed to go public, will also be a boon to the handheld market.

    "We are believers in the Palm Platform and the Palm Economy," Munson said. She cited Palm's 6.6 million users, 70,000 developers, 5,000 applications, 150 add-ons and many licensees, as proof that the Palm platform is strengthening.

    The company announced Tuesday that all of its handheld computing devices, some of which already have access to the Internet, would be able to access the Web by the end of the year.

    The company did not offer details about changes to product lines, but said it was testing Blue Tooth wireless connections, which allow for any device to connect, without any cords, to other devices, computers, and peripherals such as printers.

    Palm is also in talks with Sony Corp., which is developing smart phones, for potential collaboration on new products.