Analyst Watch: Internet pundits: Show us the money

3 min read

Internet stocks still have a long way to go before they're considered a reliable indicator of the market's overall mentality. But that hasn't stopped analysts from some of the world's most prestigious investment houses from jumping ship for new gigs with online brokerage firms.

Call it putting their mouths where the money is.

Andrea Williams, the lead Internet analyst at Volpe Brown Whelan & Co., became the latest defector this week, leaving for greener pastures at E-Offerings, E*Trade Group Inc.'s (Nasdaq: EGRP) investment banking division.

While Williams was unavailable for comment, it's safe to assume she'll be receiving a healthy compensation package and the opportunity to deal more with growing population of day traders and online neophytes.

When arguably the most conservative brokerage house around, Merrill Lynch, is backtracking on its plans to avoid online trading services, you know this online trading thing is a big deal. To the chagrin of many "regular" brokers, the popularity of online trading seems to know no bounds.

The first sign came in February when Merrill's top Internet guy, Jonathan Cohen, left his prestigious post for the research director spot at Wit Capital Corp., a so-called e-manager that essentially sells portions of public stock to investors on the Internet.

While there undoubtedly have been more-and will be more in the months ahead-the departures of both Cohen and Williams show that even the best investment houses are going to have a hard time keeping their talent away from upstart online competitors.

"It's just another indication of how far we've come in such a short period of time," said Don Collier, an analyst at ProLytix Corp. "These online companies want the credibility that had long-since been the domain of the big brokerage firms. The best way to do that is to steal away some of the brightest analysts who really understand these Internet stories."

The changes in personnel are also opening up lots of new opportunities for younger analysts and those looking to change specialties.

For better or worse, the days when a guy like Tom Kurlak would hold down the chip analyst position at Merrill for 20-plus years appear to be over.

Chip and chip equipment stocks on the move

It was just a matter of time before the likes of Applied Materials Inc. (Nasdaq: AMAT), LSI Logic Corp. (Nasdaq: LSI) and Cypress Semiconductor Corp. (Nasdaq: CY) would regain their popularity in the analyst community.

This week's extremely positive report from the Semiconductor Industry Association combined with the strong economic upswing in Japan and the evolution to 300-millimeter wafers in the chipmaking industry forced analysts to upgrade some of these lower profile stocks.

Not too long ago, chip execs were championing the position that this industry was rid of the boom-and-bust cycle that had plagued its stocks. Not so fast.

Keep in mind, most of these stocks are still trading well below their 52-week highs as we head into the second half of 1999, the most productive quarters for all these companies.

If you're not a big fan of Internet instability, analysts suggest snapping up some of the leaders in this sector, like Intel and Applied Materials, and wait until January.

Net stock rumblings

As Keith Benjamin, Internet analyst at BancBoston Robertson Stephens, readily confesses, living in the Bay Area and Silicon Valley makes one feel as though the whole online world is confined to Northern California. But there's plenty of opportunities abroad.

In his latest research report, Benjamin points out that www.Web.de, appears ready to take on Yahoo! Germany for supremacy in the land of fine beers and high-performance automobiles.

"While lagging behind Yahoo! Germany, we expect Yahoo! may suffer an inherent disadvantage by not focusing enough effort on building local services," Benjamin said in his report. "In the U.K., AOL appears to losing share against competition offering free access, relying on bounties from relatively high local access charges."

No doubt, the international market will take on even greater importance once those 140-plus percent revenue improvements become a thing of the past. Like every other information technology sector, international growth and acquisitions will fuel the second round of dynamic growth.