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Net services insiders buy while cheap

The recent decline in many Net services stocks poses a buying opportunity for several company insiders who are taking advantage of the lowered prices to increase their stakes.

Over the past two months, many Internet-related stocks have suffered from investors' shift out of the perceived "overheated" tech sector to the more reasonably valued and stable companies.

As a result, industries such as Internet services have suffered considerably. The Dow Jones Internet Services Index has fallen approximately 50 percent over the past two months, as compared to the 5 percent gain by the S&P 500.

The decline posed a buying opportunity for several Internet service insiders who recently took advantage of the lowered prices to increase their stakes.

Among them was Excite@Home director C. Michael Armstrong, who is also the chief executive of AT&T. Armstrong purchased 10,000 shares of the broadband Internet access and information provider on April 25 at $17.56 per share. He was joined by fellow AT&T executive John Petrillo, also a member of Excite@Home's board of directors, who picked up 1,500 shares on April 27 at $17.35 each.

The purchases occurred while Excite@Home shares were at a 52-week low, down nearly 80 percent from last May's $76.50 high. The activity marked the first purchasing at the company in more than a year, and a reversal of insider sentiment, which was overwhelmingly centered on selling in 1999. Moreover, insider purchasing has not been commonplace at the company, with only one other insider purchase completed since the company's July 1997 initial public offering. Subsequent to the recent accumulation, the company's shares have recovered slightly to the current $20 level.

Insider purchasing also occurred at the nation's No. 2 Internet service provider EarthLink. Linwood Lacy, a member of the board of directors, completed the company's largest insider addition ever by picking up 36,000 shares on April 24 at $13.30 to $13.46 apiece. The acquisition, which occurred while EarthLink shares were rebounding from a 52-week low of $10.56, was only the second insider purchase at the company since its IPO in January 1997. Lacy has apparently demonstrated great judgment as the shares climbed in excess of 60 percent to $21 by mid May.

Robert Eisenberg, president of Web hosting and server management provider NaviSite (NAVI), also participated in the recent industry insider purchasing. Eisenberg added 3,100 shares from April 11-14 at prices between $30.88 and $60.91. At the time of his purchase, shares were plunging from an all-time high at more than $160. However, the dive abruptly ended after his purchase. NaviSite's stock has since traded between the range of $30 and $50. Similar to Excite@Home and EarthLink, insider purchasing was rare at NaviSite; Eisenberg's purchase was the first since the company's IPO in October last year.

Similar activity also occurred at Go.com, where Disney chief executive Michael Eisner took advantage of a dip in Go shares to increase his holdings. Eisner picked up 50,000 shares on March 2 at $20.00 per share. Although he is responsible for most of the purchasing that has occurred at Go, the recent purchase was significant because it was both his and the company's largest. After falling to the $13 level in April, Go shares recovered to $17.50 on May 16.

At Internet service bellwether America Online, insider bullishness is demonstrated in a different manner. Although AOL executives have not purchased shares in the open market, they have withheld from selling since October. The break in selling activity is particularly interesting considering company insiders sold extensively last year. Moreover, CEO Stephen Case exercised 79,300 shares in February, in addition to the 400,000 he exercised in December, but has decided to hold on to the shares and not dispose of them.

These recent purchases are an encouraging sign, especially considering most of the stocks have appreciated following the insider activity. The purchases also signify a potential impending end to the market correction within the Internet service segment. Moreover, the rarity of the insider purchases, their magnitude, and the participation of high-profile executives lend credence to resurgence in the industry.