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Emailbag Monday: Correction Coming? Softbank, Portals and More

First reader up this week writes:

"I'm wondering if you feel that the correction is over for now or just taken a short break. I've made one big mistake and that is margin. I started out with 18,000.00 of my own money last August and before this last correction was up to 297,000.00 dollars.

I've managed to make this much money in a large part because of your daily stock reports and your newsletter. Anyway I'm now at 178,000.00 and I have about 150,000.00 margin. I'm afraid if the downturn continues I'll lose everything fast, if I'm lucky and things go up again, I'm going to liquidate my margin when I get back to my old high. It's just so hard there are so many stocks that I like and I feel like a kid in a candy store who has credit."

Reply: I think the correction we saw April 16 to 19 is over. But the summer months have been traditionally slow for technology stocks so I expect some choppy waters for the next few weeks here, with more individual stocks rising on real events more than speculation, which tends to drive the whole group one way or another.

As far as your own portfolio goes the rewards and risk are up to you. I don't give individual advice. However, in general I think taking profits may be a good idea with so much margin exposure.

Softbank

"Dear Steve, I'm interested in your opinion about Softbank. You mention Softbank sometimes together with CMGI. It seems that there are some similarities between those companies. In Asia there should be big opportunities and growth in the Internet sector in the future, so Softbank could be well positioned with its Asia investments. What do you think about it?"

Reply: In 1996 the common logic was that Softbank was investing on anything and everything Web and that it would either be one of the biggest investment successes or failures in the Internet space. As time has shown, Softbank turned its initial investments into quite a valuable portfolio. One in particular, Yahoo (NASDAQ:YHOO) has paid back its investment in practically the entire Web sector on its own.

To me there exists some similarities between Softbank (which trades in Japan on the Tokyo Exchange) and CMGI (NASDAQ:CMGI), an Internet venture investor and incubator. However, Softbank is more than an Asian stock or story, it has a wider reach and diversity with its Ziff Davis, ZDNet, COMDEX and other investments in the U.S.

Portals Passe?

"Steve, ZDnet and some others are starting to talk about how the portals stocks are going to take a dive. They claim their business model is being used by corporations, etc and that less and less people are going to these portal sites. Any opinion? Also you use to have Beyond.com (BYND) on your hot list? Is it still out of favor?

What about Broadcom (BRCM)? This seems like a great company but the stock hasn't done much of late? What is the future for this company? Nothing I've read makes me want to sell in the short or long term but..."

Reply: Portals are always in flux, adding new features, acquiring companies, trying to stay at the center of the user experience. I don't think corporate Web sites will replace the functionality and user ability of a general-purpose site like Excite (NASDAQ:XCIT) or Lycos (NASDAQ:LCOS).

Some concern has been raised by etailers and marketers who have shelled out big bucks to the portals for exclusives who say they may not be renewing their contracts due to the low response rate.

A built-in catch-22 exists in these sorts of deals that favors the seller, not the portal. Consider if you buy a book by referral from a search site that sends you to Amazon then the next time you buy a book you go straight to Amazon. The solution for the portals may be to open their own niche stores.

Beyond.com (NASDAQ:BYND) was added to my list in February and so it stays.

Broadcom (NASDAQ:BRCM) is not on the list now but I do like its $316 million acquisition of home networking startup Epigram, a move which puts Lucent (NYSE:LU) and Intel (NASDAQ:INTC) on the defensive. Broadcom leads the broadband chip market across telco and cable modem markets.

Fax It In

"Steve, I would appreciate your thoughts on the Internet faxing companies. The ones i'm aware of are efax, faxx, bogn, and an upcoming ipo from jfax."

Reply: eFax (NASDAQ:EFAX) ran on early attention from one its investors, Tim Draper, a venture capitalist at firm Draper Fisher Jurvetson. At this point I prefer EFAX to the others based on its newfound awareness in the market, although the integrated offerings of voice, fax and email from JFax seems more complete of a solution than just one part. The problem with both eFax and JFax may be in their names. JFax, for example, offers more than just fax.

Driving New Stocks

"Wondering if you've posted/written about AWEB or looked into it?"

Reply: Yes, Autoweb (NASDAQ:AWEB) and Autobytel (NASDAQ:ABTL) both represent what I consider to be next-generation ways of selling vehicles. Of the two, ABTL trades at a discount to AWEB on a revenue multiple basis. The risk here is if the auto dealers start providing referral services directly, helping you find the dealer and best price in your area.

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Accolades:

"Fresh and provocative" -CBS Marketwatch, who named Steve Harmon one of the top Internet stock analysts and only independent one honored

"I am a huge fan of Steve Harmon's analysis" -Kleiner Perkins' John Doerr



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