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Just Like That, E-Loan Recovers August Losses

The rest of the market may lack direction in the wake of the Federal Reserve's decision Tuesday to raise interest rates by .25%, but there's no mistaking where Internet stocks are heading: Straight up.

'Net shares continued to climb Wednesday, building on Tuesday's surge following the Fed's afternoon announcement. One of the fastest climbers has been online mortgage company E-Loan, which gained 27% on Tuesday alone, closing at $29.75.

As of Wednesday afternoon, shares of (EELN) were trading at $34.19, a stunning 46% above the Monday closing price of $23.38.

This monster gain, should it hold up, comes as welcome news to E-Loan shareholders, for it recovers nearly all of the ground the company's stock has lost this month.

After closing July 30 at $38.94, EELN shares plunged, dropping as low as $18.25 on Aug. 5. For most of the month, E-Loan's closing price has been mired in the mid-$20s, even as most other 'Net stocks were rebounding from the slump that gripped the sector from early July to early August.

I see three reasons for E-Loan's sudden resurgence: 1) The deal announced Monday to acquire CarFinance.com, an online provider of auto loans, from Bank of America; 2) A general bump enjoyed by Internet stocks as a whole in the wake of the interest-rate decision; 3) A reaction to the stock's puzzling free-fall, which began in late July, when EELN was trading in the mid-$50s.

Puzzling because all along E-Loan has continued to be an early leader in the online mortgage market, which many analysts project to be a high-growth sector.

Indeed, Forrester Research predicts the market for online mortgages will zoom from $18.7 billion in 1999 to $91.2 billion by 2003.

E-Loan's growth is impressive. Through the first two quarters of this year, the company had $9.3 million in revenue, a whopping 432% over the $1.8 million in the first half of 1998. In Q1 alone it made $490 million in loans via the Internet, ahead of its main rivals QuickenMortgage ($400 million) and Mortgage.com ($293 million).

Now, with the addition of CarFinance.com, E-Loan will diversify its revenue stream by tapping into another potentially huge market.

E-Loan's stock may have been hurt earlier this month in part because home mortgage rates are at a two-year high. Over the long-term, however, higher rates could force more homebuyers to look for better deals online.

Currently only 1.5% of all mortgages originate online. That figure will rise dramatically in the next few years, and right now the companybest-positioned to grow with the online mortgage market is E-Loan.


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