The New Net Leaders

A few potential winners are emerging from the dot-com wreckage. They are profitable, growing, have solid business models, and are even reasonably valued in some cases.

We're not talking about household names like eBay. The emerging leaders have names like University of Phoenix Online , Hotel Reservations Network , and CryptoLogic .

University of Phoenix and Hotel Reservations broke out to new highs on Monday. CryptoLogic is still within a year-long trading range, and only two or three analysts follow the company, but it may be the best value of the three.

University of Phoenix soared to an all-time high Monday after blowing out earnings estimates by 8 cents with 17-cent earnings. In this market and this economy, the company topped earnings estimates by almost 100%. The Apollo Group subsidiary is using the Internet to make it easier for busy adults to get an accredited college education. That may not be the kind of flashy business model that would have gotten investors' attention two years ago, but it appears to be producing results.

At 83 times earnings, UOPX is bot a cheap stock. But analysts are already raising estimates after Monday's blow-out earnings, and the stock has gotten the attention of the momentum crowd. The stock broke out to an all-time high on Monday and broke through the top of a rising channel yesterday (see chart below). The 40-42.50 range should now be support.

Hotel Reservations is an online consolidator of hotel accommodations. Based on projected earnings of 94 cents a share this year, the stock seems reasonably valued at 46 times earnings, with a two-year growth projected rate of 33%. And the breakout of a 15-point trading range gives it upside potential to 55 (see chart below). The 38-40 area should now be support.

CryptoLogic is an intriguing stock. At a $330 million market cap, it's much smaller than UOPX and ROOM, both of which have market caps of $2.5 billion. Only two or three analysts follow the company, so it's not clear how dependable earnings estimates are. But at a price-to-earnings ratio of 20 and a growth rate of 26%-34%, the stock appears to be not only fairly valued, but possibly undervalued. The company, which provides software for the Internet gaming industry, is expensive on a price-to-sales basis (8.5), but it's hard to criticize a company with a 41% profit margin and 29% return on equity. That is efficient use of shareholders' money. It has a nice uptrend going since December (anyone who picked up this stock at 7 has to be smiling), but it faces a lot of resistance in the 25 range (see chart below).