Beware The Bouncing Bottom-Feeders

In terms of percent gains, the past week was one of the best in memory for
Internet stocks, as measured by internet.com’s Internet StockTracker weekly
newsletter.

All 12 sectors followed by StockTracker posted double-digit advances in the
five days of trading ended Wednesday, led by Consultants/Designers (up 31.4
percent) and Advertising/Marketing (up 31 percent). Even the
worst-performing sector, Search/Portals, notched a 14.6 percent gain.

But before we conclude the prolonged rally Internet investors have thirsted
for has begun, it must be noted that many of the big gainers in the past
week were bouncing off new all-time lows.

Take college student information and services portal Student Advantage . Please. On May 31, shares of STAD ended trading at 3 1/16, a
new bottom and 89 percent below their all-time closing high of $28 set last
Dec. 8. With no catalysts in sight, the stock soared 133% in the ensuing
week to close Wednesday at 7 1/8. It fell to $7 per share on Thursday and,
after announcing an extension of its marketing agreement with AT&T after
Thursday’s market close, climbed to only 7 1/4 by early Friday afternoon.

The second-biggest gainer of the week was drkoop.com , which
climbed 123% to finish Wednesday at $2.44. I don’t even want to go there.

And while the third ‘Net stock to more than double in price this week,
bandwidth management software maker Packeteer , wasn’t
coming off an all-time low on May 31, it was pretty darned close. PCKT
closed that day at 12 15/16, less than $1 per share above its new floor of
$12 established a week earlier. The stock finished Wednesday at 27 3/16, a
gain of 115 percent.

Then there is online postal services provider E-Stamp , which
announced in mid-May that it would expand its offerings of mail and shipping
products and services for business customers. ESTM hit a new bottom of 1
11/16 on May 31 before gaining 78 percent to close at $3 per share on
Wednesday. Again, no catalyst was at work here, other than the Law of
Physics.

When you have stocks such as these leading the charge, it’s hard to get
terribly excited about an apparent rally. Most of the bottom-bouncers will
lose momentum in the coming week or weeks, making a repeat performance less
likely.