Bottom May Have Been Reached (For Now)

Investors cautiously move back into some Internet stocks after the recent selloff while StarMedia (NASDAQ:STRM) debuts as the strongest of a handful of IPOs today. Overall the market finds a positive tone with the Dow, NASDAQ up over 1% each while ISDEX gains 6%.

I believe the Internet sector could swing and sway 10% each way for the next several weeks, tossing out the speculative stocks in the IPO pipeline but creating buying opportunities for some of the market leaders.

I expect institutional support for these larger cap Internet stocks provides some underlying support levels at the same time on a price per share basis they may become attractive to retail investors.

For speculative hunters I think the summer may prove tough going and that the value could exist more in a core of Internet stocks riding out the storm.

  • StarMedia prices 7 million shares at $15, opens at $25 3/16, goes as high as $30 and closes at $26 1/16, up 74%. This IPO looks like a more “traditional” Internet offer, less speculative runup the first day but still a healthy run, especially vs. the weaker performing IPOs today: Edgar-Online, Ziplink, Juno. Only DLJDirect joins StarMedia above the noise of offerings.
  • DLJDirect (NYSE:DIR) debuts with its IPO today, prices 16 million shares at $20. DIR pops as high as $30 3/8 before settling at $30 close. The tracking stock is 84% owned by parent DLJ (NYSE:DLJ). Ranked 7th largest online brokerage I think the public should consider if it wants to own #7 at these prices and valuation, more than $2 billion market cap.
  • RealNetworks (NASDAQ:RNWK) jumps 21% to $70 3/16 per share as an Internet mutual fund reportedly buys into the software streaming firm. I would like to see RealNetworks consider some strategies to becoming a service firm (as in a multimedia network), perhaps divesting all or part of its software side or aligning its software side strategically with a larger concern. Why? Microsoft keeps pounding the software angle but it’s much harder to win against a service. That’s why AOL and Yahoo have beat Microsoft so far, they are “services” and not “software.”

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