It’s tongue in cheek or mouse in modem to slam Internet stocks as
overvalued, risky, and volatile. What Wall Street forgot, however, was
that with those three elements also comes reward. Those few who believed
last year when ISDEX was at 63 are in the money today as ISDEX soared to
more than 140 the past few trading sessions.
Conventional wisdom in news reports says that weakness in chip stocks such
as Intel (NASDAQ:INTC) and the like drives hungry hunters into the stock de
hour (not jour, that implies more than 60 minutes).
Parades of analysts
come out of the woodwork with reasons why softness in silicon fueled hard
runs in Internet stocks. We say only partly true, the truth is much deeper
than that.
It depends on how you interpret technology stocks and, more importantly,
Wall Street’s generally backwards view of Internet stocks. Somewhere along
the way, Internet stocks were seen as part of this huge basket of
technology stocks, with PC stocks always on center stage.
But that’s akin to putting stocks of TV makers ahead of the broadcasters
based on the logic that if more TVs are sold then the broadcast stocks
should be OK.
Yet, if Sony TV sales slowed nobody would say that
broadcast stocks like Disney (NYSE:DIS), CBS (NYSE:CBS) etc. are suddenly
in trouble.
While PC sales do drive Internet penetration, PC usage isn’t
the only driver of the Internet industry, especially the emerging
ones.
Chip stocks’ suffering may cause money to look for the Internet but
we say that’s a little lite on reason.
For four years we’ve been saying
Internet stocks are a much more robust basket than chips and silicon ever
will be.
Why?
Devices, diversity, dynamic dichotomy. Not exactly a descriptive
explanation, but consider that TVs, phones, and personal digital assistants
are all being Web-enabled. These are not PCs. There are more TVs on the
planet than PCs…and more phones.
E-mail to a phone anywhere in the world. Email via TV. These may be common
place in a matter of a few years.
Not only that simple application of the Internet, as powerful as it is,
think about business and how Internet Protocol-based communications could,
and is, changing it. Within companies, a whole IP-based telephony
system.
Commerce–buy anything and ship it anywhere in a few mouse
clicks.
Entertainment, likewise. All the networks and movies have URLs.
ABC.com.
Look at the array of corporations with Internet-ization: ATT
(NYSE:T), MCI (NASDAQ:MCIC), FedEx, NASDAQ, Barnes and Noble, Auto-By-Tel.
These firms represent communications, delivery, stocks, publishing, and
auto industries. Quite a diverse group.
Fluidity allows each company to apply the Internet as a solution to
increase sales or cut costs or both.
So as we watch Internet stocks wake up to a wider awareness on Wall Street,
some of them may be overvalued indeed. Some undervalued. Investors
clamoring on board, some not knowing what ride they’re on, others very
familiar with the ups and downs.
Our short take, Internet stocks are up because this sector represents one
of the most dynamic growth opportunities for investors. Chips are
one-product horses–donkeys even. The Internet is a teeming herd of wild
mustangs, with everything that implies.
