Funds & E-mailbag: Harmon’s Picks Beat All Mutual Funds So Far

It was kind of nice to see that the core eight stocks I picked for Harmon’s HotWatch ’99 were up 89% year to date, handily beating the entire mutual fund universe so far in 1999.

The reason I mentioned that is that Bloomberg’s listing of who’s hot and not is now making a big splash showed that the leading mutual fund through the start of March was an Internet mutual fund with a reported $156 million under management. It had a 49% gain year to date. The number three and five funds were also Internet funds. But each was under 30% in gains so far.

And now for e-Mailbag Monday:

“I was wondering about your thoughts on, the #4 online auctioneer based in Canada. They are listed on the Toronto exchange(BII) and on the pink sheets(BDCMF), but have recently applied to NASDAQ. If approved, do you expect a similar valuation to other US auctioneers?

Reply: I’ve followed (Toronto:BII.TO) since it was Internet Liquidators years ago and AOL first invested in the Canadian-based Web auction outfit. filed for NASDAQ listing February 16 and it usually takes the SEC 45-60 days to review the application. BII shares have zoomed more than 10x since last November as Internet stock speculators started looking for relatively inexpensive Web stocks.

Will it catch or match market values of Onsale (NASDAQ:ONSL), uBid (NASDAQ:UBID), (NASDAQ:EGGS)? I think the NASDAQ listing, if approved, could help the awareness of but the value equation rests with management, not an exchange. must rise above the auction noise.

Sea, Land & Air – Elemental Battles

“Steve, what is your opinion on the who will emerge as the winners in the race to provide bandwidth (or is this a recently overhyped development) – I think not as the most frustrating aspect of the Internet is staring at the screen loading)
The way I understand the basic venues it goes: 1) Phone 2) Cable 3) Space. The companies I have heard of who are among the leaders in each arena as far as a pure play is concerned are: 1) Aware 2) Broadcom 3) Gilat Satellite.

Reply: Aware (NASDAQ:AWRE) has soared from $4.25 to $44.50 the past 52 weeks after the ITU, the body that designates standards for telecom, named Aware’s DSL Lite technology a standard. DSL is the technology that allows for multimedia Internet delivery over existing copper phone wires, the ones installed in every home in the U.S.

In other words, while cable TV reaches about 68% U.S. household penetration, plain old telephone service (POTS) reaches about 100 million or 99% of homes. Not to mention businesses.

Also in favor of DSL, most businesses don’t have cable TV connections but they do have phone wires. Aware’s revenues are relatively small now, fourth-quarter was $4 million with $575k net income, but could take off with licensees Lucent (NYSE:LU) and others using and selling their DSL software.

In cable, I put @Home (NASDAQ:ATHM) at the fore of the cable Internet experience, not for subscriber numbers but for its merger savvy. Acquiring Excite (NASDAQ:XCIT) gives it one big footprint. I still think it needs more.

Broadcom (NASDAQ:BRCM) holds the enviable position of being the leader in the nascent market for Internet cable set-top and DSL chips. However, I correctly foresaw that competition is early and growing back in February when BRCM was dropped from my watch list. Intel’s (NASDAQ:INTC) $2.2 billion stock deal for network chipmaker Level One (NASDAQ:LEVL) March 4 confirmed that. I think IBM, Sony, Nortel, Motorola, Cisco or 3Com should acquire Broadcom while they can fend off Intel since Level One is light years behind Broadcom in marketshare.

On satellite Gilat (NASDAQ:GILTF), it shows some promise but it offers more than just IP data transfer so I wouldn’t call it a pure play Internet company.

Wired Wars

“I have @Home service in Lakewood, CO and I use Yahoo as my home page. When I hit the @Home icon on my windows screen the Yahoo finance page comes up. The service is very fast but not the greatest reliability. When I have an outage the service people typically take 3 days to respond. Therefore I use Earthlink as a backup service.

I can set up my @Home to use any portal as my home page and I can use netscape browser or the Microsoft browser. I don”t understand why Yahoo will suffer too much when @Home service availability is more widespread. What am I missing?

Reply: When I mentioned AOL and Yahoo (NASDAQ:YHOO) needing a broadband guarantee of carriage it was based on the cable companies’ way of thinking that they own the wire and therefore should control what’s on the wire.

Today’s free for all doesn’t matter, it’s when the cable firms can deliver on the cable Internet hype and make the default guide their own that the others may be locked out. @Home, in that sense, also may become a Yahoo rival. The battle is for the default page/starting point. In cable Internet it hasn’t been fought yet. If you could get a similar offering from @Home by default as your home page or favorite list then would you?

Microsoft has enjoyed that default ability for years with the operating system, just add another feature and it owns that market. The cable Internet OS so far looks like @Home since the look and feel, links and flowthrough are everything in the interactive space.

Accolades for Internet Stock Report:

"Fresh and provocative" -CBS
Marketwatch, who named
Steve Harmon one of the top Internet stock analysts and only independent
one honored

"I am a huge fan of Steve Harmon’s analysis"
-Kleiner Perkins’ John Doerr

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