I appeared on CNBC yesterday talking about Internet investments. I had three minutes to peer into the soul of the information age and explain to Warren Buffet why he should buy Internet stocks. But he was too busy eating a Dilly Bar and downing it with a Coke.
While CNBC failed to mention our top 10 picks being up more than 170% in six months (click here and see Internet Stock Report, July 7), some things emerge in stream of consciousness style that only the TV fish eye can provoke.
For those of you not tuned into the cable channel at the pre-market hours, here’s a between-the-lines read, sound byte style, on what I would have said, given the time:
- We think AOL (NYSE:AOL) could be (or already is) the Microsoft of the Internet industry. Only better. It could also be the NBC, AT&T and Wal-Mart. What can you do with 22 million (AOL + ICQ) customers and an array of goods and services?
In 1995 nobody believed Microsoft would be a $300 billion market cap firm. AOL at $25 billion in pure digital margins business looks cheap in our view. In three years where will AOL be? With AOL.com, with maybe 45 million users.
This isn’t Bill Gates’ code warrior intensive effort of perpetually updating an operating system or application. AOL is a pipeline play for the gamut of content, commerce, communications.
- Wannabe Internet stocks abound. Press releases fly fortuitously from PR headquarters announcing plans to acquire Web sites and become the next Yahoo. So in reference to Zapata (NASDAQ:ZAP), we said if it smells like fish oil it’s probably a fish oil company. ZAP could be a factor in the Internet, but it’s like a 3-foot tall basketball player saying he can dunk. Dunk first and we’ll be the first to applaud.
- Connect (NASDAQ:CNKT) looks cheap in our view. The e-commerce software maker market cap sits in at about the same level venture deals are done. Said another way, three college kids scribbling “e-commerce” on a napkin at Denny’s over a grand slam breakfast would get a higher valuation for their paper.
- Check Point Software (NASDAQ:CHKPF) is one we’ve watched for a while. We’ve got faith in its fat net margin and market leading position as firewall software maker. Its alliance with OPSEC to standardize security software so they can all get along together, has been dogged lately. We hear it’s a control battle behind the scenes. I say acquire a stable of security software makers and round out your offering. Focus on the goal.
- Netscape (NASDAQ:NSCP) may be a browser bruiser after all. Encourage everyone to try its new beta Communicator 4.5 and let us know what you think.
- There were many startups and fresh faces at Summer Internet World, all privately held. We mention this because innovation is what the Internet thrives on. More innovation equals more users. More users equal more value for already public firms who rise further to the top as others add to the overall industry value. So the Internet’s not a biotech phase or tulip craze.
Said another way, if you believe in the industry, bet on it. We’ve seen its legs and they keep running and getting stronger. It’s also good to stay on top of private companies in case one dethrones a public one you thought was hot.
- ISDEX is 50 stocks, up more than 60% since December 31. We think these stocks are representative of the industry. ISDEX may also be licensed as a mutual fund soon and other financial instruments.
Watch for a no-load ISDEX mutual fund run by one of the larger mutual fund groups. Maybe it’ll happen. You requested it. ISDEX futures contracts may also be on tap.
As the sun started turning up the heat in Chicago, we left CNBC studios after saying some of the above. We really wished we said a lot more of the above, but we didn’t get a chance to.
This leads us to thinking maybe CNBC ought to have us on once a week to squawk, banter and really get into the nuts and bolts of Internet stocks.
Our next visit is already lined up in our minds. For that we turn to the investment wisdom gleaned from that old Wall Street favorite, country singer Kenny Rogers.
In a really bad karaoke style, we’ll sing this tune:
“You got to know when to hold ’em (Yahoo, Excite, Lycos, Infoseek, Sportsline, E*TRADE, @Home); know when to fold ’em (Quarterdeck, NetManage, FTP Software); know when to walk away (see previous); know when to run (Wired).
You never count your money when you’re sitting at the table (Microsoft-MSN-HotMail-Vermeer-WebTV-Comcast-DreamWorks-MSNBC); they’ll be time enough for countin’ when the dealing’s done.” (in the Internet it never is).
Thanks Chicago, we enjoyed your hospitality. Fade to gray, bring up commercial.