Stockpickr: Picking at Domain-Name Stocks

Internet domain names such as vodka.com (sold for $3 million in 2006), business.com (sold for $7.5 million in 1999), sex.com (sold for $12 million in 2006) and even a misspelled word like mortage.com (sold for $242,000 in 2006) are part of the land grab of the 21st century.

Following the fortunes of companies that are stockpiling domain names -- the "arms merchants" of the domain name business -- is well worth your while, regardless of the state of the economy.

The Internet is only going to get bigger, and domain names are the keys to the kingdom if you want to do business online. And the supply is diminishing every day. I want to keep an eye on the top public companies that are stockpiling domain names and building up tangible value on their balance sheets without most of Wall Street being aware of it -- and identify those that are good buys.

But first, a brief detour.

To find out more about domain names, I called Robert Chapman, founder of activist hedge fund Chapman Capital. I've written about Chapman many times in the context of his activist holdings. Bob is a story unto himself: He had great returns for many years, broke his back surfing, quit the hedge fund business, traveled the world three times over and has now made a great comeback over the past year. I've been following his activist play on Cypress Semiconductor(CY), among others (see his portfolio page for details).

So what does this have to do with domain names? Turns out that Bob has been buying them for a decade: "In March 1996, it was obvious to me that .com was beachfront real estate available for lease at $35 a year," he told me. "A true no-brainer."