Web Weaklings Flex Muscle

Wall Street may fixate on Google(GOOG Quote), but the action for Internet investors lately has been in once-abandoned niche companies.

The Knot (KNOT Quote), Stamps.com (STMP Quote) and WebMD (WBMD Quote) all have gained more than 40% this year. Meanwhile, mega-caps including Google, Yahoo! (YHOO Quote) and eBay (EBAY Quote) have declined.

Even more telling is the coverage of Wall Street analysts. The Knot, a wedding site that is up 61% this year, is covered by four analysts, while Stamps.com, an online stamp outfit, is up 52% and covered by five. Google, down 6% for 2006 after head-spinning gains in 2004 and 2005, is covered by 26.

Some investors see Wall Street's lack of interest as a plus for the smaller companies.

"People were just realizing that some of these under-the-radar, smaller-type names had built pretty significant franchises on the Web," says Darren Chervitz, director of research at Jacob Asset Management, which owns Internet shares. "I would caution investors that in many cases the easy money has probably been taken care of, but there are still plenty of opportunities."

These businesses are all benefiting from the surging popularity of search, which makes it easier for potential customers to find their sites. In addition, advertisers are also attracted to niche sites because it allows them to target their messages to consumers interested in hearing them.

"People are just getting more comfortable using the Internet," says Michael Pachter, an analyst with Wedbush Morgan, which rates both Stamps.com and PetMed as buy. "It's not the early adopter that make these stocks work, it's the mainstream consumers."

Mid-cap Internet companies that do have a following on Wall Street are also doing well. Health site WebMD, which Morgan Stanley, Citigroup and Goldman Sachs began covering late last year, has seen its shares rise 44%. Homestore (HOMS Quote), which operates the Realtor.com site, is up 25%.

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