Five Buys for the Internet's New Day

4. Keynote Systems(KEYN) falls under the enabler category. Companies need to keep track of where the customers are going on their Web sites, to find out when they log out of the buying process, where they click, what ads they click on, etc. And this matters for mobile-phone companies as well as Web sites. I'm also a big fan of the balance sheet here: $260 million market cap, $150 million cash, no debt, $11 million cash flow generated from operations in the past quarter and steady revenue growth over the past four quarters.

Microsoft(MSFT) has been such a disappointing stock. Despite income rising every year, nonstop share buybacks, a $12 billion dividend and domination of every category it enters, the stock today is flat with where it was in 1998.

But with the recent dividend, expect Microsoft's return on equity to drastically improve. If income stays on its current track and the stock stays in its current range, the P/E ratio should be in the low teens. But this is not likely to happen.

Microsoft, if not a speculative bet, is at least a safe bet to start trading in the $30-$40 range sometime soon. People are treating MSFT like a mature, slow-growing utility company, but investors are underestimating the future fast-growing segments of online gaming and mobile software.

Tomorrow I'll have five more Internet stocks to buy, and the third portion of this series will be five stocks that are definitely not making the list right now (including everyone's favorite).

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Miva, Greenfield Online and Keynote to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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