Tech Slammed, Except, of Course, the Net Stocks

You just can't keep 'em down.

In a downright ugly day for technology issues, a handful of highflying third-tier Internet stocks held their ground -- and then some.

After falling with the overall market in the morning, K-tel (KTEL) and 7th Level (SEVL) jumped in the afternoon and ended the day up 19% and 30%, respectively, amid heavy volume.

The two companies emerged from relative obscurity recently when they announced new online strategies. Their stocks soared as investors who might have missed out on spikes in Yahoo! (YHOO) or America Online (AOL) raced to get in on what they hope will be the next great Internet success story.

But late last week, both stocks slumped off their highs. They seemed poised to fall further as general market sentiment turned bearish.

"If you asked me if I though those Internet stocks would go up on a day when the Nasdaq was down big, my answer -- after I stopped laughing -- would be 'of course not,'" says Marc Klee, portfolio manager of (NTTFX)John Hancock Global Technology.

Still, Klee is not shocked at their resilience. Given the stocks' lack of liquidity, the lack of information and hype by both longs and shorts, he says wide price swings are to be expected.

"They're like a guy going into the Mirage casino and betting on black," says Michael Moe, the growth-stocks strategist for NationsBanc Montgomery Securities. "They defy logical behavior."

They're unlike many aggressive growth stocks that fly up and down on the whims of momentum managers, Klee says, noting that they're more unpredictable because they're retail driven.

Even "traditional" Internet stocks like Yahoo!, down 2.3%, and Amazon.com (AMZN), off 2.5%, held up fairly well today considering their volatility. The tech-saturated Nasdaq Composite Index slumped 2.6% with losses coming equally in semiconductors, hardware and every other subsector in the group.

"It's hard to find things that escaped the carnage," says Klee.

Besides the Internet newbies, one other stock that stood out was Yurie Systems (YURI), a small networking company that received a bid from Lucent (LU) for $1 billion, or $35 per share in cash. The stock jumped more than 10%, or 3 1/4, to 34 3/4 on the news. Amerindo Investment Advisors, the company that runs the aggressive (ATCHX)Amerindo Technology filed documents with the Securities and Exchange Commission that they owned more than 10% of Yurie as of earlier this month. The company could not be reached for comment.

>To order reprints of this article, click here: Reprints