Internet Stock Death Reports Exaggerated

SAN FRANCISCO -- Internet stocks are showing few signs of a hangover as the new year begins.

After sharp bouts of profit-taking at the end of last week, there was talk that the stock market's most favored sector could be in for a cooling as 1999 began. But as severe winter weather pummeled much of the country, high-tech stocks remained hot. TheStreet.com Internet Sector index today rose 6.84, or 1.7%, to 436.26.

"There's no reason to think the mania is over," said Courtney Smith, chief investment officer of Orbitex Management. "I'm afraid the fever will continue until someone gets punished. If people are being rewarded for being crazy, they'll continue to be crazy."

Many of the big names that soared at the end of 1998 are among the big gainers on the first day of 1999. Amazon.com (AMZN) and uBid (UBID) were among the day's biggest gainers. Amazon.com, which announced it had launched a co-branded store on SportsLine USA's (SPLN) Web site, rocketed 33 3/4, or 10.5%, to 354 15/16. UBid soared 27 5/16, or 25.6%, to 134 1/16. The online retailers were undoubtedly helped by a report from America Online (AOL) that subscribers had spent $1.2 billion on online purchases over the holidays.

Smith said it may take as much as two years for the bubble to burst, and it will likely come about as the market is flooded with Internet offerings so that supply exceeds demand. But rather than investing in some of the stocks that have grabbed the headlines for doubling and tripling in price, Smith prefers the Ciscos (CSCO) and MCI WorldComs (WCOM), which provide Internet infrastructure. He has around $70 million of the $1.2 billion in Orbitex funds invested in high tech.

"This is like the California Gold Rush," he said. "The guys mining for gold didn't make money -- it was the guys selling the picks and the pans that made money."

Mac Attack

Shares of Apple (AAPL) are modestly higher as the Macworld Expo begins today in San Francisco. Interim CEO Steve Jobs will give the keynote address tomorrow morning. Apple made waves last year with release of the iMac, which was the nation's top selling personal computer in November.

Smith said Apple's underlying fundamentals were "quite bullish." He said the iMac could eventually be in the under-$1,000 category. The company also is expected to come out with a portable computer rumored to be in the style of the iMac, though that is not expected to be announced this week. Smith also sees Apple as a buyout candidate, with Motorola (MOT) mentioned as one possible partner.

"The key thing in any business is 'differentiate, differentiate, differentiate,' and they're doing a great job of it," Smith said of Apple. The stock today rose 1/4 to 41 1/4.

A Taxing Issue

We quoted a couple of analysts last week who indicated that the decline in some Internet-related stocks since Tuesday may have been attributed to individual traders taking profits on stocks for 1999 based on the fact that settlement of the trades would not take place until 1999. After numerous emails from alert readers and discussion with our tax reporter, Tracy Byrnes, we have determined that any trade in 1998 is for tax year 1998. At one time, the settlement date could be used for tax purposes, and apparently many traders still are operating under this premise. The Internal Revenue Service Web site at www.irs.ustreas.gov has more information.

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