Internet Sector Maintains Early Strength - TheStreet

Internet Sector Maintains Early Strength

Although some say money will go into Dow plays, technology isn't losing its luster.
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Yesterday, the talking heads waxed on about investors taking money out of technology in favor of more traditional

Dow

plays. And while there no doubt was some money going into the broader market, it looks like little came at the expense of technology, which continues to draw much of investors' attention despite its grandiose moves.

TheStreet.com Internet Sector

index was up 40.43, or 3.7%, at 1125.33 in early trading, and

TheStreet.com New Tech 30 index was up 15.41, or 2.1%, to 738.94.

Federal Reserve

Chairman

Alan Greenspan

was set to deliver the second round of his

Humphrey-Hawkins

testimony before the

Senate Banking Committee

. While his speech will be the same one he delivered to the

House Banking Committee

last week, the question-and-answer period could provide additional insight into what the chairman is thinking.

America Online's

(AOL)

woes since its announced merger with

Time Warner

(TWX)

have been well documented. It finally found some relief today after

Merrill Lynch

spoke positively about the deal and both companies. AOL was up 4 5/8, or 9%, at 54 1/4 early on, while Time Warner was up 5 7/16, or 7%, at 79.

Merrill analysts wrote that the merger "will prove a strong combination, one that increases the value of both companies and facilitates 1) operating synergies, 2) the transformation of existing businesses and 3) the launch of new businesses." Merrill, which has done underwriting for both AOL and Time Warner, maintained medium- and long-term buy ratings on AOL with a 12-to-18-month price target of 90, noting that at 49 1/4, where it was trading yesterday, the stock "appears undervalued by almost any measure."

"We do not see much downside at current levels," the analysts wrote. "We believe there is a risk that both stocks remaining trading range for a while as investors develop a framework for understanding and evaluating the merger. However, we view this as an excellent buying opportunity. Given the (surprising) lack of spread, we are indifferent as to which stock investors buy."

Merrill also initiated coverage of

eBay

(EBAY) - Get Report

with intermediate and long-term buy ratings and a 12-to-18-month price target of 175. Analyst Robin Boney wrote that the major risks in owning eBay were "valuation (212 X 2001 P/E), volatility and general weakness in the consumer Internet sector." eBay was up 8, or 6%, at 142 1/2 on the news.

In other action by analysts,

Bear Stearns

initiated coverage of

Extensity

(EXTN) - Get Report

with a buy rating and a 100 price target. It was up 2 3/4, or 4%, at 68 3/4. Bear Stearns was a co-manager of the Extensity IPO last month.

U.S. Bancorp Piper Jaffray

was banging the table on

GoTo.com

(GOTO)

, writing that recent losses in the stock presented a "great buying opportunity." It reiterated a strong buy rating on the stock with a 12-month price target of 62. GoTo was up 1/2, or 0.7%, at 70. U.S. Bancorp Piper Jaffray has not done underwriting for GoTo.

Analyst Safa Rashtchy wrote that GoTo's stock has been under pressure lately due to a planned distribution by one of its original owners to its partners. Rashtchy indicated that the distribution "is consistent with the firm's policy on holding all Internet-related stocks and is not specific to GoTo. We believe that most of the distribution has already been done with only small amounts remaining, thus making this the right time to buy the stock."

U.S. Bancorp Piper Jaffray also reiterated a strong buy rating on

CMGI

(CMGI)

, writing that "all signs point toward a terrific quarter." Rashtchy wrote that he expected a strong pipeline of CMGI companies going public in the coming months, further international expansion and the proliferation of its

Engage Technologies

(ENGA)

advertising network. He wrote that based on its revenue potential, the stock was "undervalued" despite recent big run-ups, but would continue to appreciate as the new catalysts unfold. U.S. Bancorp Piper Jaffray has not done underwriting for CMGI. The stock was lately up 7 7/32, or 6.9%, at 111 31/32.

Prudential Securities

also came out with a positive note on CMGI, writing that the company has a "home run" with

1stUp.com

, a free Internet service provider. Analysts reiterated a strong buy rating on CMGI and a 216 price target. Prudential is a co-manager of the upcoming

AltaVista

IPO.