Investors' Fears of Higher Interest Rates Derail Net Sector

But the selloff should provide a buying opportunity that will prevent a big slide.
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React first, and think later. That's often been the creed of investing in the Internet sector. With the market all of a sudden paying attention to higher interest rates, investors were fleeing Internet stocks with roughly the same gusto as they were buying them yesterday.

TheStreet.com Internet Sector

index was down 25.72, or 2.1%, at 1192.63 in recent trading, already rebounding from a low of 1165.02. Virtually every recent setback in the sector has merely provided a buying opportunity, and that was likely to limit any panic selling among Net stocks.

Yahoo!

(YHOO)

was up 15, or 3%, at 490 after

Schroder & Co.

upped its price target on the stock to 600 from 350. It was the second straight day that a research firm had placed a price target of 600 on Yahoo!.

First Union Securities

came up with the same price target

yesterday.

CNet

(CNET) - Get Report

was up 2 5/16, or 4%, at 63 3/4 on news it was creating an all-tech radio format.

The Wall Street Journal

reported that CNet would team with broadcasting company

AMFM

(AFM)

to provide a wide range of programming about the technology sector.

FreeMarkets

(FMKT)

was down 16 7/8, or 5%, at 325 on news that

General Motors

(GM) - Get Report

was pulling its business-to-business auctions from FreeMarkets and giving them to

Commerce One

(CMRC)

. Commerce One was up 3 3/8, or 1.6%, at 207 on the news.

Sticking with B2B,

E.piphany

(EPNY)

was down 14 1/4, or 7%, at 188 despite news that

Xerox

(XRX) - Get Report

would be using E.piphany software to track customer buying preferences. E.piphany's decline today is due to yesterday's news that the company filed for a public offering of 3 million shares. E.piphany said it planned to sell 1.1 million shares, while stockholders plan to sell 1.9 million shares.

And on a day when much of the sector was reeling because of interest-rate concerns, online brokerages were outperforming.

Lehman Brothers

analyst Richard Repetto put out a note that online brokers were poised to move up in the short term due to strong trading volumes and the potential for positive earnings surprises.

Repetto noted that

Schwab's

(SCH)

announcement last week of above-consensus earnings expectations for the current quarter were positive and added that January was historically a strong month. He said that in January 1999,

Ameritrade

(AMTD) - Get Report

and

E*Trade

(EGRP)

experienced their strongest monthly performances of the year with returns of 150% and 96%, respectively.

In recent trading, Schwab was down 5/16, or 0.8%, at 36 11/16. E*Trade was up 15/16, or 3.3%, at 29 and Ameritrade was up 5/16, or 1.3%, at 23 7/8.

Repetto told

TSC

that there are longer-term concerns regarding how much online brokerages were spending on marketing to attract customers, along with heightened competition with more full-service brokers. But he said that short term, the strong volumes should be enough to give the sector a lift.

RealNetworks

(RNWK) - Get Report

was up 6 3/16, or 5.3%, at 121 15/16 after Lehman Brothers analyst Michael Stanek wrote that recent weakness in the stock represented a "unique buying opportunity." He noted that recent weakness on concerns that Yahoo! would replace RealNetworks on its

Broadcast.com

network made little sense. He added that no single customer accounts for more than 5% of the company's revenue other than

Microsoft

(MSFT) - Get Report

, which accounts for 8%.