Pulse: Net Stocks Ride Against Nasdaq's Downward Current - TheStreet

On a day that the

Nasdaq

saw some solid profit-taking, Internet stocks outperformed as tech investors looked for some bargains in the beaten-down sector.

The Nasdaq ended the day down 91.15, or 2.15%, at 4143.18, hurt in part by a

downgrade of

Intel

(INTC) - Get Report

. The chipmaker finished the session down $4.69, or 6.3%, at $69.25. But

TheStreet.com Internet Sector

index rose above the fray to close up 22.11, or 2.6%, at 868.81. Some traditional Net names performed well, as did select business-to-business plays.

The biggest news in the sector was the performance among Web hosters after

WorldCom

(WCOM)

agreed to buy telecom provider

Intermedia Communications

(ICIX)

.

Intermedia is the controlling shareholder for Web hosting company

Digex

(DIGX)

, which has been on the block and was a target of

Exodus Communications

(EXDS)

.

Exodus ended the day down $3.38, or 5%, at $62.81, amid disappointment that it was not the acquiring company. As analysts at

Morgan Stanley Dean Witter

pointed out in a note, Exodus has rallied on hopes that it would strengthen itself through the purchase of Digex. Morgan analysts indicated that Exodus could fall between 15% and 25% in the near term, so today's price action had to be considered a positive.

But Digex closed down a sharp $16.63, or 20%, at $67.88. Morgan also lowered its rating on Digex to outperform from strong buy, in part because the acquisition price was below where the stock was trading on Friday. Digex also has had a huge run of late in anticipation of being acquired, and the fact that it was not an all-out buyout of the company likely was a disappointment to some shareholders.

The deal did aid some other Web hosters on hopes they would become acquisition targets.

NaviSite

(NAVI) - Get Report

closed up $2.38, or 5.3%, at $47.06, while

Interland

(ILND)

, a Web hoster targeting small businesses, closed up 59 cents, or 9%, at $7.19.

A number of traditional Net names were making headlines as well.

America Online

(AOL)

closed down 63 cents, or 1.1%, at $57.13 on

news that the

Federal Trade Commission

was asking AOL and

Time Warner

(TWX)

for major concessions before it will grant approval to their proposed $129 billion merger. The FTC reportedly has concerns over access to high-speed cable lines that Time Warner currently controls, but as our own

George Mannes

wrote in an earlier

piece, there is little to suggest the merger runs the risk of falling apart.

Excite@Home

(ATHM) - Get Report

, which also offers high-speed digital access and would benefit from open access, finished up $2.31, or 16%, at $16.81.

Also among Internet bellwethers,

Yahoo!

(YHOO)

ended up $3.19, or 2.8%, at $117.13 and may have led the rest of the Internet sector higher. At one point today, it traded as low as $110.38. The stock finally saw some relief after being battered last week over concerns regarding a slowdown in Internet advertising. Both

First Union Securities

and

US Bancorp Piper Jaffray

came out in support of Yahoo! today.

Amazon.com

(AMZN) - Get Report

, another beaten-down Net name, closed up $4.19, or 10%, at $45.69, while

eBay

(EBAY) - Get Report

climbed $4.63, or 7.4%, at $67.50.

B2B stocks also continued their rally from last week amid ongoing hopes that the sector will continue to show good growth this quarter.

PurchasePro

(PPRO)

gained $5.13, or 9%, to $62.63;

Commerce One

(CMRC)

added $3.25, or 5%, to $69.25, though it traded as high as $73.31; and

FreeMarkets

(FMKT)

climbed $4.69, or 5.7%, at $87.56, though it traded as high as $92.06.

2:05 p.m.: Nasdaq Down in Afternoon Trading

The Nasdaq may be down today, but don't bet that it's out.

Despite today's losses, the technical outlook remains positive, says Dick Dickson, technical analyst with

Scott & Stringfellow

. He said the market was likely seeing some profit taking that he expects to be brief.

The Nasdaq was down 51.5 to 4182.8 in recent trading.

TheStreet.com Internet Sector

index was up 15.02 to 861.72. Weakness in

Intel

(INTC) - Get Report

after it was

downgraded by

US Bancorp Piper Jaffray

was being blamed for much of the weakness in techs.

"Liquidity appears to favor an up month with good cash flows into mutual funds, a rise in the average mutual fund cash position, a relatively light IPO/secondary calendar and continued cash merger and acquisition activity," Dickson wrote in his morning briefing. "So bottom line appears to be that there could be some minor weakness immediately ahead, but overall it looks as though the market should move higher over the next few weeks probably led by the tech stocks."

Those investors who bought

Lycos

(LCOS)

last week amid talk that its merger with

Terra Networks

(TRRA)

was progressing, were disappointed today. The Internet portal was down 3% after

Lycos Europe

reported a large loss for the current quarter. Losses, which totaled 99.7 million euros or $89.4 million, were blamed on increased sales and marketing costs.

Salomon Smith Barney

began coverage of a number of business-to-business stocks today. Salomon initiated coverage of B2B leader

Ariba

(ARBA)

with a neutral rating;

i2 Technologies

(ITWO)

with an outperform rating;

Commerce One

(CMRC)

with a buy;

WebMethods

(WEBM)

with an outperform rating; and

Oracle

(ORCL) - Get Report

with a buy rating. Ariba was up 1.8%, i2 was climbing 4.2%, Commerce One was jumping 10.7%, WebMethods was inching 0.9% higher and Oracle was down 1.1%.

Elsewhere, a couple of stocks were moving ahead of analysts' meetings.

Art Technology Group

(ARTG)

was up 10.8% ahead of its analyst day on Thursday. Art Technology provides Internet customer relationship management software.

InfoSpace

(INSP) - Get Report

, which won't hold its analyst day until Sept. 14, was up 8.7%.

Chase H&Q

analyst Jack Ripsteen said the analysts' day will give InfoSpace an opportunity to showcase its acquisition of

Go2Net

(GNET)

. InfoSpace is a content provider to portals and destination sites. It agreed to buy Go2Net in July. Go2Net is a network of web sites.

"We believe the Go2Net acquisition has been largely misunderstood and discounted and believe that investors should come away from the analyst day with a better appreciation of Go2Net¿s business and management team," Ripsteen wrote. Chase has done underwriting for InfoSpace.

10:54 a.m.: Tech Struggling in Early Action After Long Weekend

Those of you just returning from vacation missed out on a pretty solid rally last week, though you would never know that from today's price action.

In early trading, the

Nasdaq Composite was down 1.7%.

TheStreet.com Internet Sector

index was up slightly to 848.

There was plenty of news among new economy stocks, particularly among the hosters after

WorldCom

(WCOM)

said it would buy telecom provider

Intermedia Communications

(ICIX)

for close to $3 billion in cash as well as payment of more than $3 billion in Intermedia's debt.

Intermedia is the controlling shareholder for web hosting company

Digex

(DIGX)

.

Exodus Communications

(EXDS)

had also bid for Digex previously so it was seen as the big loser in the deal.

Morgan Stanley Dean Witter

lowered its long-term growth expectations for Exodus and its price target to $75 from $95, indicating that the stock could fall between 15% and 25% in the near-term. It was down only 5% today.

Camp wrote that much of Exodus' recent run-up could be attributed to expectations that it would emerge the victor in the battle for Digex and the integration of Digex into WorldCom's UUNet subsidiary "could result in a formidable adversary for Exodus. However, Camp wrote that "once the dust settles," he would recommend buying Exodus as it remains in the strongest position in the hosting industry. Morgan Stanley Dean Witter has done underwriting for both Exodus and Digex. Note that

NaviSite

(NAVI) - Get Report

, another Web-hosting company, was up 4.2% on the news as it is a possible buyout candidate as well.

Camp also lowered his rating on Digex to outperform from strong buy, noting that the acquisition price implied a value for Digex of $84.50, which was an estimated 5% below its value as of Friday. In addition, he wrote that Digex has had a nice run since Intermedia announced it was placing Digex on the block.

Also in the web hosting field,

AT&T

(T) - Get Report

announced that it had signed a $450 million deal with

IBM

(IBM) - Get Report

.

Elsewhere, shares of beleaguered

Yahoo!

(YHOO)

were showing a little life following some positive research. The stock has suffered from concerns over a slowdown in Internet advertising spending.

First Union Securities

came to Yahoo!'s defense, saying that Yahoo!'s exposure to financially questionable companies was less than 10% of its advertising revenue.

Analyst Carolyn Luther Trabuco wrote that traditional advertisers, which ultimately are the "choice" long-term customers, are allocating more dollars to performance-oriented online buys. Yahoo! was recently up 1.2%.

Also among traditional Internet stocks,

America Online

(AOL)

was down 1.8% on

news that the

U.S. Federal Trade Commission

is asking AOL and

Time Warner

(TWX)

for major concessions before it will grant approval to their proposed $129 billion merger. The FTC reportedly has concerns over access to high-speed cable lines that Time Warner currently controls.

GoTo.com

(GOTO)

was up 16% on news that it had agreed to a $50 million with AOL to distribute GoTo's pay-for-performance listings on the search results pages of AOL. The service gives sites better placement in search results for a fee.

In the business-to-business space,

Ariba

(ARBA)

was up 0.9% on reports that it would team with IBM and

Microsoft

(MSFT) - Get Report

to introduce a new electronic publication standard to simplify B-to-B e-commerce transactions.