This column was originally published on RealMoney on July 19 at 1:33 p.m. EDT.

News Corp.'s

(NWS) - Get Report

deal to buy

Intermix Media


for $540 million marks, in my view, a real sign that the Internet is entering yet another new chapter in its already multifaceted existence.

For the past decade, News Corp. has been the most disciplined of the major media companies, as it has avoided getting in over its head and buying into the hype of the Internet. Like a lot of its peers, the company dabbled in the sector in the mid-'90s, spending millions on developing Delphi, an Internet service provider. What is Delphi? That's the point.

News Corp. quickly shuttered the effort when it saw Delphi did not have the profit margins it would have hoped for. And the company never made the costly mistakes of companies such as

Time Warner


, with its ill-fated Pathfinder and then AOL,


(DIS) - Get Report

, with the disastrous portal, or

General Electric

(GE) - Get Report

, with and the NBCi tracking stock.

But it's different this time. The

New York Times Co.

(NYT) - Get Report

bought for $410 million,

EW Scripps

(SSP) - Get Report

is buying Shopzilla for $525 million, and

Dow Jones


bought MarketWatch for $500 million.

It's clear that the media players that pride themselves on their cash flows are seeing real cash-flow possibilities in the more speculative Internet content players. In the first of a three-part series on Internet plays, I offer four acquisition candidates below, and one monster Internet name that's a buy here.

    1. Miva (MIVA) , which I've written about twice, most recently here, provides a search engine ad network for its clients (sort of a search-engine version of DoubleClick) as well as private-label search solutions for Web sites. This is a solid play. Here are the fundamentals: $179 million market cap, $50 million in cash with little debt and $18 million in cash from operations over the past 12 months.
    2. Tom Online (TOMO) is a company to watch because, let's face it, even if the Chinese stock market is in line for an Asia-1997-style crash, that is not going to slow down the rising mobile-phone usage in China. Games, music, messaging and ultimately videos make this bullish case. (Note also its recent distribution deal with Warner Bros.) Revenue was up to $122 million in 2004 from $30 million in 2002. Income has climbed steadily, from $5 million in 2002 to $32 million in 2003 to $58 million in 2004. The company has $76 million in cash and no debt. At $39 million in cash flow from operations, Tom Online is trading at a multiple of enterprise value over cash flows of about 14, and that doesn't count the probable growth.
    3. Greenfield Online (SRVY) knows the Internet offers the best medium for conducting customer surveys, and the numbers behind this company demonstrate that. Greenfield has $81 million in cash, no debt and a $330 million market cap. Revenue reached $44 million in 2004, up from $25 million and $14 million in 2003 and 2003, respectively. Its first-quarter operating income was $2.5 million, which was up from $400,000 the year before. The stock has been in drift mode lately and is down from a high of $20 four months ago.
    4. Keynote Systems (KEYN) falls under the enabler category. Companies need to keep track of where the customers are going on their Web sites, to find out when they log out of the buying process, where they click, what ads they click on, etc. And this matters for mobile-phone companies as well as Web sites. I'm also a big fan of the balance sheet here: $260 million market cap, $150 million cash, no debt, $11 million cash flow generated from operations in the past quarter and steady revenue growth over the past four quarters.


(MSFT) - Get Report

has been such a disappointing stock. Despite income rising every year, nonstop share buybacks, a $12 billion dividend and domination of every category it enters, the stock today is flat with where it was in 1998.

But with the recent dividend, expect Microsoft's return on equity to drastically improve. If income stays on its current track and the stock stays in its current range, the P/E ratio should be in the low teens. But this is not likely to happen.

Microsoft, if not a speculative bet, is at least a safe bet to start trading in the $30-$40 range sometime soon. People are treating MSFT like a mature, slow-growing utility company, but investors are underestimating the future fast-growing segments of online gaming and mobile software.

Tomorrow I'll have five more Internet stocks to buy, and the third portion of this series will be five stocks that are definitely not making the list right now (including everyone's favorite).

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Miva, Greenfield Online and Keynote to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of

Trade Like a Hedge Fund


Trade Like Warren Buffett. At the time of publication, neither Altucher nor his fund had a position in any of the securities mentioned in this column, although positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback;

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