Participants on March 4 included host Brenda Buttner, Dave Kansas, Adam Lashinsky, Gary B. Smith, Dagen McDowell and guest Ryan Jacob. The transcript is unedited, and phonetic spellings are indicated with (ph).

BRENDA BUTTNER, HOST:

Up next, information you need to make smart investing decisions. Are the glory days over for the dot-coms? No way, says Ryan Jacob. And he's the guy whose Internet fund returned over 500% in a year and a half. So, which stocks does he like best? We'll get the "Word on TheStreet."

And if you listened to the "Chartman" and his partner about

3Com's Palm

IPO, you'd have a lot more cash in your palm right now. Where is that stock going next? Hear what they have to say now.

Plus, a new round of predictions you won't want to miss. But first, headlines with

Fox News Live

.

BUTTNER:

Hi, everyone. I'm Brenda Buttner. And you are connected to "TheStreet.com." We're here to help you make the best investing decisions that you can.

The

Nasdaq

is setting new records yet again. And the

Dow

does what it hasn't in a while, rallying all week. Where to next for the stock market? Let's get the "Word on the Street."

Joining us from

TheStreet.com

financial Web site, Senior Columnist Herb Greenberg, Editor-in-Chief Dave Kansas and in San Francisco, our Silicon Valley columnist, Adam Lashinsky.

Also with us here in New York, Ryan Jacob. He is the manager for the

Jacob Internet Fund

. That fund launched in December. And so far, it's up over 13%. Prior to that, he delivered the Internet fund which delivered better than 500% in 18 months. That is not a typo, 500%.

First topic, the Nasdaq. Another high-powered week for high-tech. Now less than 100 points from that magical 5000 mark.

Herb, you know, I was reading your column this week, and I had to say, I had to do a double-take. I thought I was reading Cramer all of a sudden. You sound like a bull.

HERB GREENBERG, SENIOR COLUMNIST:

Well, I ...

BUTTNER:

What's going on?

GREENBERG:

... I might as well just throw in the towel. My sources have all dried up. The guys -- the folks who were short stocks don't want to talk anymore because they have been gained. This market, I use the word gained, has been in a sense I think somewhat manipulated on the up side because stocks, it's almost like anything that doesn't have reason to go up, necessarily have reason, has been an easy boost up because short sellers who bet against these companies are basically becoming the tool -- without getting to the complicated aspect of this -- so people can juice these things as high as possible.

ADAM LASHINSKY, SILICON VALLEY COLUMNIST:

Herb, I think the fundamental problem your short sellers' analysis overlooks is that there is so much power in the Nasdaq. So in the aggregate, it's a bunch of great companies and that in times like this, at the individual level, it just doesn't ...

GREENBERG:

Adam, Adam, they're buying stocks there, not buying companies. And that's what makes this market so speculative and so frightening at this point.

BUTTNER:

Dave, what's wrong with that? You buy stocks.

DAVE KANSAS, EDITOR-IN-CHIEF:

Well, I mean, I think Herb is listening a little too much to his friends who are in pain right now. Adam is right. I mean, these companies are good companies, the Nasdaq companies that are doing well, the vast majority of them.

Herb may know of a couple that are having some problems ...

GREENBERG:

There's not just a couple. There are a lot of them out there.

KANSAS:

... But I'm telling you right now, there are not 8,000, or 9,000, or 10,000 hedge funds on the short side. But there are 8,000, or 9,000, or 10,000 stocks. And a lot of them are doing well. And I know Ryan knows where a lot of these good companies -- companies are.

GREENBERG:

Like every biotech, yeah, OK.

RYAN JACOB, JACOB INTERNET FUND:

For the most part, as in any major market advance, clearly there are some great companies out there. But believe it or not, I actually agree with Herb in a lot of ways ...

GREENBERG:

Thank you. Thank you.

JACOB:

I do think that really the market has become somewhat indiscriminate. And it is a little worrisome. And clearly, there is so much speculation in the market today, even historically over the last few years we've seen a lot. We're going through a period right now where it does seem quite excessive.

BUTTNER:

But what stops it, though? People are chasing performance. They're taking money out of a certain -- you know, the value stocks, and putting it in technology, which makes it go higher.

JACOB:

Usually when you see a cycle like this right when you think the stocks just can't go down anymore is usually when you see a blowoff. And unfortunately, I wouldn't be surprised if we saw something relatively soon.

GREENBERG:

But Ryan, you're having a good year. But you're slightly underperforming the Nasdaq composite. Why? And you know, what's the message there?

JACOB:

Well, we're more bottoms-up stock pickers. So really, in this kind of broad advance, we're at somewhat of a disadvantage.

But we think in over the course of a year as returns start to even themselves out, we feel very comfortable. The companies that we own are performing very, very well whether or not it's caught the fancy of the Street. And when that happens, you know, we can't predict.

BUTTNER:

OK, next topic, Net stocks. Let's dig a little deeper here. Clearly, investors aren't flocking to Internet titans like

Yahoo!

,

AOL

, and

Amazon.com

. They've been more like sinking ships.

Ryan, nobody has been more successful than you in investing in the Internet sector. But you have a very distinct approach. What are two names that you like right now?

JACOB:

Right now, we're very positive on

Commerce One

and

Ventro

, which is the old Chemdex. I mean, clearly B2B has been one of the hot areas. And we're not really taking a basket approach. We actually think these two names are the best positioned. And we think their futures are very bright.

GREENBERG:

Ryan, do you ever look at these companies and say they're part of another fad of incubator stocks, which they essentially are?

JACOB:

No question, these companies are turning into holding companies. The real difference is the approach that Commerce One and Ventro are taking, are partnered with industry leaders, building scale, and then giving the industry leaders equity stakes in these companies.

It's really moved to the forefront. These Fortune 500 companies realize it's important. They're putting money -- they're putting the real focus today on making sure these are successful. And I think Commerce One and Ventro will piggyback off that.

BUTTNER:

Adam ...

GREENBERG:

Ventro in particular ...

BUTTNER:

... Adam ...

GREENBERG:

... Yeah, Ventro in particular has added $3 billion in market cap from having made an announcement. So they succeeded in getting the multiple higher. What makes them so good that they can do that and will continue to do that?

JACOB:

Well, Ventro was one of the early pioneers really in B2B and focusing on the life sciences sector. And they're going to take that expertise and really try to move down some other different verticals.

They've so far signed deals in the health care supply market, also in some of the chemical areas. And I'm sure they'll make some more announcements going forward.

They have a core expertise. And really, they'll be looking to leverage that among different industry sectors.

GREENBERG:

Well, they've got to find -- they've got to make acquisitions, right? There's some risk here. That -- they'll make acquisitions. These acquisitions will work.

JACOB:

It's actually more of a situation where they're going to initiate new partnerships and go into different verticals, setting up separate holding companies, taking a small piece of the equity, and then really working with those industry leaders to make that exchange success.

GREENBERG:

How many will there be? You've got more than one player here. I mean, you are going to have a bunch of players, and they're going to be competing for the various buyers and suppliers in this business.

JACOB:

I think there's easily 50 probably industry segments where there could be huge, huge successes, obviously autos, chemicals. And there are a number of others. And then after that, there are probably hundreds more ...

(CROSSTALK)

LASHINSKY:

The problem is, Ryan, it sounds like you're talking about

ICG Communications

. Or you might be talking about

DaimlerChrysler

,

GM

. You could be talking about any of the really quite a few companies that are trying to do exactly what Ventro is doing.

JACOB:

Well, absolutely. Bug again, Ventro has the expertise. And all these companies will be looking to make these kinds of partnerships. And really, there will be a shakeup here.

Again, one of the differences with ICG versus what Ventro and Commerce One are doing is the fact that ICG really isn't setting up separate holding companies, giving the partners significant equity positions to really give them the incentive to drive scale to these new exchanges. And once they get to scale, they'll be able to really solidify that position. And that will ensure their long-term success.

BUTTNER:

OK, that's got to be the last word on "Word on TheStreet." But more with Ryan Jacob after this break.

You may like his record. But is his mutual fund really for you? We'll take a closer look up next.

BUTTNER:

Welcome back.

So you want a 500% return in a year and a half? Who wouldn't? But where do you get it? Well, that's what Ryan Jacob delivered in the last mutual fund that he ran. The question is can he do it again? He's got a ways to go. So far, his new Jacob Internet Fund is up over 13% in just under three months.

And is there all that much growth left in the companies that Ryan invests in? With us from

TheStreet.com

to ask the questions that potential investors of Ryan's fund should ask, funds reporter Dagen McDowell and Senior Columnist Herb Greenberg.

Ryan, you really did ride the Internet to great success a couple of years ago. But can you still catch that wave? Are you still going to carry on?

JACOB:

You know, the Internet has only gone an inch deep in terms of how much it will ingrain itself in the society. So many of the companies we're investing in still have really exciting prospects ahead.

We tend to focus on those companies that are really early in their business lives. They tend to be higher risk, tend to be more volatile. But for that risk, we hope to compensate with above-average returns.

DAGEN MCDOWELL, FUNDS REPORTER:

But investors who started buying your new fund in December were surely looking for the same kinds of numbers that you posted on the Internet fund, you know, '98 and the first half of '99. But your fund is actually trailing several of its peers this year, and I just want to know what's holding you back and what you're doing about those stocks.

JACOB:

Well, I think just in general we're bottoms-up stock pickers. So you can get caught in periods where if the names you own maybe don't catch the attention of the Street, maybe you're not in the hot subsector ...

MCDOWELL:

And you hear about price too.

JACOB:

We do look at valuation, absolutely. And you know, over a couple of months ...

GREENBERG:

Valuation of these Internet stocks, what, does that mean if some of them are too high you sell them?

(CROSSTALK)

BUTTNER:

You didn't get into B2B until later on ...

(CROSSTALK)

JACOB:

Well, that's the thing. You know, when we first started the fund, we took some flack for not just investing in these B2B stocks that everyone told me just had to keep going up.

And lo and behold, we held off. And we actually got in at much more attractive prices. So ...

MCDOWELL:

There's another area that you don't invest in either. Everybody wants to talk about how Europe and Asia are the next great growth markets for the Internet. But you don't really buy overseas companies.

JACOB:

Right now, the overseas market is still a little early and a little too frothy. I mean, the companies that we're seeing overseas right now, it really just puts the U.S. to shame in terms of speculation. And I think today investors should be very, very cautious of those highfliers they see overseas, whether it be Europe, Asia, or Latin America.

GREENBERG:

You know, whenever I hear we're talking about Internet funds or any sector fund I come down to that sector fund issue that when it cools off, nobody cares. And those old life sciences funds became something else or disappeared. How long can a fund like yours go on as a, quote-unquote, Internet-type fund?

JACOB:

In terms of an analogy, I would look at the Internet sector almost in the same way as technology. And that is in a sense, in a way it will go out of favor at certain points. But I think it will always come back.

Again, we're still a ways off before the Internet truly really ingrains itself into society in terms of, you know, we have the wireless revolution today where people will be accessing the Internet more. It will just become more of our lives.

GREENBERG:

Well, you have the e-tailing, which isn't even existing.

MCDOWELL:

Right.

GREENBERG:

That whole thing has changed.

JACOB:

Yeah.

MCDOWELL:

I was going to say you own some e-tailers. And a lot of investors are just calling these companies glorified catalog companies.

JACOB:

They are. For the most part, we try to stick on the commerce side to those companies who are really offering something unique to the market. Some of our favorites in that category are

priceline

or an

eBay

.

MCDOWELL:

TST Recommends

But you also own

dELiA*s

, don't you?

JACOB:

We own some

dELiA*s

. But that's more of a content play, actually, for their

iTurf

subsidiary folks in the Gen-Y community, less on the commerce.

BUTTNER:

Doesn't this concern for price really hurt you in a momentum market? I mean, you had picks in your Internet fund like

Inktomi

that you wouldn't buy in your new fund because it was too high. And they really pushed your peers to new heights.

JACOB:

In a short-term period, that can happen. I mean, we're looking really -- you know, we just launched the fund a little over two months ago. So we're going to be patient. We generally don't just try to jump on the hottest sector. You know, we do a lot of fundamental research. And we go out and visit the companies.

And the companies we own in a portfolio we're very comfortable with. They've posted great fourth quarter numbers. And we think for the rest of this year they look great.

BUTTNER:

All right, Ryan Jacob from the Jacob Internet Fund. Thanks for being here.

Up next, maybe you didn't get in on that big Palm IPO. But if you watched this show a few weeks ago, you could have made some big money, up next.

BUTTNER:

Welcome back. You know, everybody is accountable here on "TheStreet.com," even the "Chartman."

Gary B. Smith trades for a living from his home using the charting method. Gary joins us from Washington, D.C. And in San Francisco, our Silicon Valley columnist Adam Lashinsky. Adam totally ignores Gary's charts and actually looks at the company ...

GARY B. SMITH, "CHARTMAN":

He ignores me, is what he ignores.

GREENBERG:

Not true.

BUTTNER:

... None of us do. And if it's making any money.

Adam and Gary do not own any of the stocks in this segment, which are all ones that they've told us about before. We're going to find out who was right and who was wrong.

First up,

Network Solutions

. Back in January, Gary liked it, and Adam was a bear. Gary, you got the best of this one. How does the chart look now?

SMITH:

It still looks great. Adam was so totally off on this. If he would just stick -- if he would just stick to ...

BUTTNER:

You get your turn in a minute, Adam. Don't worry.

SMITH:

... I'm going to use up all the time is what I'm going to do. He just -- all he needs to do is stick to one fundamental. When a stock is on an uptrend and the uptrend is not broken, you just can't sell it. There is nothing wrong with it.

I don't care about valuation or anything else. Network Solution was a great example. The stock was on an uptrend, absolutely nothing wrong with it. It's still up. I mean, this past Friday it was up 30-plus points. It's still a great performer.

BUTTNER:

Boy, Adam, is it up? Is it worth the price?

GREENBERG:

Of course, I have no idea, Brenda.

(LAUGHTER)

GREENBERG:

Nothing perched this stock, not the secondary that it did, not the very successful IPO at

Register.com

, one of its chief competitors. It has robust growth.

And by the way, it has a 2-for-1 stock split coming on Friday. That, of course, is meaningless to the valuation. But that's not what a lot of its shareholders think. So that might help, too. Who knows?

Ironically, I still believe that the very success of this company could hurt it. It's profitable. It's trading at 178 times its 2001 earnings estimates with 50% year-over-year growth. That's a discontinuity. But clearly, I don't know how to play this stock. Listen to Gary B.

(LAUGHTER)

BUTTNER:

All right, the next stock up for review. We will listen to Gary B., believe me.

Red Hat

, which Adam got right. Back around Christmas, Adam, you did not like this one. And Gary, well, to say you were bullish would be a bit of an understatement.

SMITH:

I'll tell you what, Red Hat I think has a good shot at going to $400.

(LAUGHTER)

GREENBERG:

Ouch.

BUTTNER:

OK, now I get it. You meant $40, not $400, right? That was ...

SMITH:

Yeah, absolutely.

BUTTNER:

Well, in fairness to Gary, the stock has split. So it's not as bad as it seems. But it's still way down from December. And Adam, you still don't like those fundamentals, do you?

GREENBERG:

Right. What I said at the time was that the barriers to entry for a Linux software company were relatively low. That's what Red Hat is. And they still are. The secondary offering that they did at about $95 a share burned institutional investors. That kind of leaves a bad taste in people's mouths.

Finally, you know, it is a good business. But it's still extremely richly valued. It's trading at 82 times the 2002 revenue estimates of

J.P. Morgan

. That's extremely high. There's room for it to go down. It's a momentum stock, as we saw toward the end of the week. But those are the fundamentals.

BUTTNER:

OK, Gary, explain yourself. I know, I know, mind the gap, right? ...

SMITH:

Well, you know, it looked so good early on. And really, it was not my fault ...

(CROSSTALK)

SMITH:

... You know what killed it? Here's what killed it. When you see -- when you are holding a stock and it gaps down, it breaks, you know, it goes from say $40 to -- and then it opens the next day at $27 on high volume, that is the time to jump ship.

What happened was Red Hat gapped down in early January. And then that just killed the stock. It took all the momentum out of it. And in my defense, I will say in my defense, about a month ago, I spotted this with Red Hat and some of these others,

VA Linux

, they are dead.

Adam is right. This stock can go down a lot more ...

GREENBERG:

You did call that in a prediction.

SMITH:

... I don't see any help. Thank you, Adam. So now I don't like Red Hat.

BUTTNER:

OK, and finally, we saved the best for last. A big winner for both of you, 3Com. Three weeks ago, you said the stock would get a bump from the excitement of the Palm IPO. And boy, did it ever. Gary, with that big spike, what does the chart say now?

SMITH:

Well, first of all, my hat is off to Adam on this one. I just said -- when we talked about it, it was in the mid-50s or so. I thought it would go to 75. I think Adam had it for even higher. So kudos to him.

But I'll tell you what. You know, Ryan mentioned on an earlier segment about what a blowoff could look like. 3Com is a great example. When you see a stock go almost vertical on high volume and then close that same day actually lower, that is possibly a blowoff.

And in fact, I don't think 3Com is going to much higher for this year. In fact, I don't think it's going to hit that high. I would be out of 3Com right now, or at least take some of your profits if you have them right now.

BUTTNER:

Is it going to go a lot lower, though?

SMITH:

Yeah. Well, yeah. I think it's going to go lower. I have more confidence saying it's not going to hit that high.

BUTTNER:

OK, Adam, time to take profits?

GREENBERG:

I don't know. We're officially calling me a bull on this. And I'm going to try to explain that.

The rise was partly rational and partly irrational. Gary and I both saw what was going to happen to 3Com during the preoffering period when the stock was moving up just as the perceived valuation of Palm was moving up.

But now I see more related, Palm-related, swings in the future. In other words, the valuations of the two companies are completely out of whack. Once 3Com gives us some information about when they're actually going to distribute Palm shares to 3Com shareholders, I expect it will go up again. But we really don't know when that is.

The problem with 3Com is that its underlying business is somewhat mediocre. So it's a tough stock to play. Near-term, this is what professional arbitragers are going to be in. That's a tough position for an individual investor.

SMITH:

All right, Adam, isn't the valuation of the Palm company, whatever that's called, more than 3Com right now?

GREENBERG:

Correct. And that's fundamentally, Gary, obviously a discontinuity. You know that something is wrong. But anyone who says that they can explain that to you doesn't really know that.

(LAUGHTER)

SMITH:

All right.

BUTTNER:

Honesty there. All right, got to take a quick break.

Adam and Gary, stick around because "Predictions" are up next. Will the Dow dip below 10,000 again? It's a "Prediction" that you won't want to miss when we come back.

BUTTNER:

Welcome back. Let's get right down it. Time for "Predictions."

Back with us from

TheStreet.com

are Herb Greenberg, Dave Kansas, in Washington, Gary B. Smith, and in San Francisco, Adam Lashinsky.

Herb, you're up first. What's going to happen? Why do I care?

GREENBERG:

I am in trouble with this one. I'm going to tell you, the market has been gained too much. I believe that before it hits 5000 it's going to hit 4450. That's the Nasdaq.

BUTTNER:

So some more choppy times ahead.

GREENBERG:

Choppy, it's going straight ...

KANSAS:

That's daring, Herb. Very daring for you.

GREENBERG:

... Hey, look, I have to do something.

BUTTNER:

Dave.

KANSAS:

The Dow had some problems with a little bit below 10,000, but no more. The Dow is not going below 10,000 anymore. Some of this oil price worry, inflation worry, it's going away. The Dow is coming back. And I think that a lot of that bad stuff is behind us.

BUTTNER:

OK, Gary.

SMITH:

All right, I'm talking my book because I'm long on this stock. But

Cisco Systems

, $200 by Memorial Day.

BUTTNER:

It's what, in the high 130s right about now?

SMITH:

Well, it will probably be $200 by Wednesday, for crying out loud.

(LAUGHTER)

SMITH:

So I'm looking to stretch.

BUTTNER:

Quite a move. All right, Adam.

LASHINSKY:

Brenda, there are going to be so many business-to-business e-commerce incubators that more than a few of them will be duds as IPOs.

UNKNOWN:

Couldn't agree more.

BUTTNER:

And who gets hurt?

LASHINSKY:

Obviously, the worst ones. Can't tell you who they are. There will be two or three good ones ...

(CROSSTALK)

LASHINSKY:

... The rest will be ugly.

BUTTNER:

All right, OK, so you've heard all we have to say. Now we want to hear from you. Just go to

TheStreet.com

Web site, click on the TV page and rate the predictions. And if you'd like, you can also send us a question or a comment.

And while you're there, you can check out the entire site. Dozens of reporters and columnists write every day to help you make the best investing decisions that you can.

That's it for this edition of "TheStreet.com." We'll see you again next weekend. And until then, we hope you invest wisely.

END

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