Matt 'Dot-Com' Jacobs: Tales From the B2B Draft

JJC's right-hand man gives his account of battling the trader for the big B2B names.
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No more

Jimmy Johnson

/

Jerry Jones

war rooms. No more

Mike Ditka

trading the next few years for

Ricky Williams

. No more commentary from

Mel Kiper

about the

New York Jets

having no idea what the

NFL

draft is all about by drafting

Jeff Lageman

. However, with 32 more nights until Y2K, the first-ever

B2B draft occurred yesterday.

Join the discussion on

Cramer's Latest, go to the

Red Hots Forum

, or visit our

B2B Forum

.

As my opponent confidently stormed into the conference room with three team members who were carrying all of his ammunition for the grueling session, I knew he was ready. I quickly realized this would be like no other fantasy football or rotisserie baseball draft, as my opponent was obviously far more clever than those in any previous drafts I have participated in.

Rule No. 1: Prepare and Strategize. Forgetting about the dynamics of the draft and the mind games that I encountered, I went in knowing what I would pay up for. I had to get

VeriSign

(VRSN) - Get Report

. VRSN's future leverage is in the B2B world, however, they also take part in many other segments including B2C, wireless and more. VRSN has already proved their operating model works, which takes out some of the future uncertainty.

Rule No. 2: Get some e-services/Web design/IT integrators. All five in our draft are all seeing explosive growth. I have met the

Scient

(SCNT)

management team and like them a lot, so I paid the most for them.

Razorfish

(RAZF)

and

Sapient

(SAPE)

are also on my team. Some of these companies are profitable and continue to surprise the Street with their growth. I probably paid a little too much for Sapient at the end of the draft, but that is how the money worked. Jim ended up with

Viant

(VIAN)

and

Proxicom

(PXCM)

.

Rule No. 3: Don't draft

Sam Bowie

when

Michael Jordan

is still available. Jim and I both agreed on that rule and we didn't draft Sam, as we discarded some names we didn't feel comfortable with.

Rule No. 4: Draft

Mike Piazza

if you can find him. Most of the companies in the draft were well-known and not obscure 62nd-round picks by

Tommy Lasorda

. Mike Piazza will be looming in the supplemental draft when we find our next potential class.

Rule No. 5: Find the companies that help the old world become the new world. As many bricks-and-mortar companies move to the Internet, the software companies helping them are reaping massive market capitalizations.

BroadVision

(BVSN) - Get Report

is the perfect example of this. As more old-guard companies acknowledge the Internet, numerous software companies have sprung up to affect the change. Oracle

(ORCL) - Get Report

,

Siebel

(SEBL)

and

Tibco Software

(TIBX)

for me;

BEA Systems

(BEAS)

,

Ariba

(ARBA)

and

Commerce One

(CMRC)

for Jim.

I also drafted

Stamps.com

(STMP) - Get Report

. This company is valued completely on potential and must execute. However, its market size is astonishing, thus this could be one to watch in 2000.

Finally, there is

Internet Capital Group

(ICGE)

. Why not $40B or $100B? Who knows where this stock is going? They already gave us

VerticalNet

(VERT)

(which Jim snatched in the draft) which I think could be huge, but if there is any B2B blue-chip from 1999, this is it.

Some Thoughts:

I have spent every waking moment over the last few months learning the companies that enable e-commerce, whether it is infrastructure or software. We have had many huge wins at

Cramer Berkowitz

as this market has been very kind to

Nasdaq

names. However, there is risk. I hope my bosses (Cramer and Berkowitz) realize that I know

Barry Bonds

is an outfielder for the San Francisco

Giants

and the bond market is important. However, the intense worry about valuation in the new paradigm world we now live in has caused many to miss the incredible ascent of technology stocks. The extraordinary move is not debatable.

Valuation is very important, but one lesson I have learned is that buying a richly valued tech stock vs. an undervalued tech stock usually pays off more favorably when you stick with the higher-valued stock since these are the better companies.

Many laughed at our

Red Hot index, including Jim and me. People said it was the ultimate market top when we started the Red Hot index in late August, and wondered how we could put 20 stocks together that are so overvalued. In less than three months, that group of 20 stocks is up nearly 70%.

Today's market is giving massive market caps to companies whose stories have so much potential that investors are too afraid to miss them.

Akamai

(AKAM) - Get Report

,

Sycamore

(SCMR)

and

Red Hat

(RHAT)

are the most powerful examples of this. As we study the B2B names, I think there will still be several names to come public that will belong on any B2B roster.

Just some thoughts from

Matt.com Jacobs

,

Matt B2B Jacobs

,

Matt Red Hot Jacobs

and anything else Jim has ever publicly called me.

Matt Jacobs is a colleague of James J. Cramer at the hedge fund Cramer Berkowitz. At time of publication, the fund was long Akamai, Sycamore, Ariba, BroadVision, Siebel, Oracle, VeriSign and VerticalNet. The hedge fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Jacobs' writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

jjcletters@thestreet.com.