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The first wave of the Internet began some 10 years ago, as we dialed in over telephone lines to Internet service providers such as America Online to reach Internet portals such as



MSN or



. There were a few search engines in the early days, but now



clearly has redefined that segment of the Internet.

Today, high-speed Internet access has overtaken dial-up, and the differences between the three Internet functions have become blurred. But there's a bigger change in store that's even more important to long-term investors: Advertising dollars will become a major revenue source in the quarters and years ahead. Corporate sponsors will shift from regular TV and print ads to interactive advertising on the Internet.

I believe there will be plenty of advertising dollars to share among Microsoft, Yahoo!, Time Warner and Google, so all will be able to grow and thrive as the next wave of the Internet crests. But my model points to Microsoft,

Time Warner


, and Yahoo! being better buys right here than Google, which looks overvalued. Let's review my model's profiles of each company to see exactly why this is so.


First, Google. It is expanding beyond search with services such as Google Earth, but some of the information that it's choosing to make easily accessible may prove problematic with regard to privacy and national security. That said, it's reported that Google is approaching Madison Avenue to define new online advertising strategies.

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But Google's profile indicates that this stock is for traders right now, not for long-term investors. When I last profiled Google on

Aug. 30, it was trading right below its fair value at $292.39. This was quite a bit higher than where its fair value was when I first profiled it on

July 5, down at $266.70. Google's fair value increased as Wall Street analysts raised their 12-month forward EPS guidance, which is one of the most important inputs to my model.

Since July 5, Google has traded as low as $273.35, on Aug. 22, where it was about 12.5% undervalued, up to a new 52-week high at $319.22 last Thursday. Currently, Google is 8.9% overvalued, with its fair value at $289.49, down from $293.39. That's because the yield on the 30-year bond, another major input to my model, rose from 4.30% to more than 4.50% this morning.

The combination of being overvalued and ending last week with a positive weekly chart profile qualifies the company as a momentum stock, with the potential to make new highs over the near term. My model shows that Google has a monthly pivot at $316.75, which was a magnet last Friday in the minor consolidation off Thursday's high. But again, this is not a stock I'd consider holding for the long haul.


Microsoft is currently 16.9% undervalued, which makes its fair value $30.42. The stock's weekly chart profile is negative; a close this week above its five-week modified moving average at $26.20 would shift the profile to neutral. Shares are trading between my monthly value level at $24.82 and my monthly pivot at $25.50.

Long-term investors should consider adding to positions or starting a new position with shares within this range. Microsoft's exposure to the increase in Net advertising dollars through its MSN portal and possible partnership with Time Warner's AOL look like solid long-term trends that give shares of Mr. Softee additional appeal here.

Time Warner

Time Warner depends on AOL for its future growth. AOL's new, non-subscription portal, which should be launched soon, and potential cooperative deals with Microsoft's MSN are the long-term forces in play here. An MSN/AOL partnership could be a formidable force to counter the aggressive plans of Google, again not least of all because of the increased advertising dollars it would harness.

Time Warner shares currently are quite undervalued, at 30.0% below fair value, which is at $25.70. The stock's weekly chart profile is positive, with the five-week modified moving average at $17.96. It's a significant positive sign that the stock also has been above its 200-week simple moving average of $17.18 since Sept. 2; the five-week MMA had been below the 200-week SMA since September 2001.

Currently, shares are trading between my monthly value level at $17.42 and my quarterly pivot at $18.15. Long-term investors should consider adding to or starting a new position with shares within this range.


Yahoo! has lagged Time Warner and Microsoft in proprietary content, which has proven to be a major draw for advertising. But it's establishing a long-term catalyst worth paying for as it develops interactive television access, which Yahoo! expects to help draw advertising dollars.

Yahoo! stocks is 34.5% undervalued, which makes fair value $49.07. The weekly chart profile is oversold (12x3 weekly slow stochastic below 20 on a scale of zero to 100) with the five-week modified moving average at $33.46. Shares are trading between my monthly value level at $31.73 and my monthly pivot at $32.75.

Long-term investors should consider adding to or starting a new position with shares within this range. Support is building for Yahoo! above its 52-week low at $30.30, while Google has reached an all-time high. Again, think of Yahoo! as the value play and Google as the momentum play.

Richard Suttmeier is president of Global Market Consultants, Ltd., chief market strategist for Joseph Stevens & Co., a full service brokerage firm located in Lower Manhattan, and the author of Technology Report

newsletter. At the time of publication, he had no positions in any of the securities mentioned in this column, but holdings can change at any time. Early in his career, Suttmeier became the first U.S. Treasury Bond Trader at Bache. He later began the government bond division at L. F. Rothschild. Suttmeier went on to form Global Market Consultants as an independent third-party research provider, producing reports covering the technicals of the U.S. capital markets. He also has been U.S. Treasury Strategist for Smith Barney and chief financial strategist for William R. Hough. Suttmeier holds a bachelor's degree from the Georgia Institute of Technology and a master's degree from Polytechnic University. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback --

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