Ask a value manager about Internet stocks and chances are he'll tell you what Jim Gipson, manager of the $1.2 billion

(CFIMX) - Get Report

Clipper fund, told us: "We know that we cannot understand, predict and value business franchises of Internet companies, and we doubt that anyone else can do it, either."

After a day like Monday, when Internet stocks surged to stunning new heights, led by

Yahoo!

(YHOO)

, up 34 15/16 to 247 1/4,

Amazon.com

(AMZN) - Get Report

, up 32 1/8 to 318 3/4 and

eBay

(EBAY) - Get Report

, up 44 1/8 to 296 3/8, it's hard to imagine any value stocks left in the sector.

But not all bargain-hunters have ruled out the Internet as a viable place to invest. One who hasn't is Bill Miller, manager of

(LMVTX) - Get Report

Legg Mason Value Trust, which is beating the market for the eighth year in a row, up 33% year to date.

Miller says he sees value in companies that have the potential to expand their businesses using the Internet, but have not yet tapped that potential. One example he owns is

Consolidated Stores

(CNS) - Get Report

. This closeout retailer gathers unsold merchandise cleared from the shelves of major retailers and sells it at a discount through its

Odd Lot

and

Big Lot

stores. The company also owns

Kay-Bee Toys

stores.

"They have the back-end infrastructure to gather large amounts of merchandise that others can't and sell it at discount prices," says Miller. "They have the back end that would support a front-end eBay model," he says, referring to the Internet auction company. "The weakness of the eBay model is you don't know who you are dealing with" when you bid for merchandise, says Miller. "Someone like Consolidated Stores could bring a great deal of credibility to that business."

Companies Miller doesn't own that he thinks could benefit from stronger Internet positions include

Borders Group

(BGP)

The book and music retailer is selling its merchandise online as well as in malls but still is trading at just 18 times 1998 earnings, well below the

S&P 500's

26.6 times earnings for the same period. "Borders is statistically a cheap stock with a good business," says Miller.

Miller would even like to see

Tupperware

(TUP) - Get Report

lose the middleman and go direct to the consumer, though the company says it has no immediate plans to do so.

"Tupperware should be online," says the manager. While the maker of household products does have a Web site, it's used only to direct consumers to company representatives, not to sell products directly. Currently trading at around 20 times 1998 earnings, the stock is selling at a discount to the market.

When it comes to Internet stocks, Miller's prescience is demonstrated by his holdings in

America Online

(AOL)

. Since buying it in 1996, Miller's made no secret of his love for the stock. It's the second-biggest holding in his $7 billion mutual fund. So how did the bargain-hunter manage to value that Internet company back then in the absence of traditional accounting yardsticks like a price-to-earnings ratio?

"AOL is a subscription-based business like magazines, cable, paging and cellular businesses," says Miller. "All those are subscription-based, and they change hands, so we can see what people pay for those things: how much the subscriber pays, the cost to deliver services to the subscriber, what their churn rate is, and compare the valuations across a wide range of subscriber businesses."

More important, "AOL has the potential to be a global natural monopoly," says Miller. "No one, we believe, is going to start another consumer subscriber-based product to match it, and the potential operating margins are going to be extraordinarily high long term, in the 35% range, maybe even higher, with tremendous free cash flow -- a cash machine."

Would the value manager buy the stock today while it's trading for more than 130 times 1999 earnings estimates?

"Since we own it, we believe that it is one of the most attractive businesses and that it's still trading at a discount to its long-term fundamental value," says Miller. "But if we didn't own it right now, it would not be the type of name that would trigger our research process."

Which high-priced Net stocks would the value manager jump on if he got the chance?

"Anything that has substantial revenues is on the way to becoming a real company," says Miller. Though he allows that a "substantial pullback" would probably be needed for these to fall within his radar screen now, he'd go for Yahoo! and Amazon.com.

"Amazon.com is really neat," says Miller. "But at present, we can't get it to be worth $14 billion. That's not to say that it isn't, and I'm not saying it's overpriced, but we can't create the conviction behind it."

Fries Likes Business-to-Business Net Plays

Another value manager who still looks for bargains among Internet stocks is Bill Fries of the $230 million

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Thornburg Value fund, which is trailing the S&P 500 by 7 percentage points this year, even though its returns have beaten the S&P over the past three years, 113.9% vs. 102.2%.

Fries sees bargains in companies that will benefit from business-to-business e-commerce. Though the consumer segment gets more attention, business-to-business dealings will generate the lion's share of a projected $400 billion in e-commerce revenues by 2002, according to

International Data Corporation

.

Sun Microsystems

(SUNW) - Get Report

is one such company that stands to benefit, says Fries. "They are providing the Internet-service providers like

Mindspring

(MSPG)

and America Online with the computers that act as the servers," says Fries.

The stock is trading at about 24 times estimated 1999 earnings, according to Fries -- just below the S&P 500's forward P/E of 25. "Sun is selling at a market multiple, but growing three times faster than the market with a franchise that looks like it's getting more secure," he says.

Seagate

(SEG)

also is selling cheaply, Fries says. The disk-drive maker enjoys a better-than-50% share in the market to supply high-end servers used on the Internet. It's trading at around 29 times estimated 1999 earnings according to

Baseline

. "It's a turnaround play," says Fries. "They just only started to make money, so it's tricky." He also warns, "It's cyclical, so I wouldn't be interested if I didn't think the cycle was going in the right direction."

One unlikely-sounding Internet beneficiary in Fries' portfolio is

Bank One

(ONE) - Get Report

. The regional-bank holding company is taking advantage of the Web to attract new business, sell financial products and cut customer-service costs, says Fries. "You can fill out a form to refinance your mortgage at your target rate, and they will contact you when they have a product available at that price," he says. Bank One is trading at just 13 times 1999 earnings.

So which highflying Internet stocks might interest Fries on a dip?

He'd check out Internet software companies

Digital River

(DRIV) - Get Report

Open Market

(OMKT)

and

Broadvision

(BVSN) - Get Report

. "I look at them, see what their business is doing, see what the revenue is doing," says Fries. "They are priced at very steep prices, but there is something going on and they are definitely worth looking at."