A Relatively Tame CPI Report Helps Boost Net Stocks in Early Trading

Also, Deutsche Banc Alex. Brown issues a report that shows daily Internet stock transactions for online brokerages are up.
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Another nonthreatening inflation report gave Internet stocks the green light to push ahead this morning. And while the sector was trading higher, investors have been reluctant to put the pedal to the metal.

Net stocks paused on Monday ahead of today's

Consumer Price Index

report, but the numbers came in line with expectations, giving the sector the go-ahead to rally. While the

Federal Reserve

is still expected to raise rates when it meets Aug. 24, the inflation data seen today and Friday are fueling hopes that the Fed won't have to be aggressive.

TheStreet.com Internet Sector

index was up 9.92, or 1.8%, at 551.04 in early trading, though that already was off its session high of 558.10. Bellwethers were leading the way, but gains were broad.

Amazon.com

(AMZN) - Get Report

was up 4 11/16, or 5%, at 103;

Yahoo!

(YHOO)

was up 4, or 3%, at 138 1/2;

America Online

(AOL)

was up 1 13/16, or 2%, at 96 3/4; and

eBay

(EBAY) - Get Report

was up 4, or 4%, at 113.

Among other Net stocks in the news today,

E*Trade

(EGRP)

was up 2 1/8, or 8%, at 29. The online brokerage said it had entered into a deal with

Instinet

to provide after-hours trading to online investors. The services are expected to be available in September and will provide trading from 4 p.m. to 6:30 p.m. ET. Traders will be able to trade stocks in the

NYSE

and

Nasdaq

. Instinet is a subsidiary of

Reuters Group

(RTRSY)

, which was up 7/8, or 1%, at 88 3/8.

In other news related to online brokerages,

Deutsche Banc Alex. Brown

reported today that daily average Internet stock transactions for the third quarter were up 2.3% vs. the June quarter, midway through the quarter. Analyst Jim Marks wrote that he is estimating online brokers in the quarter will show "moderate single-digit increases" sequentially, but not a decline as some had feared.

But Marks doesn't give a wholesale endorsement to buy brokerage stocks, even though some have fallen as much as 60% from their April highs. "We still believe that most do not offer enough upside reward relative to risk," he wrote, and noted that trading these stocks based on short-term transactional trends "is, at best, a fool's errand."

While maintaining a market perform rating on the entire sector, Marks wrote that the one exception is

National Discount Brokers

(NDB)

, which he claimed is "significantly undervalued" and presents a buying opportunity. Note that Deutsche Banc has done underwriting for NDB, but Marks told

TSC

that the company also underwrote for the

DLJdirect

(DIR)

offering, and the firm has a market perform rating on DLJdirect. Deutsche Banc has a strong buy rating on NDB, with a 12-month price target of 100. NDB was up 1 3/4, or 5%, at 34 1/4. DLJdirect was up 3/8, or 2%, at 19 7/8.

Marks told

TSC

that the sector remains sensitive to market conditions and if volumes per account go back to levels that they were from 1996 to the middle of 1998, the companies could see a 25% to 35% decline in sequential volumes.

"I don't know if it's going to happen this quarter or next quarter, but this is a cyclical business and that risk always overhangs these stocks," he said.