Blodget Predicts Weak Summer for Internet Will Give Way to December Gains

But the short-term forecast is hazier, says the Merrill Lynch analyst.
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SAN FRANCISCO -- In a conference call with clients today, Merrill Lynch Internet analyst Henry Blodget attempted to answer most of the concerns regarding recent weakness in the Internet sector, whether it will continue and what investors interested in Net stocks should do.

"Bottom line: We think if you buy the leading Internet stocks now, they will be higher by December, but may be volatile over the very near term," Blodget said.

Though he sees current prices representing a buying opportunity for those with a longer-term perspective, Blodget said he still sees the chance for further losses in the near-term due to "weak summer seasonality," lack of "immediate catalysts," rising interest rates and "questions/issues surrounding industry bellwethers."

"Some of the recent quarterly reports, moreover, weren't particularly inspiring, so we imagine that few investors will want to worry about those while going on vacation," he noted. "Therefore, we would not be surprised to see additional weakness in the stocks throughout the balance of the summer as investors trim positions and head for the beach."

And with the sector seemingly at the mercy of daytraders and subject to volatile price swings, Blodget also addressed the shorter-term perspective.

"For investors concerned about month-to-month or day-to-day performance, our forecast is hazier. We don't see any major sector catalysts until September, when the country returns from vacation and the first positive traffic reports may begin to trickle in," he said. Blodget added that he sees a number of positive catalysts, including strong traffic, advertising and commerce, driving the sector higher by the end of the year.

Net Outlook?

Buying now, in it for long run.

Shorting: negative seasonals.

Fed fears: trimming positions.

Don't know -- heading to beach.