SAN FRANCISCO -- With Christmas a little more than 100 days away, investors seem to see only
silver and gold in e-commerce stocks.
expects consumer online spending to double to about $8 billion in the fourth quarter compared with last year. Investors are pushing up Internet stocks in part because of those high expectations.
TheStreet.com Internet Sector
index is up 29% since early August.
But this buying spree might be premature and haphazard. Investors buying now could get slapped back if third-quarter earnings reports disappoint. In addition, money managers say a rifle-shot approach is the safest way to play the holiday e-commerce stock-picking game. And they're taking aim at some stocks that, on the surface, look little like e-commerce plays.
"It's a strong seasonal period, and I'll likely hold onto
," says Roy Howard, an analyst for New York's
Circle T Partners
hedge fund, which manages $250 million. "But I won't buy into every Dick and Harry because it's a commerce play."
The reason behind buying stocks like Yahoo! rather than
is that they benefit from the season's heavy Internet traffic but also generate revenue from sources other than commerce, which has wafer-thin profit margins thanks to price wars.
"If e-commerce goes up,
is one of the main benefactors," says Alexander Cheung, senior portfolio manager of the $52 million
Monument Internet Fund.
That's because many of its 18 million members shop online. So it sees traffic soar as people use AOL to access e-commerce sites.
Yahoo! isn't an obvious e-commerce play, either, but
says 0.2% of Yahoo!'s visitors are buyers. That may not sound like much, but
data released today says Yahoo! had nearly 40.2 million unique visitors in August. That means nearly 80,400 people opened their wallets to Yahoo! that month.
AOL and Yahoo! have an added advantage of raking in ad dollars, says Fred Sears, a fund manager at
, because margins for e-businesses are low as companies try to attract customers with low prices. In addition, AOL receives monthly connectivity payments from its subscribers.
Sears, however, is waiting until third-quarter results start pouring in before buying. He especially wants to see how Yahoo! and
perform. Yahoo! usually sets the scene for the quarter's numbers because it's the first big e-commerce-related company to report. Amazon is the biggest pure business-to-consumer e-commerce company. If it doesn't show strong growth, then smaller players may also have trouble.
"My gut says it's going to be a strong quarter, but I might be wrong," says Sears, who's already long Yahoo!. Until he sees proof that Amazon's orders are up, he'll stay on the sidelines. If he does buy, he'll stick with the big names like Amazon and
To be sure, not all fund managers are looking at their e-commerce investments with a four-month time horizon. Many are buying into these stocks not only because they know that business-to-consumer commerce is doubling over last year's numbers, but also because it is only going to get bigger. "This Christmas will be bigger than last," says Monument's Cheung, who recently added to his Amazon position. "And next year will be better than this Christmas."
But even some money managers who're betting on long-term growth are taking a more focused approach. Says Sears, "No one ever got fired for buying
, so be very selective."
As originally published, this story contained an error. Please see
Corrections and Clarifications.