Internet Remains the Story in Stocks

Everybody's still winning. Except shorts, that is.
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SAN FRANCISCO -- The rush into Internet stocks has persisted, boosted by reports of strong holiday sales on the Net, while the overall stock market has remained in holiday mode with thin trading conditions a dominant theme.

Hopping on the bandwagon of stocks announcing an Internet site then seeing their stock soar was

Active Apparel Group

(AAGP)

, which was up 10 1/4, or 820%, to 11 1/2 after the maker of

Everlast

activewear announced the introduction of a Web site. The stock has traded as high as 15 1/8.

SkyMall

(SKYM)

continued to cruise higher on its announcement of a surge in Internet sales. The stock was up 23, or 183.1%, to 35 9/16.

Shares of

America Online

(AOL)

added 20 1/2, or 15%, to 157 1/8 on news that online sales more than tripled from a year ago. AOL also is benefiting ahead of its inclusion in the

S&P 500

as of the first of the year. Online sellers such as

Amazon.com

(AMZN) - Get Report

(up 8.35%) and

Barnes & Noble

(BKS) - Get Report

(up 12.9%) also rallied on the news and the continued euphoria surrounding these stocks.

Steve Harmon, senior investment analyst at

Internet.com

, notes that one in every five consumers shopped on the Internet.

"There's clear evidence of a shift in buyers to the Web -- en masse," says Harmon.

Internet brokerage houses also rallied on news that

E*Trade's

(EGRP)

Destination E*Trade

had signed up 500,000 members since September.

Charles Schwab

(SCH)

(up 5.4%),

Donaldson Lufkin & Jenrette

(DLJ)

(up 3.43%) and

Ameritrade

(AMTD) - Get Report

(up 14.7%) benefited from E*Trade's news.

"We've got a feeding frenzy and it's not going to abate until Internet traffic slows or earnings estimates don't match expectations," says Jim Volk, co-director of institutional trading at

D.A. Davidson

in Portland, Ore.

Volk says barring any unexpected news, positive seasonals and window dressing should keep the market on firm ground through the short work week, though profit taking could limit the gains.

Broadcom

(BRCM)

may be a semiconductor maker, but this stock walks like an Internet play and quacks like an Internet play. And that's the only explanation anyone had today for its jump of 7 3/4 to 128 1/4.

Needham

analyst David Wong says he's getting used to these inexplicable gains for Broadcom, which makes super-fast communications chips for cable modems and other Internet delivery vehicles. He's got a neutral rating on the stock. "I am literally neutral," he says. "It's difficult to call which direction Broadcom will go." There's nothing wrong with Broadcom, he says, except its valuation of 219 times earnings. Needham is not an underwriter for Broadcom.

While the longs are smiling, the shorts are scrambling. One short-seller who asked not to be named says he's very negative on the company, and yet it continues to rise. "We think it is ridiculously priced," he says, adding that a market capitalization of $6 billion for a company that generated $150 million in sales over the last four quarters should scare anyone away.

Broadcom's continuing climb puzzles even some of the longs. "We've held it for six months and we have done really, really well," says Sheldon Lien, portfolio manager at

McKinley Capital Management

, which manages $1.7 billion in funds. "It trades like an Internet stock so it is getting kind of scary." Yet while McKinley has been trimming its few Internet positions, like AOL and

Yahoo!

(YHOO)

, the company hasn't touched its Broadcom position yet. "The technicals and near-term trading dynamics show we can play a little bit higher here," Lien says.