Lycos Strength, Blodget's Basket Picks Boost Net Shares

But weakness in online brokerages and the overall market has reined in Net investors' enthusiasm early on.
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A solid earnings report from Lycos (LCOS) and some strong words from one of the industry's heavyweights provided a boost for Internet stocks in early trading today. But weakness in online brokerages and the overall market has reined in investors' enthusiasm.

TheStreet.com Internet Sector

index was up 5.04, or 0.9%, at 562.90 in recent trading.

Merrill Lynch's

Henry Blodget received a lot of publicity after he introduced his "1999 Holiday Basket" of eight Internet stocks he believes offer "a sound way to play the fundamental strength and renewed investor enthusiasm we expect to see during the fall and holiday shopping season."

The basket includes well-known names like

America Online

(AOL)

,

Yahoo!

(YHOO)

and

Amazon.com

(AMZN) - Get Report

. Other basket picks include

eToys

(ETYS)

,

Inktomi

(INKT)

, Lycos,

Excite@Home

(ATHM) - Get Report

and

barnesandnoble.com

(BNBN)

.

But despite the fact that six of the eight issues in Blodget's basket were underwritten by Merrill, a contact at the firm disputed the notion that it was merely "plugging the names" it's underwritten. A couple of companies Merrill also has done underwriting for, including

priceline.com

(PCLN)

and

uBid

(UBID)

, were not included in the basket, he pointed out. The stocks in the basket, he said, were picked because the firm expects them to benefit the most during the fourth quarter, when traffic, advertising and commerce pick up. Blodget anticipates online holiday shopping -- "from advertising to window-shopping to sales" -- will be at least two to three times last year's level.

Further, the contact said, Merrill has not done underwriting for the two companies that Blodget upgraded, Amazon.com and Yahoo!. Intermediate-term ratings on both companies were upgraded to buy from accumulate this morning.

Regardless of its true motive, Blodget's bullish support has definitely benefited the selected stocks. In early trading, Amazon.com was up 4 1/2, or 4%, at 113 3/4; Yahoo! was up 5 1/2, or 4%, at 144 3/8; AOL was up 1, or 1%, at 98 1/2; Excite@Home was up 1 7/8, or 5%, at 41 1/2; barnesandnoble.com was up 1 9/16, or 9%, at 18 5/16; Inktomi was up 2 7/16, or 2%, at 118 7/16; eToys was up 7 3/4, or 19%, at 48; and Lycos was up 2 13/16, or 7%, at 45 1/8.

Lycos also got a push from its better-than-expected fiscal fourth-quarter earnings, reported after the close on Tuesday. Lycos posted earnings of 1 cent a share, a penny better than the

First Call

consensus estimate. Revenue of $45.1 million was up 28.6% from $35.1 million in the third quarter.

Following the quarterly report,

PaineWebber

analyst James Preissler upgraded his rating on the stock to buy from neutral and raised his 18-month price target to 75 from a split-adjusted 12-month price target of 63. PaineWebber has not done underwriting for Lycos.

Finally, online brokerages have suffered following some cautious words on

E*Trade

(EGRP)

from

BancBoston Robertson Stephens

analyst Scott Appleby. Appleby lowered his revenue estimate and loss-per-share estimate for E*Trade's current fiscal fourth quarter based on discussions with management and other industry sources, continued weakness in the market as well as uncertainty with interest rates and further market volume weakness. Appleby dropped his total net revenue estimate for the company to $155.2 million from $165.5 million. He widened his loss-per-share estimate by a penny to 12 cents. The First Call estimate looks for an 11-cent loss.

Appleby also decreased his estimate for sequential transaction growth for the e-broker industry in the third quarter to negative 5%-flat from 3%-5%.

In early trading, E*Trade was down 1 9/16, or 5%, at 28 11/16;

National Discount Brokers

(NDB)

was off 1 3/4, or 5%, at 34 1/4; and

Schwab

(SCH)

was off 2 1/2, or 6%, at 43.