Merger News Animates Net Rally

Also, Rajiv Chaudhri's picks move AOL and eBay issues.
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SAN FRANCISCO -- To merge or not to merge? That was the question and the answer in the Internet world today.

Investors reacted positively to news that

Xoom.com

(XMCM)

would

merge with Internet properties from

NBC

. And there also was a positive response to reports that the

Lycos

(LCOS)

/

USA Networks

(USAI) - Get Report

merger was off.

Xoom.com ended the day up 6 3/4, or 9%, at 81 7/8, but that was far off the 90 1/2 high it made on the open. The stock had rallied sharply on Friday as rumors of the deal

swirled and traders took profits after the initial spike. Also benefiting was

CNet

(CNET) - Get Report

, which co-owns

Snap.com

with NBC and will own 13% of the new NBC Internet. CNet closed up 22 7/16, or 20%, at 136 3/16.

The Lycos-USA merger has been viewed unfavorably by investors since it was announced in

February. Lycos closed up 15 3/4, or 18%, at 105 1/4.

CMGI

(CMGI)

, which owns part of Lycos and also expressed some reservations about the deal, closed up 16 11/16, or 7.5%, at 237 15/16.

The Internet sector also was aided by gains in

America Online

(AOL)

, which has been battered after being left out of the deal for

MediaOne

(UMG)

. The stock was named as a pick of Rajiv Chaudhri of the

Digital Century

hedge fund in this week's issue of

Barron's

. Chaudhri said the company has potential for earnings growth of 100% annually over the next several years and stock will be in the 175 to 200 range by the end of 1999. It closed up 10 1/16, or 9%, at 128 1/4.

Chaudhri also proclaimed

eBay

(EBAY) - Get Report

"the most significant story in the e-commerce space" and said it can get up to the 300 range over the next 12 months. It closed up 16 11/16, or 9%, at 193 3/8. And although Chaudhri panned

MindSpring Enterprises

(MSPG)

, it managed to close up 1 3/4, or 2%, at 89 3/4. Chaudhri has a target of 65 to 70 on the stock.

Lam Research

(LRCX) - Get Report

, another stock Chaudhri said he is shorting, retreated 2 1/4, or 7%, to 30 1/8. The stock has been the subject of buyout rumors

fanned by

Merrill Lynch

analyst Mark Fitzgerald in April.

Online brokerages got a boost from a report by

Volpe Brown Whelan

analyst Derek Brown, who said weakness in the Internet sector has created a buying opportunity in

E*Trade

(EGRP)

. It closed up 9 7/16, or 8.5%, at 119 13/16. Brown also said losses in the sector in general had created a buying opportunity in eBay, CNet,

Yahoo!

(YHOO)

and

Amazon.com

(AMZN) - Get Report

. Yahoo! closed up 8 1/4, or 5.6%, at 155 11/16 and Amazon.com closed up 10 9/16, or 8%, at 146 15/16.

Also on the upside was

Dell

(DELL) - Get Report

. It closed up 2 1/16, or 5%, at 42 1/4 after

BT Alex. Brown

upped its rating on the company to buy from market perform. And

Compaq

(CPQ)

closed up 1 7/16, or 6%, at 26 3/16, after the PC seller said it was paring its distributor list from 40 to 4.

Also of note, shares of

QLogic

(QLGC)

continued to rise after the company reported record earnings last week. It closed up 12 1/4, or 14%, at 102 5/16. It closed more than 14 points higher on Friday.