SAN FRANCISCO -- Even after their most recent tumble, no one is ready to stock up on Internet stocks.
Another tech selloff Monday saw the
index lose 2.2% and the
TheStreet.com Internet Sector
index retreat 9%. A continuing slide in
, precipitated by the auction site's
crash last week, pressured e-commerce stocks, and uncomforting
words from analyst Mary Meeker of
Morgan Stanley Dean Witter
did the same for other Net issues.
All told, nail-biting Internet investors have watched some of their holdings lose as much as half their value in six weeks.
TheStreet.com Internet Sector
index is 38% off its late-April high, while big-cap measures such as the
Dow Jones Industrial Average
remain less than 10% below their peaks.
The damage done to big names in the sector has been perhaps even more notable. eBay has lost a quarter of its value since its site went down late last week and is 42% south of its April 27 high; bookseller
, now some 20% below its Thursday close, is 58% off its April 27 high. A number of other once-highflying Net stocks are now trading at little more than half their recent heights.
And in a departure from past slides, Net investors aren't showing any inclination to charge in to rescue the sector by buying at lower prices -- even though the fundamentals are mostly unchanged and long-term prospects for Internet growth remain strong.
"The buy-on-dippers aren't there," says Bob Herwick, a fund manager at
Herwick Capital Management
who sold his
shares a few months back. Those stocks have plummeted 46%, 48% and 59%, respectively, from their recent highs.
De-emphasizing the Net, Herwick's now betting on semiconductor companies like
Applied Micro Circuits
, which supply chips to telecommunication companies benefiting from the demand for broadband access. All three chip firms are within 11% of recent highs.
When the sector was surging, investors kept their eye on what seemed like a daily flood of bullish news about the Net. But ever since negative surprises, such as Amazon.com's expense-heavy April 28 first-quarter earnings report, began to rear their ugly heads, a new kind of Internet skepticism has arisen, and investors' attention has turned to some of the sector's perceived
shortcomings, such as its troubling spending doctrine. As a result, sky-high valuations have resumed weighing heavily on stocks.
Even the rare Internet companies making a profit or projected to do so soon remain highly valued.
, eBay and
are still trading at more than 100 times their estimated earnings for 2001 despite drops of 48%, 51% and 60%, respectively, from their 52-week highs. And all are still trading at more than 10 times their IPO prices.
"They all look very expensive," says Andrew Mann, a fund manager at
who is long
, which are each off around half from their 52-week highs. The difference is that now Net issues have given up much of their gains this year. "The 'I've gotta be in or I've gotta be out' mentality doesn't reflect the properties of the individual companies," says Mann. "Yahoo! and Amazon.com are very different companies."
All along, it's been hard to determine fair value for Internet stocks. Fund managers and analysts have justified the stocks' bizarrely rich valuations -- even counting its recent slide, Yahoo! is still worth 10 times as much as the largest U.S. steel producer,
-- by creating metrics to suit the companies' unknown potential. One of those metrics used has been the price-to-sales ratio, since most Net companies don't have earnings.
Those that do have earnings, like AOL, and those that have the best-known brands will likely be the ones that are sought out first when investors decide to take the chance and get back in. Proprietary technology and good management have also played a role. So when the time comes to get back in, money will "disproportionately favor the leaders and those companies with solid fundamentals and sensible business plans,"
Credit Suisse First Boston
analyst Lise Buyer wrote in a report Monday.
A sensible strategy. But it still seems too soon to implement. "We do not believe that this is the time to dive back in," wrote Buyer. "Supply is still growing while demand is more questionable."
Still, many issues may well rebound sharply once the selling stops. So while it might not be time to go shopping, says Paul Siegel, president of
Hollis Capital Management
, "It's time to put together a shopping list."