SAN FRANCISCO -- Growth is out and value is in. But are there any bargains in Net stocks?

That's the dilemma dawning on many investors. When the markets first started to give way in August, Internet stocks were hailed as a safe haven for stability because they weren't directly affected by the world's economic problems. And for the most part, the sector still offers that perception of safety. But a corporate spending slowdown could hurt companies most dependent on advertising revenues.

It's already hit the sectors' highflying stocks.

Amazon.com

(AMZN) - Get Report

and

America Online

(AOL)

are both off about 40% from their highs. Community phenomenon

GeoCities

(GCTY)

is proving to be no star either, falling some 73% from its high. Even

Yahoo!

(YHOO)

, which had held most of its strength in recent times. has also lost ground, down 22% from its peak.

Some buy-siders are finding this is a good time to get the shopping bags out.

"There are leaders in the Internet space," said Sammy Oh, an analyst for the

Warburg Pincus Emerging Growth

fund. "And when stocks come back, people will go to leaders."

That may be especially true for companies catering to the consumer side of the Net. During a recession, people will be keen to save money -- and for entertainment that means going online. "The Internet is a lower-cost form of entertainment," said Oh, who Thursday bought search engine companies like Yahoo! and

Lycos

(LCOS)

.

The bad news is that along with a recession, corporate advertising spending could go down. That would be bad for Internet companies because they generate the bulk of the revenue from advertising. Yahoo!'s 30% sequential

jump in revenue for its September quarter suggests that this hasn't happened yet. "There is the risk that businesses could cut back on Net ad spending," said Oh. "If they see it to be strategic, they probably won't cut back. But if it's an experiment, it would probably be the first place companies would cut back."

The troubled global economy may still have a significant impact. U.S. companies hurt by slowdowns in Asia, Russia or Latin America could in turn cut back spending on the Net. The go-go days of raising money through equity offerings may well be over for a while. And paying for acquisitions with stock transactions will get tougher the farther share prices go down.

"The liquidity crunch has a fundamental impact on how you run your business," said Andrew Mann, a fund manager at

Eureka Capita

, who is bullish on Internet grocer

Peapod

(PPOD)

. "Strategies will have to change to align with new financing realities and new economic realities."

Perhaps the biggest change is investor demand for profits. For most of the year, revenue growth was enough to keep an Internet company's stock buoyant (shocking but true). Now, fund managers are showing reluctance to jump on Internet stocks that are long on promise but short on profits.

So what's a prudent investor's defense? Go for companies that have a strong balance sheet, said Mann. Yahoo! beat expectations Wednesday after the markets closed and they ended the quarter with $432 million in cash. "Markets will go up and down, but the Internet offers a whole new way of looking at the world," Mann said.

But even if the Internet keeps growing, it will not mean Net stocks are a value, even at these levels. "I think the Internet is here to stay," said Nick Moore, who manages some $1 billion in tech stocks for

Jurika & Voyles

. "But these stocks rate zero-point-zero on the value scale. They won't be cheap down another 80%."

For more information on institutional holders, financial statements and earnings estimates for companies mentioned in this story, see the

Thomson Company Reports

.