No medicine found for Internet fever; Buyers rushing forth as the shares soar


WHEN BRIAN Kroneberger Jr. gets a call from a client about an Internet stock, the questions are fast and few:

"What is it trading at?" "What's the high?" "What's the low?" Finally: "Buy me 'X' amount of shares."

"There is no rationalization," said Kroneberger, a broker at Ferris, Baker Watts Inc. who often warns clients that Internet stocks can fall as fast as they go up.

Despite the risks, Internet stocks are Wall Street's latest craze, and no wonder. In just six weeks, shares of Inc., an Internet news and information company, vaulted more than 330 percent to a Jan. 11 high of $285.06. In one day, the shares soared more than $88.

Shares of CMGI Inc., an Internet venture capital company, jumped 250 percent, from $38.75 on Nov. 30 to $136 on Jan. 11. And Yahoo! Inc., an Internet media company, rose 116 percent over the same period, to a high of $415.375.

What makes many experts nervous is that the Internet is so new that few understand it. Even analysts are having difficulty figuring out how to value and predict how much these companies might earn. Many have tossed aside earnings per share and other standard benchmarks used in judging stocks, saying they don't apply to the high-flying Internet stocks.

The experts are also worried that investors are buying companies that have little in the way of a track record.

One of the hottest Internet stocks is online retailer, Inc., which went public in May 1997. It already has a $22 billion market capitalization -- its total shares multiplied by its stock price. From their split-adjusted initial public offering price of $3, the shares rocketed to a high of $184.625 on Jan. 11.

The lack of earnings and the presence of potential pitfalls haven't stopped investors from racing for Internet stocks.

Phone volume at T. Rowe Price Brokerage has nearly doubled over the past several months, largely because of Internet stocks.

"It has made us extremely busy," said Maurice Minerbi, manager of T. Rowe Price Brokerage.

"It is just the intensity that has changed. It has the characteristics of a mania. No one knows how long manias can last, and how high is high."

The enthusiasm for Internet companies reminds some experts of the frenzies over auto stocks in the 1920s, bowling alley stocks in the '60s and energy stocks in the late 1970s when there was talk of oil surging to $80 a barrel.

Lisa Rapuano, assistant portfolio manager at Legg Mason Inc.'s Special Investment Trust mutual fund, doesn't see a mania in Internet stocks.

"One of the things they [manias] have in common is that there is no economic basis" for them, she said.

"The difference with this is that the Internet is truly an economic changing phenomenon. People understand that it is going to change a lot of business and there are going to be significant fortunes made by some people."

The reason shares of Amazon, Yahoo!, and America Online Inc. soar $20, $30, and $40 in a day is largely because there is huge demand for the stock and a limited number of shares, she said.

"If you take the whole Internet sector, it is less than $200 billion in market cap," Rapuano said. "That is smaller than Microsoft, it is smaller than GE [General Electric Co.]

Rapuano's advice: "Stick with the leader."

"You just have to be aware that there is a risk they could go down 50 percent," she said. "Just look at the daily fluctuations. It can be really brutal. We have taken some big roller-coaster rides. It is scary when they start to go down. You just want to hold on through the storm."

One of Rapuano's favorite Internet companies is AOL because it is an industry leader, and could become a global player.

"It is probably larger than many of the pundits are forecasting," she said. "It is reasonable to believe that this stock can triple or quadruple over five years. That is not too bad."

She did say, however, that Special Investment Trust is considering taking some profit in its AOL position.

Pub Date: 1/17/99

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