Catching Net Stocks on the Rebound

When you jump into the flames, sometimes you get burned. But sometimes your portfolio catches fire.

Nine of the 10 Web “bargains” featured in Market Savvy on Aug. 12--when the sector was at its most battered and several individual stocks were down 75% or more from their peaks--have rallied in the last month.

As the accompanying chart shows, the portfolio has beaten TheStreet.com’s index of 20 leading Internet stocks, on average, and thumped the blue-chip Standard & Poor’s 500 index.

It’s still a volatile sector, of course, and even in today’s trade-happy climate most investors buy and hold for longer than 30 days. But the early results seem to bolster our hypothesis: When a promising growth-stock group gets so badly pummeled, there are usually opportunities for gutsy investors.

To assemble the portfolio, we looked at Net stocks marked down at least 40% from their highs and picked our favorites, mostly on gut instinct.

The biggest winners have been retailer EToys, up 79.2%, and auctioneer EBay, up 68.7%.

The biggest duds have been investment site E-Trade Group, up 5.8%, and Internet service provider America Online, down 2.4%.

Though some might disagree, our experiment indicates that investing in Web stocks requires at least a little thought. Lone loser AOL, ironically, was one of our, uh, “no-brainers.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Dot-Com-Back Kids

Nine of the 10 Internet “bargain” stocks featured in Market Savvy on Aug. 12 have gained ground, and the portfolio on average has outperformed TheStreet.com’s index of 20 leading Net stocks and the blue-chip Standard & Poor’s 500 index.

*--*

Ticker Aug. 11 Mon. % Company symbol close close change E-Toys ETYS $31.88 $57.13 +79.2% EBay EBAY 87.69 147.94 +68.7 Silknet Software SILK 28.44 39.88 +40.2 Amazon.com AMZN 45.50 63.31 +39.1 Pilot Networks PILT 8.25 11.00 +33.3 RealNetworks RNWK 69.75 84.13 +20.6 Stamps.com STMP 31.13 36.00 +15.6 CMGI CMGI 75.56 84.25 +11.5 E-Trade Group EGRP 23.44 24.81 +5.8 America Online AOL 92.38 90.13 -2.4 Average stock change +31.2 The Street.com index 502.36 612.46 +21.9 Standard & Poor’s 500 1,301.93 1,344.13 +3.2

*--*

Source: Bloomberg News