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Internet investors expand their horizons

Much of the sizzle from Internet stocks is the sound of a burning fuse.

The stock of online retailer, for instance, has ballooned 10-fold in the past year even though it has yet to make a dime.

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"The stocks have always seemed outrageously expensive, and they are arguably the most expensive stocks in history," says Henry Blodget, Internet analyst at CIBC Oppenheimer in New York.

Although the sector could soon confront a correction ranging from 30 percent to 60 percent, Mr. Blodget remains extremely optimistic for the long term. And he thinks he's found a comparatively stable seat on the Internet rocket.

Investors, he says, can turn to well-established companies with robust profits that are embracing the Internet, but don't exist only in cyberspace.

Unlike pure Internet firms, they are just wildly priced instead of insanely so. They offer investors plenty of bang with far less burn.

"It pays to identify the companies that will capitalize on the Internet and be there first," says Paul Cook, lead manager of the Munder NetNet fund, one of a handful of mutual funds that have sprung up specializing in these companies.

Mr. Cook raised eyebrows several months ago by buying Charles Schwab as an Internet play. But since then the stock has soared, in large part because it now does some 60 percent of its transactions online.

"We're putting our money to work in the more stable, mature tiers because the less mature companies are so highly valued," says Lawrence York, lead portfolio manager of the WWW.InternetFund in Lexington, Ky. About one-third of his Internet mutual fund is devoted to large, highly profitable firms with at least part of their business related to cyberspace.

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Established businesses jumping headlong to the Web range from telecommunications and personal computers, to retailing and shipping. The variety testifies to the way in which the Internet will transform how virtually all industries operate.

Big Web prowlers

One such blue chip is Disney. The entertainment giant plans soon to launch the Go Network, a new Internet portal that will offer a full range of services, from e-mail to value-added offerings like travel services. In addition, Disney recently bought a 43 percent interest in Infoseek, an Internet search engine.

"Disney's management has made the Internet a strategic imperative for the company," says Merrill Lynch: "No doubt Disney will be successful given its promotional and marketing expertise and ownership of multiple well-known consumer brands." Its combined sales already rank it No. 8 among all Web sites, according to Salomon Smith Barney.

Compaq Computer Corp. exemplifies how a heavy-hitting company can quickly get a boost through a sudden embrace of the World Wide Web.

The world's No. 1 personal computermaker last month announced it would spin off its Alta Vista Internet search engine as an independent company. The market value of Alta Vista could reach $2 billion. Early in January Compaq said it plans to buy online retailer as a way to quickly upgrade its e-commerce.

Internet image

"If the Alta Vista IPO [initial public offering] is finalized, Compaq could get some tail wind because of the aura of having an Internet venture," says Ullas Naik, Internet analyst at First Albany Corp. in Albany, N.Y.

These companies have the ample capital needed to make a solid claim to profitable space on the Web.

Reaping most of their earnings outside the Internet, they could ride out any severe market correction.

Then they will probably either buy out or bowl over many smaller Internet players who lack capital and a popular brand image.

Internet funds

Internet mutual funds got off to a strong start in 1999. But those zooming returns have led to fears of a steep drop. As a hedge, Internet-stock investors are turning to companies that embrace online commerce, but also exist outside of cyberspace. Below, the recent performance of the three major Internet funds.

Total return Fund name year-to-date 1-yr.

Internet Fund 33.2 253.8 888-386-3999

WWW Internet 22.3 90.3 888-263-2204

Munder NetNet A 21.6 120.2 800-647-9201

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