Cover Story -- The Info Tech 100/Stock Picks
First vice-president, Internet analyst, Merrill Lynch
STOCK PICKS: Yahoo! (YHOO), America Online (AOL), Inktomi (INKT)
WHY: With the shakeout among Net companies, the profitability and established positions of these three make them top picks, Blodget says. He expects Net stocks to drop even more this summer, before the strong rally this fall. "If you own these stocks, hold on to them," Blodget says of his picks. "If you want to add to your holding, you should get a good opportunity this summer."
Yahoo! Inc., which dishes up free services such as e-mail, auctions, and news, will continue to benefit from broad, global reach. Revenues from e-commerce and communications, including long distance service, should increase to 67% of total sales within three to five years from 20% now, Blodget says. Advertising will make up the rest. Yahoo's 23 international versions, which now account for 14% of sales, also will boost growth and reach 50% of sales in five years. By yearend, Yahoo's stock will climb back to $200 from $137 today.
Can AOL, a monster with 22 million subscribers, pull off its $183 billion merger with Time Warner Inc. and become the world's most valuable company? Yes, within two years, Blodget says. "AOL will lead and benefit from changes in music, cable broadband, and new devices, like interactive TV," he says, and by yearend, he adds, the stock will be around $80, up from $55 now.
Inktomi Corp. was in the right place at the right time, Blodget says. A year ago, demand for its Traffic Server software, used to efficiently distribute content, seemed limited to a small group of companies, he says. The exploding popularity of media and music brought in new clients in the past six months. Now Traffic Server sales are increasing by about 40% each quarter. That should help push the stock to $175 by yearend, from $128 today.