Sweeter Strains From Graphix?

Internet stocks took it on the chin last year, especially the small fry. Graphix Zone (GZON), a maker of interactive CD-ROMs and musical products for personal computers, was down to 2 3/8 a share by Dec. 30, from nearly 9 a year ago.

Even at this low price, should investors stay away? Perhaps not. On Oct. 23, when Graphix hit 2 7/8, Chairman Ronald Posner bought 24,000 shares, raising his stake to 415,000. "The stock is undervalued based on Graphix' unique music position and its growing presence in Internet software solutions," argues Jeffrey Logdon of Cruttenden Roth, an Irvine (Calif.) investment firm that handled the IPO on June 6, 1994, at 3 1/4 a share.

Although Graphix was in the red in 1995 and 1996, it could make money in the year ending June 30, 1997. Logdon expects revenues to jump 74%, to $16.5 million, and earnings to 26 cents a share.

"The key to Graphix' growth is new products, especially in the high-profile music and movie world," says Logdon. A recent Graphix thrust "will enable the company to become one of the largest music Web sites on the Internet." Logdon thinks that with its current products, including CD-ROMs of Living Jazz and Willie Nelson, the company can increase revenues at 40% a year for the next two years. He thinks the stock will climb to 5 in 12 months and to 7 in 24 months. Stuart Rudick, a California money manager, is also bullish on the stock.