Safety In The Net

If you think the market has bottomed out, what stocks should you buy? To Joan Lappin, president of Gramercy Capital Management, the answer is easy: the bloodied Internet stocks. Scores have fallen by the wayside, so the discredited group is "full of opportunity," she argues. Lappin says the market hit bottom the day the Fed cut interest rates. She points to the Nasdaq Composite Index, which stood at 2,262 that day and closed on Jan. 17 at 2,683.

So Lappin has been buying shares of two of her top picks: Excite@Home (ATHM) and Info-Space (INSP). Lappin says shares of Excite, the world's largest consumer broadband Internet service company, have fallen partly because of AT&T's 74% voting stake. With AT&T's decision to split up, Excite's future has become unclear. Its stock has plunged, to 3 7/8 a share on Dec. 22, from 44 on Jan. 20, 2000, and now trades at 8.

What entices Lappin is this: AT&T has agreed to buy the combined 16% stake owned by Comcast and Cox Communications for $2.9 billion. Yet Excite's total market value is just $3 billion. Evidently, she says, AT&T wouldn't have agreed to pay the price if it didn't think Excite was worth a lot more. Excite is expected to earn 25 cents a share in 2002, up from about 4 cents in 2001. She sees its stock hitting 25 this year as Excite's fate becomes clearer.

InfoSpace, a provider of Internet infrastructure services, hit 138 a share in early March, but has since crashed to 9. It is the power behind 3,100 Web sites, including those run by AOL Time Warner and Microsoft. InfoSpace enables sites to be more user-friendly and respond quickly to requests for information. Lappin sees InfoSpace earning 13 cents a share in 2001, up from 5 cents in 2000. "The stock could easily double this year," she says. Gramercy started accumulating about 200,000 Excite shares in early December at an average cost of 8 and 100,000 of InfoSpace at 10.

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