Despite a general market rebound after last week’s massive sell-off, many analysts are saying that e-commerce stocks — particularly consumer issues — are unlikely to recoup their losses any time soon.
The Nasdaq Composite Index posted its biggest point gain ever Monday, closing up 217.76 at 3,539.05 after an up-and-down session. On a percentage basis, it was the Nasdaq’s second-largest gain. The gain was spurred in part by selective buying of technology issues, which were especially hard hit in last week’s rout.
The buying, though, did not include e-commerce issues, many of which remain well below their recent highs. Blue chip stocks did gain, with the Dow Jones Industrial Average rising 276.74 to 10,582.51.
Overall, analysts were upbeat about the prospects for a firmer market, saying margin calls — in which brokers require investors to put up money to cover their purchases — were the reason behind much of last week’s decline, as investors sold stocks to cover their positions. Internet stocks were among the biggest losers, amid nervousness about profits.
Friday’s sell-off was sparked, in part, by a morning U.S. government report showing that inflation, as measured by the consumer price index, was growing at a faster-than-expected rate.
That news caused a freefall in stock prices, with the Dow Jones Industrial Average dropping more than 617 points, a record one-day point decline. Technology stocks, beneficiaries of a booming economy, and financial issues, which are sensitive to interest rate changes, were the biggest losers.
No Mercy for Dot-Coms
Investors have grown leery of companies that have yet to see black ink. “We’re tired of hearing, ‘Revenue growth is strong, but we’re still not making money,'” said Arthur Hogan, chief market analyst at Jefferies & Co.
On Monday, for example, Ebookers.com (Nasdaq: EBKR), a London-based online travel company, fell 1 7/8 to close at 15 1/2, despite reporting higher-than-expected sales and strong traffic figures for the first quarter. The company still lost of 59 cents a share, before compensation costs.
“The Amazon.coms of the world, that story is getting kind of old,” said Hogan. Even the big e-tailers — Amazon (Nasdaq: AMZN), eBay (Nasdaq: EBAY) and Priceline, for example — must show profitablity before their share prices can return to levels of a few months ago, analysts said. “The e-commerce folks are going to need to bring some money down from the top line to the bottom line,” Hogan said.
For smaller e-commerce companies, “the party has been over as far as stock prices go for the last couple of months,” said David Kathman, stock analyst at Morningstar, Inc. Some newly public Internet companies are down 80 to 90 percent from their highs, and are likely to be taken over or driven out of business by larger competitors, he said.
Analysts Bullish on Big Picture
Hogan is optimistic about a stock market rebound overall. It is “just a difficult time to get excited” about companies with big ideas but no proof that they work, Hogan said.
Analysts, fund managers and government officials all said the U.S. economy is still in good shape and markets are not likely to see a full-blown crash. Analysts Thomas Galvin and Donaldson, Lufkin & Jenrette and Thomas McManus at Banc of America LLC reportedly recommended investors increase the percentage of stocks in their portfolios.
Also, Abby Joseph Cohen, chief investment strategist at Goldman, Sachs & Co., was said to have reiterated her bullish prediction for the stock market.
Computers, Telecoms Will Rule
“Technology and telecom is going to be the leadership” sector, according to Jefferies’ Hogan. Chipmakers and telecom companies — those that have tangible profits and business models — are going to be the first to find favor among investors, he said.