The Internet Generation
02/18/2005 12:00 am EST
Alberto Vilar is founder of Amerindo Investment Advisors, a mutual fund company that focuses on emerging technology. Here, the founder and fund manager offers a trio of his favorite stocks that are poised to benefit from the still-unfolding Internet Generation.
"Technology investing is in the process of a major change. The first major tech cycle was all about mainframe computing. The next was about desktop computing. Now we’re in the third generation, which I think will be much stronger than the first two. That is the Internet generation. And it’s still very early in that cycle. The earlier cycles focused on automating corporate America. Now you really have a much larger and addressable market, namely the consumer. It’s a new world in which I would argue virtually everything is going to be networked, from businesses to homes. Emerging technology has led the bull market since October 2002, and I continue to see technology leading the market over the balance of this decade. I can’t think of another sector that is going to do better.
"The market for 'Internet search' is probably the fastest growing and most profitable part of the Internet. In less than three years, the sector called ‘paid search’ has grown from $300 million to about $4 billion. Google (GOOG NASDAQ) has about half of that market, and it's growing very, very rapidly. If you look at the world and what can be indexed to be searched, very little has been done. We’re talking about the world of libraries, music, photos, e-mails, etc. There is an extraordinary amount of information that is going to be searched and Google remains the leader in the field. In the end of the 1990s, two companies got to a $500 billion market cap – Microsoft and Cisco. I think we’ll see several companies during this decade go through that level, and Google is my candidate to do so.
"Homestore (HOMS NASDAQ) is a turnaround company. In the late 1990s, it was the leader in applying the Internet to real estate. From looking for a home, buying a home, buying furniture, or renting, Homestore put this information on the Internet. However, the company became over-extended and got into financial difficulties. Now they’ve turned the company around, some money has been raised, and they’ve signed some very lucrative deals in the real estate world. I think real estate information on the Internet is a very interesting area. As the #1 player in this market, I believe this stock could be an interesting turnaround.
"Sonus (SONS NASDAQ) is a sector play. The biggest change in telephony is in Voice over Internet Protocol, or VoIP. Here you have a major, Internet-based technology that is going to be deployed over the whole world. Sonus happens to have a very interesting and essential part of that, which is the switching mechanism for this technology. They are also touted as a potential takeover. And while I don’t recommend stocks based on takeover potential, I would note that one of the 'big guys' at some point might find it convenient to acquire them. But even on their own, I think they'll do very well, because they are in the sweet spot of an exploding technology."