Bernie and Bambi: Internet Bets

07/04/2003 12:00 am EST

Focus:

Bernie Schaeffer

Chairman and CEO, Schaeffer's Investment Research

Bernie Schaeffer remains bullish on eBay and considers the stock attractive on a fundamental and technical basis. On a sentiment basis--as a contrarian--he is encouraged by the pessimism on the stock among traders and the media. Meanwhile, Bambi Francisco, Internet editor forCBS MarketWatch.com, profiles InterActive, the umbrella for the Internet options of media giant Barry Diller. Here are their reviews.

Says Bernie Schaeffer in his latest The Option Advisor, "Pessimism continues to dominate eBay (EBAY NASDAQ), the online auctioneer. For example, a number of Internet stocks including eBay were raked over the coals recently by a weekly financial magazine. Such negative stories--particularly 'cover stories' that surface amid a positive technical backdrop often have powerfully bullish implications. What's more, puts easily outnumber calls in the front three months of options. This reading is higher than all but 3% of those taken over the past year. Heavy front-month put open interest lies below the 100 level, ready to lend added support. Fundamentally, the company remains strong, as it has surpassed the Street earnings estimate for the past four quarters by an average of 12.75%. Technically, eBay has been outperforming the Nasdaq on a monthly basis since November 2000. Further, the equity has been moving higher in a tight, orderly trend with support from its ten-week moving average (currently at 98). eBay's short interest is also high, with more than 18.1 million shares sold short. This is nearly three times the stock's average daily trading volume, leaving the door open for a potential short squeeze."

Editors Note: In his Aggressive Portfolio, Bernie Schaeffer recommends the January 2004 100 call (.QXBAT ). In his Put Selling Portfolio, he suggests selling the August 90 put (.QXBTR ). The call position is a leveraged way to play a move above the 100 level. With the put selling position, one can keep the premium received as long as the stock remains above the 90 level at the time of expiration.

Meanwhile, Bambi Francisco says, "It's expected to be another good year for online travel, which is good news for InterActive (IACI NASDAQ, formerly known as USA Interactive. The firm received a modest bump in third-quarter revenue and earnings projections from Goldman Sachs analyst Anthony Noto. The primary reason is that its online travel unit, Expedia, should exceed current estimates, according to Noto. InterActive controls the majority of Expedia shares and is in the process of buying up the rest. Noto raised his third-quarter revenue estimate for the InterActive by roughly 2% to $1.51 billion and adjusted his earnings estimate by a penny to 17 cents. The analyst bumped up his estimates for the year as well. He expects 76 cents in earnings, $915 million in cash flow, which is double from last year, and $6.2 billion in sales, up 34%. Based on new estimates, Expedia would grow its sales by 62% and cash flow by 93% this year. InterActive's Hotel.com is expected to grow sales by 49% to $343 million. Overall sales at InterActive are expected to grow by 36% while cash flow grows 87% to $214 million. One segment under the InterActive umbrella that's not faring as well as Noto had once projected is online dating, or personals. Noto lowered his revenue estimate on InterActive's personals by $3 million to $44 million. But that's still up 50% year-over-year."

 

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