INTERNET STOCK NEWS[tm]
http://www.123jump.com
ISN Ones to Watch 1/29/2002:Plain Vanilla Or Rocky Road?
________________________________________________________________
TABLE OF CONTENTS

1. Overall Sentiment
2. Observations
3. Portfolio Results & Changes
4. Alexander, Iliana and Maneva
5. The Paradox of the Fed
6. From the Readers
7. Sonny T's Latest Picks
8. Basing Patterns
9. Comment Welcomed

----------------------------SPONSOR-----------------------------
Get a FREE Interactive CD Guide to Selecting Winning Stocks...

and 10 FREE issues of Investor's Business Daily!
No obligation. Nothing to cancel. Offer available in the U.S.
only. Subscribers within the last six months are not eligible.
http://www.123jump.com/partners.htm?id=86
------------------------------***-------------------------------


1. Overall Sentiment

The financial press spent the prior weekend while I was in
South Beach "apologizing" for Alan Greenspan's Jan. 11
remarks concerning the dim prospects for an economic
recovery in 2002.

Stocks continued to decline.

It took an actual appearance by the Maestro himself to give
stocks a boost. In an appearance before a Senate committee,
the Fed Chairman practically repeated his Jan. 11
statements. However, he also asked that the market
interpret them in a bullish light.

It did.

The result was three straight days of rally following a
sell-off on Tuesday in the holiday-shortened week of Jan.
21-25.

Those up days helped the popular indexes close out the week
with slight gains.

The value of my ShareBuilder plan of 33 stock positions
also closed out the week with a slight gain of less than
1%.

The big winner in this passive, buy-and-hold portfolio, for
the week was Alliant Tech (ATK).

In the sake of fairness, the biggest loser was Micro
General (MGEN).

That's encouraging, of course. But, where will investors,
mainly the institutional crowd, decide to place client
money after the flood of Q4 earnings results subsides?

Investor's Business Daily this past week noted that there
were net inflows of money into the overall market during
October and November. December's preliminary figures
indicate some net outflow of funds from both stocks and
bond funds.

Indeed, the rally since Sept. 21 appears to have stalled,
particularly for the larger capitalization issues in the
Dow 30 and the S&P 500. The mid and small cap averages,
although down from levels reached earlier this month, have
been hit less hard.

IBD also notes that money continues to flow into value and
small cap stock funds and away from large cap and growth
funds.

In the paper's "20 Rules for Investment Success" section,
Rule 19 says, "Find out if the market currently favors big-
cap or small-cap stocks."

A check of the daily new highs list does corroborate the
trend that smaller capitalization issues remain in favor.

First Data Corp. (FDC), an S&P 500 component, and currently
held in my ShareBuilder account, did reach new highs last
week.

That has been the exception rather than the rule.

Wednesday's CNBC Squawk Box segment featured a regular
guest economist from a Wall Street firm (can't recall the
firm, but does it really matter?)

The economist opined that that the "plan vanilla small and
mid cap companies" would treat investors well in 2002,
while the Big Dogs would experience a rough and rocky road.

Unless they're in the industry, many investors don't know
about these small and mid cap stocks. We tend to shy away
from the unfamiliar and prefer to stick with the familiar.

This worked during the roaring 90's. The bear market of
2000 and 2001, though, has taught us that celebrity stocks
can experience periods where only the most devoted of fans
stick with them.

The question investors must answer is: Will the market
continue to like plain vanilla, or it will gravitate to
chocolate, strawberry and the more exotic flavors?

More important, though, is how many scoops of plain vanilla
becomes one scoop too many?

For investors closely watching their "investment calories,"
it is something to ponder.


2. Observations

On my weekly Saturday taxi ride to the supermarket, the
price for a gallon of regular gas at the convenience store
on Market Street was $1.03.99, down a whole penny from last
week.

Perhaps prices have stabilized for the moment. In fact,
we're hearing the word 'stabilized" a lot these days in the
guidance offered by tech companies during the current
Earnings Season.

Tellabs (TLAB), the telecom equipment firm, comes to mind.
Reports by major brokers concerning the semiconductors,
particularly the equipment-making sector, maintain they
have seen the bottom.

When it cones to flavorings, in my view, it should be taken
with the seasoning of your choice.

Each Earnings Seasons also tends to produce some choppy, or
erratic, trading in stocks. Companies can report bottom-
line results that beat the forecast. Still, they sell off.

The usual excuse is that the speculators bought much
earlier on the rumor and sold on the news.

Sometimes, a good stock with rosy prospects will pull back
after reporting results because some Big Dog stock analyst
will say something like, "Yes, earnings beat our forecast,
but the profit margin for the past quarter was down 0.1%
from the prior quarter, and that has us worried."

So what else is new from Wall Street?

Meanwhile, IBD has begun a regular segment, "The Smart
Investor," that profiles individual investors who practice
its investing and analytical disciplines.

After reading this segment for the past few months, I have
come away with the understanding that these folks don't
practice the buy-and-hold approach - as I understand it.

Instead, they constantly look for opportunities to buy a
stock that is just beginning its initial break out to new
highs. Then they monitor its progress from a standpoint of
how volume relates to price.

This means that on average, they aren't strictly buy-and-
hold investors, intending to stick with a position for more
than a year, much less several years.

In its most general of terms, the best way I know how to
explain this approach is to remind regular readers of a
situation way back in the early 70's when I used to hang
out in a branch office of a regional retail brokerage firm
in a small town in North Carolina.

A broker was on the phone with a customer. He told the
customer, "A good stock is one that's going up, and a bad
stock is one that's going down."

William O'Neil, IBD's publisher, puts it this way: "All
stocks are bad. They're only good as long as they're going
up."


3. Portfolio Results & Changes

In his books, audio, and video productions, Bill O'Neil
advises that individual investors should maintain a
portfolio of just a few stocks.

This goes against the grain of what is known as "Modern
Portfolio Theory," an investment strategy that stresses
broad diversification.

Quite often, I hear the pundits on the TV stock market
channels say that an investor should put no more than 5% of
available capital into any one position.

What they are stressing is Modern Portfolio Theory, a
concept that was created in 1990.

This strategy is certainly suited for the so-called
"passive investor," or a person that doesn't have the time
to spend hours watching the CNBC tape or reading the three
sections of the Wall Street Journal from front page to back
page every day.

Indeed, diversification is a passive investor's best
friend.

Over-diversification, however, is a hazard for an active-
investor, or a person seeking short-term performance in his
or her positions.

The market only provides the active investor so many
opportunities to enter and exit with a nice gain. When that
opportunity is missed, due to watching too many stocks, the
overall results often suffer.

The stocks from the Ones to Watch Model Portfolio that I
inherited in February when I was assigned the task of
writing this newsletter, was eventually whittled down to
six stocks.

These six were purchased at the market open July 25. Six
months have passed.

Let's see how they've done, based on the Jan. 25 closing
price:

SEI Investments (SEIC), from 46.45 to 41.72, down 10%
Alloy Inc. (ALOY), from 15.37 to 19.74, up 28%
Pharmaceutical Product Development (PPDI), from 36.76 to
28.85, down 22%
Daktronics (DAKT), from 9.12 to 7.06, down 23%
EarthLink (ELNK), from 16.42, to 9.30, down 43%
SonicWALL (SNWL), from 20 to 20.36, virtually unchanged.

After six months, there is only one winner, Alloy Inc.,
which is somewhat of a surprise.

Internet fans should be familiar with EarthLink. Perhaps
that is the problem facing this sector of the economy and
the stock market.

The company continues to report deals and good news about
itself, but the bottom-line results from the quarter ended
Dec. 31, and the guidance says this ISP that has to
constantly has to compete against giant America Online
won't pass muster, despite favorable court rulings that
allows it access to the same POP telecom lines dominated by
AOL.

Daktronics is a micro cap company that makes electronic
scoreboards, a business that does well when times are good.

However, times aren't so good, and the company continues to
issue guidance that says future results, like EarthLink's,
that will fall short of Wall Street expectations.

I have to give up these stocks to what I suppose are the
bottom-fishers.

As the saying goes, "One man's junk is another man's
treasure."

As for the replacements that I hope will make up for a 43%
loss and a 23 ,respectively, here are the picks that I will
"purchase" at the market open on Wednesday, Jan. 30 (the
second day of a two-day FOMC meeting!):

Internet content company eUniverse (EUNI), a micro cap
company that is beginning to hit the so-called "radar
screen" of institutional type investors (read: micro cap
funds).

In a PR dated Jan. 24 from Los Angeles, the company
reported a Q3 profit versus a year-old loss and raised
guidance for both revenue and earnings for Q4 ending March
31, and for fiscal 2003.

The company recently acquired for between $50-$55 million
online advertising firm L90 (LNTY).

The second pick is PETsMART (PETM), the No. 1 pet products
chain. Tuesday, Jan. 22, the Phoenix-based firm raised
guidance for its fiscal Q4 sales growth and said that it
will consolidate its PETsMART.com into its overall
operations.

This company has been running a lot of TV ads lately to
retail customers, but the company is certainly more diverse
than that, having catalog operations that sell products to
the horse market.

Believe it or not, the U.S. horse market is bigger than one
might think. Giddy-up!

My water-stock portfolio purchased Aug. 1 - Tetra Tech
(TTEK), American Water Works (AWK) and SCP Pool (POOL) -
are all in the black, with the AWK being the best
performer, up some 30%.

I also initiated a position in Philadelphia Suburban (PSC),
a water utility, in my ShareBuilder plan on Jan. 22. I also
intend to add more shares in 2002.

The two retail positions taken on Jan. 3 - long Bed, Bath &
Beyond (BBBY) and short Tiffany & Co. (TIF) - have thus far
been an embarrassment.

BBBY was bought at 33.49 and closed Jan. 25 at 32.40 for a
paper loss of 3.25%. TIF was sold short at 31.05 and closed
Jan. 25 at 35.38 for a paper loss of 14%.

Bill O'Neil has said the stock market is neither efficient
nor rational.

Here's BBBY, a consistent 30% grower in the home furnishing
market giving positive future guidance, with a trailing 12-
month P/E ratio of 47 that I'm paying a 17% premium to own.
Meanwhile, TIF, famous for its Robin's egg blue gift boxes,
sells at a trailing 12-month P/E of 31, even though the
management projects a growth rate in 2002 in the single
digits.

I still track this Sweet 16? portfolio of high-profile tech
stocks that was created in late July. Space limitations
won't permit me to report on the latest results, but I will
provide a list of the group:

Business Objects (BOBJ), Veritas Software (VRTS), i2 Tech
(ITWO), Micromuse (MUSE), Alcatel (ALA), Nokia (NOK),
Comverse Tech (CMVT), Vodaphone Group (VOD), Genentech
(DNA), Network Appliance (NTAP), Check Point Software
(CHKP), EMC Corp. (EMC), Juniper Networks (JNPR), CIENA
Corp. (CIENA), BEA Systems (BEAS), Corning Corp. (GLW).


4. Alexander, Iliana & Maneva

A trio of 123jump.com correspondents recently issued
thoughtful reports on its home page.

Alexander Vantchev reported Jan. 15 on BEA Systems (BEAS),
which I track through the Sweet 16? In an e-mail, I
provided Alex with this group of 16 stocks and also made
particular mention of Business Objects (BOBJ), the French
business intelligence software firm.

Alex views BEAS as a survivor niche player in the
enterprise software space that can manage to hold its own
versus the Big Dogs - Oracle (ORCL), International Business
Machines (IBM) and, of course, Mr. Softee (MSFT).

BEAS is scheduled to report earnings in February, since it
operates on a fiscal that is one month after the
traditional periods that end in Dec.-March-June-Sept.

The URL for Alex's report:

SEE: http://www.123jump.com/story.htm?tory_id=13979

In some brief e-mail correspondence with Alex, I asked him
about the Russian stock market, the best performer of all
the world's exchanges in the past 12 months.

"And don't even look at Eastern European markets," Alex
replied, "if you don't know more than a lot about them.
They are not real, or at least they are much, much
different from those in the West. These numbers can be
anything local lords want them to be. Russian economy's
margins are virtual. Nickel Paladium (Norilsk Nickel) is
produced in Siberia by what is very close to slave labor.
Gas (Gazprom (OGZPF) just runs down a pipe and someone
controls the tap. In the East, the politicians control the
business and not the other way round as elsewhere."

Given what has happened with Enron (ENE), American
investors might tend to quibble with that last statement in
Alex's e-mail.

Speaking of the non-traditional fiscal year, the
overwhelming majority of American retail companies complete
their fiscal year Jan. 31.

They do this because of what they like to call the
Christmas Sell-Through Season that also accounts for the
period in January when they mark down items in order to rid
their shelves of excess (read: the stuff that didn't sell)
inventory.

In other words, when it comes to retail, investors should
be mindful of what I like to call the "Philadelphia
Department Store Marketing Philosophy" - Get it off the
shelf, it's been on the shelf too long.

Come February, 123jump.com's retail correspondent, Iliana
Sahandjieva, will have her hands full digesting the latest
financial results from this broad and diverse group that
actually makes up two-thirds of the U.S. economy.

On Jan. 22, Iliana issued a report on three discount
retailers, each with the name "Dollar" in their corporate
monikers.

SEE: http://www.123jump.com/story.htm?story_id_13985

Given what has happened to K-Mart (KM), one group of
financial pundits is saying that Wal-Mart (WMT), Target
(TGT) and the up-and-comer Kohl's (KSS), will continue to
take market share from the original creator of discount
retail, which was first known as E.J. Corvette's.

The other group of pundits is saying that by declaring
bankruptcy, K-Mart is a great speculation.

But, the same has already been said about Enron and Exodus
Communications. Monday, Global Crossing (GX) joined the
growing list of companies seeking Federal protection from
creditors.

Meanwhile, the retail distributor of lottery tickets gets a
little cut from each purchase.

In other words, buy it at 2 cents, sell it at 4 cents.

It's something to ponder. When it comes to getting that
"little cut from each purchase," I'll stick with the
position in my ShareBuilder plan of First Data Corp. (FDC).

Moving on to 123mump.com's third correspondent, Vanya
Maneva, we come to an emerging branch of technology known
as "nanotechnology."

SEE: http://www.123jump.com/story.htm?story_id=13983

In a report issued Jan. 21, I would have to agree with
Vanya's assessment of this technology that it is something
for the future, something along the lines of at least 10
years into the future.

Going back to an earlier time in 2000 when I used to
correspond with a colleague (prior to its purchase by
123Jump.com) about the biotech industry, I mentioned that
Watson & Crick discovered the double helix in 1954.

My colleague commented that it took nearly 40-45 years for
this scientific breakthrough to actually become a profit-
making enterprise for only a handful of biotech firms.

I think Vanya has provided a balanced, yet factual,
approach to this emerging branch of technology.

Of course, folks that have an interest in this field would
like to see Wall Street bring these companies public on an
ASAP basis, much like the dot-com mania IPO market of 1999.

So far, Wall Street is taking a "wait and see" approach.

Don't hold your breath for nanotech.


5. The Paradox of the Fed

As was promised in an earlier newsletter that I would make
comment about the Federal Reserve System, which we now
usually refer to as simply, "The Fed," it seems that the
more things change, the more that they appear the same.

Yes, we all know that Alan Greenspan, former Jazz musician,
has been at the helm of the world's most powerful Central
Bank for something like 18 years.

Still, I want to remind readers that the Federal Reserve
System was created through an act of the U.S. Congress in
1912.

There are what I would term "constitutional sticklers"
among the readership who maintain that this legislation,
were it ever to reach the U.S. Supreme Court, could
actually be declared unconstitutional.

We all know this won't happen - at least in the years that
I left as an inhabitant on the Big Blue Marble.

Given the recent comments from Alan Greenspan and how it
affected the stock market, I think that it is appropriate
that I include a passage from Richard Ney's "The Wall
Street Jungle," a book that was published in 1970, and is
now only available through used-book sources:

"Because the Fed is part of the 'financial community' under
the aegis of the Stock Exchange (see Chapter 9), the values
and the ideology of the Exchange have become absolute and
now impose themselves on the credit policies of the nation.
The Fed's wisdom in raising interest rates is now revealed
as no more than a myth: in the words of Congressman Wright
Patman, 'for the Fed to raise interest rates in order to
cure inflation is like pouring gasoline on a fire to put it
out.'"

I find it interesting that during 2000 and 2001, Alan
Greenspan constantly "bitched" about inflation as it
pertained to the price of a gallon of regular gas before
the various branches of the U.S. power structure, while
also providing his usual oblique explanations as it
pertained to the economic concept of "wage push inflation."


6. From The Readers

Larry W. e-mailed with the following comment about a stock
he's strong on (as is Wall Street) these days:

'I enjoy your comments and have been getting your e-mails
for a couple months. When you bought MIMS for your nieces,
I checked it the next day and [it] started down and I
placed a buy order at 10 to think to steal it on the way
down. It never filled and I now I kick myself for not
accepting the good fundamental and just buying with stops.
I later saw it in IBD highlighted in yellow."

Larry W. continues: "Another yellow stock is UTSI, which is
a California company with a near pure play on the wireless
market in China. Last fall, I did a tour of the major Asian
cities and could see the great amount of development. UTSI
has Asian officers in their mid-forties and a growth rate
of about 40%, but also a PE above that level. They report
earnings and have a webcast on Jan. 28, 1:30 PST. Visit
www.utstar.com. Keep up the reports and weekly trips to the
store.

Meanwhile, here's a URL, courtesy of Yahoo! Finance of
UTSI:

SEE:
http://finance.yahoo.com/q?s=UTSI&d=c&k=c1&a=v&p=s&t=6m&l=on&z=m&q=b


7. Sonny T's Latest Picks

Our ex-IBM employee turned full-time trader e-mails me
nearly every day about his stock picking/stock trading
system.

Sonny T wrote Sunday, Jan. 27, that his system is
increasing his positions from $10,000 to $11,000 per
position from a couple of weeks ago "to put the profit to
work.

In my view, this is a good trading strategy. Using the
profit to buy more stock actually results in what we are
all seeking: The Power of Compounding.

Or, as Albert Einstein put it: "The most powerful force in
the Universe (at least from an investment standpoint) is
the power of compound interest."

When it comes to investing, there are winners and losers.

For those folks who read IBD, particularly as it pertains
to the Smart Investor segment, there are folks out there
who make a personal commitment to be consistent winners.

Or, as Sonny T puts it in his latest e-mail: "My goal is to
make money. This system provides great opportunity, but the
trick is to refine a way to make money with it
consistently."

I like the way Richard Ney, as it pertains to investment
success, defined consistency: "Better a steady dime, than a
seldom dollar."

As for the picks, Sonny T says his system currently likes
AVNT, BZH, CHBS, CTX, DFXI, DHI, FCN, FRED, GISX, GTK, LEN,
MIM, RGIS, RIT, TTIL.

I find it fascinating that his system has picked Regis
Corp. (RGIS), a nationwide chain of hair salon studios.

Talk about a "plain vanilla stock"!


8. Basing Patterns

A colleague, Bob Howard, who publishes a monthly fee-based
newsletter from Springfield, MO that I receive for free,
calls his product, "Positive Patterns."

Bob is a buy-and-hold guy who won't back off from his stock
picks. One of them is a food stock, Smithfield (SFD). Talk
about a company that is "shareholder friendly," if you're a
person, to use the term this TV celebrity chef Emeril
LaGasse uses, "Pork Fat Rules," then Smithfield is the
stock for you.

As for this Basing Patterns business, Richard D. Wyckoff,
an early pioneer in technical analysis, was always on the
lookout for stocks moving sideways within a narrow range.

Investor's Business Daily often writes about stocks
displaying stock charts in basing patterns.

Like IBD, Wyckoff, who published a newsletter in the first
20 years of the 20th Century, was picky as it pertains to
"basing patterns.

Wyckoff and IBD share a common analytical criterion:
"tight", as opposed to "sloppy" base patterns.

In other words, the base should be in a rather narrow
range, which indicates that speculators are avoiding the
stock. It also implies that professional investors are
making careful bids for the purpose of accumulating a good
line of shares at a price that falls within a certain
target range.

Here are charts, courtesy of Yahoo! Finance, that display
what I like to call "Wyckoff Patterns."

SEE:
http://finance.yahoo.com/q?s=IMNY&d=c&k=c1&a=v&p=s&t=6m&l=on&z=m&q=b

SEE:
http://finance.yahoo.com/q?s=eclp&d=c&k=c1&t=6m&a=v&p=s&l=on&z=m&q=b


----------------------------SPONSOR-----------------------------
Get a FREE Interactive CD Guide to Selecting Winning Stocks...

and 10 FREE issues of Investor's Business Daily!
No obligation. Nothing to cancel. Offer available in the U.S.
only. Subscribers within the last six months are not eligible.
http://www.123jump.com/partners.htm?id=86
------------------------------***-------------------------------


9. Comment Welcomed

A resident of Wilmington, NC, Dave Jennings performs market
research for Ticker magazine, a monthly publication for
financial professionals. Dave enjoys receiving reader
comment and replies to all e-mails. He can be reached at
djennings@ec.rr.com and djennings@ticker.com.


-----------------------------------------------------------
INTERNET STOCK NEWS (ISN) (c) 2001
Disclaimer: The material herein is for informational
purposes only and should not be deemed an offer or
solicitation on our part with respect to the sale or
purchase of any securities.
http://www.123jump.com/disclaimer.htm
-----------------------------------------------------------


-----------------------------------------------------------
You are currently subscribed to  Internet Stock News Daily as: alewis@enron.com
To Cancel your subscription please go to:
http://123jump.com/confirm.htm?listid=117996&mid=115298
To Change your subscription please go to:
http://123jump.com/letters.htm?S=L&email=alewis@enron.com