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Investing in the Web

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In the 17th century, Dutch speculators went gaga for tulips. In the late 20th century, it’s websites that have sparked a similar mania. The latest flurry was spearheaded by previously down-at-the-bell-bottoms K-Tel, whose stock rose from a bargain-bin price of 6 5/8 in early April to a high of 67 7/8. The hook? K-Tel’s announcement that it would start selling its catalog of 250,000 CDs online via its website (www.ktel.com) as of May 1.

Despite successful high-profile initial public offerings from Yahoo!, Netscape, and Amazon.com, many Wall Street analysts were flabbergasted by the recent bounce. ”People feel they’ve missed out on the Internet stocks,” says Alex Schay, a stock analyst with The Motley Fool, an online financial forum for investors. ”So they’re grabbing at anything.” That includes companies such as MovieFone and The Sharper Image, which received similar bump-ups in their stock prices that analysts say are due to the perceived sales possibilities of the Web. ”Some of this doesn’t make sense,” admits Patrick Keane, an analyst with the New York-based Internet market-research firm Jupiter Communications. ”Very few [Internet companies] have turned a profit.” Even The Motley Fool, which makes its living online, is skeptical of the new Net darlings. ”We’re obviously strong proponents of the medium,” admits Schay, ”but this is just silly.”

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