The World Wide Web has given a dramatic new meaning to the phrase "net profits." Just ask five-star fund manager Ryan Jacob, portfolio manager of Jacob Internet Fund.
Here are his five choices for an investor's Internet interests:
Google. Google? Jacob insists the search giant "has the growth to back up its valuation." He likes "its market penetration, its ability to continue to grab market share not only here in the U.S., but also abroad."
To suggestions that Google's spectacular recent gains may be played out, he replies, "You're looking at a company that's trading at roughly a 30 multiple of next year's earnings, still growing revenue and earnings over 60 percent annually."
He also likes Google's rival, Yahoo. "Google is doing well against Yahoo," Jacob admits, "but on its own, Yahoo's a pretty impressive company."
Jacob added, "This isn't going to be a winner-take-all business, and Yahoo has done very well. Their display advertising business has improved recently; I think the long-term strategy they have now, being more technology- and platform-focused...is the right move."
Also on Jacob's list is Sohu.com. It's one of several Chinese Internet names his fund owns, but it rates special mention "because they have an exclusive content partnership for the Olympics next year."
Earthlink gets his approval as a "restructuring story." He says the company "is a bit misunderstood by the Street. Their margins have the potential to go up significantly, and they're trading about four times cash flow, so we think, as a restruicturing story, it's very interesting: Limited downside with a lot of upside potential."
Rounding out his picks, Jacob chooses Openwave. "They've gone through a reorganization, really trading at a very depressed valuation, at less than one time sales."
"Technology investors tend to be very fickle, so a lot of these companies get left by the wayside when they go through these types of re-structurings," he explains. "If they have a good product or technology, they tend to be very good investments once they're able to turn the business around."