3 Stocks for the New 'Net Boom

AMZN, NILE and WBMD are dot-com success stories

November 5, 2009

3 Stocks for the New Internet Boom

It's 2001 all over again! Internet-based stocks are booming, from retailers to video game designers to service companies. There's no stopping these blowout companies that are tapping into the tremendous potential of the World Wide Web.

As I said recently in an article about the current "wireless revolution," the biggest opportunities right now have a distinctly digital feel to them. The best smartphone stocks are a great example of companies tapping into the next generation of Internet users to leverage big profits.

But if you think only computer companies and IT firms are benefiting from America's love affair with the Internet, think again: Here are my three favorite stocks for the new Internet boom:

Web Stock #1: Amazon.com (AMZN)

Amazon.com (AMZN) is one of the Internet boom pioneers, not only surviving the dot-com bust a decade ago, but growing into a powerhouse of the 21st century. Though the company started as Earth's biggest bookstore, it is now leading the charge to bring books into a digital format with its Kindle eReader.

The success of the company's electronic reader is not just on blogs and customer forums, either. This product has generated very real profits for Amazon. In fact, the Kindle helped boost AMZN's third-quarter net profit to $199 million, or 45 cents a share, on $5.45 billion in total sales. Analysts were expecting earnings of 33 cents a share on $5.03 billion, so AMZN posted a huge 36.4% earnings surprise and a 7.7% sales surprise.These results sparked a wave of buying pressure that sent shares up to their highest level in almost 10 years!

(Get my free in-depth stock report on Amazon.com here)

But if you think this is the peak for Amazon.com, think again. Relentless expansion has propelled Amazon.com in countless directions in the quest of bigger sales and profits. The company's main Web site offers anything from books to auto parts to groceries! Shoppers can also download digital content such as games, MP3s and movies to their computers or handheld devices–including Amazon's innovative portable reader, the Kindle. Once the American consumer starts spending freely again, I expect to see Amazon shares skyrocket.

Web Stock #2: Blue Nile (NILE)

Blue Nile (NILE) is a diamond in the rough–literally! While you may not think jewelry is a big seller during the recession, NILE has been going strong thanks to a ridiculously low overhead and a strong Internet business.

As an exclusively online retailer of diamonds and fine jewelry worldwide, Blue Nile offers diamond, platinum, gold, pearl and silver jewelry at a price unmatched by your local brick-and-mortar retailer. That's because overhead is low, the middle man is cut out and consumers get the biggest selection imaginable. What's more, high-tech customization tools allow you to build any piece you want–including custom settings, engravement, stone cutting and much more. It's the best of both worlds–unlimited variety and unparalleled value. Such a model could only be achieved online with the high-tech website Blue Nile operates.

(Get my free in-depth stock report on Blue Nile here)

Unlike other luxury stocks, NILE has stayed profitable even during the downturn due to low costs. And as the holiday jewelry season picks up, value-conscious consumers will flock to this website to get more for their money.

Web Stock #3: Web MD (WBMD)

Web MD (WBMD) has the prescription for success. This company provides health information to consumers, physicians, healthcare professionals, employers and anyone else who has access to the Internet. It has both public portals that offer free information as well as paid sites through which the company provides branded health and wellness content, tools and services. It also provides promotion and physician recruitment services for use by pharmaceutical, medical device and health care companies.

(Get my free in-depth stock report on Web MD here)

Just this week, WebMD topped Wall Street expectations in the third quarter and reaffirmed its forecasts for the full year. Specifically, WBMD said its third-quarter profit rose 19% to $12.8 million or 21 cents per share, from $10.8 million or 18 cents per share a year earlier. Revenue increased 15% to $111.6 million. Analysts expected profit of 19 cents per share and $111.1 million in revenue, meaning this Internet-based health company beat forecasts on both fronts.

Even more encouraging is that the company also announced it will start a stock buyback next week. It plans to buy back as many as 5.7 million shares at a premium price of $36 per share. That helped spur a buying party that I expect to continue in the weeks ahead.

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