Roberto Goizueta, the legendary CEO of Coca-Cola, kept in his office an embroidered cushion that read: "The one with the biggest cash flow wins." So what would he have made of a market in which many of the stock market's most celebrated winners have cash flowing furiously in the wrong direction? Instead of returning a growing stream of profits to their investors, they're sucking in shareholder dollars at a breathtaking pace.
Many market professionals roll their eyes at the valuations of Internet companies. It's inconceivable to them that the likes of Amazon and @Home can be deemed worth billions of dollars when they've never come close to earning a dime. But for the believers, this misses the point. As Intel's Andy Grove famously commented: "What's my ROI [return-on-investment] on ecommerce? Are you crazy? This is Columbus in the New World. What was his ROI?"
Suppose you are in the believers' camp. Suppose you believe as we do that this is a time of unique opportunity. A time when a whole New Economy is being built before our eyes.
If that's true, there's never been a more exciting and potentially rewarding time to invest. But applying traditional investment rules makes almost every Internet company a raging "sell." On most Net stock reports the word "earnings" is attached at the hip to "projected." So how do you go about picking the winners?
New Economy investing promises a wild roller coaster ride. But at least the scenery is less blurred than it once was. We can now speak about expectation, which sure beats speculation. In the immortal words of Mark Twain, "There are two times in a man's life when he should not speculate: when he can't afford it, and when he can."
Certainly, among analysts who track Net stocks, there is a growing consensus on what approach to use. We combed through piles of documents and consulted a dozen of the top minds in the business. Here's what they told us.