Web Giveaway - companies that own Internet stocks - Brief Article

Kiplinger's Personal Finance Magazine, Jan, 2000 by Manuel Schiffres

INTERNET | Investing in the companies that own chucks of some HOT STOCKS can get you something for nothing.

NET STOCKS as value plays? Preposterous, right? And yet thanks to their levitating prices, a couple of Internet stocks are helping to make companies that own big chunks of them look like downright bargains.

Let's start with Intermedia Communications (symbol ICIX, Nasdaq, recent price $30), a Tampa-based provider of local, long-distance and data services. Intermedia is majority owner of Digex (DIGX, Nasdaq, $39), a company in Beltsville, Md., that "hosts" Web sites for its clients. Intermedia owns 50 million shares of Digex, a stake that at its recent price was worth $2 billion. At the same time, Intermedia's own market value was just $1.5 billion.

Now consider IDT Corp. (IDTC, Nasdaq, $22), a provider of long-distance service headquartered in Hackensack, N.J. IDT owns 56% of Net2Phone (NTOP, Nasdaq, $56), which permits users to make toll calls over the Web. IDT's stake in Net2Phone was worth $1.5 billion, or nearly twice the market value of IDT itself.

These "valuation anomalies," plus the companies' positions in the red-hot telecom sector, have whetted the appetite of Eric Efron, co-manager of USAA Aggressive Growth fund, for both stocks. He acknowledges that the companies have had problems: Intermedia's results have often disappointed investors, and IDT has been involved in an accounting controversy. And, of course, the prices of many Internet stocks are in la-la land. But, as Efron says, "this is a mathematical thing. You have these assets on the balance sheets and these companies are not being given any credit for them."