Values? Among Net Stocks? - table - Industry Trend or Event - Statistical Data Included

As inconceivable as it was only a few months ago, value-oriented funds are starting to sniff around for beaten-down Internet shares.

COULD YESTERDAY'S INTERNET growth stocks be today's value plays? Hard to fathom, but some managers of value mutual funds say it's possible, given time and a little more consolidation in the space.

Value investors look for companies with cheap stock prices coupled with a potential to produce cash, preferably lots of it. As Internet stocks sink lower -- last week the Nasdaq dipped to its lowest level since last spring's painful sell-off -- some observers think it won't be long before value-seekers start looking for bargains.

While value fund managers aren't exactly snapping up Net stocks, it marks a huge reversal that they're even warming to the idea. Tejinder Singh, managing director of hedge fund company Reliance Capital Management, bought Internet stocks solely for his growth funds over the last three years. But he picked up Yahoo and AOL for his value fund just a few weeks ago, taking advantage of their lower prices.

"It has to do with the companies' phase," says Singh. "They were in a growth phase then, and they're not in a growth phase anymore. He's keeping an eye on other beleaguered dot-coms, including Amazon.com, InfoSpace and Priceline.com, as potential investments.

Curtis Jensen, a portfolio manager at Third Avenue Funds, hasn't gone so far as to buy Internet stocks for his value fund, but he concedes a shift in sentiment. "There are actually decent businesses whose stocks have gone down the tube for one reason or another," he says. "We're not actively seeking them out, but we're casually looking."

Value managers have reason to be wary about even the cheapest Net issues. They want companies that can demonstrate cash flows -- and that's tough for firms that aren't turning a profit. Then there's the chance of going belly-up. "Nobody said stocks can't go to zero," notes Singh.

Not all managers are looking. Colin Glinsman, CIO of Oppenheimer Capital who oversees the Oppenheimer Quest Balanced Value Fund, makes it sound like hell might freeze over before his fund buys a Net stock. "There is no price at which you want to own one of the Internet grocery companies," says Glinsman, in a not-so-subtle reference to Webvan, which fell below $2 for the first time last week. "We're not impressed that a stock is down 80 percent. We're only impressed by what the future cash flows of the company will justify as an investment for us. The risks still outweigh the rewards in most cases."

Others say it's reasonable to reconsider Internet stocks at lower levels. Several profitable stocks have price-to-earnings ratios below 20. "These stocks are easier to own at these prices," says Michael Agarwala, CEO of StockHomework.com, a site offering equities research for individual investors. "Fund managers say to themselves, 'If I was going to take a leap into the new economy, I could do it at this price, but I wouldn't do it at 10 times this stock price."

But finding a buried treasure is ultimately worth it to any money manager. "The worst thing an investor can do is to be closed-minded," says Jensen. "It's worth burning a few brain cells to study this stuff."

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