Log Off: Two Internet Stocks to Avoid
Friday December 21, 2:06 pm ET
By TradingMarkets Research

Investing in stocks, in some ways, is a lot like investing in real estate. Location matters. So when looking for stocks that are likely to be higher a year from now, make sure that you are sticking with the right locations, the right neighborhoods, before committing your hard-earned money.

The first stock is CMGI, Inc. (NasdaqGM:CMGI - News). CMGI has a PowerRating of 2. 2-rated stocks, based on our research, were higher one year later less than 42% of the time. Compare this to the average stock, which was higher one year later 67% of the time. Stocks like CMGI also tended to be poor performers after one year, returning on average 7.82% since 1995. The average stock, in contrast, returned 12.81% on average.

CMGI is in the global supply chain management business, helping businesses market, sell and distribute their products and services around the world. The company made news in November with a reverse 1-for-10 stock split.

Our research, looking back on thousands and thousands of simulated trades, supports our aversion to low-rated industries. For example, industries with a 2 PowerRating, since 1995, have provided an average annualized return of less than 6%. By comparison, the average industry has returned 14.61%. And the better industries, the industries with "in the green," high PowerRatings have performed even better. 10-rated industries, for example, have returned upwards of 35% on an average annualized basis.
 
 
PowerRatings make it easy for investors to stay out of the bad areas, the industries that are likely to underperform both the market and the average industry going forward. By looking to see which industries have low, "in the red" PowerRatings of 1, 2, or 3 -- and rarely if ever buying stocks from those low-rated industry groups -- investors can save themselves from both a great deal of grief and a poorly performing portfolio.

So when it comes to the "wrong" neighborhoods, industries with low PowerRatings are it.

One of those low PowerRating industries, an industry investors should steer clear of, is the Internet Software and Services industry. This industry group has a PowerRating of 1. And if you thought 2-rated industries were poor performers, then 1-rated industries are all the more awful. According to our research, those industries with a 1 PowerRating have actually lost 2.31% on an average annualized basis going back to 1995. Investors would do better to pick an industry at random than they would to invest in an industry with a PowerRating of 1.

As you might expect, a low-rated industry like Internet Software and Services is filled with a lot of low-rated stocks. Here, I want to warn investors about what look to be the most risky of the bunch, a pair of low-rated Internet Software and Services stocks that are geared to disappoint investors who put money into them.

The other risky stock in the Internet Software and Services industry is iMergent (AMEX:IIG - News). Also with a 2 PowerRating, iMergent provides eCommerce technology, training and a number of web-based resources to mostly small businesses. iMergent was most recently in the news announcing its plans to streamline its sales and administrative staffs, to the tune of a 20% drop in headcount.