TulipMania.com?

By James J. Cramer

Can you afford not to invest in the powerful trend toward people's shopping, at incredibly low prices, from the convenience of their homes? That was the pitch I used back when I was a broker at Goldman Sachs, and since that was in 1986-87, I wasn't hawking the Internet but rather an outfit called Home Shopping Network, which peddled stuff on TV and took orders by phone. Its stock had gone from 18 to 133 in the time it takes to say "cubic zirconium," and I thought it could only go higher. Instead, it suffered the most brutal, protracted decline down to single digits that I have ever witnessed.

Plenty of conservative investors predict the same fate for today's highflying Internet stocks, which owe much of their appeal to the growth in online commerce. So why are America Online and Yahoo, each in its way a portal to the Net, two of my favorite stocks? Because the Net really delivers what TV shopping only promised. Rather than sitting in front of the tube, stupefied by a parade of junk while waiting for something you might want to buy, on the Net you can instantly research and order exactly what you want--whether a pearl necklace or a ticket to Maui or 100 shares of stock--at the lowest price around. E-commerce is already big, and it's going to be huge. Can you afford not to invest in it?

I can see you shaking your head. You're reluctant to pay today's high prices for stocks that so far have delivered little or no profit. After all, Amazon.com the online bookseller, is up 312% this year on strong sales growth--but still without earnings. And Broadcast.com which streams music and video over the Net, blew from 18 to 61 in its first six days of trading through last Friday, also with zero earnings. If you invest now, will you play the trend or get played for a chump?

First, understand that what's driving these prices is not so much business fundamentals as an imbalance between the handful of Internet stocks and the mob of portfolio managers like me who want to bet on the growth of the Net. I think that imbalance will persist. The best of today's Internet companies are already so established as brands that they will dominate online spending.

Second, remember that all online companies are not equal. Faux Internet companies--those that have just added com to their name to pump up the stock--are doomed to Home Shopping status within a year. They include Cybershop, Ktel and Marketguide. But the real Internet companies, like AOL and Yahoo, offer something different. They can sell ads for luxury cars and discount brokers that will reach well-off people, at work and at home, much more efficiently than either TV or off-line, dead-tree media. Wall Street understands that the best Net stocks are bargains, based on projected ad sales.

If you can't make that leap, there's another way to invest in the Net that I call the Forty-Niner strategy. If you don't want to lend your money to gold prospectors, invest in the companies that sell them shovels and pans. On the wired frontier, those firms include Cisco and Lucent, which are building much of the Net's physical infrastructure of routers and switches.

Whatever you do, don't sell short even a simple, online retailer like Amazon.com Even if its growth slows, its price could get bid up in a takeover by a conglomerate eager to get into the book business. Remember, Home Shopping Network wiped out more short sellers than any stock I've seen, before it finally flamed into oblivion.

Cramer holds investments in AOL, Cisco, Lucent and Yahoo. His investing website, thestreet.com does business with AOL and Yahoo. Nothing in this column should be taken as advice to buy or sell stocks.