The Internet's biggest bull just turned into a big bear.
Merrill Lynch's Henry Blodget became one of Wall Street's best-known analysts by making outlandish predictions about Internet stocks.
For example, Blodget forecast that Amazon.com's stock could hit a price of $400 at a time when it was only trading for only $240 per share.
But yesterday, Blodget changed his tune, predicting that the vast majority of Internet companies will be bankrupt within five years.
Of all Internet companies, "75 percent will disappear within five years, and 75 percent will never make money, or sell themselves," Blodget said at the Silicon Alley 2000 Internet conference.
He declined, however, to predict which companies would survive and which would die.
For investors, Blodget advised a scattershot approach to investing in the Internet sector, in hopes that one or two "home runs" would provide enough gains to offset losses from the other holdings.
But he also warned that newcomers to Internet investing may be too late, comparing the phenomenon to the Gold Rush of the 1800s.
"Ultimately, the real latecomers find they are buying piles of dirt," he said.
He said that since 1995, the industry has grown from one Internet company, America Online, with a total market value of $1 billion, to more than 300 companies with market capitalization of $1 trillion. But looking into the next five to 10 years, Blodget expects the flow of capital to slow.
Those bearish comments were taken to heart by shareholders in Internet stocks, most of which moved lower yesterday.
The Nasdaq composite index, where many Internet stocks trade, fell 29.57 to 4,754.51, its first down day this week.
But Blodget reserved some of his speech to make bullish comments on a select handful of Internet stocks, which responded by rallying in a big way.
Blodget said, for example, that there's good value in wireless, business-to-business and Internet infrastructure stocks such as Ariba Inc., which rocketed $19.81 to $299.69, and Infospace.com, which traded up $23.06 to $261.06. All stock quotes are as of the 4 p.m. close.
As for Doubleclick, which has experienced a selloff in recent weeks on worries that it improperly gathered information about its customers, Blodget thinks it's undervalued.
"I think the privacy concerns will pass at Doubleclick," he said.
Doubleclick gained $2.88 to $83.44 yesterday.
