Personal Finance: The net is still strong

Investment news every week from the Motley Fool

WE'D ALL like to spot a company with a terrific amount of potential, buy in at the bottom and ride it to the heights. That's what has made a lot of people interested in biotechnology companies and, more recently, internet companies - two fields of business where the potential returns are mind-boggling.

Take biotechnology first. Have you been watching the to-ing and fro-ing in the press recently about Viagra, the new male impotence treatment? Pfizer, the manufacturer, is a big US drug company and Viagra has been terrific for its share price. No question. It now trades on a price-to- earnings ratio of around 46, high even for a drug company. But imagine if a small biotechnology company came up with a drug of equal impact - it could happen. Then that company's share price would go off the scale.

A couple of years ago, British Biotech, then the UK's leading biotechnology company, was fuelling a biotechnology share boom. Incredibly, without a drug on the market, it was so highly valued that it was jostling for inclusion in the FT-SE 100 list of the largest 100 companies in Britain. Last year, the share price plummeted after the dismissal of its director of clinical research for publicly disputing the company's claims about one of its drugs under development. From a high of 331p in May 1996, the shares now trade at around 20p.

On to the internet. The papers have been full of headlines recently, most of which are a variant of: "When will the internet bubble burst?" The major internet companies are in the US and most people reading this will have heard of Yahoo! and Amazon. In terms of conventional ways of valuing shares such as the price-to-earnings ratio or the price-to-sales ratio, they are all on insane valuations.

In the UK, any company with even a tenuous connection to the internet has seen its value rise sharply. Dixons, which is about the closest we have to a large public internet company, announced last week that it was to restructure into three separate divisions. One of these will be Freeserve, its successful internet service provider. Investors Chronicle last week rated the Freeserve component overvalued and advised investors to sell the stock.

So, are internet shares heading for a fall? Maybe, but there is a difference between the world of the internet and that of biotechnology. Unlike biotechs, internet companies are shaping the world in front of us. We can see and experience it and form our own opinions. Also, many of them are growing their revenues very rapidly, even if not yet their profits. Most biotech companies don't have revenues, just hope.

Brought into being by the internet itself, you would expect the Motley Fool to be positive about it. We are. But that doesn't mean we're predicting an endless internet share boom. It is an unique situation and it is impossible to apply conventional yardsticks.

In fact, the final criterion for a share to be selected for the US Motley Fool's market-beating Rule Breaker portfolio is that "some significant media source has recently called it overvalued".

www.fool.co.uk

Name that company

The first five correct answers out of the hat each week win a super de luxe, black "FOOL" baseball cap.

The Swedes prove themselves in business time and again. Just look at Volvo, Saab, Ikea and Ericsson.

Recently, though, Ericsson, one of the biggest players in the telecommunications industry, has started to struggle. Last week, it announced it will cut its global workforce by 11,000. Ericsson is finding the competition from its fiercest rival increasingly hard to bear. Our question this week is: what is the name of this rival, and which country is it from? E-mail your answer to UKColumn@fool.com or send it by post to Motley Fool Trivia, The Independent on Sunday, 1 Canada Square, Canary Wharf, E14 5DL.

Last week's answer: Bill Gates and Microsoft

ask the fool

Q: Last week you explained what the price-to-earnings (p/e) ratio was, but not what earnings per share (eps) were. JB, London

A: Take a company with 50 million shares, which makes pounds 25m profit after tax. The amount of profit for each share is pounds 25m/50 million shares = 0.5 pounds or 50p. So far, so good. We all want to see the eps of the companies we're invested in grow. It means they are doing better, right? Often, yes, but there can be some wrinkles. For one thing, companies can grow their eps by simply taking over other companies. That's not always bad, but it's worth being aware of what's happening.

Send us your question and if we publish it you'll win a "FOOL" baseball cap. E-mail to UKColumn@fool.com or post to Motley Fool, The Independent On Sunday, 1 Canada Square, London E14 5DL.

my smartest investment

Send us your smartest or dimmest investment story. If we publish it, you'll get a free copy of the "Motley Fool UK Investment Guide". E- mail to UKColumn@fool.com or snail mail to Motley Fool, The Independent on Sunday, 1 Canada Square, London E14 5DL.

The best investment I have ever made is in The Holiday Property Bond. My holidays are paid for with points allocated to me, while my original investment remains intact. There is a small charge for cleaning, refurbishment etc. Locations, accommodation and many facilities are invariably first class. Flights, car hire, special requests are arranged for you. DO, Essex

Fool responds: Perks are always a nice add-on to any investment. But don't lose sight of the number one aim of any investment - to grow your money. However, if cheap and pleasant breaks mean you can save on holiday money and invest it elsewhere, so much the better.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Operations Manager

£30000 - £38000 per annum: Recruitment Genius: They are a financial services c...

Guru Careers: Stockbroker

£Basic (OTE) + Uncapped Commission: Guru Careers: A Stockbroker (qualified / p...

Recruitment Genius: Financial Adviser

£20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

SThree: Graduate Recruitment Resourcer

£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

Day In a Page

Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

The acceptable face of the Emirates

Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk
Nepal earthquake: One man's desperate escape from Everest base camp after the disaster

Escape from Everest base camp

Nick Talbot was sitting in his tent when the tsunami of snow and rock hit. He was lucky to live, unlike his climbing partner just feet away...
Adopting high fibre diet could dramatically cut risk of bowel cancer, says study

What happened when 20 Americans swapped diets with 20 Africans?

Innovative study in the US produces remarkable results
Blake Lively and 'The Age of Adaline': Gossip Girl comes
of age

Gossip girl comes of age

Blake Lively is best known for playing an affluent teenager. Her role as a woman who is trapped forever at 29 is a greater challenge
Goat cuisine: Kid meat is coming to Ocado

Goat cuisine

It's loved by chefs, ethical, low in fat and delicious. So, will kid meat give lamb a run for its money?
14 best coat hooks

Hang on: 14 best coat hooks

Set the tone for the rest of your house with a stylish and functional coat rack in the hallway
Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?