Bottom-Fishers Drop a Line

Bargain hunters are beginning to snap up some of the most beaten-down stocks in our index, rewarding companies that are trying desperately to turn themselves around amid the market slowdown. The result was a 5.3 percent jump in our index for the week ended Jan. 11, its second consecutive increase.

Among the best performers were Covad Communications, the struggling DSL provider whose share price plummeted 95 percent last year. Covad shares surged almost 50 percent last week, after the company disclosed some promising data. Covad says it ended the year with a higher-than-expected 274,000 lines in service. In addition, Covad has moved 1,500 lines from distressed Internet service partners to its Covad.net or another ISP under its Safety Net program.

“We continue to excel operationally on many fronts,” says chairman Chuck McMinn. Still, Covad isnt collecting revenue on more than 90,000 of its lines, due to nine delinquent ISPs.

XO Communications, another broadband provider, also staged a strong comeback, after selling $517.5 million worth of convertible debt in two back-to-back deals. Lucky for XO, the Federal Reserve had just cut interest rates, which helped sell the deal. The bonds are convertible into stock at $25.55 per share, near its current price. Merrill Lynch analyst Adam Quinton places XO Communications among his top picks due to its solid funding position, asset base and management team.

Several Internet consulting firms and integrators also rallied last week on news of management changes. IXL announced that Christopher Formant, a former PricewaterhouseCoopers executive, will become its new president and CEO, while former CEO Bert Ellis will remain as chairman. Ellis was a temporary fix; he pinch-hit after former CEO William Nussey resigned suddenly in September amid a sharp revenue shortfall.

IXL said Formants hiring is the final step in its corporate turnaround, which also has included large layoffs, office closures, asset sales and a strategic refocus on several vertical markets. Formant will have a large personal stake in the companys future. He plans to purchase about 1.5 million shares of stock, taking his lead from other iXL managers and employees who bought more than 773,000 shares of company stock through the end of December.