Turnabout is Fair Play

Tuesday's list of out-of-favor stocks was Wednesday's list of winners.

FreeMarkets, Yahoo and America Online led the way to a mostly positive session in the Internet sector. TheStreet.com Internet Sector index ended the day up 13.97 points, or 1.3 percent, to close at 1132.19. The Nasdaq closed up 20 points at a record 4151.29; the Dow closed down 71.36 points at 11489.36.

No stock stood out more than FreeMarkets, which closed up an astounding 69.69 points, or 40 percent, at 240.94. The stock has been punished much of the month after General Motors gave its online auction business that FreeMarkets previously had to Commerce One. But FreeMarkets struck back Wednesday. The company said that 34 clients participated in FreeMarket auctions in the fourth quarter, up from 18 in the third quarter.

While FreeMarkets gave no indication of what the new business would mean to the bottom line, it didn't seem to matter to investors who rushed back into the stock after it dropped roughly 200 points over the past two weeks. Traders who had shorted the stock during that time were forced to cover positions, further fueling its gains.

Yahoo finally righted itself after dropping sharply since reporting earnings last week. Investors apparently felt that it was the right time to buy into the stock after it had dropped around 165 points since Jan. 4. Yahoo finished up 22.81 at 364. The company's interesting news was Yahoo Japan becoming the first Japanese stock to trade above 100 million yen.

Gains in America Online also were likely fueled by traders covering shorts ahead of its earnings release after Wednesday's close. AOL reported earnings of 9 cents a share for its quarter ending Dec. 31 - slightly better than the 8-cent Street estimate and roughly in line with whisper numbers that were looking for a 9- or 10-cent gain. Net income of $224 million compared well to income of $86 million a year ago. The company said its membership growth hit a record for a quarter at 1.8 million, giving it a total of 20.5 million subscribers.

I2 Technologies did all the right things on the day of its earnings report. I2 benefited during the session on news that GM would incorporate its software and services into its GM TradeXchange e-commerce Web site. Then the company bested expectations when it reported earnings of 19 cents a share versus the 16-cent estimate. In addition, the company said it would split its stock 2-for-1, a surefire selling point for the online daytrading crowd. I2 closed up 25.25 points, or 13 percent, at 215, but could fall victim to buy-the-rumor, sell-the-fact trading in tomorrow's session should traders be in the mood to take some profits.

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