Dream Stocks for Internet Investors

Investors are always hunting for the next big stock -- the dream stock whose price will increase several times over when the market finally discovers it. It's easy to look back and discover the 10 best stocks of the past decade. But I'm more interested in the tools that can help me evaluate tomorrow's greatest companies.

Motley Fool CAPS offers a variety of resources to aid Fools in finding tomorrow's leaders. Our 145,000-member community is full of investors helping each other beat the market.

We'll enlist CAPS to screen for Internet companies, then get the story behind some of its more highly rated stocks. CAPS' nifty screener will help us find stocks with:

• A market cap of at least $100 million.
• A long-term debt-to-equity ratio of less than 0.5.
• A price-to-earnings ratio of less than 25.
• A gross margin of at least 50%.

Then we'll tap the collective intelligence of our CAPS members to see whether these companies present real opportunities, or whether the numbers fail to tell the true story.

Opinions with the numbers
Below is a sample of stocks our screen returned. You can run this screen yourself; remember, though, that your results may differ as the market changes.

Data and star rankings from CAPS as of Dec. 21.

j2 Global
Many CAPS members like how Internet fax provider j2 Global has maneuvered through the downturn and see big opportunity for the small cap to grow upon a rebound. It's making some moves in that direction by expanding its eFax service to new cities and launching mobile app support for its Onebox service, which adds to a growing list of cool communication applications on Research In Motion's (NASDAQ:RIMM) BlackBerry and Apple's iPhone. j2 grew its gross margin to a record third-quarter level and pulled in 74% higher free cash flow compared with last year.

The company has close to a third of the digital fax market share, and CAPS members like where j2 Global stands. Today, 95% of the 431 CAPS members rating the stock expect it to outperform the market, including yours truly.

Sohu.com
While companies like Sohu.com and SINA (NASDAQ:SINA) have seen weaker online advertising in China, CAPS members still like the possibilities that lie ahead. Investors think Sohu.com is in a good position to benefit from growing Chinese Internet usage as people spend more time in front of a computer screen. Sohu looks for advertising to pick up toward the end of the year; China Market Research Group estimates about 20% growth in online advertising for 2010.

With no long-term debt and about $600 million in cash, many CAPS members like Sohu's strong financial position. As such, 95% of the 1,101 CAPS members rating its stock see it outpacing the broader market.

Digital River
After Digital River announced in October that its major customer, Symantec, wouldn't be renewing its contract, leading to a massive drop in share price, CAPS members took a contrarian view and quickly upgraded the company's CAPS rating. The company's chief executive also took advantage by buying 194,000 shares and spending another $1 million on call options. The e-commerce solutions provider counts companies such as Microsoft, SanDisk (NASDAQ:SNDK), and Electronic Arts (NASDAQ:ERTS) as customers, and some investors see revenue growth potential unrelated to Symantec.

Today, 93% of the 311 CAPS members rating Digital River are bullish.

Let 145,000 members be the jury
The collective wisdom of a huge pool of investors can help give context to a page of numbers from a stock screen. But individual investors are still the best judges of what to do with their own money. Fools should always perform their own due diligence.

Happily, it's easy to chime in with your own opinion. If you agree that these companies present dream opportunities -- or see more of a nightmare -- simply scroll down and add your thoughts in the comments box.