Wave Systems Corp. (fka WAVXQ)

[2004riptide]

Suddenly, Investors Find Solid Stocks All the Rage

shift from "untested companies ... thought to be on their last legs just 11 months ago" -- to -- "more stable stocks, like dividend-paying companies, doing the best, and many of the biggest gainers of the year in for a difficult autumn."


bona fide NEWS will be the saviour of wavx -- no real "meat & potatoes" news by december's year-end, tax-related sell off, and wavx will likely test $1-2 again far as i can tell.

September 29, 2003

HEARD ON THE STREET

URL for this article:
http://online.wsj.com/article/0,,SB106478944694758100,00.html

Suddenly, Investors Find Solid Stocks All the Rage

By KEN BROWN and GREGORY ZUCKERMAN
Staff Reporters of THE WALL STREET JOURNAL

The stock market once again appears to be under adult supervision.

This year's impressive climb for stocks has been dominated by a startling rise for some of the market's flimsiest and most untested companies, including many thought to be on their last legs just 11 months ago. As investors rediscovered their appetite for risk, they seemed more willing to roll the dice on companies with clouded prospects, including tech and telecom shares.

But there are signs that that has begun to change in recent weeks, and investors who miss the shift could see their gains vaporized while missing out on the next leg up in the bull market.

"We're really in the greed-management stage right now," says Rich Steinberg of Steinberg Global Asset Management, who has been selling shares of his big winners and buying recent market laggards.

With some large investors hoping to lock in their profits, the focus for the first time in more than a year appears to be shifting to solid, established, profitable companies. Many savvy investors bet the switch will continue in the months ahead, with more stable stocks, like dividend-paying companies, doing the best, and many of the biggest gainers of the year in for a difficult autumn.

Why the change? In part because the market has hit a wall, with the Nasdaq down 6.2% since Sept. 18 and the Dow Jones Industrial Average falling 3.6% amid a round of profit-taking and hand-wringing by investors. In fact, the Nasdaq Composite Index had its biggest weekly decline since April 2002. New worries are surfacing that this year's run-up -- particularly in the dicier corners of the market -- won't be matched by better profits.

As those concerns have settled in, high dividend-paying stocks, which have lagged behind the broader market over the past year, finally have matched the performance of low- and nondividend paying stocks.

One dividend-paying stock that some investors think will do well if the market turns tough on techs and other highfliers: ExxonMobil Corp., which has outperformed all other Dow stocks lately and could have more room to rise as energy prices stay strong. 3M Co. also could buck an otherwise rough market, some investors say, citing analyst upgrades and a recent spike in prices even as the overall market weakened.

That is a big shift. For the year, the high-yielding stocks in the Standard & Poor's 500 stock index -- those that yield more than the index's yield of 1.61% -- have returned just 8.8%, compared to 25.7% for the low and no-yielding names.

But over the past four weeks, the high-yielding stocks have actually beaten the low-yielders, albeit by a tiny amount. On a market cap weighted basis, the high-yielding names are up 0.4% while the low-yielding companies are up just 0.36%.

Ironically, dividend payers have fallen behind in a year when dividends have gotten more attention than they had in years, a consequence of the tax cut that slashed rates on dividends by half for many taxpayers.

With the market appearing to have stalled, more-mature dividend payers are likely to continue to catch up to their more-volatile cousins, which tend to lead during a fast-rising market.

While hundreds of companies raised their dividends earlier this year, the wave of increases slowed considerably in the past two months. Then last week dividends took the stage again when homebuilder Lennar Corp. jacked up its payout from five cents a year to $1, a 1,900% jump, and McDonald's Corp. raised its dividend by 70% from 23.5 cents to 40 cents a year. Both stocks jumped on the news, with McDonald's bucking the trend on Wednesday's 150-point down day.

The next day investors turned their wrath on Eastman Kodak Co. when it slashed its dividend1 by 72% to 50 cents from $1.80, sending the photo company's shares down nearly 18%.

Dividend increases should pick up again when third-quarter-earnings season begins in early October and then again at the end of the year, says Howard Silverblatt, an analyst at Standard & Poor's. "We're going to go through another wave," of dividend increases, he predicts.

Specifically, analysts are eyeing energy companies, such as ChevronTexaco Corp. and Royal Dutch Petroleum Co., and cash-rich banks like Citigroup Inc., which has been a strong recent performer. Industrial companies, including Great Lakes Chemical Corp., which has lots of free cash flow relative to its stock price, and consumer-goods maker Procter & Gamble Co., which is nearly flat over the past year, but up nearly 6% in the past four weeks, also should do well, while expensive tech stocks could hit a wall. One example: Sonus Networks Inc., a highflying telecom company that many hedge funds say has climbed too far, too fast, and has fallen more than 15% in the last week. Even tech giant Intel Corp. is down 6% since the market peaked earlier this month.

Already, some of the money managers who rode the rally are paring back their more-expensive stocks. Mr. Steinberg of Steinberg Global Asset Management in Boca Raton, Fla., has sold shares in Alcoa Inc., McDonald's, Citigroup and Charles Schwab Corp. recently and bought shares in energy companies like ChevronTexaco, seeking strong earnings and dividends. "We're going to go back to people getting total return with the dividend," he says, adding that the market's most volatile stocks are poised for a fall.

At the current valuations of some companies, earnings will need to be absolutely fabulous for the stocks to keep rising. "You're going to start to see companies meet expectations, but they're not going to blow out the quarter and people will sell on the news, that will cause the rotation back to reality," Mr. Steinberg says.

One example: Juniper Networks Inc., which earned a total of just five cents a share in the first two quarters of this year, hit $18 on Sept. 4, up from a little more than $4 last October, on high hopes for the future. But now it is down to $15 and could go lower if investors continue to focus on companies with stellar current earnings, rather than those promising outsize profits way down the road.

In some cases there is no logic behind one stock's rise and another's stall, but some money managers are dumping what has gone up and seeking names that have been left behind. John Schneider, a money manager with Pimco Equity Advisors, is selling some of his best performers, including copper producer Phelps Dodge Corp., which is up nearly 50% this year. In exchange, he bought paper-and-timber producer Bowater Inc., which has lagged behind the market. Both companies will gain from an economic rebound, but Phelps Dodge could be vulnerable, he says.

Write to Ken Brown at [e-mail]2 and Gregory Zuckerman at [e-mail]3