Many ‘Old-Economy’ Stocks Staying Hot
If you thought Internet stocks such as Ariba and Commerce One were once too obscure to lead a bull market, are you ready for Genuine Parts Co. and Southern Co.?
With formerly highflying Internet names falling on hard times the last six weeks, the stock market’s new stars are in far more mundane sectors such as auto parts, electric utilities, shoes and drugs.
What’s more, the buying that began in those stocks in mid-March has grown more frenzied in recent weeks, producing rocket-like gains in many of the shares.
Yet some analysts warn that these moves are likely to be short-lived--not the kind of action that usually portends a new bull market.
For now, however, many of the stocks remain moneymakers. Consider Southern Co. Six weeks ago, the Atlanta-based electric utility’s stock was foundering near a five-year low. But since the tech-laden Nasdaq index peaked March 10, Southern has catapulted 30%, to close at $27.50 on Wednesday.
The surge in card-carrying “old-economy” stocks appears to be driven by a bout of the same “momentum” buying that carried tech shares earlier in the year. But it’s different: Many fund managers are buying non-tech sectors only because they’re lightening their tech exposure, yet are afraid to exit stocks altogether.
The buying is “almost to the point of manic-type volume,” said Brian Belski, investment strategist at George K. Baum & Co. in Kansas City, Mo. “It’s because everyone’s turned so ultra-defensive.”
The fervor for utility stocks is especially strong, Belski said, because some other traditional safe havens have become taboo to investors. Tobacco-company stocks, for example, long have been out of favor because of their legal battles.
And investors are shying away from some consumer stocks because of Procter & Gamble’s woes, Belski said. The household-products giant’s shares have slumped almost 14% in two days after the company cut its sales forecast for the quarter.
The industrial-stock advance may go on a little longer, Belski said. But defensive industries rarely kick off dramatic new market rallies, and Belski doubts the groups will keep leading the market once tech stocks come around.
“Mom and Pop living in Arcadia are not going to run down to E-Trade to buy utility stocks,” he said.
Not everyone believes industrial names will fizzle. Stan Harley, editor and publisher of the Harley Market Letter in Camarillo, believes the market is about to launch into a big upswing and is being marked by a broadening into some long-neglected groups.
“I don’t see it as something defensive where people are parking their money,” Harley said. “I’m looking for a broad sector advance, particularly in blue-chip listed stocks.”
