Posted at 10:55 a.m., Wednesday, April 4, 2001

Are stocks worth so little? The bear market says so

Associated Press

NEW YORK ­ As stock prices keep plunging, there's a nagging question on Wall Street: Are companies really worth so much less than they were a year ago?

They are if the market says so.

"There is just no reason to be a buyer," said Richard E. Cripps, chief market strategist for Legg Mason of Baltimore. "Even though stock prices are low. Investors don't feel they are low enough."

It was one thing when Internet stocks, long on debt and short on profits, began to crumble. But no one expected the safe havens of the old economy – drugs, consumer products and banking – to fall so hard.What a difference a year has made on Wall Street with many stocks' prices slashed in half or more and investors still not buying. In fact, this year the selloffs spread to the broader market as safer blue chips issued profit warnings, restructuring efforts and layoff announcements of their own, making the first three months of 2001 one of Wall Street's worst quarters in decades.

"The negativism that is out there is so thick you can cut it with a knife," said Alan Ackerman, executive vice president of Fahnestock & Co.

Investors are deeply distressed by a seemingly never-ending string of earnings warnings from big names, like American Express on Monday, and a litany of bad news like that from Procter & Gamble, which said last month it would cut 9,600 job cuts.

Some investors say the stalwarts of corporate America ­ which are still very profitable despite their warnings ­ don't deserve the same lashing from Wall Street that the dot-com shares got. Yet AmEx, for example, which traded at the $63 level six months ago, is now down to $38, a drop of nearly 40 percent.

"I have a hard time believing that a company that makes money should get annihilated. These are companies that are going to be there in 25 years," said Bill Farmer, a tax preparer in Lexington, Ky.

Farmer, 39, said he continues to invest in a variety of mutual funds, including those that focus on technology and concentrate on blue chips like P&G.

Still, plenty more investors are so downtrodden they're not ready to bet that even today's cheap prices are cheap enough.

Simply put, investors aren't buying when the market indexes fall by triple digits as they did again Tuesday, when the Dow Jones industrials dropped nearly 300 points and the Nasdaq composite index lost nearly 110.

"During the market's big run (last year), one of the formulas that worked well was buying on the dips. The market seemed to rally after selloffs," Ackerman said. "Right now, market rallies are weak at best."

"Right now, investors don't feel compelled to put money back in as a result of the market's free-fall," he said.

With safer blue chips and the riskier tech issues foundering, "leadership is lacking and anxieties are rising," Ackerman said.

Although no sector appears poised to lead the market higher anytime soon, analysts expect a comeback will eventually be led by the tech sector.

"They have been beaten up the most and will rebound the most significantly," said Arthur Hogan, chief market analyst for Jefferies & Co.

However, analysts also agree the market shouldn't hope too hard for a rebound because it could be disappointed or at least in for a long wait. They say it's going to take a while to rebuild not just stock prices but investors' confidence.

"The decline or the unwinding of the financial market mania in tech and Internet has really hurt or significantly reduced nest eggs," said Hugh Johnson, chief investment officer for First Albany Corp. "The message of the market is that we could be in for a very long period of retrenchment."