Wall Street’s Tarnished Blue Chips
NEW YORK (AP) _ Wall Street has watched with considerable trepidation of late as some of the giants of the American business world have stumbled badly in the stock market.
With the dismal performance of titans like International Business Machines and General Motors, the very idea of a solid, dependable ″blue chip″ stock has been called into question.
The shares of IBM, ranked No. 1 among all U.S. companies in total market value, traded last week as low as $83.50, their lowest price in nine years.
General Motors, the nation’s biggest industrial corporation measured by annual sales, at the same time slumped to a four-year low of $27.50.
Only for one brief stretch since the early 1980s, in the weeks immediately following the market crash of 1987, have GM shares changed hands at such a depressed price.
Most analysts agree that the poor showings by these stocks, with a combined ownership of close to 2.8 million investors, have cast a pall over the stock market in general.
″The great names of the past appear to be in their twilight years as their growth has slowed or disappeared,″ said Jay Donnaruma, an analyst at the investment firm of First Albany Corp. in Albany, N.Y.
Added Norman Fosback, editor of the investment advisory letter Market Logic in Fort Lauderdale, Fla., ″IBM was once viewed as the quintessential growth stock, the core holding of the best-performing mutual funds. Between 1939 and 1973, the stock appreciated an amazing 26,874 percent.″
But since then, he said, ″the sad fact is that it has gone absolutely nowhere for nearly two decades. How the mighty have fallen.″
Both companies are struggling with the same economic slump that has clobbered many other businesses over the past year and a half. They are also facing ever-intensifying competition in computer and auto manufacturing.
IBM has embarked on a sweeping overhaul of its organization, and GM is scheduled to report details this week of a new ″major action″ to cut down its size and costs.
Aside from the companies’ individual problems, what worries many financial analysts is the potential impact of their woes on the overall investment outlook.
″It’s very worrisome that key stocks such as General Motors and IBM are at their year’s low, while the Dow Jones industrial average is still relatively close to its high,″ said Stan Weinstein in his advisory letter the Professional Tape Reader from Hollywood, Fla.
Other prominent stocks have fared much better this year, of course. Issues like Philip Morris and Exxon have traded at new peaks, helping to propel the Dow Jones industrial average to record levels.
And a lively debate continues over whether IBM and GM have reached ″bargain″ prices where they are worth considering as comeback candidates.
The last time GM came out of a recession, in 1982 and ’83, analysts note that its stock more than doubled in a little more than a year’s time. IBM rose from below $50 in late 1981 to as high as $134 in late 1983.
Those gains occurred, however, as the economy was beginning a strong recovery that continued for most of a decade. Today there is little evidence that such a vigorous upswing in business conditions looms.
Indeed, some analysts see the behavior of IBM and GM shares as symptomatic of a larger blue-chip malaise.
When he looks at the charts of the 30 stocks that make up the Dow, Ralph Acampora, technical market analyst at Prudential Securities, said he sees almost half in downtrends, against only 20 percent in clear-cut rising patterns.
″The lion’s share of the stocks that dictate the direction of the DJIA have questionable price trends,″ Acampora concluded. ″The limited awareness of the deterioration within the Dow is a big concern to me.″
End Adv Monday, Dec. 16