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Few stocks avoid effect of housing, banking woes: Wall Street pessimism spreading across industries

January 14, 2008

Nineteen central Indiana companies have seen their stock prices fall more than one-quarter from the 52-week highs-a plunge that largely reflects pessimism over the strength of the economy.

The pullback has hammered some of the top-performing Hoosier companies in recent years, including shopping mall owner Simon Property Group Inc. (off $46 a share, or 38 percent) and school operator ITT Educational Services Inc. (off $52, or 39 percent). Former highfliers often take the biggest tumble when investor sentiment turns bearish.

The Bloomberg index of Indiana stocks has declined 22 percent since peaking in July. National indexes also fell sharply in recent months, as investor concern grew that the housing slump, turmoil in credit markets, and rising gas prices would crimp the economy, and perhaps even send it into recession.

Indianapolis' trio of real estate investment trusts-Simon, Duke Realty Corp. and Kite Realty Group Trust-all have fallen at least one-third from their 52-week highs, partly on fears the slowing economy would reduce demand for space in their properties and depress property values.

"The commercial real estate market tends to lag residential by about a year and a half on average. So one would expect that market to soften this year," said Mark Cremonie, a money manager with Evansville-based Old National Wealth Manager.

Investors have savaged companies that already are struggling, such as retailer Finish Line Inc., radio station operator Emmis Communications Corp. and lender Irwin Financial Corp.

But even some firms that have been humming along are suddenly out of favor.

For example, ITT Educational shares have declined steadily since peaking on Nov. 8, even though the company has made no major announcements in the intervening weeks.

"They do a marvelous job and education as a whole remains fairly strong," said Gene Tanner, vice chairman of Nat-City Investments. "They just have a breadth of courses and adding more all the time."

In fact, the company stands to benefit from the recent increase in unemployment-the national rate reached 5 percent last month-since its curriculum caters to career-changers.

Most vulnerable are firms whose fortunes are closely tied to the economy, such as trucking firm Celadon Group Inc., which has had to grapple with high fuel prices at the same time demand to ship goods wanes. Its shares are 58 percent off their 52-week high.

HHGregg Inc. shares have tumbled since the appliance retailer announced Jan. 7 that the next quarter would be challenging "given the economic environment and slowing traffic patterns." Lax consumer spending on nonessential items also has taken a big bite out of shares of Steak n Shake Co.

Even tougher times could be ahead. Economists say rising energy prices are a double-edged sword, sapping economic growth while simultaneously boosting the cost of consumer goods and fanning inflation.

It's not all doom and gloom, however.

Companies tapped into fast-growing international markets, such as engine maker Cummins Inc., may be poised to perform well, said Mark Foster, chief investment officer at Kirr Marbach & Co., an investment firm based in Cummins' hometown of Columbus.

The company's stock already is on an impressive run, thanks partly to strong sales growth in China and India. Cummins shares increased 116 percent in 2007 and split twice. CNNMoney.comrecently ranked it one of the 10 best-performing stocks in the Fortune 500 last year.

Health care stocks also have done well and likely will continue to, Foster added.

Accidents and illness are not cyclical and consumers will continue to buy health insurance, he pointed out. That means WellPoint Inc., which advanced 12 percent last year, may go higher, experts say.

Health care investments are a safe haven, Foster said. "Investors will gravitate toward those [industries] with higher predictability and away from cyclical companies-those in financial, retail, restaurants."
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