(FORTUNE Magazine) – If you wanted to see just how mercurial a place Wall Street can be, check out the recent trajectory of Philip Morris. Six months ago Philip Morris was the stock the big boys loved to hate. Money managers wouldn't go near it, figuring that the kudzu-like spread of tobacco litigation and increasing regulatory heat from Washington made the company a sure loser. While the market boomed in the first half of 1998, shares of Big Mo, as it's known on the Street, slipped from above $45 to the mid-30s. Even at those bargain-basement prices, though, most fund managers ignored it, preferring then-darlings like Citicorp and P&G.

No one's ignoring Philip Morris anymore. Its shares have been one of Wall Street's few big winners in recent months, rising more than 35% since May, even as the S&P 500 sank. By mid-October, Mo was trading at nearly $50, and the money managers who once spurned it were calling it a clear buy. What's more, the rally in Philip Morris shares has far outpaced recent moves by industry rivals like RJR and UST (see chart).

Why the sudden turnaround? For starters, Big Mo's rise has actually been sparked by the broader market's plunge, since food and tobacco stocks are often considered safe havens in bear markets. And because its main product is addictive, it's unlikely that sales will slacken anytime soon. Plus, profits at Kraft and other parts of Philip Morris' food empire have also been rising smartly.

Despite the recent run-up, Wall Street analysts say Philip Morris still has plenty of catching up to do. "This stock had been in the penalty box for so long that the valuation is now pretty compelling," says Tim Swanson of A.G. Edwards. Indeed, Philip Morris trades at 14 times estimated 1999 earnings, says Swanson, a substantial discount to the S&P 500's average P/E.

Altogether, Philip Morris should show earnings growth of at least 10% annually over the next few years, according to tobacco analyst Martin Feldman of Salomon Smith Barney. On the other hand, says Feldman, "don't expect earnings at UST to grow by more than 5%." RJR's profit growth should be a little better than that, Feldman adds, but will still trail Philip Morris' gains by a wide margin. Throw in Mo's 3.6% dividend, and you've got a pretty tempting proposition.

Now, before you jump on the Big Mo bandwagon, remember that this stock isn't like other blue chips. It's not just that holding shares of a tobacco company involves an ethical quandary for many investors as well as a financial decision. It's also critical to remember that tobacco stocks closely track the actions of Congress and the courts.

Right now the political and legal tides seem to be running in the industry's favor. As Washington focuses on President Clinton's fate, prospects for any new legislation aimed at Big Tobacco have dimmed. And courts have rejected several state Medicaid suits seeking to recover the costs of treating smoking- related diseases. There's speculation that the tobacco industry is close to a broad settlement with the states on the Medicaid issue, which would give stocks a big pop. But in the meantime, even a minor setback could send shares back down, warns Jack Cunningham, a money manager with Salomon Brothers Asset Management.

Nevertheless, Cunningham is betting that Philip Morris will head even higher. Back in April he bought 311,000 shares at roughly $38, and his total position now equals 1.6 million shares. "The earnings are solid, the fundamentals are excellent, and the company is a cash machine," says Cunningham. "You've got to feel pretty optimistic."

For now, the market shares Cunningham's optimism. Don't forget, though, that Wall Street is an extremely mercurial place. And few stocks will suffer more from a change of heart than Philip Morris.

--Nelson D. Schwartz