(MONEY Magazine) – MO-mentum play

Philip Morris (MO) is one of the great investor dilemmas. The company hauls in buckets of cash selling cigarettes and pays a fat dividend. Yet it's also plagued by tobacco lawsuits. Last year, all investors cared about was the legal liability, and they snipped the stock in half. Now sentiment has swung back: Philip Morris hit $27 in late May, a 17% gain for the year.

Philip Morris shareholders can thank the Florida legislature. It decided this year to make it easier for tobacco makers to appeal anticipated big damage awards in that state. The stock also rose on news that Philip Morris, which owns Kraft Foods, had bid for Nabisco. Investors love anything that distances the company from the cigarette business, and analysts think Philip Morris' distribution machine can do wonders with Nabisco's brands.

Okay, but can't another decision by another legislature or jury send Philip Morris tumbling again? Yes. This is still a contrarian bet for patient investors. After all, it's been the near ruin of some of the best money managers. Donald Yacktman, whose Yacktman Funds lost big on Philip Morris in '99, reports that he had to sell a third of his holdings in the first quarter to meet shareholder redemptions. And the hard-luck award goes to Robert Sanborn, who lost his post at MO-heavy Oakmark fund right at the bottom. --LISA GIBBS

Knight's dark days

After your brother-in-law the day-trader, the biggest victim of the Nasdaq drop may be Knight Trading Group (NITE). A so-called marketmaker, Knight does the behind-the-scenes execution for 20% of Nasdaq trades, making its profit on sheer volume. In May, investors became so unnerved by the volatility of the Nasdaq that trading volume fell off sharply. Right in sync, Knight's shares have dropped 28% since the beginning of May.

If investors are viewing Knight as nothing more than a Nasdaq proxy, they may be missing the point. Philip Treick, a manager at Aesop Capital Partners, is hanging on to his "substantial" position in Knight. He concedes that Knight is "a bit of a controversial pick" in this iffy market. But even if trading volume remains slack, the company can grow. Its ability to execute cheaply is attracting business beyond its base of discounters like E*Trade; these days old-line brokerages like Merrill Lynch, which does its own marketmaking, are sending orders to Knight. Analysts expect the company to almost double earnings this year and to grow 25% annually long term. And at $26, just 10 times those expected 2000 earnings, Knight could miss projections by a lot and still be a value. --JEANNE LEE

Whassup? Uh, Anheuser-Busch

Anheuser-Busch (BUD) shares have jumped from a low of $55 back in March to a heady $81. Why the buzz? Stung by tech losses, investors seem to be looking for more dependable sources of earnings, and there's nothing more dependable than our taste for watery beer and joyously moronic ad campaigns. ("Whassuuuup?") Most analysts now expect Anheuser-Busch's earnings to grow an average of 10% annually over the next five years, slightly better than earnings for the average company in the S&P 500. And with the stock trading at 26 times earnings, a bit less than the S&P 500 and in line with chief rival Coors, it still seems fairly priced.

If you're looking for an investment with a big move ahead, though, this BUD isn't for you. It's getting close to the high of $84 it hit back in 1999, a year when earnings grew an unusually strong 16%. Aggressive managers like Tom Marsico of the Marsico funds are lukewarm on Anheuser-Busch; he still holds the stock in his more diversified Growth & Income fund but sold it late last year at $80 from his concentrated Focus portfolio. "It's no longer one of our 20 best ideas," says Marsico analyst James Hillary. --BRIAN P. MURPHY

Counter Intuit-ive

Ah, the power of the press. In late April, the Wall Street Journal's Walter S. Mossberg gave a thumbs-down review to Intuit's Quicken personal-finance software. Can an avuncular consumer guru really move a stock price? "I don't know," says Mossberg. Yet the day after his story ran, Intuit--already a victim of the tech rout--lost another 10% of its value. It's at $33 from $85 in January.

But wait: There's a lot more to Intuit than Quicken, which accounts for only 10% of the firm's revenues. The real money for Intuit is in its tax-prep tools--including TurboTax--which kick in 40% of sales. TurboTax customers are "sticky"--that is, they'll be coming back by April 15. Once they've entered their vital stats into the software, they won't be anxious to do it again for another product. And this year, more than 2 million people--only 20% of them previous TurboTax users--logged on to the Web version of Turbo.

Wall Street is catching up. In late May, Intuit's stock rose 30% the day after the company reported record quarterly gains. Still, its P/E ratio of 57 times expected 2000 earnings is close to the software sector's, down from almost twice the sector average early this year. --CAROLYN WHELAN

Gilt by association

Call it the Qualcomm Effect. Until last year, Kyocera (KYO) was nothing but another lumbering Japanese conglomerate with declining earnings. Then it decided to buy the wireless handset division of Qualcomm, perhaps the hot stock of the 1999 rally. The glamour rubbed off: Kyocera, which trades on the New York exchange, rose more than 400% in '99.

That was "inappropriate euphoria," says Steven Myers, an analyst at Jardine Fleming Securities in Japan, putting it rather mildly. Kyocera has since dropped 47% from its 52-week high in December.

It's not that the acquisition wasn't good for Kyocera. The company bought itself a leading position in CDMA-based phones, which are becoming the global standard for wireless. Kyocera is still basically a manufacturer, however, and it makes a lot of other products--from semiconductor packaging to artificial teeth--that don't exactly promise the wild growth of wireless. Analysts see Kyocera's earnings rising 10% annually long term. Not bad, but not Qualcomm. --JEFF NASH