‘Chartists’ Hope Jacobs Story Has a Happy Ending

Forget the debate over whether to buy industrial stocks or classic “growth” stocks: All the market really wants today are good stories, and it doesn’t care where it finds them.

An excellent case in point is Pasadena-based Jacobs Engineering. Its stock price has rocketed $4.625, or 15%, over the past two days, closing at an all-time high of $35.375 on Tuesday.

Much of this week’s jump appears to be the work of the “chartists”--traders who watch a stock’s movement and buy in when they believe the stock is on the verge of a major breakout to new heights.

Jacobs’ stock had traded just above $30 on several days in January, but continually fell back to the $28-$29 range. Then, last Friday, the stock crossed $30 decisively. That prompted a torrent of buying, as the chartists figured that investor interest in Jacobs’ story--one of consistent earnings growth and rising order backlogs--was about to move the stock sharply higher.

Of course, the chartists’ expectations become self-fulfilling as they pour in. But their basic instincts about demand for Jacobs stock have been correct, says market analyst Laszlo Birinyi at Birinyi Associates in New York.

His firm gauges investors’ collective appetite for individual stocks by watching minute-by-minute trading patterns rather than just share prices. If a stock is moving up even though new sell orders are consistently bigger than new buy orders, for example, the price surge may not last.

In Jacobs’ case, Birinyi says, there hasn’t been any rush to sell even as the stock has jumped. That suggests the advance has staying power in the near-term, he says. “To me, it looks OK,” he says.

That’s also what Birinyi’s statistics say about the stock market overall. Relatively speaking, “There’s no one selling,” he says. Whenever the market pulls back a bit, “It’s because the buyers are simply stepping away for a while . . . it’s not a case where sellers become very active.”

As long as that kind of environment persists, periods of slow trading and churning prices (as in the last few weeks) will just give the buyers more time to build cash. Then, out of the blue, the market will suddenly pop higher--as it did Tuesday, when the Dow Jones industrial average soared 38.69 points to a record 3,272.81.

Tuesday’s rise also demonstrated how investors are being driven more by an appreciation of interesting company stories--wherever they exist--rather than by some herd-like instinct to dump old-favorite consumer growth stocks and buy depressed industrial issues:

* Such 1991 growth-stock stars as drug giant Merck and Southland-based health-maintenance organization Pacificare Health Systems led the market on Tuesday. Merck soared $4.50 to $158.875 after its prostate-treatment drug got a green light from federal regulators. Pacificare rocketed $6.50 to $48.50 after reporting first-quarter earnings well ahead of expectations.

* At the same time, many industrial stocks also attracted new interest on continuing hopes that the economy will in fact stage a decent recovery this year. Chrysler, for example, jumped $1.375 to $16.375. Cummins Engine, another classic industrial name, rose $2.375 to $58.875.

Wall Street in January had become obsessed with the idea of a “market rotation” from growth stocks to industrial stocks. It turns out that investors are finding stocks to like in both groups--which is hardly a bad place for the market to find itself.

The Basics on Jacob: When a stock such as Jacobs soars because the chartist traders move in, true investors often get nervous. But chartists usually get involved only after some fundamental good news has made a stock more interesting.

In Jacobs’ case, analyst Byron Callan at Prudential Securities believes that more investors are taking notice of Jacobs’ consistent earnings performance, which now stretches back five years. Earnings have risen from 19 cents a share in 1987 to 86 cents a share in 1991. Earnings in the quarter ended Dec. 31 continued the trend, up 20% to 24 cents a share from 20 cents a year earlier.

Jacobs’ management has built a company with $900 million in annual revenue spread over three businesses: design, construction and maintenance of manufacturing and processing plants for such industries as chemicals, drugs and energy.

This isn’t a heavily traded stock (management owns half the 23 million shares), which partly accounts for the stock’s fast moves. Downswings have occurred for no apparent reason. As the chart shows, Jacobs’ shares took two big dips last year. Both times, the stock came roaring back.

Is Jacobs worth $35.375 a share now? Analysts see the firm earning $1.04 a share this year, so the stock sells for roughly 35 times earnings. That isn’t cheap, given that the average stock sells for 17 times earnings. But with a record order backlog of $1.63 billion, Jacobs appears in fine shape to keep earnings on the fast track. Long-term investors have been well-rewarded in this stock.

Jacobs’ Ladder

Shares of Pasadena-based Jacobs Engineering have soared over the past year, and hit a new all-time high on Tuesday. Stock price every other week (on NYSE) Jan. 11, 1991: $10.75 Tuesday’s close: $35.38