Media stox lose favor on Wall St.

Paramount Communications hasn’t made it to the altar yet with either Viacom Intl. or QVC Network, but Wall Street’s merger-spawned love affair with other media and entertainment stocks seems to have peaked.

Investors are now scooping profits from that sector after its feverish climb in response to the proposed Paramount/Viacom and Tele-Communications Inc./Bell Atlantic marriages. Dealmongers had stoked the rally by talking up other potential pairings.

Trouble is, speculation alonecan’t support these rich levels, at least not in this nervous market. Cablevision Systems, for example, skyrocketed on rumors that topper Charles Dolan would soon announce its sale to a Baby Bell. That move is still widely expected, but the stock has begun to float back toward Earth.

Also, it’s doubtful Wall Street can sustain its string of record closing highs, and concern about rising interest rates dampens stock prices, too. This chilly climate has convinced some it’s best to hibernate for a bit and await the next warm spell.

“With a little time since TCI/Bell Atlantic and some general technical weakness in the market, the realization has set in that not every company involved in the industry is destined to be a superstar,” said Gregory Nie, chief market analyst at Kemper Securities.

Last week, stock prices of cable operators fell an average 6.6%, according to a Variety/Furman Selz report. Major distributors, independents and exhibitors slipped 3.7%, 2.3% and 1.8%, respectively, while the broad Standard & Poor’s 500 index fell just 0.6%.

The Nasdaq market — which hosts many technology and cable companies — is currently in the throes of a minor sell-off, or “correction.” Its composite index fell 3.7% last week and shed a further 1.81% Monday to 738.13. Listed stocks also tumbled Monday, with the Dow Industrials down 0.64% to 3,670.25 in sympathy with weaker overseas markets and on mounting worries over higher rates. The Treasury’s benchmark 30-year bond was quoted late in New York at 98 6/32 to yield 6.39%, its highest return in more than three months.

Among individual issues, Cablevision Systems retreated $ 2.38 to $ 62.63 Monday. Comcast Corp. finished $ 1.50 lower at $ 34.63. Liberty Media lost $ 1 to $ 25.75. QVC also eased $ 1 to $ 49.75. Viacom Class A shares fell $ 1.25 to $ 47.63 and Class B shares dropped $ 1.63 to $ 40.88.

Par’s stock price was below 75 just 20 minutes before trading closed Monday on the New York Stock Exchange. But late trades brought the stock’s closing price to $ 79, up $ 2.63 on the day.

Those weren’t the only losers. Telecom, cellular, software and other growth issues are falling out of favor as participants rotate into defensive stocks or cyclicals likely to benefit from the same economic upturn now scaring bond bulls.

Many Wall Street watchers believe the current downdraft is a healthy adjustment after the industry’s massive run-up. Barring a bullish surprise — unexpectedly strong earnings or another industry merger — Kemper’s Nie looks for a one-third to one-half reversal of recent gains before the media and entertainment sector can stage another significant advance.

“It could easily take until spring to work through this,” he said. “The market is long overdue for a general correction.”

No hurry, say players who believe a decline will yield buying opportunities missed on the way up. Many of the smaller, newly priced companies are trading at overvalued levels because media-hungry investors paid too much in the initial offering, they said.

“Buyers may get the chance to own some of these companies,” said one fund manager. “That point is not here yet. But 20% lower, I think we’ll see some interesting stocks.”

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