Martha Stewart Bulls Embrace the Endgame

Obsessed with wardrobe and other trivialities, the media have largely overlooked a crucial development in the Martha Stewart saga: As jury selection began in Stewart's criminal trial last week, shares of Martha Stewart Living Omnimedia (MSO Quote) jumped 11.9%.

Conventional wisdom suggests the trial should cast a pall over Stewart's company. If convicted of charges -- including conspiracy, obstruction of justice, two counts of false statements and securities fraud -- the media mogul could go to prison for 10 or more years. But instead of selling off the company's shares, investors have been scooping them up.

Why? The impending trial and accompanying media spasm have refocused investors' attention on the charges against Stewart, which many on Wall Street believe to be flimsy.

The charges against Stewart "are so obviously trumped up that it appears her prospects in court are good," said one fund manager, who is long the stock. "I think that the chart of Martha Stewart [Omnimedia] is an inverse of the market perception of the strength in the government's case."

In fact, last week's rally represented a continuation of a rising trend for Martha Stewart Omnimedia since the start of 2004. After dipping less than 1% in 2003, the company's shares have rocketed nearly 36% since Dec. 31. On three of the four trading days last week, the company's stock set a 52-week high, closing Friday at $13.39, their highest point in 19 months.

Investors avoided the stock for months, because any money invested in it would be "dead money" until the trial began, said the fund manager, who requested anonymity. "It's now rising because after all there's going to be closure here one way or the other."

If Stewart is acquitted, the company's fortunes -- as well as its stock -- should rebound further, he continued. "She will go from being seen as a pariah to being viewed as heroine. That will be reflected in sales" of Martha Stewart-branded products.

Others see a more technical explanation for the stock's recent rise.