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Analysts divided over stock splits

Split fever is upon us. But what does it mean?

As more and more companies announce plans to split their shares _ among them six of the 30 stocks in the Dow Jones Industrial Average _ speculation is growing among some analysts that the abundance of splits could signal the 6-year-old bull market is on its last legs.

"Historically, splits become more prevalent as markets approach a peak, when stock prices have really jumped," says Ned Riley, chief investment officer at Private Bank of Boston. "Right now, I'm seeing more stock prices over $100 than I remember seeing at any time over the past 25 years" _ meaning there are many candidates for splits.

"It's another sign that tells us, yes, the market is high," agrees Elizabeth Mackay, chief stock market strategist at Bear, Stearns & Co. But "is it a contrarian indicator, telling you it's time to sell? That's a lot harder to determine."

The only certainty is that stock splits have multiplied in the wake of big share-price gains. So far this year, 43 companies listed on the New York Stock Exchange have announced plans to split and more could follow. In a recent research report, Sanford C. Bernstein & Co. identified as many as five dozen companies which, trading at $75 or more a share , would be natural candidates for splits.

With the rate of stock splits running well above the 20-year average in four of the past five years, Wall Street is abuzz with conflicting views on the meaning for individual stocks and the overall market.

Bears believing a surge in stock splits is a warning the good times are about to end point to the 1980s. In 1983, when splits hit a record of 225, the industrial average returned 20.27 percent _ only to fall 3.74 percent in 1984. In 1981, when 174 companies announced splits, the industrial average dropped 9.23 percent. In 1986, with 207 stock splits, the blue-chip index returned 22.58 percent, but rose only 2.26 percent in 1987.

But bulls believe that link has broken down in the 1990s, arguing that a high number of splits says more about where the market has been than where it is going.

The Bernstein study showed that companies that split their stock saw share prices rise about 2.6 percent more than the average company in the following 12 months.

"A lot of people, like my father, think that stocks that split are good, because more people will want to buy them now that they're cheaper," says Todd Petzel, chief investment officer of Common Fund. "That's a goofy way to look at it."

Adds Steven Leuthold, chairman of Minneapolis-based Leuthold Weeden Research: "Mutual fund managers aren't deluded that a stock split gives them any additional value. Value is created by strong earnings growth."

Pros advise investors to ignore the noise surrounding splits and focus more intensively than ever on the fundamentals of stocks and the market, none of which changes following a split.