[ Marth Stewart is proving she's adept at more than homemaking. ]

Marth Stewart is proving she's adept at more than homemaking.

The shares of her company, Martha Stewart Living Omnimedia Inc.,are trading 40 percent above their late-October-low as investorsspeculate prosecutors lack evidence to bring a criminal insider-trading case against the media company's founder.

A month ago, investors were concerned that federal investigatorswere close to filing charges against Stewart, the company's founderand CEO, raising the prospect of near-fatal damage to her brand name.The New York-based media company also said fourth-quarter profitwould be reduced by costs from the ongoing investigation.

Since then, Martha Stewart Living shares have surged almost byhalf, easily outdistancing the 3 percent gain in the Standard &Poor's 500 index. They closed Monday at $10.08, down 49 cents.

Now investors are saying the shares are rising because theinvestigation of Stewart appears to have stalled, and consumerscontinue to buy the company's products and publications, includingMartha Stewart Living magazine.

"My gut instinct is that people are taking more time to look atthe operation, and see that it's more than just Martha," said NorthAmerican Management Corp.'s David Baker, who manages about $450million and held 41,700 Martha Stewart Living shares on Sept. 30.

Stewart's sale of 3,928 shares of ImClone Systems Inc. lastDecember is still creating legal difficulties for her. The Securitiesand Exchange Commission staff has informed Stewart that it intends torecommend filing civil charges against her.

Stewart sold her ImClone shares on Dec. 27, one day before federalregulators rejected the company's application for a cancer drug. Shehas denied acting on inside information and said she sold the sharesbecause of an agreement with her broker to do so whenever the pricedropped below $60.

Investors have valued Martha Stewart shares based on how theyhandicap the outcome of the investigation.

"The stock is reacting to lots of speculation that was negativeand now is much more positive," said Adams Harkness & Hill analystLaura Richardson, who has a "reduce" rating on the shares and doesn'town them personally.

No new developments in the case have become public since a reportin October that the SEC's enforcement staff will recommend civilsecurities charges against her. SEC spokesman John Heine declined tocomment on the status of the case.

Douglas Faneuil, an assistant to Stewart's broker, pleaded guiltyto a misdemeanor on Oct. 2 and agreed to cooperate with prosecutors.Former ImClone Chief Executive Samuel Waksal pleaded guilty toinsider trading without implicating Stewart.

"The whole body of evidence at this point doesn't look like it'sgoing to put Martha in jail," Richardson said.

Martha Stewart Living posted a 42 percent drop in third-quarterprofit and said fourth-quarter results would miss forecasts. Thecompany blamed the decline on $2 million in legal fees and corporatecosts related to the investigation.

Aside from those costs, the company's two biggest revenue sources,publishing and merchandise, generated increases.

Kmart Corp. has said it will keep selling Martha Stewart Living-branded products, which have been among its most popular products.The discount retailer has been running a TV spot featuring Stewart'svoice in television ads for her new holiday collection.

Martha Stewart Living also is showing indications it might belooking for ways to rely less on Stewart's public image. The companycanceled a prime-time holiday television special, showcasingStewart's flair for cooking and crafts, that in the past had run onViacom's CBS network.

Martha Stewart Living magazine will feature other editors besidesStewart, while a new magazine called Everyday Food will appear nextyear on newsstands without Stewart's name in the title.

Some investors and analysts said the investigation has forced thecompany to reduce its reliance on one dominant personality to sellproducts.

"It's something everyone knew had to be done, and this fast-forwarded that process," North American Management's Baker said."This is an opportunity, though Martha may never think so."

Bloomberg News

Martha Stewart shares climb as investigation stalls