Booming Market Carried Along Many County Firms in ’85

Orange County’s publicly traded companies generally benefited from 1985’s bull market, with record gains in the Dow Jones industrial average creating an investment climate that helped boost the total market value of many local firms.

Complete data was unobtainable for many small public companies whose stocks are lightly traded on small exchanges, but of 77 leading issues examined in a Times study, companies which gained in market value during the year outnumbered losers by more than 2 to 1. Overall, county-based companies grew in value by 30% to an aggregate of $9.9 billion from $7.6 billion at the end of 1984.

“In a market like this, you tend to get everything moving up with the tide,” said Cal Mead, vice president of E. F. Hutton & Co. Inc. in Costa Mesa.

Measure of Market Value

Although there are several ways of determining how well or poorly a particular stock performed over a 12-month period, comparing the year-to-year change in a company’s market value helps to develop an accurate assessment of market position without the distortions created by stock splits and secondary offerings.

Several local firms were big winners last year, with market values that more than doubled during the 12 months. And companies like Costa Mesa-based Downey Savings & Loan Assn. and Pacific Health Systems Inc., a Cypress-based health maintenance organization operator, more than quadrupled their market values.

Overall, 48 of the companies tracked by The Times posted increases in market value. The median increase was 42% and the average boost in value was 118%, although that figure is distorted by the steep rise in the value of AST Research Inc. of Irvine.

Of the 29 companies which lost market value during 1985, the median decline was 21% and the average was a loss of 27%.

Winners and Losers

Of the county’s 10 biggest gainers, three were high-technology firms and three were in health-related fields, with the retail, food-service, defense and finance industries adding one company each. By contrast, five of the 10 biggest losers were technology-related firms, two were health care companies, and the retail, finance and development segments each contributed one big loser.

Orange County’s best-performing company, despite a bleak overall record for technology stocks last year, was AST Research Inc. The market value of the Irvine-based computer equipment maker soared 2,614% during the year, while the price of a share of AST stock--and 3.2 million shares were sold in two public offerings--shot up 237%.

While many high-tech firms found themselves battered in a slumping market compounded by competition from industry giant IBM, AST has found success in making add-ons which improve the performance of IBM’s personal computer.

Stock Value Jumps

During the first quarter of its fiscal 1986, AST’s revenues jumped 68% to $43.7 million from $26 million a year earlier. And as business expanded, so did investor confidence. As of the close of the markets on New Year’s Eve, AST’s market value swelled to $347.7 million from a mere $12.7 million on Jan. 2, 1985. The value of a share of the company’s stock also swelled, ballooning to $30.75 from $9.13 at the end of 1984.

Other high-tech winners in the county included Microsemi Corp. and Archive Corp., both of which doubled in market value during the year. At Microsemi, increased sales of computer parts to the military gave a major boost to the Santa Ana company, while Costa Mesa-based Archive’s line of backup tape drives helped it successfully carve out a niche in an otherwise troubled industry.

Downey Savings & Loan Assn., one of six financial institutions on the county winners’ list, posted the second largest gain of the year--a market value increase of 347%.

The S&L;, which profited from an overall improvement in the building industry as well as its own successful real estate investments, moved from the American Exchange to the New York Stock Exchange during the year. Other highlights: it was hired by the Federal Savings & Loan Insurance Corp. to manage the government’s takeover of Butterfield Savings & Loan Assn., and it split its stock and resumed paying quarterly cash dividends after a five-year hiatus. For the nine months ended Sept. 30, Downey increased earnings five-fold to $43.3 million over the $9.7 million for the first nine months of 1984.

Orange County’s health care companies also did well in 1985. As a group, five of the six major pharmaceutical firms gained from 36% to 163% in total market value. Costa Mesa-based SPI Pharmaceuticals Inc. and Newport Pharmaceuticals International Inc. of Newport Beach increased 163% and 140% respectively.

Newport recently received approval to market its drug Isoprinosine for treatment of acquired immune deficiency syndrome in New Zealand, while SPI’s parent, ICN Pharmaceuticals, is seeking federal approval to market its own AIDS drug in the United States. During 1985, ICN’s market value increased by 46% to $130.7 million.

Westworld’s Gain

Other health care companies that posted substantial gains during 1985 included Caremark Corp., a Newport Beach home health care firm which increased in market value for the year by 106% to $209.2 million, and Lake Forest-based Westworld Community Healthcare Inc.--operator of a string of rural hospitals and clinics--which posted an 88% gain to $95.4 million.

Missing from the list of the biggest gainers during 1985 was Irvine-based Fluor Corp., which posted a $633.3-million loss during fiscal 1985. Despite the losses, investor confidence in Fluor has remained high and its stock finished the year slightly ahead--$15.50 a share, up from $14.63 at the end of 1984--while its total market value increased by 6% to $1.225 billion.

The biggest loser on The Times’ list of 29 county-based companies that saw their market values decline in 1985 was CPE Engineers, formerly VTN Corp., which entered the year with a market value of $6 million and a stock price of $2.88 per share and exited with a value of $602,000--a 90% drop--and stock that was selling for 25 cents a share.

Unprofitable Since 1980

In 1984, Al Rattan, sole owner of Continental Pacific Enterprises, an Anaheim builder of health care facilities, acquired a controlling interest in VTN for about $3.4 million and announced plans to turn the troubled company around.

Since the takeover, Rattan has shed unprofitable operations and shifted the company’s focus to local construction projects. Nevertheless, the company has not had a profitable year since 1980.

High-technology companies accounted for 14 of the slots on the list of 29 losers, including five of the “bottom” 10. Garden Grove-based Eagle Computer Inc., once an industry darling and now a victim of the office computer glut, saw its market value slip 59% to $4.3 million from $10.5 million.

Also hard-hit by the continued high-tech shakeout has been Santa Ana-based Datapower Inc., a computer parts maker whose sales have sunk with the personal computer market and whose total market value over the year slipped 53% to $4.5 million and CompuSave Corp., whose market value slid 60% over the year to $10.5 million.

CompuSave, based in Irvine, had been slipping all year but suffered a major setback in November, when an anonymous letter-writing campaign targeted at members of the investment community and the company’s customers and suppliers, resulted in a one-day drop of 25% in the price of the electronic retailing company’s stock.

RediCare Inc., an Irvine-based operator of so-called drop-by medical clinics and emergency centers, was one of three health care companies on the losers’ list, finishing in second place with a 63% decline in market value, to $12.8 million from $34.9 million. The company’s problems stemmed from expenses it incurred in an aggressive expansion campaign. “In a bull market, you expect some of these high-risk companies to move a little higher,” said Jeffrey Kilpatrick, president of Newport Securities Corp., of Costa Mesa. “It’s a little bit of a dichotomy, because you usually get a bigger return on the high-risk stocks.”

However, local stocks are likely to post sharper gains in value during 1986 as the current bullish cycle begins to affect the secondary issues, suggested EF Hutton’s Mead. He predicts that the first half of 1986 will be good for companies whose current trading prices may not reflect their actual worth.

“I think that we’ll see a movement down into the secondary stocks whose prices are down in relation to their earnings potential,” Mead said. “We expect this shift to begin shortly after the beginning of the year.”

MARKET VALUE ACTIVITY FOR SELECTED ORANGE COUNTY COMPANIES 1984-85

Market Shares Price Value Shares Price (000) Per Share (Millions) (000) Per Share COMPANY Dec ’85 12-31-85 12-31-85 Dec ’84 1-2-85 TOP 15 AST Research Inc. 11276 30.75 346.7 1400 9.125 Downey S&L; Assn. 4725 41.875 197.9 4725 9.375 ClothesTime Inc. 6825 24.00 163.8 4495 9.75 Winn Enterprises class b 9242 4.00 37.0 -- -- class a 3081 4.00 12.3 -- -- total -- -- 49.2 5866 2.625 Microsemi Corp. 7816 8.00 65.5 5021 4.625 SPI Pharmaceuticals Inc. 9591 11.75 112.7 3353 12.75 Newport Pharm. Int. Inc. 9062 13.125 119.0 8987 5.50 Archive Corp. 10372 8.50 88.1 10274 3.75 Swedlow Inc. 1240 25.75 32.0 1240 11.75 Caremark Inc. 14308 14.625 209.2 13995 7.125 Standard Pacific Corp. 7675 23.875 183.2 5066 18.25 Westworld Comm. Health 8033 11.875 95.4 3562 14.25 Care Inc. Mercury S&L; Assn. 4911 10.75 52.8 4633 6.125 Varco International Inc. 11200 4.25 47.6 11143 2.375 .TE: BOTTOM 15 Silvercrest Industries 2088 3.75 7.8 2088 4.75* Inc. Naugles Inc. 4430 4.375 19.4 4645 5.625 Healthcare USA 5106 9.625 49.1 5102 13.50 Computer Automation Inc. 2059 2.875 5.9 2059 4.125 EIP Microwave Inc. 2187 8.25 18.0 2224 12.50 Helionetics Inc. 6229 3.375 21.0 5219 5.875 Silicon General Corp. 11792 4.75 56.0 11687 7.50 Smith International Inc. 22732 6.75 151.0 22730 10.375 Nelson Research & Dev. Co. 9196 5.25 48.3 9157 8.50 RB Industries Inc. 3399 5.875 20.0 4040 9.00 Datapower Inc. 2447 1.875 4.6 2439 4.00 Eagle Computer Inc. 22979 0.19 4.4 21142 0.50 Compusave Corp. 5206 2.06 10.7 2713 9.875 ReadiCare 7321 1.75 12.8 6650 5.25 VTN Corp. 2409 0.25 0.6 2110 2.875

COMPANY Market Market Value Value (Millions) % Changes 12-31-84 1984-1985 TOP 15 AST Research Inc. 12.8 +2,614% Downey S&L; Assn. 44.3 +347% ClothesTime Inc. 43.8 +273% Winn Enterprises class b -- -- class a -- -- total 15.4 +219% Microsemi Corp. 23.2 +182% SPI Pharmaceuticals Inc. 42.8 +164% Newport Pharm. Int. Inc. 49.4 +141% Archive Corp. 38.5 +129% Swedlow Inc. 14.6 +119% Caremark Inc. 99.7 +107% Standard Pacific Corp. 92.4 +98% Westworld Comm. Health 50.8 +87% Care Inc. Mercury S&L; Assn. 28.4 +86% Varco International Inc. 26.5 +79%

BOTTOM 15 Silvercrest Industries Inc. 9.9 -21% Naugles Inc. 26.1 -26% Healthcare USA 68.9 -29% Computer Automation Inc. 8.5 -30% EIP Microwave Inc. 27.8 -35% Helionetics Inc. 30.7 -31% Silicon General Corp. 87.7 -36% Smith International Inc. 235.8 -36% Nelson Research & Dev. Co. 77.8 -38% RB Industries Inc. 36.4 -45% Datapower Inc. 9.8 -53% Eagle Computer Inc. 10.6 -59% Compusave Corp. 26.8 -60% ReadiCare 34.9 -63% VTN Corp. 6.0 -90%

Sources: Associated Press; Standard & Poor’s Corp.

* As of the close of the markets Dec. 31, 1984

Companies listed include only the most actively traded Orange County-based firms.