County Firms Trumpet Stocks Before Wide Array of Investors

Like many small, growing companies still feeling their way in the world of public stock ownership, Safeguard Health Enterprises Inc. hasn’t exactly gone overboard to trumpet its accomplishments.

It’s not that corporate executives at the Anaheim dental health maintenance organization are publicity shy, it’s just that they have neglected to aggressively tell their story to stockbrokers and investors.

Another company, Fidelity National Financial Inc., didn’t have much to brag about until recently. Now, the Irvine title insurance firm wants to break out of its cocoon to woo the investing public.

And even much larger companies, at least by Orange County standards, find they need to keep brokers and investors informed if they want to keep interest in their stocks high.

36 Companies Gather

So firms such as Western Digital Corp. in Irvine and Carl Karcher Enterprises in Anaheim joined Safeguard, Fidelity and 32 other Southern California firms to strut their stuff last week before a contingent of brokers, money managers and wealthy investors.

Billed as the Southern California Growth Stock Conference, the event held Thursday and Friday at the Newporter Resort in Newport Beach featured mostly Orange County firms.

With one exception, they were companies with good earnings and solid growth, but they have watched as their stock prices lagged behind their financial performance.

The conference drew more than 100 brokers and investors, as well as mutual-fund managers and other money handlers from as far away as Wilmington, Del.

Similar conferences have been held elsewhere in the nation, but last week’s get-together marked the first time in Southern California that so many companies were able to talk shop with so many investors and money managers from across the nation.

All in One Place

For the companies, it provided a chance to meet and talk informally with many investors, accomplishing what might take them weeks or months otherwise.

J.B. Crowell, president of Eldorado Bancorp in Laguna Hills, said before the conference started that his firm thought the conference was a great idea. Unfortunately for banking firms like Eldorado, however, some investors weren’t too interested in stocks of financial companies. Nor were they high on real estate firms, though J.M. Peters in Newport Beach and Kaufman & Broad Homes in Los Angeles tried to sway them anyway. Those stocks just don’t appreciate in value fast enough and aren’t traded as widely as other stocks, several participating investors said.

But local stockbroker Lester Kilpatrick, chairman of Newport Securities in Costa Mesa, said he was impressed with some of the participating banks, along with several health maintenance organizations.

From the investors’ viewpoint, the conference “saves a lot of legwork,” said Marc Heilweil of the Atlanta investment advisory firm of Heilweil, Hollander Jacobs Inc.

Annual reports and other documents could provide him with the same information, he said, but he could not learn as much in as short a period of time.

‘Most Efficient Way’

“It’s the most efficient way to get ideas,” said Gloria Santella, who runs a mutual fund made up of small growth companies for the Chicago investment-counseling firm of Stein, Row & Farenham. “If I get one idea for an investment out of the conference, then it’s worth the trip,” she said.

For John Garabedian, a Drexel Burnham Lambert stockbroker who moved to Newport Beach from Florida 3 months ago, the conference was a way to learn about local firms quickly.

“In Florida, people were more interested in stocks that produce income,” he said. “Here, they’re more growth-stock oriented.” A growth stock is generally purchased for its price-appreciation potential instead of its dividend yield.

He said that he had heard of Western Digital and the HMOs, but he was surprised at the number of other growing companies in the area.

“I’m really impressed with the fact that the area has 750 public companies that I had no idea about,” Garabedian said. “The growth in the area is beyond comparison to anything I’ve seen in the country. It’s almost recession-resistant.”

About 250 publicly owned companies are based in Orange County, and many are the kind of growing firms that investors are looking for.

‘Off-Beat’ Names

“This conference has a lot of off-beat company names and not a lot of institutional investors,” said Debra Diamond, who operates a growth-stock fund for foreign investors with T. Rowe Price in Baltimore. “I try to discover those companies before the institutional investors find them.”

For instance, she likes FHP International Inc., a Fountain Valley HMO. The firm is larger than most companies she follows, she said, “but it looks like it’s got a lot of growth ahead of it and its stock is still inexpensive.” Investors are often leery of HMOs, she said, because of their reputation for fast growth and an inability to manage that growth.

Diamond also likes the medical-imaging groups, like American Health Services Corp. in Newport Beach and Medical Imaging Centers of America Inc. in San Diego. Medical imaging is an advanced technology to help physicians see inside a body.

Heilweil was impressed with Newport Corp., a Fountain Valley maker of laser instruments and other products for the optics market. The firm’s president, Thomas A. Galantowicz, told the group that Newport plans to increase its small share of the international market, which it entered a few years ago.

Santella found the medical-imaging firms “very interesting,” and the HMOs, such as FHP, Safeguard and PacifiCare Health Systems Inc. in Cypress, “somewhat” interesting. She said she is even more likely to buy stock in health care companies such as Gish Biomedical Inc. in Santa Ana.

Look at Earnings

“We look for new technologies and growth companies that have 25% earnings growth a year--consistently, at least 2 or 3 years,” she said.

Though PacifiCare is an HMO with no new technologies, it doubled its net income in 1988 over the previous year and predicted 25% growth in earnings in each of the next 2 years.

There is great risk in putting money down on growth companies, several investors said. First, it’s not a given that the companies will even survive, Santella said. And any company with a new technology has to worry about that technology quickly becoming obsolete, Garabedian said.

But growth companies are still attractive, and not only because big institutional investors often haven’t heard of them yet. Leveraged buyouts in the last few years have put a premium on the “deal value” of big companies, and Wall Street has been paying so much attention to those companies that the Street has “disregarded good niche companies,” Heilweil said.

While the conference was geared toward successful companies looking for greater success, there was one exception: Maxicare Health Plans Inc., a financially troubled HMO in Los Angeles.

Discussed Improvements

Still, a Maxicare executive discussed a management restructuring and certain improvements in a way that seemed to suggest that its potentially risky stock might be worthwhile in the long run. It was the first time in 2 years that a Maxicare executive talked with investors.

More investors were scheduled to arrive, but the rains and cold weather on Thursday caused some of those invited from out of town to cancel and kept many Southern California investors away, according to Walter Cruttenden III, whose investment banking company, Cruttenden & Co. in Newport Beach, co-sponsored the event.

Other co-sponsors were the local offices of the accounting firm of Arthur Andersen & Co. and the San Francisco law firm of Brobeck, Phleger & Harrison.