UPDATE ON Stocks : ’87 Stock Market Crash Still Affects Public Stock Offerings
For those with short or selective memories, it has been two years since the Oct. 19, 1987, stock market crash plunged the Dow Jones Industrial Average by a record 508 points. Many stocks (see accompanying chart) have bounced back, but others are floundering at or below levels reached on that dark day two years ago.
Economists are still debating why the market crashed, but industry observers agree that stock prices of some publicly traded companies have yet to recover. Observers also said the crash put a damper on initial public offerings and secondary offerings.
“Underwriters are hesitant to bring out a biotech firm or some other company without earnings,” said Irving Katz, director of research for Thomas Green/San Diego Securities. “They’re just very difficult to sell in this market.”
During the past several months, the only successful IPOs were Charthouse Enterprises, which went public at $13.50 in August and Biomagnetic Technologies, which went public at $9 in July. Charthouse closed Wednesday at $14.25 while Biomagnetic Technologies closed at $8.
‘IPOs Got Blown Out of the Water’
“IPOs got blown out of the water,” said Larry Selwitz, an industry analyst with Cruttendon & Co. in Newport Beach. “The market is just starting to come back. There’s also the recognition that the window may not be there all that long.”
In the current market, “only firms with something to sell are going to make it,” Katz predicted. “The run-of-the-mill biotech company hasn’t got a chance to sell.”
One company that is in registration for an IPO--Immune Response--should do well, Katz said, because it is associated with famed scientist Jonas Salk and it plans to develop an anti-AIDS technology.
“Why buy a new biotech when you can buy just about any of the other biotechs on the market at book or less,” Katz said.
Some publicly traded companies, including Agouron Pharmaceuticals, have successfully returned to the market with new stock issues. But, for the most part, “the window isn’t open” for IPOs or new stock issues, Katz said.
Some company executives and investors who acted quickly in the wake of the 1987 crash have done well. In that vein, Selwitz, on the day after the crash, was urging brokers to look for silver linings.
Strong Underlying Value Quickly Identified
Maxwell Laboratories was one bit of silver that Selwitz quickly identified. “It had dropped to $6 per share,” Selwitz said. “But it had strong underlying value, it was selling at just half book, and it had no debt.” The stock since has rebounded to about $16.
“There were just unbelievable values out there,” Selwitz said. “With Maxwell, you got a 66% return” within a year, Selwitz said.
For Selwitz, the crash once again proved that “you can take everybody else’s misfortune and turn it into an opportunity to sock away some solid values. The people who had the courage and foresight to take advantage of good opportunities did extremely well after the crash.”
“A crash or a panic represents the best opportunity for investors--not speculators--to buy quality stocks at low prices,” Selwitz said. “If you go back, you can track people who made lots of money by going in at a time when everyone else was scared.”
