West Coast S&L; Stocks Among 2 Analysts’ Favorites
As recently as September, savings and loan stocks were on what seemed like an unstoppable roll. In the third quarter alone, those being recommended by Montgomery Securities were up more than 20% as investors embraced the notion that not all thrifts were in trouble. But by early October, gravity took over and the S&L; stocks started tumbling, spooked by several factors, including recessionary fears and concerns that California’s frothy housing prices were getting shaky. Those stocks on Montgomery’s recommended list wound up falling by an amount exceeding their third-quarter gains.
If they go lower, Montgomery analyst Joe Jolson and Shearson Lehman Hutton’s Allan Bortel would be active buyers. Jolson already has “aggressive” buys on his list of favorites, all in California and Washington, such as Washington Mutual, HomeFed Corp. and H. F. Ahmanson & Co. Ditto for Bortel, except his favorites also include several in other states, including Northeast Savings in Hartford, Conn.--a turnaround situation--and Standard Federal Bank in Detroit.
Driving the prices higher, the analysts say, will be lower interest rates and better earnings. Jolson thinks earnings could rise as much as 40% next year, with a like appreciation in stocks. Bortel isn’t quite as bullish: He is expecting a rise of only about 20% in earnings.
What if they’re wrong and prices continue to deteriorate? Jolson believes that “some insightful banks” might then step in and buy some of the healthier ones, limiting the downside risk. Besides, he says, some S&Ls; are already selling at “significant discounts” to liquidation value.
Alert on Prime Motor Inns
On only a few occasions has Los Angeles-based Kellogg Associates faxed, rather than mailed, copies of its Financial Statement Alert to subscribers. Those special red-flag editions included alerts on movie house operator Cineplex Odeon Corp. and First Executive Corp., the life insurer. Since then, stocks of both have tumbled.
Now Kellogg is back with another faxed edition, this time at the demand of anxious East Coast subscribers who had heard about a report that first made its way in the mail to West Coast subscribers. The report focused on Prime Motor Inns, a Fairfield, N.J.-based operator of hotels and motels, including 450 Howard Johnson lodges.
Kellogg’s reports scrutinize corporate financial statements for suspicious accounting maneuvers. The latest cites Prime’s financials as being too vague and allegedly misclassifying items such as the source of its revenue. “Incorrect classifications always worry us,” the report said. “We think they occur to improve ‘performance,’ and they help the figures. If there is a misclassification in one section of a financial statement, we become skeptical and suspicious of other classifications.”
Short sellers, who seek to profit from declining stock prices, apparently agree: In the most recent reporting period, the number of Prime shares being sold short increased by 48%. A Prime spokesman didn’t return calls.
L.A. Gear Feels Rumor Fallout
For the first time in months, the stock of sizzling hot sneaker outfit L.A. Gear has slumped sharply on speculation that its retail inventories are too high. Trade reports show that the company cut purchases from its Korean suppliers in October, a possible hint of inventory problems, only to return as buyers in November.
“If they were having a problem, they wouldn’t be stepping up purchases,” says Paine Webber analyst Frank Podbelsek. He adds that similar, unfounded rumors temporarily rocked Nike’s stock a few weeks ago.
One of the biggest L.A. Gear bulls, Alice Ruth of Montgomery Securities, says the company is not only fundamentally sound but next year should generate “the highest growth rate” of any footwear manufacturer. What concerns some observers, though, is the steady selling by insiders, including company Vice President Larry Clark, who recently dumped his entire holdings.
Analyst Likes Businessland
It’s not every day that an analyst gets this ambitious on a stock: Charles Wolf of First Boston calls Businessland, the nation’s largest computer retailer, whose stock has tumbled by 40% in two months, “the most attractive” story among personal computer stocks for 1990. His 12-month target for the stock, which closed Friday at $9.75 a share, is $20. The flip side: Short sellers have increased their Businessland positions by 41%. . . .
Forget about whether gold was up or down Friday. J. David Edwards, chief investment officer of San Antonio-based United Services Advisors, an operator of no-load, gold-based mutual funds, is betting that the price will reach $500 an ounce within a year. The potential trigger, he says: a further weakening of the dollar, which some analysts believe could lead to a rebound of inflation.
