A Scorecard on How Stocks in the News Have Fared
With 10 days left in the first half of 1990, a lot of stock investors are getting their pencils out and tallying up whether they made any money.
Given that this column regularly discusses stock ideas with analysts, money managers and market gurus coast to coast, it seems only fair to relate some of the hits and misses that were printed here.
This isn’t meant to be an endorsement of short-term trading tactics. That a stock is up or down sharply in the space of a few months may mean very little in the long run. And considering the market’s shaky outlook, buying any stock today with a time horizon of less than two years is a high-risk move--because it may take at least that long to make a good return.
The real value in reviewing stocks’ short-term moves is in checking to see if the “story” behind individual stocks has changed--in other words, to make sure that the reasons for owning them still are valid, whether the stocks are up or down.
So here’s a look at some of the stock winners and losers from the first half, and what the experts say about those stories now. For comparison, the Standard & Poor’s 500 stock index is up 1.4% year to date and up 11% from its winter low.
* ENGINEERING/CONSTRUCTION (Market Beat topic on Feb. 7): Irvine-based Fluor Corp. was a hot stock in 1989, and it hasn’t slowed much this year. Since Feb. 7, Fluor has jumped another 17%, after a 57% gain last year. Mark Cremonie, research chief at Chicago-based Capital Supervisors, was a Fluor fan in February and still is. But he admits that he’s a little worried now.
Fluor is reaping all sorts of new contracts to build manufacturing plants worldwide. But in the quarter ended April 30, operating earnings were basically flat while revenue soared. Fluor’s problem: high costs involved in ramping up for all the new business. Wall Street quickly forgave Fluor, figuring there’s tremendous profit potential there. But Cremonie warns that earnings will have to get back on track this quarter. “If this turns out not to be a short-term thing, someone else is going to get an opportunity to get my stock,” he says.
* HIGH TECH (Feb. 9): Many die-hard technology stock fans were pounding the table for these issues in January and February, arguing that Wall Street was only beginning to realize that the stocks were unfairly depressed. The bulls were right: High tech has been the market leader this year, led by such stocks as computer disk drive maker Conner Peripherals and desktop computer software producer Autodesk--up 60% and 22%, respectively, since Feb. 9.
Has the long-term story changed? The bulls don’t think so. One big reason for their optimism is the rising demand for American computers and software overseas. The optimists see a new cycle of strong computer sales unfolding worldwide, after the slowdown of the late 1980s.
The problem with tech stocks, though, is the same as always: Wall Street expects good earnings results every quarter. That’s tough for the companies to deliver in this fast-changing field. And when a company disappoints, its stock gets murdered. Witness what happened to disk drive maker Seagate Technology and to software firm Oracle Systems in the spring.
The only answer for individual investors: If you can’t afford a well-diversified portfolio in this promising but volatile industry, stick with mutual funds. The average high-tech stock mutual fund is up 14% year to date, best of all fund categories, and triple the average stock fund’s 4.3% gain.
* OIL SERVICES (Feb. 23): The price of a barrel of oil has plunged 28% this year to $15.65 now. Yet investors who bought into oil services stocks as late as the end of February still have made money for the year. Baker Hughes, for example, is up 8% since Feb. 23. Oceaneering International is up 19%.
Why haven’t the stocks collapsed? Because many big investors continue to believe that energy is going to be a growth field in the 1990s, despite the current glut of oil. And after the shakeout of the 1980s, “there just aren’t that many companies around” to provide drilling and other services, says Jerry Mill, manager of the Financial Programs Energy mutual fund in Denver.
“It’s a waiting game now,” says Mill, who holds Baker and Oceaneering in his portfolio. He believes the oil services stocks will take off again later this year, when investors start focusing on the winter heating season. “When fall comes, these stocks are going to do very well,” he says.
* GROWTH STOCKS (discussed in several columns, winter and spring): Buying “growth” slowly became fashionable again this year on Wall Street. Investors forgot about takeovers and asset values and started looking for the basics-- companies whose earnings are growing at an above-average pace. The hunt still is on.
The beneficiaries of this shift in thinking are a diverse lot. They include Chatsworth-based Syncor International, the largest maker of radiopharmaceuticals--drugs used with nuclear imaging cameras to view body organs. Bateman Eichler, Hill Richards Inc. analyst Rae Alperstein estimates that Syncor earned 30 cents a share in the year ended May 31 and sees 50% earnings growth this year. Growth-hungry investors have bid the stock up 35% since early March, to $9.25.
Meanwhile, Boeing Co. also has become a premier growth stock once again, thanks to its gigantic backlog of jet orders. And toy maker Mattel has picked up new fans on the expectation that the company will show consistent growth over the next few years, helped by old favorites (Barbie) and new lines (the Simpsons).
Investors who fear that growth stock investing will fall out of fashion soon just need to ask themselves one question: What’s going to replace growth? Takeovers aren’t coming back soon, and asset values don’t mean much when assets can’t easily be sold. The driving force on Wall Street in the early 1990s has got to be earnings growth, because there simply isn’t anything else.
* REAL ESTATE/FINANCE (various columns): Savings and loan stocks, homebuilders and financial services companies all look cheap, on paper. But the analysts who touted these stocks in the first half of the year have mostly worn egg. As long as worries persist about rising interest rates and the health of the banking system, real estate and finance stocks aren’t likely to return to health soon.
Barbara Allen, a Kidder, Peabody & Co. analyst, still rates Kaufman & Broad Home Corp. stock a “buy.” She thought it was undervalued at $13.625 in mid-April. At $12 now, it may be more undervalued. But “the only people buying these stocks now are the long-term value players,” Allen concedes.
SOME IDEAS THAT WORKED. . .
Here are some of the stocks that analysts and money managers recommended in this column in the first half of the year and how the stocks have fared.
Date discussed Tues. Pctg. Stock and price close change Fluor 2/07 $40 1/2 $47 3/8 +17% Conner Peripherals 2/09 15 1/4 24 3/8 +60% Autodesk 2/09 44 53 1/2 +22% Baker Hughes 2/23 26 28 1/8 +8% Oceaneering Intl. 2/23 11 5/8 13 7/8 +19% Syncor Intl. 3/07 6 7/8 9 1/4 +35% Mattel 3/23 20 3/8 24 3/8 +20% Boeing 3/26 48 3/4 58 5/8 +20% May Dept. Stores 4/25 49 1/4 56 5/8 +15% Optical Radiation 5/11 31 3/4 36 1/4 +14%
. . . AND SOME THAT DIDN’T
Date discussed Tues. Pctg. Stock and price close change Seagate Technology 2/09 $18 1/4 $14 7/8 -18% HomeFed 2/19 28 1/8 21 5/8 -23% Gap Inc. 3/09 59 1/4 57 1/2 -3% Oracle Systems 3/16 26 1/8 23 1/8 -11% Xerox 4/13 55 1/8 48 3/8 -12% Kaufman & Broad 4/16 13 5/8 12 -12% Del Webb 5/21 9 7/8 8 5/8 -13%
Los Angeles Times
