Consider Stocks That Are Down Now
While many folks on Wall Street are still waiting for a steep market selloff--a correction, as it is called--a few stocks are already deep into their own private declines. Investors who have been considering getting into some solid stocks for the long run might want to look at some of the recently wounded.
Take Pasadena-based Jacobs Engineering. The stock has come down 17%, from its May peak of $25.50, to $21.125. That kind of quick move isn’t unusual for a thinly traded stock such as Jacobs, but it frustrates the company nonetheless.
Jacobs is a major player in plant design and construction and in hazardous waste cleanup. The company’s orders have been booming, as corporate capital spending has soared worldwide. Hours billed in May were a record, says Nazim Thawerbhoy, Jacobs’ controller. “Our fundamentals are as strong as before or even stronger,” he says.
Some Jacobs sellers may have been reacting to competitor Fluor Corp.’s disappointing earnings for the quarter ended April 30, which Fluor reported June 5. But Jacobs isn’t in the same boat, Thawerbhoy says. “We don’t expect our earnings to be down” this quarter, he said.
At $21.125, Jacobs sells for 18 times the $1.20 a share it should earn this year. Fluor, meanwhile, sells for about 27 times estimated 1990 earnings. Thawerbhoy figures Jacobs deserves better.
Another thinly traded stock that’s off sharply since May is MagneTek Inc. The L.A.-based company is a big name in electrical equipment, such as motors, ballasts, controls and transformers. Its customers include the aerospace, utility and construction industries.
MagneTek’s stock has dropped to $10.50, down 16% from its May peak of $12.50. Yet business still appears to be on track: Revenue in the third quarter, ended March 31, rose 16% from a year earlier to $286 million. Earnings jumped 27% to 47 cents a share. The firm also has said that it anticipates a “strong” June 30 quarter.
So why the drop in the stock? MagneTek went public a year ago and on June 13 a restriction was lifted on the ability of some big stockholders to sell shares. The market figured a lot might be dumped. That hasn’t happened.
There still is concern about a 6% block of the stock owned by First Executive Corp., the troubled insurance firm. First Executive was rumored to have been selling some of the shares last week. But Otto Stoll, a MagneTek spokesman, said: “My understanding is that they did not sell.” First Executive, as a rule, never comments on its trades.
In any case, MagneTek now sells for less than 10 times annualized earnings per share--a price that appears to have recession worries firmly built into it, and one that reflects the firm’s relatively high debt load. Unless orders suddenly collapse, MagneTek may be in shape to surprise Wall Street with healthy earnings growth this year.
Two other sold-off stocks that may be bargains now: personal computer maker AST Research of Irvine and Goleta-based Applied Magnetics Corp., which makes magnetic recording heads for the computer industry.
On June 13, AST called for redemption of some debentures, which will create 3 million new AST shares. About 12 million are outstanding now.
While the market will have to digest that new stock, investors eventually will begin refocusing on the company’s strong computer sales, which remain “very much” on track, says spokesman Don Mathias.
Applied Magnetics, meanwhile, is experiencing “tremendous demand” for its recording heads, says Todd Bakar, an analyst at Hambrecht & Quist Inc. in San Francisco.
The problem is that most of the company’s manufacturing is done in South Korea, and the firm has faced labor strife there recently over such issues as overtime.
But Bakar believes Applied will work out the problems quickly, and says demand is so strong that earnings should reach 76 cents a share this year and $1.65 next. If he’s right, this is a cheap stock.
A Gold List for Shearson?American Express has always jealously guarded the names of its cardholders, especially those who hold the upper-crust gold and platinum cards. Not even Shearson Lehman Hutton, American Express’ brokerage operation, has had access to that customer list.
That could change soon. AmEx confirms that it is considering sharing gold and platinum cardholders’ names with Shearson. The list could be a mother lode for Shearson brokers who are trying to bring in new business, because gold and platinum cardholders are, in theory at least, a well-heeled group.
Discussions about cross-marketing within AmEx are part of a major reorganization, designed to boost profits. As part of the reorganization, Jonathan Linen was named head of Shearson on May 29. He had been in charge of AmEx’s direct-marketing group, and his background suggests he knows how to boost sales.
AmEx won’t say how many gold and platinum cards are outstanding, but credit-card guru Spencer Nilson of the Santa Monica-based Nilson Report estimates there are 6.4 million gold cards in the United States and 250,000 platinum cards. Green AmEx cards number about 15.2 million in the United States, Nilson says.
Briefly: Shares of L.A.-based food wholesaler Rykoff-Sexton Inc. have surged to $19, up from $16.625 at the end of May. This week, Rykoff reported earnings for the quarter ended April 28, and the stock got a further lift from the report.
Rykoff ran into trouble last winter, so Wall Street knew the latest quarter would be a disaster. But the 62% drop in earnings, to 18 cents a share, apparently wasn’t as bad as expected. The Wisconsin Investment Board, that state’s public pension fund, owns 1 million Rykoff shares (9%) and continues to take a positive view of the company, a board spokesman says.
They always said stocks were just a big crap shoot, right? Even so, Washington state’s latest lottery game isn’t winning a lot of fans in the investment world: The game, called “Wall Street,” is advertised as “the excitement of investing without the inherent risks.”
The average public commodity fund plunged 5.8% in value in May, reversing a six-month string of big gains for investors in those risky ventures, reports Norwood Securities of Chicago.
The funds’ winning streak had averaged gains of 2.75% a month since November, but many fund managers got murdered by being short on Treasury bond futures in May, Norwood reports.
BATTERED STOCKS
While many analysts expect a significant “correction” in the stock market soon, these stocks already have suffered sharp drops from their spring highs.
May Thurs. Pctg. Stock high close drop Jacobs Engineering $25 1/2 $21 1/8 -17% MagneTek 12 1/2 10 1/2 -16% Applied Magnetics 15 12 3/4 -15% AST Research 25 1/2 21 7/8 -14% Monsanto 55 49 1/2 -10% Bethlehem Steel 18 1/4 16 1/2 -10% Unocal 31 5/8 28 1/2 -10% Paramount Commun. 50 45 -10% Harnischfeger 22 20 1/8 -9% Pacific Telesis 47 7/8 43 7/8 -8% Mattel 26 3/8 24 1/2 -7% Deere 78 3/8 73 3/8 -6%
