Gulf Crisis, Economy Fears Hit Local Firms’ Stocks Hard
The economic and political events of the last few days have hit Orange County stocks hard.
Seventy-seven of the county’s 100 major public companies have seen stock values decline--several by more than 20%--since Aug. 1, when Iraq invaded oil-rich Kuwait and sent the world’s financial markets into a tailspin.
The stock prices of 17 other local companies were unchanged, leaving only six with gains over the three trading days.
Although most of Orange County’s public companies are small with thinly traded stock, their shares have been treated like those of their Big Board counterparts as investors have rushed to sell their portfolios with the news of the latest turmoil in the Middle East. In fact, amid renewed fears of a recession, the selloff has seen the stocks of Orange County companies drop farther and faster than the national norm.
Since the Iraqi invasion set off the chain of events--increasing oil prices, increasing consumer and commodity prices and flagging investor confidence--the closely followed Dow Jones industrial average has tumbled 6.5%. Over the same period, the composite value of the shares of Orange County’s 100 largest public companies has dropped 8.6%, a Times study shows.
And Monday, when the Dow Jones index of 30 blue-chip industrial stocks ended the day down 93.31 points, or 3.32%--taking its worst one-day spill since the market mayhem of Oct. 19, 1989--the aggregate value of one share of each of Orange County’s 100 public companies dropped $34.89, or 4.1%.
Some of the local company stocks hit by major price declines actually have tangible links to the Iraqi invasion of Kuwait: Fluor Corp. common stock has dropped $4.50 a share since Aug. 1, largely as institutional investors shed shares of all the engineering and construction firms with a heavy presence in the Middle East. Fluor, whose stock was off $2.875 Monday to $40.385, has several oil and natural gas projects in Saudi Arabia.
“We view it as a temporary unsettling,” Fluor spokesman Rick Maslin said.
But declines in other stocks--medical, high technology and food--seemed unrelated to anything but an overall slump in the market.
“This is emotional trading more than anything else,” said Jeffrey Kilpatrick, head of Newport Securities in Costa Mesa, a brokerage that specializes in the stocks of Orange County-based companies.
Kilpatrick, noting that many local companies’ stocks are traded in the over-the-counter market, where a few brokers or institutional investors can control the prices, said that the rapid decline of local stocks “seems a situation where the market makers and traders and other institutional people are afraid of holding inventory, so they are selling, and that drives prices down.”
And down they went, even at companies where there has been no negative news and the financial reports are fine.
Take Laguna Niguel-based Furon, the high-tech plastics manufacturer, for example. The company has not issued any bad news in recent weeks, but its stock value has plunged nearly 14% since the Iraqi invasion--even though the plastics that Furon uses are not based on petrochemicals.
Commenting on the stock price decline--to $14.75 a share Monday from $17.13 a share on Aug. 1, Furon’s chief financial officer, Monty Houdeshell, pegged it to three things: “There is the general decline in the overall (stock) market; a misunderstanding that our raw-material costs are influenced by the price of oil when they are not--our two major raw materials are Nylon and Teflon and neither is petrochemical, and third, there is the general concern about recession.”
One of the gainers was Varco International, a company that produces oil-drilling equipment. Varco’s shares rose 25 cents from $12.38 on Aug. 1 to close at $12.63 on Monday. The stock moved up with that of other oil-exploration and production-related firms, which are expected to benefit from a stepped-up search for new oil resources.
Kilpatrick said he foresees prices leveling off rather rapidly--especially for the over-the-counter stocks--if the situation in the Middle East does not deteriorate.
“There is a lot of volatility in the OTC shares, which is where most Orange County companies are traded, that makes them drop faster” than shares traded on the New York Stock Exchange, he said. But that volatility also means prices recover a bit faster.
And there is a ready-made market for many of the local stocks, he said.
“If prices go much lower, we’re going to have a lot of companies trading at or below book value, and that will trigger a lot of stock buyback activity,” Kilpatrick said. “I’m currently working with four local firms that are buying back their stock.”
ORANGE COUNTY STOCK LOSERS
Fourteen of Orange County’s largest public companies have lost more than $2 in their share price since the stock markets plunged in reaction to Iraq’s invasion of Kuwait and negative economic news.
Current Aug. 1 Net Percent Name Price Price Change Change Fluor $40.38 $44.88 -$4.50 -10.0% Gish Biomedical 10.38 13.50 -3.12 -23.1 Community Psychiatric 25.63 28.25 -2.62 - 9.3 Filenet 13.50 16.00 -2.50 -15.6 Nichols Institute 15.25 17.75 -2.50 -14.2 PacifiCare 17.25 19.75 -2.50 -12.7 Bergen Brunswig 23.75 26.13 -2.38 - 9.1 AST Research 18.75 21.13 -2.38 -11.3 Furon 14.75 17.13 -2.38 -13.9 Wet Seal 14.25 16.63 -2.38 -14.3 Quiksilver 18.75 21.00 -2.25 -10.7 Beckman Instruments 15.00 17.13 -2.13 -12.4 Bridgford Foods 19.00 21.00 -2.00 -9.5 Commercebank 9.00 11.00 -2.00 -18.2
Source: Newport Securities
