Tumble of OTC-Listed Stocks Hurting Local Companies : Markets: Many area firms have seen their shares’ value fall by 20% or more. The broad Dow Jones decline is just one factor.

The worst casualty list from the stock market’s recent blood bath is found in the over-the-counter market, and that means many of the victims are local companies.

Most publicly held companies from the San Fernando Valley to Ventura County are relatively small operations whose stocks are part of the OTC market, where stocks are traded via an electronic network of brokers rather than on a central exchange. The market’s slide, aggravated by Iraq’s invasion of Kuwait on Aug. 2 and subsequent oil-price increases and recession fears, has been particularly brutal for many of those shares.

Since July 13, the session before the Dow Jones average of 30 industrials closed at a record 2,999.75, the Dow Jones industrial average has tumbled 12%, closing Friday at 2,614.36. (All the stocks in the Dow Jones industrial average, incidentally, are listed on the New York Stock Exchange.) The market recovered somewhat last week, but the broader Standard & Poor’s 500 composite index also has lost 12% since mid-July. And the NASDAQ composite index--the OTC market’s principal gauge--has tumbled 19%, its sharpest pullback since the market’s October, 1987, crash.

(Financial markets were closed Monday because of Labor Day.)

More than a dozen regional companies have seen 20% or more of their stocks’ market value wiped out since mid-July. They include CU Bancorp in Encino, HemaCare Corp. in Sherman Oaks and Tandon Corp. in Moorpark.

Several other OTC stocks hit 52-week lows recently as the market sank lower. Among them were Dick Clark Productions Inc. in Burbank, St. Ives Laboratories Inc. in Chatsworth, TransWorld Bancorp in Sherman Oaks and Datron Systems Inc. in Simi Valley.

The market’s slump also has offset previous gains by local companies that recently sold stock to the public for the first time. K-Swiss Inc. in Pacoima, a footwear maker that went public in June at $17.50 a share, shot up to $30.25 but has since tumbled to $19. Rexhall Industries Inc., a motor-home maker in Saugus, soared as high as $11.75 a share after going public at $6 in June. But investors, perhaps worried that a recession would crimp demand for Rexhall’s recreational vehicles, have since pushed the stock back to $5.50.

There have been exceptions to the drubbing of small, local stocks. Benton Oil & Gas Co. in Ventura, American Ecology Corp. in Agoura Hills and Ventura Entertainment Group Ltd. in North Hollywood all have gained since mid-July.

But for the losers, the companies’ own poor showings are much to blame. Many of them were struggling to earn profits before the general stock market began its retreat seven weeks ago. Companies such as Alpharel Inc. in Camarillo, Traditional Industries Inc. in Agoura Hills and Brajdas Corp. in Woodland Hills have been hobbled by weak operating results recently. And with the market in trouble, investors have even less patience with poor performers.

“When the market is depressed, people have a tendency to get out of their most speculative issues,” said Richard T. Walsh, vice president for investments at the Woodland Hills office of Bateman Eichler, Hill Richards Inc., a brokerage firm.

Norma Yaeger, president of the Encino brokerage Yaeger Securities, said that “unless a company can show some pretty strong earnings, it’s going to fall out of favor. It’s a market of value now.”

Once the market’s slide was under way, the inherent characteristics of the OTC market also contributed to the local stocks’ slide. For instance, many of the stocks are thinly traded, a situation known as illiquidity that exaggerates the stocks’ declines based on the few trades that do occur.

In some cases, the low volume is due to the stock having little “float,” or shares held by the general public. Others are seldom traded simply because not enough people, especially Wall Street analysts who can spur increased activity with their recommendations, bother following the stocks.

Either way, demand for little-known OTC stocks can suddenly evaporate, causing the illiquidity and wide spreads--up to a dollar per share between what sellers are asking for the stock and what the few buyers are offering.

“When they’re selling into the market out of panic, they’re getting some very weak bids,” said Walsh. But sellers take them anyway, further depressing the stock’s price, he said.

Even those stocks that are liquid and often have thousands of their shares owned by big financial institutions, such as insurance companies and pension funds, can have problems too. When those institutions want to dump a stock, the price can drop in a hurry. That was particularly true when the market crashed in October, 1987.

Knowing that, some of the securities firms that make markets in the stocks by bringing buyers and sellers together have been reluctant to step in and purchase certain OTC stocks--thereby putting their own cash at risk--when the institutions want to sell.

Then there’s the problem of margin calls. Stocks bought on margin are bought partly with cash borrowed from a broker. If the stock falls, the broker issues a “margin call” seeking more funds from the investor. If the investor can’t pay up, the broker can liquidate the account by selling the shares.

When the whole market is dropping rapidly, as it has recently, investors with diversified portfolios of blue-chips, glamour stocks and OTC issues often choose to shed the OTC stocks first to raise the additional cash required by margin calls. So the tiny OTC stocks drop some more.

Here is how some of the regional stocks have fared:

* New Image Industries Inc. is a Canoga Park maker of computer systems that help architects, planners and beauticians design “before” and “after” pictures of proposed design changes. New Image went public at $6.50 a share a year ago, and soared as high as $16 as its profits kept growing. But in mid-August, with the stock market already stumbling, New Image announced a $741,000 loss for its fiscal fourth quarter on revenue of $2.8 million, and its stock has since plunged to $3.63.

* Dick Clark Productions, an entertainment concern that produces TV shows, posted a 48% drop in profit for the nine months ended March 31, and has seen its stock drop from $6.75 a share in mid-July to $5.

* Earnings woes also hobbled Datron Systems, a maker of satellite-receiving dishes and other telecommunications products. The company said in late July that its fiscal first-quarter profit plunged 80%, and its stock has skidded from $9.13 a share to $6.

* Even higher profits are no guarantee of a higher stock price. Ask CU Bancorp, the parent of California United Bank (formerly Lincoln National Bank). Despite a 14% earnings gain for the first half of 1990, CU’s stock has skidded from $13.75 a share in mid-July to $9.75.