Even in a Slump, a Good Story Can Lure Investors
The stock market has just about everything going against it now. But some investors have been aggressively throwing money back into a few issues. Good stock stories apparently still find listeners--though at this point, whether that’s a healthy or unhealthy sign for Wall Street remains to be seen.
Since the market’s recent low on Aug. 23, the Dow Jones industrials have inched up 4.5%, to 2,596.29 on Thursday. In contrast, Optical Radiation, an Azusa-based optical technology company, has jumped 28.3%. U.S. Surgical, a Norwalk, Conn.-based firm that makes surgical stapling devices, has soared 25.9%. And Kasler Corp., a Highland-based highway construction firm near San Bernardino, has rebounded 16.7%.
Some stocks on the quick-comeback list are the typical “defensive” plays that investors often seek out when recession looms. Pepsico, Philip Morris and Waste Management, for example, all sell products or services viewed as recession-resistant. So it’s not surprising that money has flowed into those shares. U.S. Surgical and other health-care stocks, meanwhile, are benefiting from new optimism about the growth of that industry in the 1990s, as the U.S. population ages.
But other firms, such as Optical Radiation, Kasler and Hawthorne-based toy maker Mattel, appear to be rebounding for another reason: They all have interesting stories that many investors aren’t willing to stop believing, despite the economy. So when the stocks get whacked, a herd of buyers quickly appears.
Optical Radiation plans to announce its most recent quarterly earnings on Monday at the annual Montgomery Securities stock conference in San Francisco. The company also will give a presentation to money managers there. Anticipation of both events apparently has been the driving force behind the stock since Aug. 23.
Leonard Yaffe, analyst at Montgomery, figures that Optical Radiation earned 49 cents a share in the quarter ended July 31, compared to 55 cents a year earlier, when the firm faced a much lower tax rate. More important is what’s ahead. Yaffe says earnings in the year that began Aug. 1 should reach $2.15 a share, up 23% from an estimated $1.75 from operations in the year just ended.
Those aren’t fools rushing back into Optical Radiation, Yaffe says. “The company’s Omega line (plastic prescription eye wear) is doing fantastic, and we think intra-ocular lens sales enjoyed a record quarter,” he says. Intra-ocular lenses are implants for cataract patients.
What’s more, the kicker for Optical Radiation long term is the potential in its new Cinema Digital Sound theater sound system, launched in June to bring compact disc-quality sound to movie theaters.
Meanwhile, investors who have jumped back into Kasler must be betting that the company can’t help but win from the surge in highway projects expected in California in the 1990s, thanks to voter approval of Proposition 111.
Helped by major contracts for the Century Freeway in Los Angeles, Kasler already is posting big earnings gains: 25 cents a share in the first half of this year, compared to 16 cents a year earlier. The stock, $11.375 now, is up from $9.75 on Aug. 23 but still below its peak of $13.75 earlier this year.
As for Mattel, the fears that have dragged the stock down from $26.375 earlier this year to $18.625 now clearly center on recession expectations and the potential for a plunge in retail sales during the all-important Christmas season. But at $15.75 in late August, the stock evidently got too cheap for investors who recognize Mattel’s long-term attractiveness as the leading toy company here and in Europe.
“It’s a cautious retail climate, but it was last year too,” says Glenn Bozarth, Mattel’s vice president for communications. “We’re still seeing a strong situation (in orders),” he says, “and we still see double-digit volume growth for 1990.”
Despite the optimism, as these stocks move higher from their lows, some investors are bound to feel that it’s smarter to sell into this strength than buy into it.
If the broad market is headed lower--a very likely scenario, as the psychology of recession grips consumers and corporations alike--there’s certainly every reason to expect that even strong stocks will be hit again.
So the buyers at these prices could just be deceiving themselves. In fact, the willingness of investors to rush back into favorite stocks is a contrary indicator to some analysts. It suggests that the market still has much further to fall, and much more optimism to erase, before the low can be reached.
Long-term investors, however, just need to keep their eyes on the horizon and on value. If nothing else, the recent rebound of interesting stocks may be only a mild indication of what will happen to them when the bear market finally ends.
Briefly: The Assn. of Publicly Traded Companies, a group formed by some over-the-counter companies, wants Congress to beef up laws regulating professional short sellers--traders who bet on lower stock prices. Many smaller companies over the years have accused the “shorts” of spreading lies and engaging in other mean tactics to make sure their bets pay off. The association wants the shorts to routinely disclose more about their trading activities . . . Wall Street is losing one of its most intelligent market commentators. John D. Connolly, investment strategist at Dean Witter Reynolds, is leaving to manage money for a Philadelphia investment house.
COMEBACK STOCKS
These stocks have been among those leading the rebound from the market low on Aug. 23.
Aug. 23 Thurs. Pct. Stock close close change Optical Radiation $23 $29 1/2 +28.3% U.S. Surgical 41 1/2 52 1/4 +25.9% Mattel 15 3/4 18 5/8 +18.3% Kasler Corp. 9 3/4 11 3/8 +16.7% Rubbermaid 32 1/2 37 5/8 +15.8% Pepsico 22 24 1/2 +11.4% Waste Management 33 7/8 37 1/8 +9.6% Bausch & Lomb 58 3/4 64 +8.9% Philip Morris 41 3/8 44 5/8 +7.9% Diagnostic Products 33 1/8 35 1/4 +6.4% Dow industrials 2,483.42 2,596.29 +4.5%
All stocks traded NYSE except Optical Radiation and Kasler (OTC).
