THE TIMES 100 : The Best Performing Companies in California : THE VIEW FROM THE STREET : The Market’s Hot New Style Is Sharp-Eyed

No one overpays for a home or a car these days because, in a weak market, buyers call the shots, and they naturally demand good value.

The same concept finally is taking hold on Wall Street. After a red-hot 1991--when many investors gladly paid outrageous prices for iffy stocks--value investing suddenly is back in vogue. Buyers want good deals, and they are merciless if they believe that they have been suckered.

The return of the sober stock-picker is apparent in our Market Value 100 list, which tallies the top California companies by the worth of their outstanding shares. Compared with a year ago, many California companies today fetch much less in the stock market, at least relative to the value of their assets. Caution rules.

“Market value” by itself is a simple mathematical equation, not a subjective thing: A company’s market value is merely its stock price multiplied by the number of shares outstanding.

That figure tells you what investors collectively believe the company is worth at any given moment. For example, at the top of our list is Chevron Corp., whose 350 million shares, at about $65 each on April 10, were worth $22.67 billion.

That number alone doesn’t say much about the oil company’s status in investors’ eyes. You have to compare it and the number next to it--book value, which, in theory, is what shareholders would have left if the company’s assets were sold off and all its debts paid.

Chevron has a market value of $22.67 billion and a book value of $14.74 billion. The difference, $7.93 billion, represents the future or the fantasy, depending on your vantage point: It is mostly an investors’ estimation of Chevron’s earnings power in the years ahead.

When optimism bubbles over on Wall Street, investors push stocks far above book value as corporate earning power begins to appear limitless. When reality sets in again, the market-to-book ratio comes way down.

For the stock market as a whole, the market-to-book figure has only recently begun to drop, and now hovers at 250%, as measured by the Standard & Poor’s index of 500 major stocks. That means the typical company sells for 2.5 times its net worth.

For many major California businesses, however, the markdown has been much more severe--a reflection of investors’ skittishness toward the major industries centered here:

* A year ago, Chevron’s market value was 184% of its book value. Now the figure is 154%, as the oil industry continues to struggle.

* Computer workstation maker Sun Microsystems’ shares were valued at 374% of book a year ago; now, 204%.

* Fast-growing retailer Gap Inc. was worth a stunning 1,028% of book to investors a year ago. Today, a less lofty 833% prevails.

There are, of course, exceptions to the trend. Walt Disney Co.’s market-to-book figure is 487% now, versus 430% a year ago, thanks partly to investors’ expectations for Disney’s newest major asset, Euro Disney park.

Casino operator Caesars World also ranks higher, at 255% of book now versus 194%.

But of the top 25 companies in market value in this year’s list, fully two-thirds sell for lower ratios of market-to-book value than they did a year ago.

These companies have not necessarily done anything wrong. In fact, many of them earned enough last year to add significantly to their assets, and thus their book values. Sun Microsystems, for example, boosted its book value from $927 million to $1.33 billion in the period, a hefty 43% rise.

Investors, however, are simply unwilling to pay as much of a premium for those assets today. Maybe they don’t believe that Sun’s earnings power in the years ahead will be as great as once foreseen. More likely they are just uncertain--so they refuse to pay too high a price for the stock.

Some experts argue that, even though market-to-book ratios have fallen, they’re still too high relative to historical norms. Indeed, until recent years, the only other period when stocks sold for such stratospheric multiples of book value was the late 1920s--just before the Great Crash, and the Great Depression that followed.

“I just don’t see a reason for multiples to be so high,” warns Craig Isom, a manager in the enterprise group of accounting giant Arthur Andersen & Co. in Woodland Hills. Investors, he says, appear to be bidding up the price of stocks simply because they can find no better alternatives.

Other analysts noted that book value figures can mislead, because the true value of an asset is fleeting. “I don’t know what book value really means, because it’s usually understated or overstated” at any given point, says Joe Barsky, a money manager at the IDS mutual funds in Minneapolis.

Even so, Barsky agrees with a time-honored investment maxim: The lower a company’s market-to-book figure drops, the less risk involved in buying its stock (in most cases). That may give California stocks an edge with investors, if the value mentality continues to sweep Wall Street.

Figure it this way: If you aren’t paying much more than the perceived value of the company’s assets, you are getting any future earnings for little or nothing down. That is the principle that guides true value investors. They try to buy something for nothing, even if that “something” will take a while to materialize.

Not all low market-to-book stocks are necessarily bargains. Banks, for example, often sell for discounts to book value, because investors have big doubts about the real value of bank assets, which means their loans.

In general, however, many savvy investors consider cheaper market-to-book figures more an invitation to buy than a reason to avoid a stock.

The Market Value 100

Companies ranked by market value as of April 10, 1992

1990 Market Value Book Value Rank Rank Company ($ Millions) ($ Millions) 1 1 Chevron Corp. 22,667.0 14,739.0 2 4 Walt Disney Co. * 19,949.3 4,098.1 3 5 Hewlett-Packard Co. * 18,677.4 7,582.0 4 2 Atlantic Richfield Co. 16,708.5 6,832.0 5 3 Pacific Telesis Group 15,539.4 7,729.0 6 6 Pacific Gas & Electric 12,527.2 8,668.2 7 8 Syntex Corp. * 10,541.7 1,092.6 8 7 Intel Corp. 10,425.6 4,417.9 9 9 SCE Corp. 9,155.5 6,238.4 10 11 BankAmerica Corp. 9,031.1 8,063.0 11 15 Amgen Inc. 7,780.0 531.1 12 10 Apple Computer Inc. * 6,641.7 1,922.8 13 16 Gap Inc. 5,644.6 677.8 14 14 Occidental Petroleum Corp. 5,644.0 4,340.0 15 12 Rockwell International Corp. * 5,529.4 4,230.7 16 13 Unocal Corp. 5,132.0 2,464.0 17 19 Times Mirror Co. 4,466.1 1,884.0 18 18 Wells Fargo & Co. 3,334.6 3,271.0 19 26 Transamerica Corp. 3,200.3 3,025.8 20 35 Alza Corp. 3,198.8 322.9 21 20 Fluor Corp. 3,182.4 1,020.0 22 22 Genentech Inc. 3,019.0 949.7 23 25 Lockheed Corp. 2,832.2 2,503.0 24 21 Sun Microsystems Inc. * 2,711.7 1,326.2 25 32 Clorox Co. * 2,539.9 821.9 26 39 Golden West Financial Corp. 2,413.0 1,449.1 27 29 San Diego Gas & Electric 2,398.4 1,497.2 28 76 Cisco Systems Inc. 2,380.4 173.3 29 54 Mattel Inc. 2,303.1 438.3 30 National Health Laboratories 2,300.7 330.8 31 17 National Medical Enterprises 2,287.6 1,784.7 32 34 Hilton Hotels Corp. 2,268.1 952.8 33 33 First Interstate Bancorp 2,252.2 2,639.5 34 30 Great Western Financial 2,223.1 2,321.1 35 47 Franklin Resources Inc. * 1,978.3 386.8 36 36 H. F. Ahmanson & Co. 1,908.9 2,656.4 37 Dole Food Co. Inc. 1,856.0 1,041.0 38 37 Litton Industries Inc. * 1,849.9 1,212.7 39 48 Oracle Systems Corp. * 1,832.7 373.9 40 28 Price Co. * 1,674.6 818.9 41 38 Amdahl Corp. 1,595.6 1,377.5 42 49 Avery Dennison Corp. 1,584.9 825.0 43 42 Allergan Inc. 1,548.0 444.9 44 43 Safeway Inc. 1,462.5 214.4 45 27 Pacific Enterprises 1,423.8 1,894.0 46 70 Borland International * 1,404.0 239.9 47 62 Advanced Micro Devices Inc. 1,395.2 783.4 48 45 Tandem Computers Inc. * 1,371.2 1,162.7 49 67 Potlatch Corp. 1,331.8 914.8 50 68 Raychem Corp. * 1,291.6 716.7 51 58 McKesson Corp. * 1,261.5 722.1 52 59 Teledyne Inc. 1,219.1 453.9 53 56 Vons Cos. 1,205.6 477.7 54 61 Chiron Corp. 1,196.8 524.4 55 90 Charles Schwab Corp. 1,177.9 200.0 56 44 Homestake Mining 1,168.8 668.7 57 50 Northrop Corp. 1,165.8 1,182.4 58 46 Conner Peripherals 1,081.9 712.8 59 60 Computer Sciences Corp. 1,034.9 581.1 60 78 Fleetwood Enterprises * 966.8 457.8 61 92 Symantec Corp. * 940.5 60.6 62 74 National Semiconductor * 935.5 491.8 63 91 Caesars World * 922.9 361.7 64 69 Cadence Design Sys Inc. 891.4 200.1 65 51 Adobe Systems Inc. 882.6 182.8 66 57 Seagate Technology * 880.1 737.9 67 55 Autodesk Inc. 855.4 267.3 68 80 Silicon Graphics Inc. * 792.9 540.3 69 52 Bergen Brunswig Corp. * 767.1 403.8 70 53 Acuson Corp. 722.2 272.4 71 73 Argonaut Group Inc. 714.5 554.7 72 66 Varian Associates Inc. * 713.2 429.4 73 71 Union Bank 707.4 1,075.2 74 Jacobs Engineering Group * 697.7 113.7 75 72 Longs Drug Stores Inc. * 695.1 407.1 76 Pacificare Health Systems * 687.4 107.0 77 BWIP Holding Inc. 673.6 139.7 78 75 Newhall Land & Farming Co. 661.6 117.8 79 Kaufman & Broad Home Corp. 643.6 258.1 80 82 Quantum Corp. * 625.1 280.5 81 Foundation Health Corp. * 622.7 108.5 82 84 CalMat Co. 607.3 383.6 83 87 Consolidated Freightways Inc. 600.5 547.1 84 Linear Technology Corp. * 581.5 102.3 85 41 Community Psychiatric Ctrs. 571.6 483.9 86 83 McClatchy Newspapers 570.7 333.4 87 86 Beckman Instruments Inc. 567.9 343.0 88 99 HealthCare Property Investor 554.4 211.3 89 88 Xilinx Inc. 551.4 103.3 90 Anthem Electronics Inc. 549.1 149.2 91 Neutrogena Corp. * 547.1 107.2 92 Read-Rite Corp. * 546.1 146.1 93 Broad Inc. * 524.0 497.4 94 MGM Grand Inc. 512.7 446.9 95 Octel Communications Corp. * 512.6 155.4 96 Pic ‘N’ Save Corp. * 507.8 204.5 97 Wesco Financial Corp. 502.9 406.4 98 Verifone Inc. 501.3 144.1 99 64 AST Research Inc. * 498.6 324.5 100 American President Cos. 493.4 528.9

Market as % Rank of Book 1 154 2 487 3 246 4 245 5 201 6 145 7 965 8 236 9 147 10 112 11 1,465 12 345 13 833 14 130 15 131 16 208 17 237 18 102 19 106 20 991 21 312 22 318 23 113 24 204 25 309 26 167 27 160 28 1,374 29 526 30 695 31 128 32 238 33 85 34 96 35 512 36 72 37 178 38 153 39 490 40 204 41 116 42 192 43 348 44 682 45 75 46 585 47 178 48 118 49 146 50 180 51 175 52 269 53 252 54 228 55 589 56 175 57 99 58 152 59 178 60 211 61 1,551 62 190 63 255 64 445 65 483 66 119 67 320 68 147 69 190 70 265 71 129 72 166 73 66 74 613 75 171 76 643 77 482 78 562 79 249 80 223 81 574 82 158 83 110 84 569 85 118 86 171 87 166 88 262 89 534 90 368 91 510 92 374 93 105 94 115 95 330 96 248 97 124 98 348 99 154 100 93

* See exceptions, Page 54

Source: MZ Group. Certain historical data is from Standard & Poor’s Compustat Inc.