Investors Play It Like a Two-Sided Coin : Building Stocks Rise While Muni Bond Ratings Fall

Wall Street wasted no time attempting to cash in on Monday’s earthquake, driving stocks of construction-related companies sharply higher while slamming insurers.

In the municipal bond market, bond-rating agencies cast a wary eye on California issues, on concerns that this latest blow to the state’s economy could cause new financial strife for government.

Meanwhile, Southland investors who were trying to transact business Monday often found themselves stymied, as many local trading desks failed to open and as phone lines in general stayed jammed for much of the day.

For investors intent on buying or selling securities with local brokers Monday, the effort was often an exercise in futility, as local phone calls were impossible for much of the day--if there was anyone on the other end to answer anyway.

Stephen Bache, principal at investment firm Hamilton & Bache in Glendale, said he resorted to trading through out-of-state brokers, where “you might get through once for every three efforts” on the phone.

The largely electronic Pacific Stock Exchange in downtown Los Angeles opened on time--with an emergency power generator--and traded normally all day, said Mike Barth, director of trading floor operations. He estimated that 75% of the staff showed up for work.

But discount broker Charles Schwab said seven of its 13 Los Angeles-area offices were closed Monday. Schwab said local phone calls to closed offices were routed to out-of-state trading sites.

Other than local glass and plywood sellers, the only people to profit substantially from the quake on Monday were owners of such construction-related stocks as Southland highway builder Kasler Holding, which soared 23% on the New York Stock Exchange, and rival Granite Construction, which surged 11% in Nasdaq trading.

Investors were betting that the road builders will reap a bonanza if the state is forced to pay top dollar to rush highway reconstruction, said Richard Rossi, analyst at Dean Witter Reynolds in New York.

But Rossi added that, if the aftermath of other major quakes is a guide, “The market has overdone what this is likely to be worth in business to these companies. Large project work ends up being done a longtime later” than initially thought, he said.

Kasler stock leaped $1.875 per share to $10, while Granite Construction shot up $2.50 to $24.75.

Other big gainers included gravel and asphalt producer CalMat Co., up $2.375 to $24.125; concrete and steel pipe maker Ameron, up $2 to $41.875, and another construction contractor, Guy Atkinson, which jumped $1.125 to $9.25 on Nasdaq.

On the flip side, many property and casualty insurance stocks were losers: Allstate dropped $1 to $28.625, CNA Financial slid $1.75 to $76.25 and Chubb slipped 37.5 cents to $77.375.

Ronald Frank, insurance analyst at Smith Barney Shearson in New York, said the quake damage was likely to be “big enough to screw up some of the companies’ earnings, but not big enough to turn the (pricing) cycle in the industry.”

The property/casualty insurance business has suffered for years from cutthroat pricing, and with every major natural disaster, Wall Street has held is breath hoping that the ultimate outcome would be higher insurance premiums. But Frank doubted that the Southland quake damage would be big enough to push rates up much.

In the short run, some investors also worry about prospects for retailers who are closely tied to the Southland economy. But retailers also should benefit longer term as people replace lost goods and rebuild, analysts noted.

Carter Hawley Hale, parent of Broadway stores, fell 50 cents to $10.375 on the NYSE. Other losers included Nordstrom, down 50 cents to $34.75, and May Department Stores, down $1 to $39.625.

Elsewhere, Walt Disney shares dropped $1 to $46.625, partly on fears of a possible blow to tourism in the Southland, analysts said.

In the municipal bond market, trading desks were mostly not staffed on Monday because of the national holiday honoring Dr. Martin Luther King Jr. As they return today, muni bond analysts said they will be focusing on the health of so-called project-specific California bonds issued to finance individual municipal buildings or other projects that might have been damaged by the quake.

A broader worry is the potential long-term cost to state and local government from the quake--at a time when state and local budgets are already stretched to the limit. After the 1989 Loma Prieta quake in Northern California, the state sales tax was raised, but that damage-financing option may be a tough sell in recession-wracked California today.

Steven Zimmermann, analyst at Standard & Poor’s Corp. in San Francisco, said it’s too early to speculate on possible bond down-gradings. But he noted that “we were a long way from an established (state) budget for next year even before this happened.”