Volatile Year Ends on Same Note
After a tumultuous, roller-coaster ride on Wall Street, Orange County stocks generally gained ground in 1998 for the fourth year in a row.
A core group of technology stocks, many with ties to the Internet or communication devices, surged to new heights. Wrapping up a phenomenal year, Broadcom Corp. in Irvine led the Bloomberg Index of Orange County stocks, soaring 403% since the chip maker’s stock debuted in the spring.
Eight other companies saw their shares jump at least 90% for the year.
But some of 1997’s hottest stocks, such as MTI Technology Corp. in Anaheim, flopped as nervous investors searched for safer--or sexier--offerings.
Facing the Asian economic crisis, falling oil prices, a more competitive health care industry, and diminishing margins in the cyclical computer hardware peripherals industry, some Orange County companies got hit from all sides.
By the end of the year, many local stocks had rebounded, and the Bloomberg index of 142 county stocks showed a 6.8% gain. Still, the index failed to keep pace with both the broader Standard & Poor’s 500 and Nasdaq composite indexes, which gained 27.4% and 38.7% respectively. The Dow Jones industrial average was up 17.5%, its fourth consecutive annual gain as well.
For 1998, the buzzword of choice was the Internet. Having seen shareholders reap incredible gains in many of the first Net-related companies, intrepid investors were staking their claims in this Wall Street gold rush.
As the bandwidth bottleneck begins to open, consumers and corporations are hungry for devices that will deliver the long-promised menu of rich multimedia content. Enter Broadcom, the well-positioned Irvine firm that develops chips for Internet access by satellite, cable modem and digital subscriber line technology. The company also sells chips for high-speed networking on ethernet local-area networks.
The company had sales of nearly $37 million in 1997, and could nearly quintuple that amount in 1998. Investors bought into Broadcom and its bright future, blasting past the company’s April initial public offering of $24 and a secondary sale in October at $69. Broadcom closed out the year at $120.75 a share.
Profitability Predicted, Stock Soars 294%
Like all things Internet-related this year, Alpha Microsystems emerged as one of Orange County’s hottest stocks--despite its long history of operating in the red. Its stock jumped 294%, closing the year at $4.19 a share.
Predicting a return to profitability sometime late this year, Santa Ana-based Alpha Microsystems plans to focus its offerings--particularly its push to provide Internet services to businesses--and change its name to Alphaserv.com.
Analysts are encouraged by the firm’s plans to spin off or sell its AlphaConnect business. The intelligence software division, though promising, has been a drain on the company, generating sales of less than $1 million a year.
While Internet stocks grabbed the headlines all year, QLogic and Emulex Corp., two Costa Mesa technology companies doing under-the-hood work, saw their stocks skyrocket in 1998 after a relatively stagnant 1997.
The companies, neighbors on Harbor Boulevard, are developing next-generation technology to move data among computer components. While doubts about the technology, called fibre channel, had been raised in 1997, it began to attract more interest last year. As early developers of fibre channel, Emulex and QLogic stand to benefit. Both companies’ stock prices hit 52-week highs Thursday, with Emulex closing at $40 a share and QLogic at $130.88 a share.
Irvine apparel designer Mossimo Inc. was a big winner, thanks to a recent upward swing. In early December, company founder Mossimo Giannulli announced that he had relinquished half of his stake to former Tommy Hilfiger Inc. chief executive Edwin Lewis, who became Mossimo’s chief executive. Within days of Lewis’ taking the reins, five former Tommy Hilfiger executives left the New York company to sign on with the much smaller Mossimo.
Last year was not a good one for First Alliance Mortgage, the home-equity lender facing a host of legal battles. Several states--including Illinois and Minnesota--have filed suits accusing the firm of of charging excessive fees to refinance loans and using confusing sales pitches to conceal the true costs of loans. And in Northern California, the American Assn. of Retired Persons has joined lawsuits accusing the company of aggressive sales campaigns pitching low-interest loans to elderly homeowners, then imposing fees of as much as 15% of the loan amount.
Reflecting these legal troubles, the Irvine company’s stock price fell nearly 80% last year, closing Thursday at $3.75 a share.
Impac Mortgage Holdings Inc., a Santa Ana Heights real estate investment trust that buys some sub-prime home equity loans to borrowers with shaky credit histories, also stumbled badly in 1998. The slump came after the company announced dismal financial results, which it blamed on the global credit crunch and turmoil in the mortgage securities markets. The company’s shares closed Thursday at $4.56, off 74.5% for the year.
In 1998, dental health plan operator SafeGuard Health Enterprises Inc. moved its headquarters south--and its stock price went in the same direction.
With its health care expenses rising in relationship to its revenues after it lost a key health maintenance organization account, the Aliso Viejo-based firm’s cash on hand was cut in half to $9.3 million and its profits fell almost in half during the first nine months of the year.
The company--whose stock dropped 75.5% last year, closing at $3.31--said it is still feeling the impact of the 1997 acquisition of Advantage Dental HealthPlans Inc.
One Year’s Darling Is Next Year’s Dog
Newport Beach-based InSight Health Services Corp. went from a 1997 darling to a 1998 dog as its stock tumbled 66.2% last year after posting a 216% gain in 1997. The provider of diagnostic imaging, treatment and related management services has in the past year hired a new chief executive, general counsel and senior vice president for development and sales.
The company has been on an acquisition binge to accommodate what it sees as a consolidating industry. But as revenues increased through the buyouts, income declined during fiscal 1998. The company’s earnings have, however, turned upward in the most recent quarter.
MTI Technology’s stock, which more than quadrupled in 1997, hit the skids in 1998. The company, which provides data storage products, has been hit by slow European sales, delays in its product line and a shareholder lawsuit.
While the company remains profitable, analysts expect earnings to drop 57% through fiscal 1999, which ends in March. The stock fell 66% last year, closing Thursday at $4.50 a share.
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Up Again
Orange County stocks, as measured by the Bloomberg Orange County index, rose 6.8% in 1998, the fourth consecutive annual increase. However the index trailed the broader Standard & Poor’s 500 and Nasdaq composite indexes.
12/94: 100.00
4/98: 194.75
12/98: 180.47
Talkin’ Tech
Technology stocks were the big winners in Orange County in 1998, while companies that delivered disappointing news got hammered. Here are the 1998 closing prices and percentage gains/losses for the winners and losers among O.C. stocks selling for at least $2 per share:
Winners
*--*
Broadcom $120.75 +403.1 QLogic 130.88 +343.6 Alpha Micro 4.19 +294.1 Emulex 40.00 +190.9 Mossimo 10.06 +182.5 Quiksilver 30.00 +108.7 First Am. Fin. 32.13 + 96.2 Allergan 64.75 + 92.9 ICU Medical 22.00 + 77.8 Javelin Sys. 15.00 + 69.0
*--*
Losers
*--*
First Alliance $3.75 -79.6 Safeguard Health 3.31 -75.5 Impac Mortgage 4.56 -74.5 InSight Health 6.00 -66.2 MTI Technology 4.50 -66.0 Santa Barbara Res. 3.81 -64.9 Varco 7.75 -63.8 ARV Astd. Liv. 6.13 -61.7 PairGain Tech. 7.69 -60.3 Consumer Port. 3.88 -59.7
*--*
Source: Bloomberg News
The complete list of major Orange County stocks will appear in Sunday Business.
