In O.C.'s Topsy-Turvy Stock Year, It Was Revenge of the Non-Techs
Who would have imagined that at the end of this millennium year Orange County’s leading stock gainers would include a pizza chain, a decades-old thrift and a pair of old-line title insurers?
But that’s what this topsy-turvy year brought for stocks in the county and across the nation.
While shares of companies like Downey Savings & Loan parent Downey Financial Corp. hit all-time highs this year, some of the county’s most promising tech firms--including chip makers Broadcom Corp. and Conexant Systems Inc.--were hammered by disenchanted investors who mercilessly lighted a match to paper wealth of many new-economy companies.
New-media firm Bluetorch closed the year slashing staff. Shares of Buy.com fell to less than a buck. Even football great Joe Montana, who was enlisted as a business advisor to SportsHabitat.com, couldn’t help this Lake Forest sporting goods and memorabilia company from going under.
“As far as stock performance this year, it was an unmitigated disaster, there’s no question about it,” said Mark Lorimer, chief executive of Autobytel.com Inc., the online car dealer that lost 84% of its market value this year.
The silver lining is that the Bloomberg Orange County Index, which tracks 125 of the largest local public companies, still ended up 8% higher this year, after surging a record 66% in 1999.
By comparison, the broader Standard & Poor’s 500 lost 10% this year, and the tech-laden Nasdaq composite index lost 39%. Meanwhile, the Dow Jones industrial average finished the year down 6% from last year.
Of Orange County stocks, 43 gained ground this year while 65 lost value. That excludes companies that went public this year.
Tech companies, of course, still dominate Orange County’s stock market.
They accounted for most of the 10 companies that collectively raised $1.4 billion in new stock offerings this year. Among those that previously went public, Newport Corp. was the top stock performer in 2000 with a whopping 415% gain. And at year-end, Orange County’s five leading tech firms--Broadcom, Conexant, Emulex Corp., QLogic Corp. and Powerwave Technologies Inc.--represented more than 40% of the value of all the companies on the index.
But in many ways, this year saw the revenge of the traditionalists. After two prior years of public fascination with Internet stocks, this year marked the return to industries and sectors with stronger fundamentals.
“I believe the investor is once again turning to core investment principles,” said Dennis Beal, chief financial officer of Corinthian Colleges Inc. in Santa Ana, which moved Friday into second place among the county’s top percentage gainers. “And those principles are real revenue, real growth and real earnings.”
Indeed, six of the 10 best performing stocks in the county were such not technology companies but more traditonal ones as Fidelity National Financial Inc. and Chicago Pizza & Brewery Inc., which operates a chain of casual restaurants.
“I can tell you I’m getting more respect at home,” quipped Paul Motenko, co-chief executive of Chicago Pizza in Huntington Beach. “My kids don’t laugh at me anymore.”
If only Orange County investors could laugh away this year.
Frank Ellis of Newport Beach figured his tech-laden portfolio lost about 40% of its value since March. But he still considered himself lucky.
“I know people who are down 70% to 80%,” said the 40-year-old executive at Ernst & Young.
Many sickened investors have sought help from financial counselors and therapists. Those therapists, taking more calls lately, say such patients have lost a general sense of security and no longer have a rosy outlook about the future.
“This is not neurotic; this is healthy grieving,” said Newport Beach psychologist Paul Whittemore.
To be sure, the year had its share of tech winners. Top performer Newport Corp. in Irvine, which makes equipment to build semiconductors and fiber-optic parts, tapped its boosted stock recently to buy one of its suppliers, Kensington Laboratories Inc., a maker of robotic equipment.
Also finishing in the top five performing stocks were Microsemi Corp. and Powerwave. But the gains in these and some other tech issues were overshadowed by dramatic declines at Broadcom, Conexant and a host of Internet companies.
For most of this year, Broadcom, the communications chip designer in Irvine, continued to enjoy its mythic rise since going public two years ago. But by fall, it had made a humbling return to Earth.
After becoming Southern California’s most valuable tech company last summer, and drawing on its stellar stock price to acquire a dozen companies this year, Broadcom saw its stock price lose half its value in November after its major customer, Cisco Systems Inc., said it would cut back on orders. Broadcom’s share price closed Friday at $84, down $9.13 for the day and a far cry from the all-time high of $273.63 a share in late August.
The huge swings made co-founders Henry T. Nicholas III and Henry Samueli the richest Southern Californians, worth about $10 billion each in September, according to Forbes magazine. Today, their stakes are worth just under $3 billion each.
Cross-town rival Conexant has followed an even more stomach-churning path this year. Shares of the Newport Beach chip maker plummeted 88% from its yearly high of $124.42 in February to the mid-teens this week. The stock surged briefly in September, when the company said it plans to spin off its fastest-growing unit, the Internet infrastructure business, with an initial public offering in late January.
Among other tech companies faltering this year were EMachines Inc., a low-cost computer maker in Irvine. Last week, it said it has been warned by Nasdaq that it could be removed from the exchange if the minimum bid for its shares doesn’t hit at least $1 a share for 10 consecutive trading days before March 20. EMachines closed Friday at 38 cents a share.
Struggling Internet company Tickets.com Inc., which landed at the bottom of the losers’ heap this year, has been making some “pretty hefty cuts,” spokesman Randall Oliver said. The company, which started the year with 655 employees, has since trimmed its ranks 31%.
The market slide wasn’t confined to tech.
Sportswear designer Mossimo Inc., which moved its headquarters from Irvine to Santa Monica this year, lost its slot on the New York Stock Exchange when it failed to meet some of that market’s financial requirements, such as having a total market capitalization of at least $50 million.
And Irvine-based First Alliance Corp., which was criticized publicly for allegedly “predatory” lending tactics, was booted off the Nasdaq because of the uncertainty over the mortgage lender’s bankruptcy filing. The company closed its doors and said it is liquidating its assets.
“Many investors have learned that picking stocks is not as easy as they thought it was,” said Steven Hendlin, a clinical psychologist in Irvine who has written about online investing.
Year-end economic forecasts for Orange County have been generally upbeat, despite some gloomy projections for the national economy. But some economists also see problems ahead for the county. UC Irvine economist Dennis Aigner said the surge in electricity and gas prices will squeeze profits in the coming year.
“It’s the little guy on the corner as well as some big companies that are going to get hammered,” he said. Aigner also predicted some “serious” layoffs in the next four to five months.
Anil Puri, dean of the School of Business and Economics at Cal State Fullerton, said that in the near term Orange County will probably hit some bumps, including a slightly higher unemployment rate, but should right itself by the middle of next year.
“There’s no evidence for doom and gloom,” Puri said. “I don’t know why people are panicking.”
With the strong economy cooling, venture capitalists may be more stingy with their investments in local start-ups, a major engine for area job growth and innovation in recent years, said Wallace Walrod, a vice president at the Orange County Business Council.
Earlier this month, Crosspoint Venture Partners, a prominent investment fund, abandoned plans for a $1-billion fund because of a perceived shortage of viable investment opportunities. Crosspoint, which has an Irvine office, has invested in such high-tech companies as Ariba and Juniper Networks.
On the upside, local biotech and medical products upstarts will fare well in the venture capital sweepstakes, Walrod predicted.
“People don’t stop getting sick, even if the economy does,” he said.
Specialty pharmaceutical company Allergan Inc.'s stock has nearly doubled since January. The Irvine firm’s profits and sales rose 16% and 13%, respectively, in the first nine months this year. Its strong performance was fueled by Botox, its star drug, and glaucoma drug Alphagan, the company said.
It is the county’s second-largest company by market capitalization behind Broadcom.
Newport Beach resident Stacy Kaplan is a biomedical stock investor who broke even in the market this year. The 30-year-old marketing manager for Schick, who favors blue-chip pharmaceutical companies such as Pfizer, said she has no plans to liquidate her $100,000 stock portfolio despite the market’s gyrations.
“What goes up goes down, and what goes down goes up,” Kaplan said. “What’s happening is completely normal.”
It is also warmly welcomed by some companies that have been waiting patiently for their fortunes to turn.
Foothill Ranch-based Oakley Inc. also hit the top 10 list of percentage gainers this year. Though the stock price has pulled back recently, hitting a three-month low of $13.50 on Friday, it still is up 143% for the year.
“The stock price increase is a boost to employee morale and shareholder morale,” said Link Newcomb, the chief operating officer. The company bought back $20 million of its stock earlier this year when the share price was in the single digits and said recently it will spend up to $20 million to buy back more.
Times staff writer Karen Alexander contributed to this report.
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A Wild Ride Through 2000
Stocks of Orange County companies shot up twice this year, only to plummet both times. The Bloomberg Orange County Index which tracks 125 public companies, gained 8% for the year.