Area Showing in ’99 Stock Market Lacks Shine
MRV Communications Inc., a Chatsworth-based networking equipment company that hovered near penny-stock territory in the spring, flew past all comers to post an eye-popping 897% increase in share price in 1999.
Count that as one of the few cases in which a San Fernando Valley-based public company hit the kind of nosebleed heights reached by companies in the broader stock market during a very atypical 1999.
MRV, which attracted Wall Street’s attention by hinting that it will spin off one of its fastest-growing units, ended the year with a share price of $62.88--the second-highest share price of any of the 73 publicly traded companies tracked by The Times Valley Edition.
Aside from one penny stock that posted a gain of 883%, no other Valley-area based companies saw the kind of stratospheric percentage gains that made headlines nationwide and sent even casual investors scurrying to snap up shares of companies like San Diego-based Qualcomm (up more than 2,620% for the year).
In fact, the 10 biggest gainers among small and mid-cap stocks on the Nasdaq posted share-price gains above 1,000%. And, closer to home, the top 13 stocks on the California Index tracked by Santa Monica-based Wilshire Associates enjoyed percentage growth that swelled past 1,000.
Is this yet another Valley slight? A rousing run-up enjoyed by everyone except us?
Yes and no.
Analysts were mixed on what accounted for the Valley’s apparent lack of star power during this most stellar year, with some saying much of the blame can be placed at the feet of a small mouse who carries big sway--Disney.
Others said the Valley picture was in line with the broader performance posted by similarly sized companies nationwide.
“There were an awful lot of stocks that did extremely well, but more than half were below zero,” said David Archibald, managing director of research for the Red Chip Review, noting that of 6,400 small and mid-cap stocks tracked by the company, more than half saw a drop in share price during the year.
“We’ve kind of been in a trend for a few years where the bulk of the market performance has come from a relatively few stocks,” he said.
Either way, those looking for quadruple-digit gains for the year among Valley stocks are likely to be disappointed.
As they say in baseball, wait till next year.
Of the 73 companies, 30, or 41%, saw share price gains for the year, two companies were flat and 41 companies (56%) posted declines.
According to Archibald, that’s about the same pattern seen among the smaller stocks his company tracks.
“In my universe of 6,400 stocks, 45% were up for the year. Yours is slightly worse,” said Archibald. “But you’re close enough that if you had a couple switch signs you’d be right there. It’s a hair worse, but it’s roughly in line.”
One of the big differences between this Valley and that other Valley farther north is the presence of technology, the red-hot sector that helped the tech-heavy Nasdaq post an 85% gain for the year.
Although most Valley stocks trade on the Nasdaq, most Valley firms are in conventional fields like consumer goods and finance.
Most of the year’s biggest Valley gainers were, at least in part, technology related. The No. 2 gainer for the year was Woodland Hills-based Vertel Corp., a maker of equipment that runs telecommunications networks. The company gained 249%, ending the year with a share price of $5.44, less than half of its share price high for the year.
Its shares shot up more than 200% in early December, when the company announced that it would begin shipping a new product--E-Orb--an object management platform used in high capacity optical switches.
Third in line was Hawker Pacific Aerospace, a Sun Valley-based firm that repairs and overhauls landing gear, braking systems and other components for the aerospace industry. During the year, the company announced several major multimillion-dollar contracts to perform work on planes for Asian carriers.
Next up: Burbank-based Align Rite International Inc., which makes “photomasks,” precision plates used by the semiconductor industry to help transfer circuit patterns onto silicon wafers. The company has agreed to merge with rival Photronics Inc. of Jupiter, Fla.
Rounding out the top five is Four Media Co., a Burbank-based company that serves one of Hollywood’s major post-production shops. In December, the company announced a definitive agreement to sell all of its stock to Liberty Media Group, a subsidiary of AT&T; Corp.
Noticeably absent from the top five were the Valley’s heavy-hitters, household names with market caps more than 10 times that of most of the region’s public companies.
Walt Disney Co., the Burbank-based entertainment behemoth and the Valley’s largest publicly traded company, lost 2.5% to end the year with a share price of $29.25. For the fourth quarter, the company gained 12.5%.
But even the momentum gained late in the year was not enough to reverse essentially a yearlong slide in share price. And, with its $60 billion-plus market cap, as Disney goes, so goes the index of Valley stocks.
“On a market-weighted basis, the [Valley] index lost 6.1% for the year, and Disney would be a big chunk of that,” said Kevin McGowan, who tracks California stocks for Wilshire Associates. “Walt Disney is more than 70% of the index itself.”
McGowan also noted that some stalwart Valley business sectors--most notably finance--also took a hit in broader indices. For example, in the Wilshire 5000 index of more than 7,000 domestic-based companies, the financial sector lost 1.5%, but the supercharged technology sector gained 77% for the year.
That helps explain the 50% drop by shares of Calabasas-based Countrywide Credit Industries, the biggest U.S. non-bank mortgage lender and the Valley’s second-largest public company, based on market cap. The company closed out the year with a share price of $25.25, just a hair above the 52-week-low of $24.63. It lost 21.71% for the quarter.
Of the Valley’s seven large and mid-cap companies (with market capitalization above $1.5 billion) only two posted gains for the year: MRV and biomed standout MiniMed, which is moving its headquarters to Northridge from Sylmar.
Noam Lotan, MRV’s president and chief executive officer said he’s “delighted” at the escalation of the share price and says he’s felt for some time that the stock was undervalued by Wall Street. And although the stock price has slipped somewhat recently, closing Monday at $56.25, Lotan thinks it’s still undervalued.
He said he thinks part of Wall Street’s favorable reaction to the company these days is its focus on technology with Internet applications. The company increased its spending on research and development by more than $25 million and is looking to invest in promising Internet start-ups that may at some point go public.
But the plan that has most captured investor attention is the move, coming likely within the next six months, to spin off the company’s fast growing optical access business, which currently accounts for 25% of MRV’s revenue.
The announcement lured in enough investors to push the company’s market cap from $164.6 million on Dec. 31, 1998 to $1.89 billion last month.
“That’s quite a jump,” Lotan said.
The company ended 1999 with a greater market cap than insurer Twentieth Century, Foundation Health Systems and Dole Food Co.
As a practical matter, however, more than 70% of the Valley’s publicly traded firms have market caps below $250 million. So in a market-weighted index, their performance makes barely a blip.
What must the San Fernando Valley do in order to hop onto this fast-moving market train?
Easy, just get more tech.
“With so many start-ups . . . and with more and more technology companies migrating to Southern California, that will have a lot of potential for the Tech Coast,” said McGowan.
“That could be a big boon for your region.”
Valley@Work runs each Tuesday. Karen Robinson-Jacobs can be reached at Karen.Robinson@latimes.com.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
MRV Communications
Charting share price: This Chatsworth-based company which makes computer networking equipment, saw its share price rise 89.7% in 1999.
Jan. 4: $6.31
Dec. 31: $62.88
* Source: Bridge Information Systems.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Biggest Gainers and Losers
For San Fernando Valley-area public companies whose shares traded at $5 of above on Dec. 31.
* Source: Bridge Information Systems
