JASON BOOTH
Staff Reporter
L.A.’s best-performing companies on Wall Street between now and the end of 1999 are likely to be of the larger, conservative stripe.
According to a Business Journal survey of local investment advisors and money managers, Walt Disney Co. is considered the one L.A.-area stock to watch.
Burbank-based Disney has traded sideways over the first half of the year amid a barrage of bad news, ranging from lower sales at retail outlets to the high-profile legal battle with Jeffrey Katzenberg.
“Disney is almost through with its consolidation,” said Daniel Genter, president of RNC Capital Management in West Los Angeles. “In terms of earnings momentum, they are getting back on track.”
And the stock has plenty of room to grow, currently trading for around $29, down from the $40 level at the start of 1998.
Other local stocks that are expected to do well not only have sound management and strong products, but should be impacted by positive economic factors, both domestically and overseas.
In particular, investment advisors point to Jacobs Engineering Group, which they say will benefit from the recovery of the Asian economy.
“This company has good cash flow, stable profits and low leverage,” said Chris Orndorff, principal at Payden & Rygel in downtown L.A. “And I think their construction profits are going to be strong as Asia recovers.”
Countrywide Credit Industries Inc. was another popular pick. With housing sales remaining strong, the mortgage lender will continue to see its business grow.
Rising wages and a lack of new product, especially in California, are expected to keep the residential real estate market humming even if the Fed eventually raises interest rates. And Countrywide remains a relative bargain, trading at a price-earnings multiple of 12.4.
Despite the negative news surrounding Hughes Electronics’ relations with the Chinese government, investment advisors are confident that the satellite maker’s stock will be carried higher by the ongoing communications revolution.
“They have a near lock on the business of building satellites for television broadcasting,” said Bruce Mandel, president of Oakwood Capital Management in Century City. “They are in the right business going into the new millennium.”
Avery Denison Corp., meanwhile, which is a leading producer of office products ranging from mailing labels to self-stick stamps, is considered a pure play on the strong U.S. economy.
So much for the good news. A number of well-known local companies are expected to fall or remain flat during the second half of the year.
Mattel Inc., in particular, has not come to grips with two key problems the declining popularity of its flagship Barbie doll line, and weakness at its leading retail customer, Toys ‘R’ Us.
“It seems to be one problem after another,” said Todd Morgan, president of Bel Air Investment Advisors LLC in Century City. “Barbie sales are down, they have lost some key executives and their inventory is backed up.”
Meanwhile, Northrop Grumman Corp. has failed to diversify into the commercial aerospace sector. “Defense is accounting for too much of their revenue,” said Genter. “They really have to merge in order to be a valuable entity.”
Two of the companies on the sell list face growing competition from bigger rivals.
Financial advisors praise the management of 99 Cents Only Stores. But as the discount chain tries to expand into the suburbs, it faces increased competition from cut-price giants such as Wal-Mart. That could put pressure on its high-flying stock, which has risen from $10 in early 1997 to its current level of around $47.
Creative Computers Inc., the Torrance-based direct marketer of computers, also faces tough competition, both from Dell Computer Corp., which is the nation’s largest direct marketer of computer products, and from the growing number of discount computer retailers operating via the Internet. Creative Computers is trading at a rich multiple of 30 times earnings.
Having seen its share price rise from just under $5 at the start of the year to $13.50 last week, Guess Inc. is due for a correction, money managers predict. They note that the company’s earnings in 1998 were down nearly 50 percent from earnings in 1996.
