At the beginning of this year, most investors just hoped to get through 2009.

Then an odd thing happened. The economy, though weak, didn’t fall off a cliff. In fact, it recovered ever so slightly.

But the investment story of 2009 turned out to be one of – surprise, surprise – solid gains, as stock buyers pounced on any sliver of good news.

A year removed from hitting its lowest level in more than five years, the LABJ index of 200 local stocks grew by 21 percent. That’s not as great as the tech-heavy Nasdaq’s nearly 40 percent gain, but roughly on par with the S&P 500 and the Dow Jones industrial average.

“If you look at where we were at the end of last year and the beginning of this year, we were staring into the financial abyss,” said Rich Barnett, chief investment officer for the western region at wealth management firm Northern Trust Corp. “Very few people would have predicted such a strong recovery in the markets.”

The markets, in fact, kept dropping early in the year and didn’t reach their nadir until the beginning of March. But then the gains started coming, really taking off when investors were buoyed by surprisingly strong second quarter earnings.

A string of local bellwether stocks – including aerospace titan Northrop Grumman Corp. and oil and gas developer Occidental Petroleum Co. – reported quarterly increases in revenue and profit. Not coincidentally, both saw their shares rise by more than 20 percent by the end of this year. (All share prices in the article are as of Dec. 16.)

The gains also were broad, lifting the share prices of companies in industries from apparel to entertainment to restaurants as businesses that went through wrenching cost cuts and layoffs began to show healthier balance sheets and turn some profits.

Then, of course, there were the dead weights, not the least of which were the multitude of local banks that literally fell to penny stock status. Those that managed to escape seizure – the count of local banks closed by regulators reached four by mid-December – were pummeled by investors as bad residential and, increasingly, commercial real estate loans took their toll.

So the larger looming question remains: Are the green shoots of the recovery real or just a mirage?

“This year was all about breathing the sigh of relief that maybe the worst is over,” said Dennis McCarthy, president of West L.A. financial services firm Aries Management Inc. “But the fear is that it’s not.”

Booming industries

Still, as the economy righted itself, investors plunged into some industries almost with abandon.

The new federal focus on health care is expected to power growth in the medical devices and biomedical industries, which should help companies such as MannKind Corp., the Valencia pharmaceutical company headed by billionaire Alfred Mann. The company is trying to be the first to market with an inhaled insulin drug, and investors rewarded progress it made on that front by boosting its stock more than 150 percent.

And as consumers cut back on expensive trips and vacations, they turned to television, DVDs, video games and theaters to entertain themselves, with media companies benefitting.

El Segundo’s DirecTV, formerly DirecTV Group Inc., saw its stock price leap 44 percent as more subscribers cut their cable boxes in favor of DirecTV’s cheaper satellite dishes. The company also absorbed some of the cable networks of John Malone’s Liberty Media Corp., which created a larger, more diverse company.

A record box office year gave a leg up to movie companies that in 2008 saw their share prices slide as movie attendance dropped. The box office already hit $9.8 billion as of mid-December, higher than the $9.6 billion Hollywood studios brought in last year. One of the big winners: Glendale’s DreamWorks Animation SKG Inc., which produced the hit “Monsters vs. Aliens.” Its shares shot up 58 percent.

Technology was another winner in 2009 as investors rushed to put their money into companies with healthy balance sheets and relatively little debt. As a result, they ended up pouring billions of dollars into well-capitalized businesses that are involved in IT infrastructure, electronics and computer chips.

Camarillo power-conversion device maker Power-One Inc., for instance, got a whopping 266 percent boost to its shares given its $353 million in assets but only $88 million debt load. Investors regarded such companies as relatively safe harbors during an uncertain time, analysts said.

Surprising winners

The list of winners had some surprising names. For example, premium sporting goods retailer Sport Chalet Inc. saw shares spike 489 percent to make it one of the year’s big winners. (See related story on page 5.)

The La Canada-Flintridge company, known for its high-quality but pricey merchandise, saw its stock fall below 50 cents early in the year, but rebounded as quarterly losses grew narrower.

Shares in designer clothing companies, such as Guess Inc., also leaped upward.

Why? Investors got the sense that these companies have absorbed the worst of the recession and are poised for future growth. And while their earnings haven’t necessarily bowled anyone over, success is now measured differently.

“Saying your revenues are flat or only up slightly doesn’t sound like much,” said Christine Chen, retail analyst with Needham & Co. in San Francisco. “But in this environment, flat’s the new up.”

Another surprise: Restaurant stocks such as DineEquity Inc., operator of the IHOP and Applebee’s chains, and Cheesecake Factory Inc. saw gains. The companies were pummeled when diners left en masse after the financial collapse, but the chains saw their stock prices double, or nearly so, after introducing lower-priced dishes.

This year also saw the return of blockbuster deals, most notably the Walt Disney Co. announcing that it would buy comic book powerhouse Marvel Entertainment Inc. for $4 billion. The deal adds superheroes such as Spider-Man to Disney’s already formidable stable of marketable characters, and opens up an array of revenue possibilities in its films, TV and games. Disney stores may get a boost from all the new Marvel merchandise they can sell. Investors sent shares in the Mouse House up 43 percent.

And one of the most promising signs that the tentative recovery is real: Companies are either raising money from the markets or testing the public waters for the first time.

In a three-month span over the summer, several banks, real estate investment trusts and clean energy outfits raised more than $1 billion through equity offerings. Meanwhile, Westlake Village produce giant Dole Food Co. went public and City of Industry online computer peripheral retailer Newegg Inc. filed plans to do so.

“We’re seeing a bit of a rush of IPOs,” Kathleen Smith, principal with Renaissance Capital in Greenwich, Conn., told the Business Journal in October. “You’d have to go back to 2007 to see this level of activity.”

Still reeling

Of course, not every company rode the rebound to financial recovery.

Real estate companies are still reeling from the nosedive in property valuations, and it’s reflected in their stocks. Meruelo Maddux Properties Inc., downtown L.A.’s largest property owner, even filed for bankruptcy and saw its share price crash 97 percent.

Then there’s the banks. Preferred Bank, Cathay General Bancorp, First California Financial Group Inc. and Hanmi Financial Corp. all saw their shares fall by double-digit percentages.

The road to recovery for struggling banks could be tough. Investors are skittish about $1.5 trillion in bank loans nationwide that are tied up in commercial real estate. Some anticipate that those loans will default at devastating rates, which could send the economy back into a tailspin. And Southern California banks tend to have an outsized number of commercial real estate loans on their books.

“This is kind of the trillion-and-a-half-dollar question,” said Kendall Raine, executive managing director at Marshall & Stevens Inc. in downtown Los Angeles. “When’s the sun going to come out? I don’t think I have an answer to that.”