Investors until recently had been side-stepping sound companies with proven track records, opting instead to pour their money into high-growth companies with huge losses.
And they certainly took that approach with L.A.-area companies in 1999.
For example, En Pointe Technologies Inc., an Internet technologies provider, suffered a net loss of $16.6 million for the year while its stock shot up 335.7 percent. And MRV Communications Inc. saw its stock soar 916 percent over the year while it posted a net loss of $12.9 million.
At the same time, investors seemed relatively uninterested in profitable companies. Teledyne Technologies Inc., which was spun off as a separate public company last year, had the best return on equity among L.A. County-based companies. It closed 1999 with its stock selling for a modest $9.44, up less than $1 from its level right after the November 1999 spinoff. In addition, Newhall Land & Farming Co., which had the second-highest ROE, saw its stock price climb a mere 3.8 percent.
Indeed, the trend in L.A.-based stocks was a microcosm of the way the overall market behaved last year. With the Internet the hottest thing to hit since the car, investors clamored for hyper-growth stocks regardless of company fundamentals.
But the Nasdaq turmoil of the past few weeks has cooled things off. More and more investors seem to be trading overvalued tech stocks for shares in companies that actually show a profit. And as investors become more conservative, L.A.’s tech companies are unlikely to see the kind of stock jumps that characterized 1999.
“It was a crazy market, full of speculation,” said Bryant Riley, president of B. Riley and Co. “I don’t think we’ll ever see anything like last year again. We’ve seen a reverse already in the market as a whole. At the end of the day, valuation matters.”
Tech frenzy
As expected, the stocks that had the most meteoric rises in 1999 were from the technology sector. Ortel Corp., which designs and manufactures laser transmitters and receivers used in fiber-optic networks, saw its stock climb 1,271 percent from $8.75 to $120 in 1999. Most of that rise was due to the efforts of Chief Executive Stephen Rizzone, who in six months transformed the sluggish Alhambra outfit into a telecom star that was bought by Lucent Technologies Inc. in February for $3 billion.
But Ortel’s ROE didn’t quite match its stock rise. The firm posted a net loss of $700,000 in 1999 and had a negative 0.9 percent ROE.
While Ortel shows promise of producing a profit in the near future, Wall Street seems to be losing interest in companies with less-solid prospects.
One illustration is Acacia Research Corp., an Internet incubator whose stock appreciated 584 percent in 1999, closing out the year at $29.94 a share. Meanwhile, it posted an $8.2 million net loss and an ROE of negative 18.1 percent. But in the recent Nasdaq shakeout, Acacia’s stock price has tumbled, hitting $19 a share last week.
A similar trend has been prevalent among other top 1999 gainers so far this year. MRV closed out the year at $62.88 a share after peaking in March at $194.87. Last week, it was trading at about $59.
Of L.A.’s top 10 stock gainers, only two companies actually turned a profit. The stock of Gemstar International Group jumped 397.8 percent on a 40.2 percent ROE, and Guess Inc. saw its stock climb 352 percent on an ROE of 31 percent.
Still, Wall Street has not been overly generous in rewarding those companies in recent months. Thus far this year, Gemstar, a Pasadena-based company that develops technologies for video delivery, has seen its stock plummet from a March high of $107.44 to around $42 last week. Guess’ stock, on the other hand, has climbed steadily from a 1999 close of $21.75 to $28.56 as of last week.
“The market last year was built on hopes and dreams rather than reality,” said Frank Baxter, chairman and CEO of Jefferies & Co. Inc. “People are going to start returning to Old Economy companies.”
The exception
Of the top 10 ROE companies, pharmaceutical giant Amgen Inc. closed the year with the highest market capitalization in Los Angeles $61.1 billion, up 129.8 percent for the year.
The Thousand Oaks-based company was buoyed by the general enthusiasm for biotech stocks in 1999, but it also qualified as a solid company with eight drugs well on their way to Federal Drug Administration approval.
The company was so successful in 1999 that it surpassed perennial market-cap leader Walt Disney Co., which closed the year with a market value of $53.8 billion.
“Amgen’s a great little company that’s growing faster than Disney,” said Riley. “It doesn’t surprise me that Amgen surpassed Disney in market cap, but I’m willing to bet Disney will be back on top this year.”
Disney had a slightly rough 1999 with unexpectedly poor showings from once-reliable divisions. But the success of ABC’s “Who Wants to Be a Millionaire?” and a strong performance by several Disney films has lifted the stock from its Dec. 31 close of $29.25. Last week, its shares were trading at $40.50 apiece.
Both Disney and Amgen reflect what analysts predict will be a growing trend of investors moving their money to companies with solid financial returns.
For example, the relatively unsexy Northrop Grumman Corp., which builds surveillance and radar equipment, closed 1999 with an ROE of 14.8 percent and net income of $483 million, the sixth highest net income among L.A.-area-based public companies.
Since January, Northrop’s stock price has steadily risen, trading last week at about $70, up from its Dec. 31 close of $54.06.
“L.A. has a number of profitable companies,” said Baxter. “I think the market will move to those companies accordingly.”
Top 1999 Gainers
Price Price %
Company Name 12/31/98 12/31/99 Change
1. Ortel Corp. (ORTL) $8.75 $120.00 1271.4%
2. MRV Comm. Inc. (MRVC) 6.19 62.88 916.1
3. Acacia Research Corp. (ACRI) 4.38 29.94 584.3
4. J2 Communications (JTWO) 2.13 14.25 570.6
5. Right Start Inc. (RTST) 4.13 21.00 409.1
6. Gemstar Int’l. Group (GMST) 14.31 71.25 397.8
7. Guess Inc. (GES) 4.81 21.75 352.0
8. En Pointe Technologies (ENPT) 6.31 27.50 335.7
9. Diodes Inc. (DIO) 5.00 21.50 330.0
10. JB Oxford Holdings Inc. (JBOH) 1.81 7.69 324.3
L.A.’s Most Valuable Public Companies
Company Name 1999 Mkt. Value ($ mil.)
1. Amgen Inc. (AMGN) $61,137.6
2. Walt Disney Co. (DIS) 53,846.0
3. Hughes Electronics (GMH) 41,174.4
4. Atlantic Richfield Co. (ARC) 27,943.7
5. Infonet Services Corp. (IN) 12,327.5
6. Univision Communications Inc. (UVN) 10,390.1
7. Edison International (EIX) 9,771.7
8. Computer Sciences Corp. (CSC) 8,782.5
9. Unocal Corp. (UCL) 8,136.9
10. Occidental Petroleum Corp. (OXY) 7,956.2
11. Avery Dennison Corp. (AVY) 7,197.0
12. Vitesse Semiconductor Corp. (VTSS) 6,666.8
13. Mattel Inc. (MAT) 5,533.5
14. Homestore.com Inc. (HOMS) 5,211.5
15. Wellpoint Health Network (WLP) 4,337.4
16. Countrywide Credit Industries Inc. (CCR) 4,265.4
17. Times Mirror Co. (TMC) 4,002.4
18. Northrop Grumman Corp. (NOC) 3,769.2
19. Gemstar International Corp. (GMST) 3,729.1
20. Metro Goldwyn Mayer Inc. (MGM) 3,562.0
21. Ticketmaster Online-City Search (TMCS) 3,193.3
22. Etoys Inc. (ETYS) 3,139.2
23. Litton Industries Inc. (LIT) 3,132.3
24. Public Storage Inc. (PSA) 3,083.8
25. Netzero Inc. (NZRO) 2,822.8
Worst 1999 Losers
1. Bonded Motors Inc. (BMTR) $4.38 $0.75 -82.9%
2. Total Renal Care Holding (TRL) 29.56 6.69 -77.4
3. Protection One Inc. (POI) 8.56 1.94 -77.4
4. Creative Computers Inc. (MALL) 31.75 7.31 -77.0
5. E4L Inc. (ETV) 10.69 2.50 -76.6
6. Aames Financial Corp. (AAM) 15.94 3.75 -76.5
7. Tarrant Apparel Group (TAGS) 39.75 9.63 -75.8
8. Fremont General Corp. (FMT) 25.19 7.38 -70.7
9. Avenue Entertainment Group (PIX) 2.13 0.63 -70.6
10. Retrospettiva Inc. (RTRO) 3.88 1.28 -66.9
