L.A. stocks ended 2011 fairly close to where they started, but took investors on a wild ride from the beginning to the end.
The volatile year, marked by chaotic and unpredictable swings, was disappointing for many local companies. More than two-thirds of them lost ground, including RealD Inc., a Beverly Hills 3-D projection company; MannKind Corp., a Valencia biomedical firm; and K-Swiss Inc., a shoemaker in Westlake Village. Each ranked among the year’s biggest losers.
With political gridlock in the United States and a destructive debt crisis in Europe, the LABJ Stock Index ultimately lost 4.9 percent as of Dec. 14.
“It was historically volatile,” said Bryant Riley, chairman of West L.A. investment banking firm B. Riley & Co. “A lot of the performance this year has to do with the macro world, whether it’s Europe, whether it’s the deficit. It’s been a very, very difficult year.”
Some stocks managed to do well despite the challenges. Meruelo Maddux Properties Inc., an L.A. real estate developer, was the top local gainer when its shares more than doubled after emerging from bankruptcy; Monrovia lens maker Staar Surgical Co. and L.A. postage company Stamps.com Inc. each had consistently strong years, too.
But those companies, by and large, were in the minority.
Bruce Simon, City National Corp.’s chief investment officer, noted that the year was disappointing.
Coming into the year, he remembered, “we had a more optimistic outlook based upon where we thought the U.S. economy was headed in 2011.”
Up and down
Occidental Petroleum Corp. was one of the many companies that took big swings along with the broader market. The Westwood oil and gas company’s stock performance is closely linked to the price of oil and the direction of the economy.
Its shares were up 10 percent to more than $108 as of July 21, but then went into a freefall, falling as low as $68.58 in early October, down 30 percent on the year. Shares have since climbed back to $88.42, but that’s still off 10 percent for 2011.
Pavel Molchanov, an analyst with Raymond James & Associates Inc. in Houston, said the company’s shares have been adversely affected by the Libyan revolution and other conflicts, but the general market upheaval was a major factor.
“The broader market certainly has influence on Oxy’s share price,” Molchanov said. “The second half of the year has been extremely choppy as the result of a lot of macroeconomic factors.”
Occidental was not the only company subject to market forces.
Walt Disney Co., too, was looking good until summer, at which point the Burbank-based entertainment giant’s stock fell sharply. At $35.16 a share as of Dec. 14, the stock lost 7 percent for the year.
The LABJ Stock Index’s decline was roughly in line with that of the Nasdaq, which dropped 5.1 percent, and just behind the S&P 500, which dropped 3.6 percent. Only the Dow Jones industrial average gained ground, advancing about 2 percent.
The local index plunged 20 percent during just a few midsummer weeks as Congress bickered over raising the debt ceiling, sparking fears of a national default. Though a compromise was struck in early August, Standard & Poor’s still lowered the U.S. credit rating.
Meanwhile, the deepening debt crisis in Europe has caused concern across the globe, resulting in unpredictable and extreme market volatility.
“If you remember back to August … the market was swinging 400 points day to day,” Simon said. “‘Volatility’ has been the major watchword of the year. We’ve seen huge swings this year.”
Own merits
Not every stock was entirely subject to the whims of the market, however.
Stamps.com, which provides postage that can be ordered online and printed from a computer, had a particularly strong year on its own merits. The highly profitable company posted better-than-expected earnings as it increased its profile in the e-commerce realm, partnering with companies such as Amazon.com Inc. and eBay Inc. Also, it’s poised to increase sales amid the closure of post offices across the country. Shares rose 83 percent this year to $24.21.
“The fundamental backdrop has continued to be very challenging,” said George Sutton, an analyst with Craig-Hallum Capital Group LP in Minneapolis who follows Stamps.com’s stock. “They performed extremely well despite that.”
Another stock going against the grain was Staar Surgical. The company received key approvals for its implantable contact lenses, boosting its market share in a growing field. Shares climbed 89 percent this year to $11.50.
Still, Staar and Thousand Oaks biotech giant Amgen Inc. were outliers in an otherwise tough year for the local biomedical sector. Eight of the industry’s 10 stocks on the LABJ Stock Index declined this year, including MannKind, which was one of the worst performing stocks of any kind.
The Valencia company couldn’t recover after the Food and Drug Administration in January required additional expensive studies for its experimental Afrezza inhalable insulin dispenser. Shares are down 66 percent this year to $2.74.
Indeed, a number of local stocks had a disappointing year independent of the overall market. RealD has been in steady decline since May as the public’s interest in 3-D films has waned.
Steven Frankel, an analyst with Dougherty & Co. LLC in Minneapolis who follows RealD, noted that the summer movie season lacked big breakout 3-D hits. Making matters worse for RealD, there don’t appear to any blockbusters in the near future.
“Their business is very tightly related to attendance of 3-D movies,” Frankel said. “At the moment, they’re facing some headwinds.”
Shares have fallen 73 percent this year to $8.75.
Every industry suffered losses this year. K-Swiss, for instance, was one of a number of retailers that struggled with consistently poor earnings.
Shares of the shoe company, which was one of the biggest local losers, fell 78 percent this year to $2.71.
Wide uncertainty
The sustained volatility is causing headaches for market pros.
John Skjervem, senior regional chief information officer for Northern Trust Corp. in Los Angeles, said the traditional way to evaluate stocks – analyzing earnings, for instance – doesn’t work in this environment. Price fluctuations are being driven less by a company’s performance and more by policy and politics, such as the debt negotiations in Congress.
“Nobody’s exactly sure what rules we’re playing with,” Skjervem said. “An entire generation of investment professionals like myself are dealing with an environment that we’ve never seen before. The cone of uncertainty is wider than I’ve ever seen in my 25 years.”
So what is an investor to do?
Simon, of City National, said there are some areas of the market that look appealing. Certain sectors of the fixed-income market, including investment-grade and high-yield bonds, may be less risky than many people think.
“When the markets really got clobbered in August and September, anything that had anything to do with risk were sold off, and probably unfairly so,” he said. “That has created an opportunity for investors.”
He also noted that the so-called fear index, a measure of equity market volatility, has come down lately. As the markets settle, he expects a bit of a rebound in 2012 – but just a bit.
“I think it’s probably going to be an up year, but probably a more subdued return than we’ve expected historically,” he said. “Hopefully, we’ll do a little better than we did this year.”
