The Orange County boys are invading Los Angeles. Securities firm Cruttenden Roth Inc., the prolific initial public offering underwriting outfit based in Irvine, three years ago established Kit Jennings in West Los Angeles to win investment banking business. Now there are eight professionals working with Jennings.
The Jennings crew, along with almost 30 Cruttenden investment bankers down south, were the most active underwriters of $100 million-and-under market capitalization stocks in the country in 1997, according to a recent report issued by Commscan Inc., a New York-based securities research firm. Cruttenden underwrote 32 issues last year.
Not satisfied with its corporate finance inroads into Los Angeles, Cruttenden Roth last week told the Business Journal it has targeted the huge retail stock market trade here as well. The retail trade, in Wall Street nomenclature, is comprised of the ordinary (if wealthy) investors who buy and sell stocks and bonds through stockbrokers.
“We plan to put 20 stockbrokers into Los Angeles in 1998,” said John Marrone, who has been tapped to head Cruttenden’s new incursion here in West Los Angeles. Marrone was previously vice president and resident manager for Merrill Lynch, in its Santa Monica office. In Los Angeles, Cruttenden will target high-net-worth individuals, said Byron Roth, president, chief executive and major shareholder in Cruttenden.
And when Roth says “high net worth,” he means it.
“We try to get each stockbroker up to the level where they have at least $20 million under management. We like to go far higher, of course we have some here (in Irvine) who have more than $100 million under management. But $20 million is the floor we like.”
By that reckoning, the 20 Cruttenden brokers in L.A. will have a minimum of $400 million under management, said Roth. The game plan is to find investors who want to invest in a diversified mix of small- and medium-cap stocks, said Roth and Marrone.
“We have a concentration of efforts in Southern California,” said Roth, referring to the brokerage’s underwriting activities, and the companies for which it raises money. “We think investors should be made aware of these opportunities.”
Hold those sneakers
Sante Fe Springs-based Vans Inc., the sneaker maker, was recently rated a “hold,” by Wedbush Morgan Securities Inc., the downtown Los Angeles brokerage.
Vans has tripped up on Wall Street of late, falling from a 52-week high of nearly $18 a share to under $10 a share in trading last week. Even after the drop, it’s not a “buy,” said Wedbush, whose analyst John Olinski, is worried about Vans sales in Asia, which is in economic turmoil. Too, earnings from overseas will be smaller, when converted into dollars, due to the appreciation of the greenback.
Still, the $181.2 million-in-sales Vans is posting healthy domestic growth, particularly at company-owned retail stores, said Olinski. He estimates earnings per share of 82 cents for fiscal 1998 ended May 31, and 99 cents for fiscal 1999.
If Olinski’s projections hold true, Vans is cheap; the average stock in the S & P; 500 is trading at about 25 times earnings right now, while Vans is trading for about 12 times earnings.
Joseph Di Lillo, who founded Drake Capital Securities Inc. 12 years ago, has signed a letter of intent to merge his 70-person securities brokerage into the 130-person New York-based Paragon Capital Corp., considered the nation’s largest market maker in OTC Bulletin Board stocks.
George Levine, of Paragon, will be chairman of the combined brokerages, which will operate under the name Drake & Co. Inc. Terms were not disclosed; the deal is slated to close in May, following regulatory approvals.
Last week, in brief comments, Di Lillo said he was unsure what his title would be in the ongoing enterprise. “We’ll find out more later,” he said. “All the details haven’t been worked out.”
More investors are turning to mutual funds to build their nest eggs, so it’s good to know there is an absolutely free Web site out there, www.fundalarm.com, which provides excellent commentary and fund rankings. It is maintained by Roy Weitz, Angeleno and investment manager for a foundation.
Weitz appears to have no axes to grind, lists his own investments on the site, and said he earns no money from the project. In his April commentary, Weitz ridicules large-cap active money managers who explain why they can’t beat the S & P; 500 index, or funds made up of the 500 stocks in the index, which are known as “index funds.” “One of the favorite recent excuses goes like this: As money poured into large-cap index funds (in 1997), those funds were required to buy more of the stocks that comprise the index, thereby driving up the prices of the component stocks.
“As prices of the component stocks rose, the value of the index funds rose, drawing more investor money, starting the cycle all over again, and making it all but impossible for active fund managers to compete,” wrote Weitz, who holds a law degree and MBA from UCLA, and is a CPA.
But as it turns out, relatively fewer investor funds were in index funds at the end of 1997 than at year-end 1996, according to industry data, said Weitz. Relatively speaking, index funds are losing investor favor. What has really happened is that the blue-chip stocks continue to outperform everything else, said Weitz, and active managers as a group are having trouble keeping up.
Of course, for decades academic and industry literature has strongly suggested that few, if any, money managers can consistently beat the market.
Fundalarm ranks 1,771 funds, and Web-crawlers can submit their funds to be ranked and become part of the system. So why does Weitz do this? “Mostly, because I enjoy it,” he said.
Contributing reporter Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal.