Mergers, Profits Help Stocks Rebound From Crash

A year after the stock market’s crash, the market is trading near its highest levels since the historic plunge occurred, and some San Fernando Valley-area stocks have climbed well above their immediate post-crash levels.

The market, as measured by the Dow Jones average of 30 industrials, gained 23% in the year after the crash, as did the Standard & Poor’s 500 composite index.

Several Issues Have Dropped

But it’s another story for more than a dozen Valley-area issues, which have plunged further from their closing levels on Oct. 19, 1987--the day the market went into a free-fall and wiped out $500 billion of investors’ paper wealth.

Two trends are apparent for the Valley’s biggest gainers and losers since that day: Companies that announced sharply higher or lower earnings saw their stocks respond accordingly, and stocks of companies involved in actual or potential takeover situations have surged since the crash.

Consider Flamemaster Corp. The stock of the Sun Valley maker of sealants and coatings more than doubled in the year after the crash--to $6.375 a share from $2.81--following the company’s disclosure last month that several unidentified parties expressed interest in a possible merger. No definitive pact has been announced, however.

Other Valley companies have been acquired in the past year, or are being taken over, because the crash pushed their stock prices down to levels that suitors found attractive. Those companies include Price Pfister (faucets), Cherokee Group (women’s clothes), Micom Systems (computer gear) and Redken Laboratories (cosmetics).

For instance, Cherokee, a Sunland apparel concern, traded at $22 a share in the summer of 1987 and stood at $14 a share shortly before the crash. But the crash knocked Cherokee down to $6 a share, and an investor group led by some Cherokee executives is buying the company for $14 a share.

But earnings, perhaps the main fundamental measure by which Wall Street values a stock’s prospects, were the key force behind the movement in Valley stocks.

Rising Profits

Tekelec more than tripled in price, to $18 a share from $5.50, in the year since the crash on the heels of steadily rising profits. The Calabasas maker of testing equipment for the telecommunications industry reported earnings of $2.4 million in the first half of 1988, against an $87,000 loss a year earlier.

Likewise, Lincoln Bancorp’s stock rose 89%, to $12.75 a share from $6.75, as the Encino parent of Lincoln National Bank repeatedly posted double-digit gains in quarterly earnings.

And the stock of Superior Industries, a Van Nuys maker of aluminum wheel rims and other auto accessories, jumped 85%--to $20.375 a share from $11--as Superior’s first-half 1988 net income gained 24% to $6.3 million from $5.1 million. The company also has reported strong order rates from the major U.S. auto makers.

“Fundamentals will drive the stock, and our fundamentals have been excellent,� said R. Jeffrey Ornstein, Superior’s chief financial officer. Although the rate of car sales fluctuates, Superior’s orders remain strong because auto makers are putting more aluminum wheel rims on vehicles overall, he said.

But investors had little patience for poor performers, particularly those in the computer equipment business.

The top three losers among Valley stocks were in computer-related fields, and all fell by at least 67% from their crash-day levels: Alpharel and Micropolis, which make data-storage devices, and personal-computer maker Tandon.

Alpharel, a Camarillo company whose stock sank 83% to a meager 87 cents a share from $5.00, lost $6.3 million in the first six months of this year, and has complained of diminishing orders for its equipment. Alpharel’s top management also has suffered from repeated turnover this year.

The stock of Tandon, based in Moorpark, slumped 71% to 75 cents a share from $2.62. Earlier this year it appeared Tandon’s prospects were improving, but two weeks ago Tandon reversed course, saying it expected a “substantial loss� for the third quarter because its European sales--which account for the bulk of Tandon’s business--had softened.

Stock Down 67%

On Monday, Micropolis reported a $12.6-million loss in the third quarter. The Chatsworth company had predicted a substantial loss earlier, blaming increased competition and high manufacturing costs, adding that the problems could affect its performance next year. In the year since the stock crash, Micropolis’ stock fell 67% to $8 a share.

Lower earnings also knocked down some local stocks outside of the high-technology sector. The stock of Olson Industries in Sherman Oaks, a maker of plastic packaging products, tumbled 72% following the crash, to $3.25 a share from $11.50.

Olson got out of the egg business last year to focus on packaging. But packaging hasn’t treated Olson any kinder, largely because the resins that serve as the raw materials for Olson’s packaging goods keep rising in price.

Of course, there were exceptions to the rule that Valley companies’ profits determined the direction of their stocks. Some investors were willing to overlook recent earnings in favor of a company’s long-term prospects.

HOH Water Technology is a tiny Newbury Park development company that has virtually no sales as yet, never mind profits. But the company’s stock was the area’s top performer in the year after the crash, more than quadrupling to $3.96 a share from 87 cents.

HOH is developing a water-purification system for residential and industrial use, and in recent months it has secured financing, lined up distributors and proceeded with the construction of a manufacturing plant in Puerto Rico. HOH expects production to start early next year.

VALLEY’S BIGGEST GAINERS AND LOSERS SINCE MARKET CRASH The charts below list the biggest gainers and losers among San Fernando Valley area stocks since the stock market’s crash on Oct. 19, 1987.

10 BIGGEST GAINERS

Closing Closing Line of Price on Price on Percent Company Business 10-19-87 10-19-88 Change 1. HOH Water Sys Water Sys $0.87 $3.96 +355% 2. Tekelec Telecomm. $5.50 $18.00 +227% 3. Flamemaster Coatings $2.81 $6.37 +127% 4. Lincoln Bancorp Banking $6.75 $12.75 +89% 5. Superior Inds Auto Wheels $11.00 $20.37 +85% 6. Delphi Info Sys Computers $5.12 $9.00 +76% 7. Foothill Group Financial Svcs. $4.75 $8.12 +71% 8. Martin Lawrence Art $6.12 $9.37 +53% 9. HemaCare Medical $1.50 $2.25 +50% 10. Dataproducts Printers $8.87 $13.25 +49%

10 BIGGEST LOSERS

Closing Closing Line of Price on Price on Percent Company Business 10-19-87 10-19-88 Change 1. Alpharel Data Storage $5.00 $0.87 -83% 2. Olson Inds Packaging $11.50 $3.25 -72% 3. Tandon Computers $2.62 $0.75 -71% 4. SFE Electronics $2.50 $0.81 -68% 5. Micropolis Data Storage $24.25 $8.00 -67% 6. ATI Medical Medical Equip. $11.25 $3.75 -67% 7. Digitext Cmptr keybrd $3.50 $1.25 -64% 8. Calif Amplifier Electronics $1.50 $0.62 -59% 9. United Educ’n Career Schools $9.33 $4.00 -57% 10. Perceptronics Simulators $5.87 $2.75 -53%

Source: Communications Research Group, Austin, Texas