Have I Got a Stock for You!

Stuart-James Co. (Denver, Colorado) had reported revenues of under $90 million for fiscal 1990, compared with $114 million in fiscal 1989. It lost a reported $3.7 million in fiscal 1990, compared with a $20-million net profit in 1987. In May 1989, the National Association of Securities Dealers fined Stuart-James a record $2 million for gouging customers, and the Securities & Exchange Commission has charged the firm with fraudulent sales tactics. If found guilty, Stuart-James may lose its license and be barred from the securities business. A number of the firm’s 1990 underwritings have been of companies with minimal earnings and revenues and are significantly overpriced, including NDC Automation, which had reported fiscal earnings of $56,000 in 1989 and was trading at 50 times earnings. The key to success in selling unproven stocks of unproven companies is marketing. Many of the firm’s brokers are still using the same sales tactics that got the firm into trouble. Also, when the stocks do rise, investors often encounter resistance when they try to take their profits.
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Poole, Claire

Full text: [Forbes] Aug 20, 1990

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Canada Bacon Sends Bulls Running for A&P

The Great Atlantic & Pacific Tea Co. is looking toward Canada to increase sales volume, and analysts like what they see. In June, the Montvale, N.J.-based grocery store chain announced it was purchasing Steinberg Inc., a chain of 69 food retailers in the Ontario area, for an undisclosed amount. That should not only increase the company’s sales in Canada but will also allow A&P to improve economies of scale and increase profit margins. Analysts have high hopes for the acquisition based on how well A&P has managed to fold other regional supermarket chains it has purchased, such as Food Emporium and Waldbaum’s, into its operations. (excerpt)
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Agovino, Theresa

Full text: [Crain's New York Business] Aug 20, 1990

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PLUS BUSINESS

TRUMP TROUBLES: Donald Trump blames troubles at his three casinos on a faltering economy and believes his latest deal will give them time to rebound. State officials disagree. The Division of Gaming Enforcement says mismanagement and the opening in April of Trump’s Taj Mahal Casino Resort are to blame. And a report by the gaming division for the state Casino Control Commission holds out little hope for a long-term turnaround apart from Trump’s request for approval of a plan to put up his casinos as collateral for an emergency $65 million loan. A Trump attorney says the loan is in escrow awaiting the commission’s decision, which is expected tomorrow. . Friday, Trump said, “Had the Taj Mahal opened in a good economy, the other casinos would not have been hurt. Atlantic City business is down. When you have something opening in a bad economy . . . you’re looking at a whole different ball game.” TOKYO STOCKS FALL: Stock prices fell in Tokyo today as tension deepened in the Middle East. The Nikkei Stock Average of 225 selected issues moved higher in the morning but then declined in the afternoon session, closing at 26,490.47, down 296.25 points or 1.11 percent from Friday’s close. The index shed 762.72 points on Friday.
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Full text: [Chicago Sun - Times] Aug 20, 1990

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L. A. Gear Is Tripping Over Its Shoelaces

From $11 million in 1985, sales at L. A. Gear Inc. rose to $617 million in 1989, and Wall Street pushed its stock price from less than 3 to a mid-May high just above 50. Sales growth, however, has slowed dramatically despite heavy discounting that has destroyed profit margins. Its $20-million deal with pop singer Michael Jackson is faltering even as the launch begins. Since the company’s margins shrank to 35% in the May 31 quarter from 43% a year earlier, some Wall Street investors and 7 current and former executives at L. A. Gear are dumping the company’s stock. The 3rd-ranked sneaker maker blames the decline on greater reliance on sales of lower margin apparel and of shoes abroad. It also has had to cut prices to build market share and retain shelf space. Unlike other sneaker makers, L. A. Gear spreads advertising costs out over the year, concentrating the biggest costs in periods expected to have the highest sales and profits. As a result, it has $9.3 million in deferred advertising costs to expense by year-end, compared with $800,000 at this time in 1989. Huge inventories are another problem.
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Kerwin, Kathleen

Full text: [Business Week] Aug 20, 1990

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Getting Out of Saddam’s Way

As long as the crisis in the Arabian peninsula continues, the stock market will remain prone to declines. Investors would do well to take a close and cautious look at energy stocks, notably natural-gas companies, and even at gold. Natural-gas companies should benefit from continued upward pressure on oil prices. Their prices had been staying at a price 14% below year-ago levels, until the Kuwait invasion. With crude prices rising, natural-gas companies are in a position to expand their clientele in heavy industry, notably utilities. Columbia Gas System Inc. is expanding its supply network and could see its price, now about $47 a share, rise to as much as $57 by January 1991. A small number of oil companies are appealing buys. An industry source favors USX, formerly US Steel, which gets about 75% of its earnings from oil operations; the current price is $34, and cash flow is about $9 a share. Gold prices have been driven toward $400, and in the event of heightened tensions, analysts say gold might hit $425.
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Weiss, Gary

Full text: [Business Week] Aug 20, 1990

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The Third Spike: Which Stocks Will Benefit Most from the Rise in Crude Prices

In an interview, Tom Petrie of Petrie Parkman expressed his views on the Middle East crisis, what lies ahead for oil and oil prices, and which stocks will be the big winners. The Middle East crisis takes about 4 million barrels of oil a day off the market. However, because of overproduction in the first half of 1990, there is about a 100-day supply of crude oil in the world. The big oil firms have been the early stock market beneficiaries of the crisis. In a soft world economy, it is not a foregone conclusion that these companies will be able to fully recover the higher prices they must pay for crude. Setting up as the larger investment opportunity are the big-capitalization secondary stocks that are upstream in orientation. These include Burlington Resources, Union Pacific Corp., Pennzoil, Maxus Energy, Oryx Energy, Kerr-McGee, and Louisiana Land. These companies have shown above-average attention to the use of new technology in developing reserves.
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Anonymous

Full text: [Barron's National Business and Financial Weekly] Aug 20, 1990

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How’s the Market Doing? It Often Depends on Which Index You

To determine how the stock market is doing, one of the well-known market indicators is typically used. By portraying the behavior of stock prices in general, such indicators provide the framework for the way investment decisions are made. The oldest, best-known, and most widely quoted measure of the stock market’s behavior is the Dow Jones Industrial Average. Selected as representative of the board market and US industry, the 30 Industrials are the blue-chip firms regarded as leaders in their industries. The Standard & Poor’s (S&P) 500 Index covers 500 stocks broken down into 83 individual groups. The S&P stock price indexes are based on the aggregate market value of the common stocks of all companies in the sample. Other indexes include the New York Stock Exchange Composite and the National Association of Securities Dealers Automated Quotes System National Market System Composite Index. While most stock market indicators tend to move in the same direction much of the time, there is often significant difference in the rate and amount of movement.
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Full text: [Barron's National Business and Financial Weekly] Aug 20, 1990

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Recession-Proof Stocks Haven’t Always Protected Investors During Recessions and Bear Markets

History, however, has another story to tell: Not only do bear markets often arrive without a recession — and recessions without bear markets — but defensive stocks don’t always offer much protection when stocks do fall. The most notable exception was the downdraft that culminated in the 1987 stock-market crash, one of the worst drops since the crash of 1929. From its peak in mid-August 1987 to its trough in October, Standard & Poor’s 500-stock index plunged about 36%. (Even looking at full-month total returns, including dividends, the drop exceeded 23%.) But there wasn’t any sign of negative economic growth, let alone a recession. Ordinarily, the National Bureau of Economic Research, the official scorekeeper on such matters, requires at least two consecutive quarters of negative growth before it calls a recession. Stock prices also tend to anticipate economic recoveries by four to six months. A look at the track record shows that when a recession is mild, stock prices are often on the rebound about the time the recession is getting under way. But when a recession is long and severe, the market often takes its most harrowing pratfall after the recession arrives.
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By Barbara Donnelly

Full text: [Wall Street Journal] Aug 21, 1990

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First Interstate, Amid Continuing Woes, Suspends Dividend-Reinvestment Plan

The move highlights the continuing woes of the nation’s eighth largest banking concern, despite recent rebounds from disastrous results in the second half of 1989 that eroded capital, hammered its stock price and made it vulnerable to a takeover bid. Under the plan, shareholders were allowed to use dividend proceeds to buy First Interstate stock at a 2.5% discount from market values. The plan had produced $260 million of desperately needed capital since its initiation in February 1989. First Interstate said it dropped the plan because of its flagging stock price. Although it earned $222.3 million, or $3.60 a share, for the six months ended June 30, First Interstate’s stock has slid to new lows, making the issuance of discounted shares under the reinvestment plan too dilutive.
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By Charles McCoy

Full text: [Wall Street Journal] Aug 21, 1990

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BUSINESS INSIDER

When launched, some closed-end funds included a provision giving shareholders the right to vote on converting them into open-end funds several years hence if the stock price lagged the net asset value – the average price of the shares they own. It’s now “”several years hence” and some funds are making the switch. So far this year, shareholders of Nicholas-Applegate Growth Equity Fund have agreed to make the change, in early 1991, and investors in the Templeton Value Fund are expected to consider conversion soon. At Nicholas-Applegate – a [Ken Gregory] favorite – the net asset value is about 10 1/2; it closed yesterday on the NYSE at 9 3/4. That’s a difference of about 7 percent. Once it stops trading as a stock, the fund’s discount will disappear since open-end funds trade at their net asset value. Gregory adds: “”The value can still go down” – if stock prices fall further – “”which is why this isn’t a no-risk investment.”
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Herb Greenberg

Full text: [San Francisco Chronicle (pre-1997 Fulltext)] Aug 21, 1990

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La Jolla Banccorp deal awaiting final OK

Shareholders of La Jolla Bancorp, parent of La Jolla Bank & Trust Co., approved the deal in June to sell the bank to Security Pacific in an exchange of stock, but a recent plunge in Security Pacific’s share price put the deal in jeopardy. The sales agreement signed last October left La Jolla Bancorp with the option to back out if the average of the stock price for the five days leading up to the board’s meeting yesterday was below $38.25. That average by the close of business yesterday was $29.57, said Bob Roy, La Jolla Bancorp’s chief financial officer. The merger would give Security Pacific 12 branch offices and $546.8 million in assets. Until rival Wells Fargo & Co. announced its intention to buy the 130 California branches of San Diego’s troubled Great American Bank, the La Jolla merger would have given Security Pacific the largest share of the local banking market.
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Terry Sacks

Full text: [San Diego Tribune] Aug 21, 1990

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Bush’s Warning to Iraq Spurs Gain by Dow

”Three hundred more stocks were down than up,” Mr. [Peter G. Grennan] remarked. ”It was a selective, blue-chip energy rally.” With many issues selling at depressed levels because of strong declines on Thursday and Friday, yesterday brought ”selective bargain hunting,” Mr. [Michael Metz] said, but ”an obvious low level of conviction.” ”Investors and traders didn’t have the courage to go for the secondary names,” Mr. Metz continued. ”They chose to stick with the high-visibility brand-name companies.”
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COLE, ROBERT J.

Full text: [New York Times] Aug 21, 1990

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First Interstate Suspends Stock Discount Plan

First Interstate Bancorp on Aug 20, 1990 suspended a key part of its dividend reinvestment program for shareholders because its stock price is too depressed.
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Bates, James

Full text: [Los Angeles Times] Aug 21, 1990

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First Interstate Suspends Stock Discount Plan

First Interstate Bancorp on Monday suspended a key part of its dividend reinvestment program for shareholders because its stock price is too depressed. The Los Angeles-based banking firm, parent of First Interstate Bank of California, had offered shareholders a chance each quarter to buy its stock at a 2.5% discount using their quarterly dividend of 75 cents a share. It provided an inexpensive way for First Interstate Bank to replenish its capital, which is its buffer against losses. In addition, First Interstate had offered shareholders an opportunity to buy additional stock at a discount of up to $3 for each share they already owned. (excerpt)
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Bates, James

Full text: [Los Angeles Times] Aug 21, 1990

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The Abyss

Financial World’s 1990 listing of the worst-performing stocks does not include any companies with losses for the past 12 months or with a current market value under $100 million. The purpose of the listing is to identify those underperformers whose stocks have no choice but to improve. Banks and savings and loan (S&L) institutions were excluded from the 1990 list because stocks caught in an industrywide decline have a difficult time bucking the trend. Having nearly tripled to $20 per share over the past 2 1/2 years, the stock of oil refiner Tosco Corp. may appear to make it a poor candidate for the list; however, Tosco shares traded as high as $225 during the oil mania of the 1980s. Shearson Lehman Hutton’s Robin Shoemaker expects Tosco’s earnings to more than double to $2.55 per share in 1990 and to reach $3.00 per share in 1991. Other firms on the list include telecommunications equipment supplier Mitel and steel manufacturer Armco.
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Montgomery, Leland

Full text: [Financial World] Aug 21, 1990

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Mutual Fund Watch: Hedging His Bets

Greg Melvin, portfolio manager for the $185-million-in-assets Federated Growth fund, does not trust the stock market to produce 20%-plus returns when the historical norms are more in the 10%-to-12% range. He has placed 15% of his portfolio in liquid-yield option notes (LYON), which are zero-coupon convertible securities that can be put back to the company. Over 5 years, guaranteed minimum returns of 33%-43% can be realized, depending on the issue. The LYONs that Melvin owns – Loews, Walt Disney, Motorola, Illinois Tool Works, and Morrison Knudsen – are what he refers to as “bull market stocks,” and he expects them to outperform the market. In addition to the LYONs, Melvin likes RJR Nabisco payment-in-kind (PIK) bonds. Beyond his hedge-with-returns techniques, Melvin fills his portfolio with equity picks that attempt to beat the market with relatively cheap, fast-growing companies. Most of the stocks meet 3 criteria: price momentum, earnings acceleration, and value.
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Coletti, Richard J.

Full text: [Financial World] Aug 21, 1990

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Golden No More: Why McDonald’s Has Hit a Mid-Life Crisis

The basic measures of the fast-food business indicate that McDonald’s Corp. is encountering systemwide problems of major dimension. The per-store investment cost is rising far more rapidly than sales per restaurant; most growth is coming from higher cost international operations and larger, more expensive domestic stores. McDonald’s is the only franchiser that controls, either through leaseholds or actual ownership, virtually all the land on which its franchisees have restaurants. In more than 60% of its franchises, McDonald’s owns the land and the buildings. As real estate costs have escalated, McDonald’s has been able to pass on the higher costs to its franchisees in the form of higher fees. This has kept the company’s margins remarkably stable over an extended period of time. It also means that the firm’s earnings growth has been almost exclusively the result of adding new locations. As growth becomes less profitable, the logic of this strategy becomes questionable.
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Ozanian, Michael K.

Full text: [Financial World] Aug 21, 1990

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Golden No More: Why McDonald’s Has Hit a Mid-Life Crisis

The basic measures of the fast-food business indicate that McDonald’s Corp. is encountering systemwide problems of major dimension. The per-store investment cost is rising far more rapidly than sales per restaurant; most growth is coming from higher cost international operations and larger, more expensive domestic stores. McDonald’s is the only franchiser that controls, either through leaseholds or actual ownership, virtually all the land on which its franchisees have restaurants. In more than 60% of its franchises, McDonald’s owns the land and the buildings. As real estate costs have escalated, McDonald’s has been able to pass on the higher costs to its franchisees in the form of higher fees. This has kept the company’s margins remarkably stable over an extended period of time. It also means that the firm’s earnings growth has been almost exclusively the result of adding new locations. As growth becomes less profitable, the logic of this strategy becomes questionable.
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Ozanian, Michael K.

Full text: [Financial World] Aug 21, 1990

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Oil issues pump up lackluster stock market

Stock prices drifted in a narrow band Monday, with blue-chip issues inching higher but broader market measures showing small losses. The Dow Jones industrial average added 11.64 points to 2656.44, largely due to gains in oil stocks. Analysts said a meeting of the Federal Open Market Committee, scheduled for Tuesday, is unlikely to result in any lowering of short-term interest rates. With inflation showing signs of picking up before oil prices skyrocketed this month, the Fed will find it difficult to ease its credit grip, despite the sluggish economy, they said.
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Chicago Tribune wires

Full text: [Chicago Tribune (pre-1997 Fulltext)] Aug 21, 1990

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Pathe Makes $50 Million Payment Toward Merger Agreement With MGM/UA

MGM/UA Communications Co. (NYSE:MGM) Tuesday announced that it has received checks totalling $50 million from Pathe Communications Corp. (NYSE:PCC) in connection with its $1.3 billion merger agreement with Pathe. Upon payment of the checks, Pathe will have paid $303 million cash and will have provided MGM/UA with $75 million in other security in connection with the parties’ merger agreement. On July 20, 1990, over $250 million in cash was distributed to shareholders as partial payment of the purchase price. (excerpt)
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Tagliarino, Scott
Parsons, Craig

Full text: [Business Wire] Aug 21, 1990

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