11/10/98 L.A. Times 05:46:00
Los Angeles Times Tuesday, November 10, 1998
Copyright (c) 1998
Market Survey
So. Cal. Small-Cap Growth Stocks Break From the Pack
Investing: A handful of Southland-based issues have zoomed 20%
in the last month alone.
Publication Date: Tuesday November 10, 1998
Page C-4
Los Angeles Times (Home Edition)
Copyright 1998 / The Times Mirror Company
By WALTER HAMILTON
TIMES STAFF WRITER
Impressive as the last four weeks have been, their most notable
aspect isn't the way the stock market has roared back from its summer
swoon. It's the fury with which beaten-down small-capitalization
stocks have seized the lead from larger issues. And nowhere is that
more on display than in the stocks of some Southern California
companies.
In the last month, the large-cap Standard & Poor's 500-stock
index has jumped 14.8%. But the small-cap Russell 2,000 has leaped a
startling 25.1%.
Will the gains continue? Who knows? After all, small-cap rallies
have fizzled repeatedly in recent years. And many experts believe the
Russell is due for at least short-term profit-taking. If nothing
else, they say, small caps could be clipped as individual investors
clean out their losers for year-end tax selling.
Still, of all the small-cap moves in recent years, this one
stands the best chance of durability, some experts say. The reason
for their optimism? The Federal Reserve Board's two interest rate
cuts have stirred hope that the economy will stay vibrant and that
corporate earnings will improve.
That enthusiasm has coaxed investors into so-called small-cap
growth stocks, which have fast-growing earnings but are extremely
volatile. In the last four weeks, the growth component of the
Standard & Poor's Small-Cap 600 index has risen almost 28%,
compared with 22.6% for the value equivalent.
"We have a very good chance that [small stocks] are going to do
well for a while," said Claudia Mott, small-cap market strategist at
Prudential Securities Inc. in New York.
In Southern California, a number of small stocks have jumped in
the last four weeks.
The Times regularly monitors about 600 local companies on the New
York and American stock exchanges and on the Nasdaq Stock Market. To
find some of the hottest small-cap companies, The Times sifted
through Nasdaq-listed companies with shares trading for $10 or more
whose prices have risen more than 20% in the last month.
In some cases, stocks have come off their lows but remain well
below their 52-week highs. Wet Seal, a clothing retailer, and
RemedyTemp, a staffing company, are two examples.
Other stocks, however, have surged to 52-week highs--in some
cases, to all-time highs--a sign that demand is robust. The stocks of
QLogic, Xircom and Gemstar International Group all have streaked to
new ground recently.
Newcomers to these stocks should be careful. After such run-ups,
the shares may be "extended," meaning they've risen so much in a
short period that they may be vulnerable to short-term pullbacks. But
historically, the stocks that break out to new highs immediately
after a deep market pullback--such as the drop that followed the
market's mid-July peak--often are the strongest moving forward.
Several of the companies on our list have semiconductor-related
businesses, a hot sector of late. Included in that group are Irvine
based Broadcom, an Internet technology company that unveiled a
computer chip Monday that lets users view Web pages and TV pictures
on the same screen; and Camarillo-based Vitesse Semiconductor, which
sells high-performance communication chips.
Other chip-related companies include Newbury Park-based Semtech,
which makes so-called analog and mixed-signal chips, and Align-Rite
International of Burbank, which makes "photomasks" used in the
production of semiconductors.
Costa Mesa-based QLogic makes products that link disk drives and
other peripherals to computers. Rather than focusing on commodity
oriented products that connect equipment to desktop PCs, QLogic's
products are geared toward the high end of the market, such as
workstations and servers.
The stock has zoomed 45% since Oct. 15, the day it reported a
jump in third-quarter earnings to 68 cents a share, from 39 cents a
year earlier. That far surpassed Wall Street's estimate of 54 cents.
The company is being helped by a shift toward what's known as
fiber-channel technology, which is an enhancement over the previous
generation of products, said H.K. Desai, QLogic president and chief
executive.
Shares of San Juan Capistrano-based RemedyTemp remain 51% off
their April 21 high of $35.75, even though they've jumped almost 46%
since their Oct. 14 low of $12. The stock was hurt by fears of a
recession: In the past, personnel firms have suffered because
temporary workers were the first to be let go when the economy
weakened, said Paul Mikos, RemedyTemp president and chief executive.
However, companies nowadays increasingly rely on temps and are less
likely to drop them in a downturn, Mikos said. Also, temps have
greater skills and are more valuable to companies today than in the
past, he said.
RemedyTemp provides office workers such as secretaries and
administrative assistants, as well as light industrial and light
manufacturing personnel. Some investors have shied away from stocks
of such traditional temp companies, preferring those that can earn
higher profit margins by providing higher-skilled technology
workers. However, businesses need many more office and manufacturing
temps than information technology workers, Mikos said.
Syncor International of Woodland Hills, a pharmaceutical company
with 120 offices that mix and dispense drugs that make internal
organs more visible on film, saw its shares jump $1, or 5%, on Monday
to a new high. Schroder & Co. began coverage two weeks ago with a
"buy" rating.
Making the Grade
Here are some Southern California companies whose stocks have
soared lately. To make the list, a stock must be be listed on the
Nasdaq Stock Market, priced at $10 or more and have gained more than
20% in the last month:
Company Ticker Monday close 1 month % gain YTD % change
Kaynar Technologies KTIC $19.50 +129.4% -31.6
Vitesse Semiconductor VTSS 34.38 +82.1 +82.1
Xylan XYLN 18.88 +66.9 +24.8
Newport Corp. NEWP 15.88 +62.8 +12.9
QLogic QLGC 99.63 +59.7 +237.7
Xircom XIRC 31.88 +58.4 +216.8
Broadcom BRCM 92.50 +48.9 +285.4*
Semtech SMTC 25.13 +48.9 +28.4
Align-Rite Int'l MASK 13.19 +48.6 +3.4
Mentor MNTR 16.31 +48.3 -55.3
Syncor Int'l SCOR 21.00 +44.8 +30.2
RemedyTemp REMX 17.50 +40.0 -9.7
Gemstar Int'l Group GMSTF 59.56 +34.6 +144.6
Tekelec TKLC 18.00 +29.7 +18.0
Cheesecake Factory CAKE 21.88 +28.7 +7.6
Wet Seal WTSLA 19.75 +22.3 -33.1
Russell 2,000 index 398.43 25.1 -8.8
*Initial public offering in April 1998
Source: Bloomberg News
*
Walter Hamilton can be reached by e-mail at walter.hamilton@latimes.com.
|
