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Sunday, Oct. 4, 1998
Bear of a Quarter
Few stocks of local interest delivered socko performances in the just-ended 3rd quarter
By JEFFREY TOMICH
Staff WriterLocal-interest stocks took a hit in the third quarter as the global economic crisis, White House scandal and Tuesday's interest-rate cut sent Wall Street on a wild ride.
Of 119 local-interest stocks, including public companies that do business in the Corpus Christi area and the 30 stocks of the Dow Jones industrial average, only 20 showed gains in the July-September period.
Fewer than half of local-interest stocks outperformed the Dow, which fell 13.3 percent during the quarter. Even fewer beat the S&P 500 Index, which slipped 11.5 percent.
Leading the charge were Dow components Dell Computer Corp., Philip Morris Cos. Inc., IBM and Compaq Computer Corp., as well as San Antonio-based SBC Communications Inc., parent of Southwestern Bell, whose stock rose 10.9 percent to close at $44.26 Wednesday, the last day of the quarter.
The biggest losers included seven stocks that lost more than half of their value in the quarter, such as Uranium Resources Inc., a mining company; and Houston-based driller Grey Wolf Inc.
Retailers Stage Stores Inc., which operates Beall's and Palais Royal, Gadzook's Inc. and Venator Group Inc., which announced two weeks ago that it was closing all of its Kinney stores nationwide, also lost ground.
Other retailers hurt in the quarter included Plano-based J.C. Penney Co. Inc., whose stock fell 25.5 percent to close Wednesday at $44.75; and Sears, Roebuck and Co., whose stock was down 2.4 percent in the quarter.
``J.C. Penney and Sears are probably facing the brunt of some of the toughest competition in the retail segment,'' said retail analyst David Presson of NationsBank Private Investments. ``They are hit on the low end by the discount stores like Wal-Mart and Target. Then at the upper end of their customer base they face the department stores.''
Another stock hit hard in the quarter was book retailer Barnes & Noble Inc., whose shares lost 19.1 percent, closing Wednesday at $26.81.
While bookstore sales trends remain strong, Presson said, Barnes & Noble's profits have been drained by large-scale investments in their online business, designed to compete against online bookselling giant Amazon.com Inc.
``They're trying to build sales for the future, which is hurting near-term profits for them,'' he said.
Retailers that performed well in the quarter included consumer electronics company Best Buy Inc., Walgreen Co., Albertson's Inc. and Tandy Corp.
Still other retailers saw their stocks plunge in the third quarter but are showing considerable gains for the year. The Gap Inc., operator of Gap and Old Navy stores, lost 14.1 percent in the third quarter but is up 49 percent year-to-date.
Though market gyrations have affected stock prices, external pressures haven't affected sales, Presson said.
``While events around the world and in the stock market could eventually lead to a downturn in consumer spending, we don't think it has impacted spending yet,'' he said.
Scandal before shopping
The exception is the recent downturn in department store sales, lagging because of warmer-than-usual fall weather that is affecting the sale of winter apparel, and because of the Clinton scandal.
``We think that the consumer has been focused on the events in Washington and has spent a lot of time either reading the Starr report, watching TV or searching the Internet and not at the malls,'' Presson said. ``This has happened before when we had the O.J. trial, the death of Princess Diana, the Olympics -- it tends to keep people at home rather than out shopping.''
As sales of big-ticket items such as consumer electronics and furniture remain strong, that's an indicator that department store woes aren't tied to the economy or the stock market, he said.
Presson said the outlook for the fourth quarter appears bright for retailers. Real wage growth is the best in 20 years, housing turnover is strong and gasoline prices are low, meaning consumers have more money in their pockets.
``For the balance of the year, the consumer remains healthy and, barring external shocks, which are difficult to predict, we should have a fairly good holiday season,'' he said. ``If we do get to the point where there are live impeachment hearings on TV, that could begin to have an adverse impact on retail sales.''
Among energy sector stocks, fully integrated companies such as USX-Marathon Group, Chevron Corp. and Exxon Corp. fared best.
Georges' blessing
Meanwhile, refining and marketing companies such as Valero Energy Corp. and Ultramar Diamond Shamrock Corp. and oilfield service stocks such as Halliburton Co. lost ground.
Ed Maran, an oil and gas analyst with A.G. Edwards & Sons Inc., said oil and gas companies have been surprisingly strong given summer's low prices.
While Hurricane Georges prompted the temporary shutdown of several refiners on the Gulf Coast last week, that may have been a blessing to the refining industry by exhausting an excess supply of gasoline and other refined products, he said.
Maran said Georges won't have a major impact on oil consumption or crude oil prices because production in the Gulf is tiny relative to worldwide production.
There was speculation that Amoco's merger with The British Petroleum Co. PLC would spur more megamergers, but Maran says that won't necessarily be the case. Instead, he said, look for more joint ventures between companies in geographic areas where the relationships make sense.
Oil and gas combinations
For instance, Marathon and Ashland Inc. combined their refining and marketing operations in the United States; Texaco Inc. has combined downstream operations with Shell Oil Co. in the U.S. and Europe; in Asia, Chevron Corp. and Texaco have joined forces; and Mobil Corp. has teamed up with British Petroleum in Europe.
``There's a lot of gains to be had by these business combinations and you don't have to cease to have an independent identity as a company in order to reap some of these gains,'' Maran said.
In other instances, U.S. oil and gas companies have entered joint ventures with state-owned oil companies in South America and the Middle East. Phillips Petroleum Co. and Petroleos de Venezuela SA have entered into a number of ventures to upgrade U.S. refineries supplied by South American crude. Exxon announced a similar agreement Wednesday with Pemex.
``There are tremendous gains to be had by the OPEC-type countries, or Latin American countries that have the crude, making joint ventures with U.S. companies that have refining capacity,'' he said. ``It's a big win-win because the oil company's able to get excellent return on invested capital with a lot less risk.''
Maran said predictions of a colder-than-usual winter bode well for oil and gas prices and exploration and production activities.
``With oil at $16 and natural gas right now at over $2.40 per million cubic feet, that is tremendously better than it was in the third quarter,'' he said. ``And we're actually looking for oil and natural gas prices to strengthen toward the end of the year.''
Fears in banking sector
In the banking sector, stocks of Norwest Corp. fell 4 percent in the third quarter. San Antonio-based Cullen/Frost Bankers Inc. fell 20.5 percent. And shares of NationsBank Corp., which just Wednesday completed its merger with BankAmerica Corp., tumbled 30.2 percent to finish the three months at $53.25.
Bank stocks fell because of fears that trouble overseas would infect the U.S. economy, said David Stumpf, a bank analyst for A.G. Edwards.
``Although the typical bank, or regional bank, hasn't felt any financial impact from any of these things overseas, just the psychology for the domestic marketplace and what the economy might be going through has had a big impact on stock prices,'' he said.
Stumpf said the Federal Reserve's interest rate cut did little to help bank stocks. And any further movement could do even more damage.
While, in theory, a rate decrease is good for banks, lower interest rates could put pressure on margins, he said. And lower interest rates might make investors nervous about the economy. If rates go up, bank earnings could benefit, but it also could suggest inflation and likewise hurt stock prices.
``I'm sort of worried that we're in a no-win situation with regard to rates for banks right now,'' Stumpf said.
Stumpf said he sees recent merger activity, including NationsBank's deal with BankAmerica and Norwest Corp.'s merger with Wells Fargo & Co., as positive for all companies involved as long as the mergers are well executed.
He said the mergers will create cost savings and efficiencies that could help offset slower loan demand and increased credit losses if the economy takes a downturn.
Wariness about Y2K
But don't look for the megadeals to continue, at least not now. There will be exceptions, but not the same level of activity and prices seen this year and last, Stumpf said.
He said there are several reasons for the slowdown in consolidation activity. No. 1 is the Year 2000 situation.
``Bigger acquiring banks that do the buying are really focused on making sure their systems are ready,'' Stumpf said. ``Most of these banks are hesitant, in our opinion, to take on anybody else's systems and conversion of those systems at this time.''
Second, he said, some of the bigger buyers among the banking companies already have their plates full. And lastly, banks aren't selling for what they did earlier this year or last year.
``There's nobody out there who can pay those kind of prices anymore,'' he said. ``It's hard for a board to say, `We should have sold six months ago, let's sell now at 25 percent less.' ''
Depending on what happens with the economy, the outlook for most regional banks and larger domestically focused banks remains strong headed into the fourth quarter, Stumpf said.
``Obviously, there seems to be a lot of concern building about fear of recession and deflation and things that this country hasn't dealt with in quite a while,'' he said. ``If those kind of economic conditions prevail, then bank stocks are going to be affected by that.''Post your comments about local news eventsFront Page || Main Index || News || Business || Texas || South Texas Outdoors || Birdwatching || Sports || Entertainment || Selena || Education || South Texas Attractions || World Wide Web