Oops!
2000 caught almost everyone by surprise, from Wall Street pundits to individual investors. Most predicted that 1999’s euphoria in stocks would roll on through 2000, but instead it hit a wall in March.
Overall, it was a year when value and defensive stocks were back as favorites and the dot-com shares saw a collapse sharper than the Nifty Fifties of the early 1970s. Among Orange County companies, technology stocks that started out the year as high-fliers were firmly grounded by the holidays. The big winners: medical companies and financial firms.
For the Business Journal’s OC Billion Dollar Club, the year was a mixed bag. While the periodically updated OC Billion Dollar Club, an index of 23 OC stocks with market capitalizations of more than $1 billion, inched up marginally by 1.23%, that calculation includes 11 companies that joined the index during the year because their market caps crossed the $1 billion threshold.
By removing stocks whose market value dropped below $1 billion,two in 2000,and by adding stocks whose value rose above the threshold, the Billion Dollar Club has a success bias. The 11 new entrants in 2000 gained an average of 122% during the year.
When the index’s performance is recalculated using just the 14 stocks that were on the list at the end of 1999, it shows a decline of 20.48%, far steeper than the 6.37% drop in Dow Jones or the 11.06% slide in the S & P; 500 as of Dec. 21.
“It was an end of a momentum era and return to sanity,” said Russ Tolander, director of institutional sales at Roth Capital Partners Inc., Newport Beach, which compiles the Billion-Dollar Club and the companion OC 100 lists. “The year was characterized by volatility and by more losers than winners.”
“The mania is over and the bubble is busted,” said F.P. Powell, senior market strategist and hedge fund manager at Atlanta-based Volume Investor Inc. Powell said that the decline in major indices was mainly because of sharp corrections in technology and dot-com stocks.
The OC Billion Dollar Club is weighted by market capitalization and sharp declines in a few stocks led to the 20% decline in the index value. Irvine-based Broadcom Corp., for instance, saw its share price plunge 33% over the year. Broadcom’s share of the index was 31% as of late December, which means the decline in Broadcom shares alone dragged the index down by around 10%.
Other big losers in the index were Conexant Systems Inc., Ingram Micro Inc. and PacifiCare Health Systems Inc.
While the Billion Dollar Club saw a steep decline, the OC 100, an index of companies with market caps of $25 million to $1 billion, was up 22.48% (using the same companies that started the year in the index).
The gain was spectacular considering that the technology-laced Nasdaq dropped 40.17% during the same period.
The rise in the OC 100 is mostly attributable to a few medical and financial stocks that posted triple-digit gains. The index had 12 stocks that rose more than 100%, and 21 stocks that were up more than 50%. Some of the top gainers were Downey Financial Corp., Newport Corp., Fidelity National Financial Inc. and Allergan Specialty Therapeutics Inc.
Fifty-three OC 100 stocks declined by an average of 63%, with 40 stocks falling by 50% or more. Another 36 stocks posted an average gain of 86%.
But if the OC 100’s movement is calculated by removing companies that were moved up to the Billion Dollar Club and replacing them with smaller companies, the index fell sharply, by 42.47%, slightly steeper than the Nasdaq’s decline.
That is a result of a nearly death-like collapse in the prices of dot-coms and other technology stocks, which dragged down the index. Stocks of 43 companies in the OC 100 were trading below 5, while stocks of 10 companies were trading at or below 1.
“Some of the tech names were challenged this year,” Tolander said.
Some of the big decliners: Irvine-based Day Runner Inc. fell 99%; Costa Mesa-based Tickets.com Inc. lost 98 % of its value on revenue and profit concerns; Irvine-based Diedrich Coffee Inc. was down 92%; and Yorba Linda based NetGuru Inc. shed 86% of its value.
According to strategist Powell, around 20 stocks out of the OC 100 were trading above their 50-day moving average.
The Billion Dollar Club, on the other hand, also had some strong gainers. Most of the stocks were defensive plays such as financials or medical. For instance, Allergan Inc., a maker of eye-care products, was up 101% and the company had almost a 19% weightage in the index (see related story, page 1).
Other gainers in the Billion Dollar Club were Irvine-based Powerwave Technologies Inc., a supplier of power amplifiers for use in wireless communications networks. The stock was up 134%.
“Well-managed companies with dominant market share and growing markets continued to remain in demand,” said Tolander.
Among the losers on the Billion Dollar Club was Conexant, maker of modem chips. Its stock fell 81% on anticipation of a slowdown in worldwide demand for its personal networking products. Quest Software Inc. fell 40%, in line with the decline in other software and technology stocks.
Tolander said that, unlike last year, the winners were a blend of companies. “Participation came from financials, home builders, some micro-cap wake-up calls, medical and technology infrastructure.” n
