A week before Christmas, Western Digital Corp. was just another of the many Orange County companies showing double-digit stock gains on the year.
Then shares of the Lake Forest-based disk drive maker caught fire on Dec. 21. That’s when rival Seagate Technology LLC agreed to pay $1.9 billion for Maxtor Corp., another competitor.
The deal was seen as a chance for Western Digital to grab market share in the cutthroat disk drive market.
Shares of Western Digital, up about 69% on the year, were among 2005’s five best performing local stocks.
The Business Journal looked at about 80 OC stocks with market values greater than $25 million that are tracked by Newport Beach-based Roth Capital Partners LLC.
Smaller stocks were strongest in 2005.
They helped drive an 18% gain in the billion-dollar club index of larger stocks as surging companies such as Santa Ana’s Powerwave Technologies Inc. moved into the group during the year.
Without newcomers, the 30 companies that started the year in the billion-dollar club were up 7%.
Conversely, Powerwave and others companies that graduated to the billion-dollar club wound up dinging the OC50 group of stocks valued at $25 million to $1 billion. The index was down 9% for the year.
The original group of companies that started the year in OC50 rose 16% for the year.
Percentages are through Dec. 27.
The Dow Jones Industrial Average was up 0.6% for the period. Nasdaq was up 3.6%, while the S & P; 500 was up 4.7%.
Roughly two dozen local stocks reported gains of 20% or more. Strong tech gainers included Irvine-based chipmakers Microsemi Corp., up 61%, and Broadcom Corp., up 47%.
Drug makers were a mixed bag, with Irvine-based Allergan Inc. rising 33% but Costa Mesa-based Valeant Pharmaceuticals International falling 30%.
Builders continued to find demand for new homes, with Newport Beach-based William Lyon Homes up 47% and Irvine-based Standard Pacific Corp. posting a 15% gain.
OC’s best performing stock: Quality Systems Inc., an Irvine-based maker of healthcare software that recorded a 161% gain.
Quality makes software that doctors and dentists use to manage their practices and is booming with a transition from paper to electronic medical records.
The company was the focus of a spirited proxy fight in October when dissident board members claimed management was earning too.
Meanwhile, Quality recorded quarter after quarter of strong sales.
Another healthcare software maker was among the winners. Newport Beach-based Trizetto Group Inc. saw its shares rise 78%.
The company helps health plans, benefits administrators and doctors manage data by providing software and Web sites for insurers and provider groups.
Other top performers included Anaheim circuit board maker Multi-Fineline Electronix Inc., up 115%, and Anaheim’s Wet Seal Inc., up 90%.
Multi-Fineline has seen revenue surge for its flexible circuit boards that are used in mobile phones and other devices. Last week the company raised its profit guidance for the December quarter, pushing Multi-Fineline’s gain for the year through Dec. 29 to 171%.
Teen retailer Wet Seal has been on the comeback trail since shuttering more than 100 unprofitable stores and restructuring its management earlier this year. The company’s same-store sales gains were running higher than 40% for most of the year.
Three of the five worst performing local stocks in 2005 are tied to the mortgage industry,no surprise given rising interest rates.
Shares of Irvine-based ECC Capital Corp., which held its initial public offering in February, is down 63%. Other laggards included Newport Beach-based Impac Mortgage Holdings Inc., down 57%, and Irvine-based New Century Financial Corp., off 38%.
Mortgage lenders are facing tougher times amid a falloff in demand for loans and rising interest rates, said Gordon McBean, director of asset management with Roth Capital.
“With what the Fed is trying to do to cool down the real estate market, it hurts these guys,” he said.
The hikes have squeezed profits as mortgage companies pay more to borrow money as interest payments on mortgages remain fixed.
ECC and New Century make loans to subprime borrowers, who have imperfect credit.
Impac is a real estate investment trust that invests in mortgages. The company is seeing profit margins shrink on loan sales and on loans held for investment because of the rise in short-term rates. Impac pays out most of its profits to shareholders as a dividend, which it reduced last year.
Other poor-performing stocks included Irvine-based computer maker Gateway Inc., down 59%, and Anaheim-based Alliance Imaging Inc., off 49%.
Gateway’s stock slump came despite gains on the profit front (see related story, page 17). The company under Chief Executive Wayne Inouye is on track to produce its first profitable year since 2000. But investors are spooked by global competition that could make it tough to boost profits.
Alliance, a medical imaging company, has a guarded outlook for 2006 due to soft business from hospitals, cost management efforts by insurers and an oversupply of imaging services and lingering effects from hurricanes in the Gulf Coast.
