Posted on 12/30/2002 12:42:17 PM PST by Willie Green
For education and discussion only. Not for commercial use.
Let's begin with one short and brutal fact. Only 20 public Silicon Valley companies have a higher stock price today than they did on March 10, 2000, the day the Nasdaq hit its maniacal crest.
That's no typo: Twenty companies.
Among the 307 public companies trading then and still alive today in the valley, the average stock decline was 72 percent since the Nasdaq composite index peaked. The median drop was 88 percent. And those numbers understate the havoc of the past 54 months. They don't include companies that crashed and burned.
In a word, it's been horrendous. Yet even in horrendous times, there are survivors. And because tough times often impart more lessons than do booms, it's worthwhile asking why they survived.
During the next week, the Mercury News will be focusing on a half-dozen of these companies -- Scios, Ross Stores, Borland Software, Exponent, Mission West and Varian Medical Systems -- and examining why they bucked the trend.
In the meantime, it's worth looking at four reasons why these 20, some of whom trade on the New York Stock Exchange and others on the Nasdaq, have managed to weather the worst hailstorm ever to hit the valley.
Customers saved them. It sounds like a truism to say it, but the survivors had solid, repeat customers -- the government, bargain-conscious shoppers, the elderly and infirm, even home buyers. By and large, they didn't depend on sales to beleaguered tech companies.
Bruce Elwell, a portfolio manager for U.S. Trust, points to one other thing: The survivors had the ability to maintain or even increase prices. They weren't betting on selling bigger volumes of ever-cheaper goods.
``Industries that have some pricing power in a world threatened by deflation are few and far between,'' he said.
(One word of caution, however: Elwell added that anyone looking at real estate investment trusts -- three are on the list -- should be aware that their fundamentals aren't as attractive as they once were. Vacancies have increased, particularly in commercial real estate.)
They offered comfort. Burned beyond disfigurement by many tech stocks, investors sought safety above all. Seven of the 20 companies on the list pay dividends, still a heresy among tech companies. Many of them -- particularly the REITS -- have very low volatility compared with the market.
None of them has suffered any significant challenge to its accounting practices. And though their stock has traded up, the companies have avoided flooding the market with new shares.
On average, the 20 have increased their fully diluted shares by only 7 percent in the last two years. And some -- such as Ross or Knight Ridder (the parent corporation of the Mercury News) -- have decreased their shares outstanding through buybacks of the stock.
Fear was their friend. Several of the survivors -- including security-oriented companies such as InVision Technologies, Exponent and Symantec, and health-oriented companies such as Scios and Gilead Sciences -- make products aimed at quelling fear or fighting disease. For InVision, the attacks of Sept. 11 became the major catalyst in its sale of airport detection devices. Even Ross has thrived in an economic downturn by appealing to customers eager for bargains.
The list does not include the stocks of defense companies that have substantial operations in the valley but headquarters elsewhere. If it did, the point would be even clearer. Lockheed Martin, for instance, is selling for more than three times its price at the height of the bubble ($57.57 now vs. $16.18 then).
They had patient investors. Few of the companies on the list could be classified as high-fliers. In fact, their vintage helped, rather than hurt. All 20 have been public in one shape or another for at least six years, and all but two were already on the market before Netscape's stunning 1995 IPO transformed investor interest in tech companies.
It's also true that some of them have already endured their trial by fire. Borland has revived itself since the arrival of Chief Executive Dale Fuller. And Exponent has injected new life into its business after reaching a low of nearly $4 a share in 1998, just as the rest of the valley was booming.
This is a long race. It's not over yet. But there's one short and brutal fact to remember: Since March 2000, the Ford Tempos and the Plymouth minivans are beating the Ferraris and the Porsches.
Scott Herhold's Stocks.comment appears every Monday and Thursday. Write him at the San Jose Mercury News, 750 Ridder Park Drive, San Jose, Calif. 95190; e-mail sherhold@sjmercury.com; phone (408) 920-5877.
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