Local stocks close 2009 up
| Download
KPCC business analyst Mark Lacter talks about how some local stocks finished the year off in 2009.
Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, let's take a look at some local stocks – some of which seem too good to be true. Are they?
Mark Lacter: Not for anyone with great timing, which I guess leaves the two of us out Steve. I’m looking at a list of two or three dozen locally based companies and there were some pretty amazing numbers in 2009.
The Dow itself finished up about 19 percent, but Disney was up almost 44 percent, KB Home (the L.A. homebuilder that's had all kinds of problems) up almost 100 percent, Mattel up almost 30 percent, Cheesecake Factory up nearly 114 percent. Of course, the real story is more complicated – stocks went up not so much because of all the good stuff that happened but because of all the bad stuff that didn't happen.
Julian: What, like a recession?
Lacter: Really bad stuff, like a depression. Keep in mind that many of these stocks took huge hits in late 2008 and early 2009 and so the big gains seem a lot better than they actually are. A company like KB Home is still in a world of hurt because there's not much demand for homebuilding.
The other reason these stocks did well is that investors are desperate to find a better return than what's available through a CD. The question is whether this surge is likely to last much longer – in other words, whether Wall Street is simply foreshadowing what will happen on Main Street over the next few months. You can find plenty of convincing arguments on both sides.
Julian: What about stocks that didn't do well?
Lacter: The two that jump out are City National Bank and East West Bank, which caters mostly to the Chinese-American community. Both banks are still stuck with shaky loans in the commercial real estate market – the same problem being faced by other regional banks – and they will need to resolve those loans before being in a position to start lending again. That's been a killer for developers trying to get money for projects and also for investors looking to buy office buildings, shopping malls and hotels.
Julian: And there's a different kind of "trickle down" theory, isn't there?
Lacter: That’s right; if you can't get a construction loan, you're not able to hire construction workers. And what happens if you put something on the market and can't get any nibbles? Well, it's like selling a house – you either keep dropping the price or take it off the market.
Dropping the price to bargain-basement levels is a bad sign – holding onto a property suggests that the owner expects prices to go up relatively soon. As an example, the people who own One California Plaza in downtown L.A. put the office building on the market about a year ago, but they got very little interest and apparently now figure it’s better to just wait until the economy improves and banks are more likely to finance any purchase.
Julian: Is it much of a bad thing that Northrop is leaving town?
Lacter: In terms of pure numbers, no. The company has only 350 people in its corporate office – that's out of a total workforce of 120,000 spread out all over the world, including a division that's based in Redondo Beach. And having your headquarters near Washington, D.C., home of your biggest customer, makes complete sense.
Still, it's a symbolic blow, especially since there are so few big, publicly held companies in the area. Also, because the company has such a rich local history – it was founded in 1939 by Jack Northrop, with backing from Donald Douglas, two pretty significant players in the history of the aviation business. Northrop had been the last of the major defense and aerospace companies to be based in L.A. – the others are long since gone. So from that standpoint, yes, it is a big deal.
Mark Lacter is a contributing writer for Los Angeles Magazine and writes a business blog at LAObserved.com.
blog comments powered by Disqus
