KPCC's business analyst Mark Lacter says the stock market is nearing an all time high, but what about local companies?
Mark Lacter: Well, for the most part they've been on a tear - and to appreciate what's happening, Susanne, you really need to go back to March 9, 2009 when the Dow Jones Industrial average fell below 6,600, which was a disastrous drop from the all-time high of more than 14,000 in October of 2007. That was, of course, right before the recession and the financial meltdown. But in less than three years the market is nearly back to that 14,000 mark (it's up around 91 percent), and the shares of many locally-based companies are up even higher.
Susanne Whatley: Which ones in particular?
Mark Lacter: Well, as of Friday’s close Disney was up 204 percent since March of 2009; Mattel, the big toymaker based in El Segundo, up 221 percent; DirecTV, the satellite TV service, also based in El Segundo, up 156 percent. And Santa Monica-based shopping center operator Macerich is up almost 600 percent. There are some less successful stories - the stock of DreamWorks Animation in Glendale is actually down compared with 2009. Now, the stock market is never easy to figure out, even under the best of circumstances, but this rally has been a real puzzler because the economy hasn't exactly gone gangbusters these past four years (not to mention concern about the fiscal crisis in Washington and the European debt crisis). That might explain why individual investors have been reluctant to get back into the market, since so many of them lost during the huge sell-off.
Susanne Whatley: Is it safe to get back in?
Mark Lacter: Well, here's where it gets tricky for those who have stayed away and now run the risk of being late to the party. In other words, are stocks about to peak out, at least for the time being, or is this the start of an extended bull market? Good luck figuring that one out, and that's why it's worth focusing not so much on the overall market, but on the fundamentals of the company you're investing in. You know, for all the uncertainty about Wall Street, companies that tend to do the best in the markets are the companies that perform the best. Disney, Mattel, L.A.-based Occidental Petroleum - all in quite different industries and all reporting pretty solid earnings growth.
Susanne Whatley: Speaking of earnings growth, I don’t see 99 Cents Only Stores on your list…
Mark Lacter: That’s because 99 Cents Only Stores was bought by a private equity firm in 2011 and is no longer a publicly traded company. Here's one of the major L.A. success stories going back the last 30 years - but it's also a good example of what can happen if your business is bought out. At the time of the sale the new owners said that the family management team would remain in place. That team began with company founder, David Gold, who many years ago co-owned a liquor store with his brother in law and discovered that the wine he was discounting at 99 cents a bottle sold better than the ones priced a few pennies more. Gold figured that this would work with other items and that’s how the chain got started.
Susanne Whatley: It’s been a real success story.
Mark Lacter: And how. The chain expanded throughout Southern California - and when the economy nose-dived in 2008, business got even better - that was true of all the dollar stores. And that's when the smaller chains were being bought out by the larger chains. Uusually in retail the more stores the better.
Susanne Whatley: So what happened?
Mark Lacter: Well, the new owners had priorities that didn't mesh with the old owners. And so last week, with next to no fanfare, the company issued a press release announcing a new interim chief executive - and also announcing that the Gold family, "were no longer employed by the company." The new owners said nice things about the old owners and the Golds will be leaving with lots of money. Still, it's still a shame when the people who started up a hugely successful business are basically let go. And that appears to have happened here.
Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.