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THE TIMES 100 : VIEW FROM THE STREET : Growth Stocks of the '80s Become Falling Stars


As a mileage chart for the distance California has traveled from its economic heyday, the Market Value 100 list says bundles this year.

Many of the growth stocks that symbolized the Golden State's boundless consumption mania of the 1980s--from fashion trendsetter Gap Inc. to technology wizard Apple Computer--are fading in importance in the market's cold eye.

What Wall Street is glorifying instead these days are conservative, almost plodding companies that offer a decent dividend return and a low probability of sudden product irrelevance--electric utilities, for example, and, oddly enough, some defense companies.

The shift shows up in two elements of the market value chart: the actual rise or decline in each company's market value, which is simply current stock price times number of shares outstanding; and market value as a percentage of "book," or asset, value.

Some examples to illustrate:

* Hurt by slowing sales and earnings as consumer spending has ebbed, Gap has seen its market value tumble from $5.65 billion a year ago to $4.65 billion now, an 18% drop, as its share price has skidded with its outlook.

Meanwhile, the market value of steady-as-she-goes SCEcorp., parent of Southern California Edison, has zoomed 21%--from $9.16 billion to $11.05 billion.

* Drug maker Syntex Co.'s market value was 965% of its book value a year ago, meaning the firm was priced in the market at a lofty 9.65 times the theoretical liquidation value of its assets.

Today, Syntex's market-to-book ratio has been hacked to 3.61--indicating a much less rosy view of the firm's potential as the federal government threatens price controls on drugs.

At the other end of the spectrum, the market's improved opinion of oil giant Chevron Corp.'s future has boosted its market-to-book ratio from 1.54 a year ago to 1.90 now.

Of course, the shift in perception of these California companies merely tracks what has gone on at the national level: Consumer stocks of all types have been trounced over the last year as many of those companies have lost pricing power in a slow economy.

At the same time, investors have increasingly sought so-called value stocks--industrial firms, banks and utilities whose growth prospects are predictable if relatively unexciting. To boot, these companies often pay high dividends, which have become even more attractive in an era of low interest rates.

Naturally, this market shift hasn't been absolute, in California or elsewhere. Investors can still get excited about a growth stock, if the growth is real. Computer software firm Oracle Systems, for example, has seen its market value rocket from $1.83 billion to $5.24 billion over the last year, more than doubling its market-to-book ratio as well.

And John Skeen, director of research at Montgomery Securities in San Francisco, notes that many of the fastest-growing California companies are too small to make the $620 million cutoff of our Market Value 100 list this year. Logically, larger companies are more likely to be classified as value stocks than growth stocks, simply because fast growth is harder to achieve when a company already is of significant size.

Despite all the talk about a return to conservative investing, Skeen notes, "There are still a lot of emerging growth companies that are working their way up the valuation ladder."

He cites such hot 1992 new-stock issues as Calabasas-based restaurateur Cheesecake Factory, which his firm brought public at $20 a share, and which now trades around $27 in the NASDAQ market (for a market value of $167 million); and Carlsbad-based golf club maker Callaway Golf, which has rocketed from a $10 offering price to about $33 now on the New York Stock Exchange, giving it a market value of $470 million.

Nonetheless, there is no mistaking the market's overwhelming desire for value over growth today. Of the 65 companies on our list that show a higher market-to-book ratio than a year ago (versus 35 whose ratios have declined), most of the big gainers are value stocks.

They include utilities such as SCEcorp. (now priced at 1.86 times its book value, compared with 1.47 a year ago) and Pacific Gas & Electric, banks such as Wells Fargo (1.83 versus 1.02) and BankAmerica, and defense contractors such as Northrop and Lockheed (1.88 versus 1.13).


Meanwhile, most of the state's best-known growth stocks--including biotech leader Amgen Inc., toy giant Mattel and HMO Pacificare Health--have registered major declines in their market-to-book ratios. Amgen was priced at a whopping 1,465% of its book value a year ago; that figure now is 505%.

Could this market shift from growth to value be little more than a temporary affair?

Doubtful, says Geraldine Weiss, whose La Jolla-based newsletter Investment Quality Trends has been monitoring the market for 27 years. Stock prices overall are far ahead of the economy's fundamentals, Weiss argues. The average blue chip stock's market-to-book ratio of 2.78 is near the all-time high, she notes.

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