It was the perfect alignment of the planets for five San Fernando Valley-area public companies.
You may recall that before the current trashing in the technology sector, tech stocks were oh-so-hot. And, after being largely out of favor for years, small-capitalization stocks made a comeback during the quarter that ended Friday--with the Russell 2000 small-cap index posting a nearly 36% gain for the quarter, to best the Dow Jones industrials, the S&P 500 and the NYSE.
That confluence helped propel the five--all tech related and none with a market cap above $600 million--to the top of the list of Valley area public companies with the greatest share price gains in the first quarter.
Leading the group, with a 577.8% gain for the quarter, was Interscience Computer Corp., which is transforming itself into a company that provides data storage solutions for ever-expanding computer operations. The company recently moved from Agoura Hills to Westlake Village.
Next in line was Vertel Corp., the Woodland Hills-based developer of telecommunications software, which gained 289.7% in the quarter.
Rounding out the top five were:
* Brilliant Digital Entertainment, also of Woodland Hills, which produces digital entertainment to be distributed over the Internet. Its shares gained 203.2%;
* DCH Technology Inc. of Valencia, which develops and manufactures hydrogen-fuel technologies, also gained 203.2%, providing some good news for a company that posted a net loss of $3.58 million (or 25 cents per share) last year; and
* North American Scientific Inc. of Chatsworth, which gained 138.9%. The company makes and markets low-level radioactive substances for medical, scientific and industrial uses. It reported record earnings of $1.2 million for the quarter that ended Jan. 31.
Though the product lines vary, the five have in common two crucial threads--size and sector.
Even the largest firm in the group, Vertel, with a market cap of $544 million, still qualifies as a small-cap company. (That term generally applies to firms with a market capitalization of under $1.5 billion.)
And each has at least some tentacles in tech.
"Up until the last couple of days, that's been a good combination," said Peter Sidoti, chief executive of Sidoti & Co., a New York-based small-cap research firm.
Small-caps are "very much coming back into favor. They're coming back with a flurry," he added. "It's amazing how quickly Wall Street can turn on a dime."
It's been a particularly wild ride for Interscience, which emerged from a Chapter 11 reorganization just over a year ago.
"Six, seven, eight months ago, we were trading at 56 cents," said Stephen Crosson, chief operating officer and treasurer of the company, which was incorporated in 1983 as a hardware sales and maintenance concern. The stock, which trades over the counter, was unchanged Monday at $7.63.
Despite Monday's drubbing of the tech-heavy Nasdaq, which shed 349 points for its biggest point drop ever, Crosson said he's not nervous.
"To be honest, no, we're not," said Crosson. "The products we have in development are going to fit in nicely with the needs that people have.
"So the temporary changes in the market right now--or whether or not people are getting nervous about tech--we don't feel that in the longer term that's going to effect us."
The five Valley companies that suffered the largest drop in share price form an odd mix of health care and consumer goods with a smattering of high-tech thrown in.
"I see zero correlation between those five companies," said Emily Straw, senior associate at investment firm Wilshire Associates, who reviewed the list of firms for The Times.
The firms that posted the largest drops were:
* Chatsworth-based Natrol Inc., which makes and markets branded dietary supplements, including vitamins, minerals, and herbal products. Natrol lost 26.78%, to post the greatest loss of the quarter. In February, the company was downgraded to "buy" from "strong buy" by analyst Yudhi Bahl at U.S. Bancorp Piper Jaffray.
* Calabasas-based THQ Inc., which lost 22.91%. THQ develops, publishes and distributes interactive entertainment for several game platforms. The stock closed Monday at $17.94, a step drop from last fall, when it was trading in the $40 range.
* Highland Federal Bank, part of Burbank-based Highland Bancorp Inc., which lost 21.05% for the quarter. For 1999, the company posted net earnings of $10.04 million, or $2.25 per diluted share, compared with net earnings of $8.59 million, or $1.80 per diluted share for 1998.
* K-Swiss Inc., which gave up 20.27%. In January, the company was downgraded to "accumulate" from "buy" by analyst John J. Shanley at First Security Van Kasper. The 12- to 18-month target price was set at $25 per share--more than $10 higher than Monday's closing price of $14.50 and less than half of the $59.81 the
company hit last May.
* Foundation Health Systems Inc., which lost 19.50%. The Woodland Hills-based health insurer reported a 45% jump in fourth-quarter earnings to $37.4 million, or 31 cents a share, a penny better than forecasts.
While failing to detect a pattern, Straw did note that some of the companies saw share price drops while also posting earnings growth.
"You have 'positive' earnings companies with very strong fundamentals that are being beat up, by this marketplace or being ignored," Straw said.
But she said given market activity in March, and the resurging interest in Blue Chips, some stalwart Valley firms may fare better in the months ahead.
"The value companies have come back in favor," she said. "And the fundamentals are beginning to be recognized again."
Valley@Work runs each Tuesday. Karen Robinson-Jacobs can be reached at Karen.Robinson@latimes.com.