American Security Bank's stock went for a short, but wild, ride last week.
It began after a foreign securities dealer, acting for one of his European customers, asked Paine Webber in New York to put in a "sell program" for 6,000 to 8,000 American Security shares a day.
The daily price was to be determined by the high-low average at the close of each day -- a technique that traders hate. By the time the sell program was finished Friday, some 30,000 shares had been unloaded, but not before the episode angered just about everybody involved.
Jack Genovese, the Paine Webber trader who handled the deal, called the sell-program method "totally insane" and said he lost money on the first day because the stock was so volatile. Johnston, Lemon & Co.'s chief trader Pat Ryan was unhappy because he could not find out the total number of shares that were going to be sold, creating an atmosphere of uncertainty that caused him to lower his bid. Ryan said he much prefers to know how much stock someone wants to sell, and at what price, so he can work it out without upsetting the market.
American Security, meanwhile, was upset because the selling deluge took place just a few days before the bank was due to report its third-quarter earnings. The falling stock price might have led some investors to believe bad news was coming. As it turned out, American Security's quarterly earnings were up 42.9 percent.
The week's gyrations knocked the price of American Security shares down from $27 to $24, which brought buyers into the market. By Friday, the bank stock had bounced back to $28. Ryan said he thought the result of the sell-program was that the European owner got considerably less money for his stock than he might have.
Ferris & Co.'s research director Eliot Benson said his firm started buying American Security stock when the price fell to the $26-to-$24 range. That was far under the $33 price it reached earlier this year, but within his $26-buy limit. Benson said he is high on American Security because of its rising level of profitability, rising book value, and its continuing desirability as an acquisition candidate.
Martin Processing Inc. of Martinsville, Va., with stock that soared 442.4 percent, from $14.75 a share in January to $80 a share one week ago,, took a spectacular dive Thursday and Friday, dropping off to $54.75, a loss of 32 percent.
It began falling when word got out that analyst John A. Baugh of Wheat First Securities Inc. of Richmond had made an internal recommendation to sell. This was followed by a Martin Processing announcement that it had hired Dillon Read & Co. Inc., of New York, to advise it on the possible sale or merger of the company, in light of the recent death of founder Julius Hermes.
Martin, which dyes yarn and plastic film, said its action was "partially motivated by the desire of the Hermes family to diversify its financial holdings." The two events were greeted by a torrent of sell orders, forcing the American Stock Exchange twice to halt trading because of an imbalance of orders. Although talk of a sale or merger generally boosts stock prices, observers guessed that Martin's value in a sale was possibly only about $50 a share, far less than the going price of the stock.
After selling at $2.63 a share for many weeks, the stock of Sutron Corp. recently moved up sharply to $4 a share on unusually heavy volume. The 52 percent rise came as 215,000 shares changed hands during the week that ended Friday, Sept. 27. Then, during last week, the stock dropped back to $3.38.
Sutron's president, Kenneth W. Whitt, attributed the flurry to a favorable item in a financial newsletter called Investing in Crisis, published by Douglas Casey, a Washingtonian who lectures at investment conferences around the world and recently moved to Hong Kong. Casey said Sutron "should grow substantially, as should the price of the stock."
Sutron is a 10-year-old water resources management firm that designs, manufactures and markets electronic systems that gather weather information, measure manufacturing processes and evaluate military exercises.
Whitt said that, aside from the Casey recommendation, he knew of no other reason why the price of the stock would jump, although Sutron had received three new contracts during the last week of September. The largest was a $700,000 Air Force award to install new wind-speed and wind-direction sensors at Air Force bases. If the equipment passes its tests next fall, Whitt said, the Air Force could buy up to $6.5 million of the equipment.
Sutron, located in Herndon, Va., showed a $376,000 profit (10 cents a share) on $4.8 million in revenue in 1984, and is expected to do about $5.5 million in sales in 1985. However, 1985 profits are expected to be only slightly improved. Whitt noted that the company has been developing new products, and said that research and development costs will cut into the bottom line.
"It's hard to get the revenues and the profits to go up together," he said.
The company's goal is to win more contracts in the $5 million to $10 million range and above, he said.
Sutron went public two years ago at $10 a unit. Each unit included four shares and four warrants, making the shares worth $2.50 each. Since then, the stock has dipped to as low as $1.75. The $4 close was a new high. The warrants give the holder the right to buy one share of stock for each warrant at a cost of $3, an option that expires on Nov. 5.
Although there are 3.7 million shares outstanding, Whitt said, about 75 percent is held by officers and insiders. That makes for a small "float" -- the amount of stock available for trading -- and volatile price action.
In February 1984, three former MCI executives set up their own firm, Spectrum Digital, in Herndon. Their goal was to get into what they believed was a growing market for sophisticated telecommunications equipment. The company made its initial public offering that May and raised $3.6 million after commissions by selling $2 units, which included one share of stock and one warrant.
With that money in hand, Spectrum began developing mircrowave communications systems and a device called a networking T-1 multiplexer, which is used for in-house, computer-controlled voice and data communication. A multiplexer can sell for $40,000 to $400,000; microwave communications systems for $12,000 to $15,000.
To get production under way, Spectrum needed another round of financing, so the firm recently talked with Bear and Co. of New York; Bear found private investors willing to put up $1.7 million. In return, the investors received 17,000 shares, at $100 a share, of something called "an $8 series A cumulative convertible exchangeable preference stock." Simply put, these shares will pay the investors 8 percent interest and will be convertible to common stock at $1.25 a share any time after Jan. 31, 1986.
Next month, Spectrum expects to offer the public 500,000 shares of the same type of stock, at $10 a share, to raise $5 million. The conversion price will depend on the common stock price on the offering date.
With the approval of shareholders, Spectrum also rearranged its corporate stock categories, leaving Spectrum with three trading categories. The most important is 7.8 million shares of common stock outstanding (out of 20 million authorized). Of the 7.8 million, about 5.7 million shares are in the hands of company insiders. Then there are the original units, consisting of one share and one warrant. And finally, the warrants,which were recently extended until Dec. 31, 1986.
On Friday, Spectrum stock closed at $3, the units at $3.87 and the warrants at 44 cents.
Lee Horton, Spectrum's chief financial officer and one of its founders, said the company is cheered by an increasing flow of orders and is moving to a new Herndon location, where it will have more production space. Having sustained losses of $3.7 million since the its founding, Spectrum is eager for profits. Horton said he hopes to see several millions of dollars in sales by early next year, and believes Spectrum will tally profits by the second quarter of 1986.
The two other MCI executives who started Spectrum with Horton are Robert Bernardi, chairman and chief executive officer, and John Mann, president. Horton said the founders were not sorry they left MCI.
"It's been a challenge," he said. Fortunately, he added, the firm got into "a very good market at the right time."