From aerospace to groceries, the new year has brought a potpourri of new recommendations on Washington-area stocks.
Martin Marietta, the Bethesda aerospace giant, could offer a total return -- price appreciation plus dividends -- of about 50 percent during the next 18 to 24 months, believes analyst Anthony Pearce-Batten of Legg Mason in Baltimore. With sales of $4.4 billion last year, Martin Marietta has drawn a series of contracts in the defense-aerospace and information-technology areas that will bring backlog to more than 20 percent above the year-end level of $5.9 billion, said Pearce-Batten. He foresees a role for Martin Marietta in NASA's space station and, perhaps, in the "Star Wars" project.
Martin Marietta's stock was hit in September when the firm said it would add $25 million to its spending for business growth projects, thus cutting into profitability. As a result, Martin Marietta shares dropped several dollars but the stock gained 19.8 percent for the year. Martin Marietta shares closed Friday at $34.25.
On the grocery end, Farm Fresh Inc. of Norfolk, Va., is recovering gradually from a steep profit decline caused by sharp price competition in the Tidewater, Va., area, reported analyst David M. Gass of Thomson McKinnon Securities. The earnings slide has cut the stock price in half -- to about $12 -- creating a buying opportunity for "aggressive acounts," said Gass. The food retailer, which operates 30 stores, "will be able to overcome present difficulties" in the next year or so, Gass said.
Because of takeover speculation, the shares of USAir Group of Washington have moved up about 30 percent in the last three months and should be considered fairly valued, said analyst Mark E. Daugherty of Dean Witter. "We advise investors to use further price strength to reduce positions in the stock," he said. Unlike other analysts, Daugherty does not consider USAir a takeover candidate, and, even if it were, he said he would not expect an offer of more than $40 to $42 a share.
Sallie Mae, more formally known as the Student Loan Marketing Association of Washington, is on the priority selection list of Drexel Burnham Lambert, reported analyst John E. Keefe. "We believe that the market still gives inadequate reward to Sallie Mae's predictable growth, as indicated by our estimate of 12-month total return of 26 percent," he said.
After waiting two years for the profit picture to improve, Columbia First Federal Savings & Loan went public in November at $10 a share. Although there was some gloom among securities analysts about the thrift's financial outlook, the shares were snapped up. Most of the buyers came from the ranks of depositors and management. The stock has since moved up to $15 bid, for a 50 percent increase, and the thrift's first quarter showed a $1.7 million profit (71 cents a share), although the company was spared federal taxes because of previous losses.
If all that made investors happy, recent developments may be making some investors unhappy. At a Dec. 11 meeting, Columbia First directors approved three antitakeover measures, which will come up for a vote at a stockholders meeting in the Hotel Washington Jan. 28 at 2 p.m.
The antitakeover proposals include a five-year ban on anyone acquiring more than 10 percent of the thrift's stock; a five-year restriction on anyone who owns 10 percent of the stock from calling a special meeting; and a suspension of cumulative voting. Under cumulative voting, a shareholder who owns 1,000 shares could cast 1,000 shares for each of the directors running for election, or give his 4,000 shares to one director.
Dewitt T. Hartwell, president of Columbia First, said the purpose of the amendments was to guarantee a "continuity of management and direction." The officials, he said, "who have seen Columbia First through its worst times deserve the right to carry it forward. We don't need the takeover worries. They're costly and divisive," he said. Moreover, if a takeover bid does surface, the measures would allow the thrift officials to deal from a position of strength, he said.
Hartwell said he had not seen much evidence of stockholder opposition to the antitakeover proposals, but one observer noted that anyone who bought the shares hoping for a takeover situation would be disappointed by the effect of the amendments.
On the new-issue calendar: Charles Allmon of Bethesda, the energetic editor of Growth Stock Outlook, soon will start his own closed-end mutual fund. Allmon already manages $215 million in pension and personal accounts. . . Industry sources are expecting a public offering from T. Rowe Price Associates of Baltimore, the mutual-fund giant, to show up in the next couple of months. . . John Hanson Savings & Loan, based in Beltsville, also is planning to sell shares in the near future. . . And Jiffy Lube International, the rapidly growing Baltimore franchise operation, would like to go public one of these days, if it can work out the details.
The list of stocks known as the Shadow 400 -- so named because they generally have escaped the Wall Street spotlight -- easily outperformed both the OTC Composite and the Standard & Poor's 500 in 1985. The shadow stocks soared by 40.61 percent, while the OTC Composite rose 31.36 percent and the S&P 500 went up 26.33 percent.
The Shadow 400 list was developed a year ago by the American Association of Individual Investors (AAII) and included 12 Washington-area companies. When the AAII updated its list recently, the Shadow 400 grew to almost 500 companies, including 22 Washington-area firms.
To get on the shadow list, a company's stock must have a market value of between $20 million and $100 million. The firm must be at least four years old and have two recent years of positive earnings. Its stock should be held by few institutions, and it should not be widely covered by securities analysts.
That is not to say that all of the 500 stocks on the shadow list will go up in price. There will be successes and failures. But companies that pass these tests, said research director John Markese, tend to have "a greater potential for appreciation" than other firms.
Virginia companies on the 1986 list include:
American Filtrona, Richmond; American Furniture Co., Martinsville; Cadmus Communications Corp., Richmond; ERC International, Vienna; Iverson Technology, McLean; Kay Corp. and Kay Jewelers, Alexandria; Martin Processing, Martinsville; Noland Co., Newport News; Open Air Markets, Norfolk; Pulaski Funiture, Pulaski; Rowe Furniture, Arlington; and Smithfield Foods, Arlington.
Maryland and District companies include: Arundel Corp., Baltimore; W. Bell & Co., Rockville; Computer Data Systems, Rockville; Computer Entry Systems Corp., Silver Spring; Fair Lanes Inc., Baltimore; General Physics, Columbia; Gray & Co. Public Communications International, Washington; Insituform East, Landover; and Penril Corp., Rockville.
For a complete list of shadow stocks, write to American Association of Individual Investors, 612 N. Michigan Ave., Chicago, Ill. 60611.
Allied Capital Corp. of Washington, a firm that specializes in venture capital investments, will split its stock 3-for-2 on Feb. 28 for shareholders of record Feb. 7. In a 3-for-2 split, the shareholder gets one additional share for each two shares held. The result will be a 50 percent increase in the number of Allied Capital shares outstanding from 1.738 million to 2.6 million. . .Washington Homes Inc. of Waldorf, Md., also has split its stock 3-for-2, payable Jan. 17 for stockholders of record Dec. 27. It was the second such split in two years.
Washington Real Estate Investment Trust of Bethesda and Federal Realty Investment Trust of Chevy Chase both drew highly complimentary reviews in last week's Barron's from Robert A. Frank, real estate analyst at Alex. Brown & Sons in Baltimore. Frank's views helped keep the stock prices strong in a down market, and Federal Realty moved up to a new high of $17.25.