The bluest of the blue-chip stocks in the Washington area belongs to the Marriott Corp., whose cash registers rang up more than $4 billion in sales last year and whose investors watched the value of their shares multiply five times during the past five years.
A truly dramatic leap in Marriott stock took place last week. At one point, the shares soared to $162.50, after adding $11.75 on Wednesday. By Friday, the stock had drifted down $1.50 to close at $161, making the rise for the week $15.50, or 10.6 percent.
That's the sort of gain that makes a Washington investor wish he had never heard of hindsight. At the beginning of 1981, shares of the hotel and food service company were selling for $31.75 each.
A good chunk of Marriott's rise during the past five years came in 1985 when the stock moved from $73.50 to $107.88, an increase of 46.8 percent.
Since then, the Marriott boom has continued unabated. From Jan. 2 to Friday, Marriott shares moved from $107.88 to $161, a gain of 49.2 percent in 15 weeks.
All in all, the growth from Jan. 2, 1981, to last Friday was 407 percent.
Marriott's performance in the market has not surprised securities analysts.
Analyst William Trainer of Merrill Lynch has rated the stock "above average" on a medium and long-term basis. That's Merrill's second-highest rating.
The run-up in Marriott shares, Trainer believes, is attributable to two reasons. One is the problem of terrorism. The other relates to the fundamentals of Marriott's business.
With terrorism in the news so much, Trainer said, "The market is focusing in on Americans staying at home, rather than going abroad. Marriott is an obvious beneficiary."
On the business front, Trainer said, Marriott looks strong in many ways. The company has a record for high growth and high returns, a strong consumer orientation, astute financial management and the ability to expand rapidly and successfully.
Marriott's highly regarded track record for sales and profits is visible in its recently published 1985 annual report and its first-quarter earnings statement.
In 1985, Marriott showed a 20 percent gain in profits, which rose to $167.4 million ($6.20 a share). Trainer said he looks for earnings of $7.40 for this year and $8.60 for 1987. On a five-year basis, the annual growth rate of Marriott profits has been a solid 19 percent. Trainer foresees an 18 percent growth rate for the next five years.
Meanwhile, first-quarter results reported last week confirmed the 1985 trend. Sales were up 18 percent, profits were up 23.4 percent and earnings per share were up 20.19 percent.
All of this news, coming together, clearly helped encourage the swift rise in Marriott stock last week.
Marriott, it should be noted, remains a favorite of institutional investors, such as pension funds. Marriott has 26 million shares outstanding, of which 10.3 million shares are held by 212 institutions.
The Marriott Corp., many Washingtonians will recall, began with a small root beer stand that J. Willard Marriott started in 1927. Today, Marriott Corp. operates in 48 states and 27 countries, with 154,000 employes. The company operates 149 hotels and hundreds of restaurants and serves more than 2 million meals a day.
Despite the size of his company, President Bill Marriott Jr. still is building. "Our growth strategies," he wrote in his annual report, "are designed to take us to $10 billion in sales and $400 million in net income in the early 1990s."
At the rate Marriott Corp.'s been growing, that forecast has a reasonable ring to it.
Dean Witter analyst Joel H. Krasner has moved his investment opinion on Black & Decker Co. stock from a "buy-hold" to a "hold," and suggests the stock of the Towson, Md., firm be held for better days.
"By late 1986," he wrote, "we expect order rates will improve, as economic conditions now suggest households are likely to begin buying more small appliances, while cost savings from the restructuring should begin to benefit earnings in early calendar 1987. In the interim, we expect the stock to trade in the $18-$25 range."
Krasner, meanwhile, is carrying a "hold-OK to sell" opinion on PHH Group, the vehicle management and home relocation service company in Hunt Valley, Md. "PHH Group continues to suffer from weakness in employe transfer activity, a loss at U.S. Mortgage, a low vehicle turnover rate, and reduced investment income generated by a decline in interest rates," Krasner wrote. "We do not expect any meaningful improvement until economic activity strengthens . . . . "
Malcolm Bund, a 39-year-old management consultant, says he has raised more than $2 million from 20 wealthy Washington investors to get into the business of buying older, "smokestack" companies. The investors' money is going into the Bund Capital Limited Partnership, a fund devoted to leveraged buyouts. In a leveraged buyout, the purchaser acquires a company with borrowed funds, using the assets of the company as collateral for the loans. Borrowings typically are paid back out of company operations and by selling parts of the company.
The limited partnership, offering 20 units at $150,000 each, will raise $3 million, if fully subscribed. Bund expects investors to receive a 25 percent annual return on their investment but says there are no guarantees. Because there will be losses in the first year, Bund says, investors can expect a $15,000 per unit tax deduction.
Bund will seek out private companies where the owners are ready to sell. He is particularly interested in companies with large amounts of plant and equipment and good records of profitability. He will not try to not mount the sort of unfriendly takeovers of public companies that are so common these days. His reason is simple. "We don't have enough money," he said.
Bund will have enough money, he believes, to undertake deals worth $3 million to $15 million, involving companies with sales of from $10 million to $100 million.
Bund, who is from Australia, won an MBA from the Wharton School at the University of Pennsylvania and has worked in Washington for 10 years. During this time, it seems, he's made friends among people who have money to invest. And although he is reluctant to name his investors, he says:
"What I've got is a group of wealthy individuals committed to me as their quarterback to find companies to purchase."
Hot off the drawing board at the Big Board is the "NYSE Beta Index," based on 100 NYSE stocks with high betas. A beta measures a stock's price movement in relation to all other stocks. The beta of the market as a whole is 1, and a stock is considered less volatile than the market if its beta is under 1 or more volatile if the beta is over 1.
The average beta of the 100 stocks in the new index is 1.7, meaning the stocks are more volatile, more aggressive and riskier than the overall market.
NYSE Vice President David Krell said the exchange's goal was to create an index that measured a different segment of the market, one not tracked by the Standard & Poor's 500 and other indexes that measure broad market performance and direction. As a result, the NYSE Beta Index will tend to move more than the general market. "It will tend to outperform on both the upside and the downside," Krell said.
That makes the NYSE Beta Index a useful hedging device for investors whose portfolios are heavily weighted with growth or other high beta stocks, Krell said. It also is likely to put an extra twist on the stock index game. Bulls and bears, alike, will find that what goes up faster also will come down faster.
Heilig-Meyers, the Richmond furniture retailer, will sell 850,000 shares to help pay for its recent acquisition of Sterchi Bros. Stores Inc. Heilig-Meyers has 214 stores in 10 states. Heilig-Meyers stock is selling at about $34 a share. At that price, the company would raise about $28.9 million, before commissions.