If blue is your favorite color, you're probably smiling all the way to the bank. While almost all stocks took it on the chin in April, May and June, it was the blue chips that bounced back. Secondary stocks, including many in the Washington area, lagged badly.
Investors should be thankful, perhaps, for the June optimism that accompanies weddings and graduations. The optimism also seemed to produce a rising dollar and a falling trade deficit and helped repair the damage to blue chip prices.
The Dow Jones industrial average of 30 stocks opened Jan. 1 at 1895.95 and closed Friday at 2436.86. With two trading days left in the quarter, the Dow has gained 541 points, a rise of 28.5 percent, for the first half of the year. But only 5.7 percent was gained during the second quarter.
Similarly, the S&P 500 opened the year at 242.17, and closed Friday at 307.16, for a first-half gain of 26.8 percent. The index's second-quarter gain was only 5.3 percent.
The bad news was found in the Nasdaq index, home of many secondary stocks. A roaring success early in the year, Nasdaq rose 23.3 percent in the first quarter but ended the second quarter with a 0.78 percent loss. The American Stock Exchange could only eke out a 1.5 percent second-quarter gain.
Washington area stocks had a rough time. The Johnston, Lemon index of 30 top-flight Washington area stocks gained 17.5 percent for the six months but only 1.1 percent in the second quarter.
The 180 stocks listed in the Washington Business area stock table did much worse. The stocks, averaging $20.65 in January, rose to $24.17 in March but dropped back to $21.70 Friday, for a 10.2 percent loss.
The secondary stock lag hit two of the three Washington area mutual funds.
The Washington Area Growth Fund, operated by the Calvert Group, gained 17.5 percent in the first quarter. But its net asset value dropped from $21.68 in March to $21.33 Friday, a loss of 1.6 percent.
Portfolio manager Joseph A. Clorety III said he anticipated a falling market and took profits in several stocks, including Gannett Co., The Washington Post Co. and Circuit City. He raised his cash to 20 percent and invested 25 percent of his fund in financial stocks, which are relatively cheap because investors fear rising interest rates. These stocks, he said, eventually will move.
Similarly, the Southeastern Growth Fund, run by Wheat, First Securities, also fell. Up 18 percent in the first quarter, it slid from $14.86 in March to $14.42 Friday, a drop of 2.4 percent. Page Reece, a vice president, said the fund was hurt because 20 percent of its holdings are in financial companies.
However, the Growth Fund of Washington, run by Johnston, Lemon & Co., which gained only 15.8 percent in the first quarter, bested its competitors in the second quarter by hanging onto local blue chips. The Growth Fund rose from $12.71 in March to $13.14 Friday, for a gain of 3.4 percent. Harry J. Lister, head of the fund, said performance was helped by large gains by Gannett and The Post, and by the rising prices for Giant Food and CSX Corp. shares.
Jack R. Jones, president of Rucker Enterprises Corp., and David S. Dodrill, executive vice president of George H. Rucker Realty Corp., both of Arlington, have bought a major stake in CFS Financial Corp. of Fairfax, the holding company for Continental Federal Savings Bank. Jones, Dodrill and their associates told the Securities and Exchange Commission recently they have acquired 150,000 CFS Financial shares, or about 5 percent of the thrift's stock. The shares cost $3.1 million.
Jones is a director and former chairman of CFS Financial. His father was one of the founders of First Federal Savings and Loan Association of Arlington, one of the thrifts that evolved into CFS Financial. Jones referred inquiries to attorney John E. Harrison, who said the Jones group bought the stock for investment purposes and, indeed, had bought stock in five or six other area financial institutions. CFS President Allan R. Plumley Jr. said, "It is an appropriate purchase by a known and trusted investor."
It was not clear whether the Jones group would acquire more shares.
The only other investor holding a major block of CFS stock is real estate developer Albert Abramson of North Bethesda. Abramson holds 196,000 shares, or 6.54 percent of the stock. Insiders hold another 6 percent, so most of the 2.9 million shares are spread out.
CFS Financial, with $900 million in assets and 26 offices, could easily become an acquisition target of a major financial institution such as NCNB of North Carolina or a nonbanking company such as a real estate firm, utility or retail business.
By accumulating a major stake in CFS, Jones, Dodrill and their associates could profit if CFS were to be bought out at a healthy premium. But their big block of stock also gives them a lot of "no" votes if they think an offer is too low or if they don't like the type of merger that is proposed.
Officials at Verdix Corp. in Chantilly are cheering their new agreement with AT&T Corp., which licenses AT&T to use the Verdix Ada system on AT&T computers. Ada is a programming language the Defense Department has mandated for military use. AT&T will pay Verdix a licensing fee for Ada but, more importantly, AT&T will pay Verdix a royalty for every Ada computer system AT&T sells to defense agencies.
The big unanswered question is: How many of the Ada systems will AT&T sell to the government? Nobody knows, but if AT&T does well, Verdix -- which has been in a slump -- will do well. Verdix rang up $3.8 million in sales in fiscal 1986, ending March 31, but lost $836,000. For the first nine months of fiscal 1987, Verdix took in about $4 million but lost $625,000.
For the full 1987 year, analyst May G. O'Leary of Baker, Watts & Co. estimates that Verdix will take in $5.3 million, with a loss of $610,000.
While Verdix has been struggling with profitability, its stock has been taking a beating, falling under $2 a share and dismaying many who bought the shares at $6 or $7. The firm's downhill slide forced Verdix to revamp its management and cut expenses.
There's lots of action in the shares of Isomet Corp. of Springfield.
Isomet opened the year at $2.63 a share, moved up to $3.50 in March then drifted back to $1.50 in May. In the first week of June, it suddenly doubled to $3. By the second week, the stock bounced to $4.25, for a two-week gain of 141 percent. By the third week, the stock was back to $3.50 and it closed Friday at $3.75. Volume has been unusually heavy.
Why all the gyrations? Jerry W. Rayburn, Isomet's treasurer, said he didn't know of any news that would have caused the stock to jump. But he noted that Isomet acquired a new market-maker in its stock, Barrett & Co. of Providence, R.I. Indeed, Barrett broker James Connell said he had been buying Isomet shares. "We like the stock a lot as a turnaround situation," he said.
Isomet makes high-technology laser control devices and systems for use in information handling, military, industrial and graphic arts markets. Isomet turned in a marginally profitable year for 1986, but the firm's backlog grew from $2.3 million to $3.8 million. In the first quarter of 1987, Isomet lost about $30,000 on revenue of $1.6 million.
A Richmond insurance company, Hilb, Rogal and Hamilton Co., will offer 1.1 million shares at $10 to $12 a share in an underwriting by Alex. Brown & Sons. The company will sell 660,000 of the shares. At the mid-price of $11 a share, the firm would raise $7.26 million before commissions. The other 440,000 shares will be sold by officers, directors and associates for $4.84 million. Robert H. Hilb, president of the firm, will sell 27,400 shares, worth $301,400. Alvin Rogal, executive vice president, will sell 25,400 shares, at $279,400. The biggest block -- 120,000 shares valued at $1.320 million -- will be sold by John D. Baumhauer Jr., retired head of the Mobile, Ala. office.
The firm provides insurance services through a network of 17 agencies in 11 states. It has grown by acquiring independent agencies and says it will continue to add new agencies. The firm ended 1986 with $30.5 million in revenue, $1.8 million in profit and earnings of 66 cents a share -- a 20.5 percent gain in revenue and a 16 percent gain in profits.