Atlantic Research Corp. has long been one of the storybook stocks of the Washington area -- with profits that have grown at 20 percent a year during the past five years.

As a result, the value of ARC shares has risen steadily. ARC stock moved up 7.7 percent in 1984, another 15.6 percent in 1985 and 16.5 percent in 1986. But 1987 has not been quite as kind to the Alexandria-based rocket maker.

This year, ARC's shares are down 11.5 percent, the victim of concerns about government defense spending, disappointing earnings in the first half of the year and the monetary and emotional costs incurred in fighting the takeover efforts of Clabir Corp. of Connecticut, which owns the General Defense Corp.

But now, it appears, the prospects might be brightening for ARC, reports Eliot H. Benson, research director at Ferris & Co. in Washington.

For one thing, ARC's operating results look like they will improve in the second half of this year. Benson believes that ARC's earnings for 1987 will rise to $2.10 a share from $1.86 in 1986. The company has been receiving new contracts, and its backlog of work has been growing.

Analyst Guy P. Chance at Scott & Stringfellow agrees. He looks for earnings of $2.12 a share this year, $2.55 for 1988 and a 12 percent to 15 percent earnings growth in the future.

The forecasts of both analysts are in line with a recent statement by ARC President William H. Borten, who told shareholders, "We continue to be optimistic that earnings for the full year of 1987 will exceed last year's results by 10 to 15 percent."

However, the other half of the Atlantic Research story involves the 1.14 million shares of ARC stock that are still being held by Clabir, stock that Clabir bought for about $30 million. Clabir hit a solid wall of opposition when it tried to push for a merger with ARC. There were angry words and talk of legal action. Then Atlantic Research bought ORI Group of Rockville, and the stock issued for the purchase diluted Clabir's 12.4 percent holdings in ARC.

Meanwhile, Benson notes, Clabir has encountered severe financial problems, reporting a loss of $11.7 million for the July quarter and a total loss for the first half of its fiscal year of $15.5 million.

Part of its loss was a $3 million drop in the value of its ARC stock, bought at about $26 to $28 a share and now trading at about $25.

In announcing its losses, Clabir indicated it was considering the sale of some of its assets. Benson said he believes that could mean Clabir might sell its Atlantic Research stock.

"The sale of the stock to institutional investors, or to Atlantic Research, now seems a reasonable prospect," Benson said. "Clabir's efforts to acquire ARC have made no visible progress and the burden of carrying the investment has become a much greater problem with the deterioration of Clabir's earnings."

The question is whether Clabir would be willing to take a loss to get out of the stock. That might be difficult for it to do.

Until Clabir's intentions become clear, its ownership of such a big block of ARC shares will continue to cast a pall over the stock. Investors not only dislike uncertainty, but they also might wonder what will happen to the price if the Clabir stock suddenly goes on sale.

At ARC, W. Gerald Hamm, executive vice president, said ARC officials had heard nothing more about what Clabir would do. Clearly, the ARC folks would be pleased if Clabir went away.

An investment broker, G. David Frankel of Advest Inc., in Rye, N.Y., has bought 605,000 shares of Flow General of McLean for $3.3 million. Of that, 235,000 shares were bought by the George and Elizabeth F. Frankel Foundation for $1.2 million and the other 370,000 shares were bought by Frankel himself for $2.1 million. The shares were bought during the summer at an average cost of about $5.50 a share.

The purchases gave Frankel a 6.8 percent interest in Flow General, but he told the Securities and Exchange Commission that he bought the shares only for investment purposes. Flow General President Robert E. Wengler said Frankel was a longtime supporter of the company and he was pleased to see Frankel's investment.

For some time now, Flow General has been struggling to complete its turnaround from several years of losses. The company wound up its 1987 fiscal year recently at about the break-even stage, blaming its domestic biomedical business for a drag on profits. However, sales leaped to $208 million from $165 million.

Flow General stock, which opened the year at $4.88, closed Friday at $7.63, up 56.4 percent since Jan. 1.

Shareholders of Hitech Engineering Co. of Herndon have approved a 1-for-10 reverse stock split. The company said the split would reduce the number of shares outstanding to 2.033 million and would be effective within 60 days. Hitech, which started as a penny stock three years ago, has traded at between 18 cents and 50 cents in the past 12 months. Hitech President Francine J. Prokoski said the reverse split was intended to accomplish two things: to get the shares out of the penny-stock mode and to position the company for a new public offering in the near future. When the reverse split takes place, if the stock is selling for 38 cents, as it was Friday, the price would change to $3.80. Hitech specializes in the Tempest technology, which involves protecting computers from electronic eavesdropping.

C3 Inc. of Herndon, a computer services company, is spinning off its subsidiary, Tempest Technologies Inc. Tempest will offer 2 million shares at a price of between $8 and $11 a share. Of that amount, half the shares will be sold by the company and half by current shareholders.

The underwriters are Donaldson, Lufkin & Jenrette of New York and Wheat, First Securities of Richmond.

C3, which owns 81 percent of Tempest Tech, will sell 650,000 shares, reducing its holdings to 62.8 percent. At a midrange price of $9.50, the shares would be worth $6.2 million. Tempest Tech President Delaney E. Blaine will sell 110,526 shares, which at $9.50 a share would be worth more than $1 million. The sale will reduce his ownership from 6 percent to 3.9 percent.

Several other Tempest executives also will sell blocks of stock.

For the 1987 fiscal year ending March 31, Tempest earned $2.6 million on $18.7 million in sales. Per-share earnings came to 38 cents.

A public offering is under way for First Liberty Bancorp Inc., a proposed bank holding company for the new First Liberty National Bank of Washington. The bank is offering 750,000 shares at $10 a share. The bank will use the funds raised to help launch its business. The bank said it will "emphasize providing banking services to business, professional and international customers, including members of the Asian Indian/non-Indian community located in the bank's service area."

The prospectus noted that large numbers of potential customers work in Washington at the World Bank, the International Monetary Fund, various embassies, universities and hospitals.

"Large concentrations of professionals, both Asian Indian/non-Indian and otherwise, work in these organizations. This group includes doctors, economists, attorneys, college professors and others. ... "

The bank indicated it believes it can offer unique services to its customers.

"Many businesses begun by first- and second-generation Asian Indian/non-Indian immigrants residing in their bank's proposed service area are family-run units, such as grocery stores catering to ethnic needs, distinctive restaurants and specialty shops, as well as a variety of other business entities. The organizers believe that these businesses often experience difficulty in obtaining services from existing financial institutions due to barriers of language and culture," the prospectus said.

William E. Sommers will be the president of the bank. He was formerly vice president for business development in the commercial real estate division of First National Bank of Maryland. Vidya N. Singh, an economist, is the chairman of the bank.