For the first six months of 1996 trading, the stocks of many Central Pennsylvania companies followed the hard-charging markets and posted big gains.
Forty area companies listed on the New York Stock Exchange, American Stock Exchange or NASDAQ are based in Central Pennsylvania or employ more than 1,000 people in the area.
Of these 40 companies, 25 saw their stock prices rise, while 15 saw the price of their stock decrease. In general, stock-price declines were modest.' But stock-price increases were often substantial and -- in some cases -- eye-popping.
Stock price increases of more than 10 percent were turned in by a host of what one analyst called growth companies like Hershey Foods Corp. (up 12.9 percent), Harsco Corp. (up 15.7 percent) and York International Corp. (up 10.1 percent).
Kenneth G. Mertz, chief investment officer for Homestate Pennsylvania Growth Fund, Lancaster, said these types of companies, which have been growing at a faster rate than the economy, have largely been the strength of this phase of the bull market.
The strength of the bull market is evident in the broader indexes. The Dow Jones Industrial Average rose 537.5 points, or 10.5 percent. The Standard & Poors 500 index rose 54.7 points or 8.2 percent. The NASDAQ index rose 132.7 points or 12.6 percent.
Not bad, considering that inflation ran at about 2.8 percent during the same period, according to the U.S. Bureau of Labor Statistics.
There were also shooting stars like JLG Industries Inc. (149.6 percent), Penn National Gaming Inc. (72.9 percent) and Harley-Davidson Inc. (43.1 percent). These companies benefited from strong markets for smaller capitalization stocks. They also got a boost from their own stellar earnings momentum, one analyst said.
JLG more than doubled earnings in 1995 from 1994 and sales are six times what they were in 1993.
Penn National continues to open off-track betting parlors in Pennsylvania. Harley-Davidson has announced that it will build a second motorcycle manufacturing plant to meet a huge backlog of orders for its most popular models.
But the picture of clean, rosy returns of many Central Pennsylvania stocks was clouded by stock-price drops at financial institutions big and small. Harris Savings Bank, CoreStates Financial Corp., Dauphin Deposit Corp., Financial Trust Corp., PNC Bank Corp., Donegal Group and Walshire Assurance Co. were among the financial companies whose stocks lost ground. Drops ranged from 19 percent to less than 1 percent for this group.
Other bank stocks' prices like Fulton Financial Corp., Community Banks Inc. and Keystone Heritage Group Inc. (parent of Lebanon Valley National Bank) dropped more than 9 percent, but their listed prices were misleading. according to analysts. Fulton and Community Banks Inc. gave their shareholders 10 percent stock dividends and Keystone Heritage split its stock 5-for-4 during the six-month period.
"I'm surprised that they (bank stocks) didn't back off more," said James Schutz, senior banking analyst, Chicago Corp. "There's concern about where future growth will come from. There's also turmoil over (electronic banking) technology."
PNC, according to Mertz, is finished with acquisitions until it can assess the future direction of computerized and electronic banking.
But Schutz also blamed the calming of merger mania.
"Recently, there hasn't been much in the way of acquisitions in your area or nationally," he said. "With acquisitions, their stock prices go up and otherwise they sort of drift."
James Durrell, executive vice president and chief financial officer of Harris Savings Bank, offers several reasons for his company's standout 18.8 percent stock drop. Earnings dropped from about $2.7 million in the first quarter of 1995 to $1.7 million in the first quarter of 1996. Half of that drop could be attributed to a change in accounting rules, he said. In addition, the bank has expenses in the first and second quarters related to its recent acquisition of First Harrisburg Bancorp.
The only bank defying the trend for bank stocks was Keystone Financial, parent of Pennsylvania National Bank and Keystone Financial Mortgage Corp., which saw its share price advance by 11.7 percent. Bank officials attributed this gain largely to an analyst report issued by UBS Securities, New York, on June 19 entitled "The Outlook for Bank M&A: Here Comes the Second Wave of Bank Consolidation." Analysts Thomas H. Hanley and Phillip J. Carter of UBS listed Keystone Financial among their top 12 "takeout" candidates.
Mark L. Pulaski, senior executive vice president and CFO of Keystone Financial responded to the takeover listing, saying: "These lists are quite common, and Tom Hanley has had us targeted for a long time.
"That's a logical conclusion from his standpoint, but that's not what we're trying to achieve."
Pulaski said the company's earnings and position in the market are attractive to banks trying to break into the Central Pennsylvania market.
He said Keystone's first-quarter earnings were very good, as were the market's earnings expectations for the rest of the year, which could account for the rise in stock price.
"There was an element of undervaluation relative to peer banks, and that's been corrected."
Rite Aid Corp. posted a 13.1 percent loss, which the company attributed to the failed takeover of Revco.
"I think our stock had been bit up a bit because of the Revco transaction ... Obviously that was something disappointing," said Frank M. Bergonzi, executive vice president and CFO, Rite Aid Corp. "In addition, we had to take a 12 cent per-share charge in the first quarter related to that transaction."
Giant Food Stores Inc. of Carlisle is a small part of its Netherlands-based parent company, Royal Ahold. But Ahold shone as brightly as its subsidiary. Its stock price increased 24 percent. Giant's sales advanced more than 17 percent in 1995 to $1.48 billion, according to Ahold's annual report.
Going forward, Mertz said that stock prices will be established the old-fashioned way -- by earnings.
"The Fed just wants 2.5 percent growth, so your average company doesn't have a great playing field," he said. "You used to get times of six percent growth" in the overall economy.
He said higher earnings come about by having great or innovative products.
JLG is an example of a company with a great product, considering it sells to contractors in a weak construction market, Mertz said. Hershey Foods is an example of a company thriving on new products -- its latest are the successful, low-fat Sweet Escapes bars.
"I know they're good because even my kids like them," he said.
That's the ultimate stock endorsement.
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