Local corporations extend streak of outdoing market as a whole

7/6/2003

Continuing a two-year trend, publicly traded corporations based in the Toledo area outperformed the overall stock market in the first half of 2003.

However, this time bank holding companies were the stellar performers. Some manufacturers that made a tremendous comeback after the recession and terrorist attacks lost market value in recent months.

The 21 public companies based in northwest Ohio and southeast Michigan gave their stockholders a total return - including share-price change and dividends paid - averaging 11.5 percent in the first six months of the year.

The Dow Jones industrial average gained 7.7 percent in the same period, thanks to a 12 percent increase in the second quarter. The Standard & Poor's 500-stock average rose 10.8 percent in first-half 2003, and the Nasdaq composite index gained 21.5 percent.

Nine of the 21 local firms boosted their dividends within the last year - just in time for the latest round of tax cuts which gave breaks to investors - and most of them showed positive returns for the half.

“The stock market started to realize a lot of [tax] stimulus is in the pipeline,” said Richard DeKaser, chief economist for Cleveland-based National City Corp. “Companies have started to realize the benefits of cost reduction, and profits will grow faster than the economy.”

George Mokrzan, a senior economist for Huntington National Bank in Columbus, said companies are leaner and generating strong productivity.

Oddly enough, the stock leading the area pack in the first half has a questionable future. The price of Owens Corning shares doubled, to 84 cents, despite the company's three-year-old bankruptcy and its having said it probably will cancel its existing common stock as part of the bankruptcy.

Some experts attribute the trading to speculators and investors who don't understand that the proposed federal asbestos-injury bailout probably won't help OC investors.

“In April, we were at a nickel,” mused Dave Dimmer, a spokesman for Toledo's third largest corporation. Although the pending legislation will help others, it is not likely to help OC stock when it emerges from bankruptcy, he said.

At the other end of the spectrum is N-Viro International Corp., whose stock lost more than half its value in the first half despite leading in total return last year. “We're a very weakly traded stock,” said Terry Logan, president and chief executive officer. Trades of a few hundred shares have a strong effect on the price, he added.

Seven of eight Toledo area bank holding companies showed positive total returns for the half, led by Rurban Financial Corp., Defiance-based parent of State Bank and Trust. Rurban rebounded from last year's big losses blamed on bad loans.

“Our ability to deliver on our promises and execute each phase of our strategic plan has been the cornerstone of our turnaround story,” said Kenneth Joyce, named president in August. The bank is working hard to cut costs and bring in more revenue, he added.

Not far behind was MBT Financial Corp., parent of Monroe Bank & Trust. Ronald LaBeau, president and CEO, attributed much of the gain to the new tax law that makes dividend-paying stocks more attractive to the average investor. It helped, he said, that the bank cut its loan-loss provisions and was listed on the Nasdaq national market.

Within a couple of weeks of its listing, MBT's stock shot from $13.50 to over $18, perhaps attributed to purchases by some stock index funds, Mr. LaBeau said.

Bank stocks should continue to benefit from an improving economy and the prospects of slightly higher interest rates, said Charles Crowley, managing director of the Cleveland office of the brokerage firm Friedman, Billings, Ramsey Group Inc., based in Arlington, Va. The new tax law makes owning bank stocks attractive, he said.

The area's health-care stocks also did well in the half.

Despite government funding problems in states like Ohio, Manor Care Inc., one of the nation's largest nursing-home chains, has been able to generate enough cash to make acquisitions, pay down debt, and repurchase shares, said Rick Rump, a spokesman.

The Toledo firm has the largest market capitalization, or stock price multiplied by the number of outstanding shares, of all area corporations.