Big rebound puts some spring back in local stocks
Buffalo Portfolio gained 17.6 percent as market rallied in the second quarter
After two devastating quarters as the stock market tanked, the Buffalo Portfolio of locally based stocks really needed a big shot in the arm.
And that’s just what it got in the second quarter.
The stocks of companies based in the Buffalo Niagara region had their best quarter in 12 years this spring, shooting up by 17.6 percent.
But the big second-quarter gain erased only a small portion of the pain that investors have endured since the financial crisis hit with full force last September and the recession began to exact a greater toll on the overall economy.
Since the end of September 2008, a portfolio that owned a single share of each locally based stock still has lost a third of its value, even with the second-quarter rebound.
“Basically, what we’re seeing is a big bounce,” said Christopher Carosa, who manages the Bullfinch Funds’ Greater Western New York Series mutual fund that invests in companies with operations in the Buffalo and Rochester areas.
The question that investors everywhere now are contemplating is whether the spring rebound is the start of a prolonged recovery by stocks, or just a short-term bounce that has begun to give back some of its gains since mid-June.
“As bad as things were in the previous two quarters, they’re probably not as good as we saw in the second quarter,” Carosa said. “It’s probably just evening things out.”
And there was a lot of evening out to do. By the end of March, the Buffalo Portfolio had lost 43.5 percent of its value during the previous six months. All but four of the 21 locally based stocks are down at least 10 percent since the end of last September, and more than half have lost a minimum of a quarter of their value.
Lancaster-based environmental services firm Ecology & Environment is the only local stock that has actually gone up over the last three quarters, with an impressive 26 percent gain during that nine-month span.
But the good news was more widespread in the second quarter. Just three of the 21 locally based stocks lost value during the quarter, and nearly three-quarters of the local firms turned in gains of 10 percent or more.
A third of the local stocks posted whopping gains of 45 percent or more, led by Warsaw- based banking company Financial Institutions, which rebounded from a brutal 62 percent drubbing during the previous two quarters to rebound by 79 percent in the second quarter. But even that spike left the stock of the parent company of Five Star Bank 32 percent lower than it was at the end of last September.
Financial Institutions is “back on track,” said Damon DelMonte, an analyst at Keefe, Bruyette and Woods.
The banking company ended a streak of two consecutive quarterly losses, caused by a drop in the value of some of its securities, to turn a profit that was better than analysts were expecting in the first quarter.
Buffalo-based information technology firm Computer Task Group also was red hot during the quarter, soaring by 77 percent to come within 6 per-cent of its Sept. 30 price.
While CTG is predicting a difficult 2009, with revenues expected to drop by about 20 percent to $285 million from $353 million last year, and profits forecast to drop by 29 percent to around 35 cents per share, down from 49 cents in 2008, even the reduced earnings would be CTG’s second-highest in the last decade. Analysts at Boenning & Scattergood expect CTG’s business to start picking up during the second half of this year.
Plus, the company is expecting a healthy shot of new business beginning next year from the $19 billion in federal stimulus funds earmarked to start building a nationwide electronic medical records system.
Buffalo life sciences company Cleveland BioLabs jumped by 68 percent to return to its Sept. 30 price after the company completed a much-needed round of fundraising and continued to make progress in developing its Protectan drug to ward off the harmful effects of radiation exposure.
Cleveland BioLabs earlier this year completed the first phase of safety tests on healthy human volunteers — research used to determine potential side effects and dosage limits. The drug also has been tested extensively on non-human primates. A second, larger phase of human safety tests on as many as 500 people could begin later this year, while additional testing on monkeys also will continue into next year.
“Our drug is projected to be safe, which ultimately should be confirmed in the larger study we are starting now,” said Michael Fonstein, Cleveland BioLabs’ chief executive officer. The company could seek approval for Protectan from the U. S. Food and Drug Administration late next year.
On the down side, Servotronics continued to give its shareholders a roller coaster ride. The Elma motion control equipment and cutlery manufacturer’s stock lost 73 percent of its value during the final three quarters of last year, only to rebound with a 43 percent first-quarter gain that made it the shining star among the Buffalo Portfolio in an otherwise dismal quarter.
Sure enough, Servotronics shares reversed course again in the second quarter, tumbling by 25 percent as its first-quarter profits plunged by 85 percent. Servotronics said its customers were delaying or reducing their orders as the economy weakened, leaving the company with 16 percent drop in revenues.
Rand Capital Corp.’s shares dropped by 12 percent as the Buffalo venture capital firm was granted more flexibility by its shareholders to sell additional shares of its stock over the next year.
Rand has nearly $2 million in cash and could tap almost $2 million more through its small business investment arm, but company executives believe the credit crunch is creating an opportunity for Rand to make additional investments on more favorable terms as developing companies scramble to raise cash.
East Aurora aircraft lighting and electronics manufacturer Astronics Corp., which is struggling with a steep decline in its business jet market, as well as softness among commercial aviation customers, endured a 6 percent drop.
“They depend on the aerospace industry, and that’s getting hit both ways, from the military and the commercial side,” Carosa said.
Log into MyBuffalo to post a comment
MyBuffalo is the new social network from Buffalo.com. Your MyBuffalo account lets you comment on and rate stories at buffalonews.com. You can also head over to mybuffalo.com to share your blog posts, stories, photos, and videos with the community. Join now or learn more.
Reader comments