S&Ls grab bull's tail, climbing up to 12 percent; gains could have been better without HomeFed's news.

S&Ls grab bull's tail, climbing up to 12 percent

Gains could have been better without HomeFed's news

Savings and loan association stocks have finally shown some life, rising between 10 and 20 percent during the past three weeks.

That makes them latecomers to the bull market, which has chugged along with little interruption since the start of the year. The Dow Jones average recently reached a high of 2935, settling at 2929 on June 13.

"People have started to bottom fish and look for what has not moved, and these stocks have not moved," said Michael Abrahams, vice president at the downtown Los Angeles brokerage firm of Bateman Eichler, Hill Richards.

Last Wednesday H.F. Ahmanson and Co. closed at $21.25, up 9 percent from $19.50 on May 16; Great Western Financial, $18.88, little changed from $18.75 on May 16; CalFed, $19.50, a 12 percent boost from $17.38 on May 16; GlenFed, $14.50, a 9.5 percent increase from $15.88 on May 16; Coast Savings Financial, $8, up 12 percent from $7.13 on May 16; and FirstFed, $25.13, a 6.3 percent rise from $23.63 on May 16.

The increases would have been greater if it were not for reversals the day before. Except FirstFed, all the stocks were hurt by news that San Diego-based HomeFed was taking larger than expected write-offs of non-performing assets, said Tony Howard, analyst at Crowell Weedon. Great Western was the biggest loser, falling by $1.63. Because these institutions were penalized for the action of another S&L, Howard said the market overreacted.

Nonetheless, the one-day drubbing these stocks took did not undo all their recent gains.

Those gains owe a lot to lower interest rates, Abrahams said. Good news for most companies, lower interest rates are especially beneficial to savings and loans, since home mortgage financing is an interest rate sensitive business.

The biggest gainers have tended to be the larger thrifts.

"People feel the strong associations will do well, because they have the wherewithall to get through the current period and will benefit from a lot a positive factors," said Barry Rubens, CEO of Santa Monica-based California Research Corp.

Those factors include a large backlog of housing demand in the state and a continued influx of people into the state. "They're still predicting that by the year 2010 the population of Southern California will reach 40 million people, which is an increase of 10 million people," Rubens said.

In some cases, robust earnings may have propelled an increase in stock price. FirstFed is perhaps the best example in Los Angeles County. The Santa Monica-based thrift had earnings of 81 cents per share during the first quarter, a 76 percent increase over the prior quarter.

"They are a stellar performer year after year," Abrahams said.

Less consternation about California real estate may also have helped matters.

"I think the paranoia over California real estate has dissipated; our real estate has not gone the same way as real estate in the Northeast," Abrahams said.

Some analysts said they think we have not seen the end to rising prices.

"I think some of the stocks have peaked, but others will go higher," Abrahams said.

However, Michael Conover, president of Ryan, Beck & Co., advises caution. "There are too many uncertainties," he said. Those variables include the prospect of another savings and loan bill. "That will change the playing field again," he commented.

Conover also said there is going to be some profit taking in the weeks ahead. "A lot of people were sitting on these stocks at lower prices waiting for some appreciation to sell," he said.

Stocks he would avoid for the time being include Great Western and Golden West. Both are trading at premiums over book value, unlike the vast majority of S&L stocks which can be picked up at discounts to per-share book value. In addition, there are other S&L stocks with higher price earning ratios than Great Western, he added.