Indiana's all star stocks.
While many Americans have struggled under the pressures of recession this year, investors holding several Indiana stocks have quietly rolled in the capital gains.
Of the Indiana stocks in the research database at the Indianapolis investment banking firm of Raffensperger, Hughes & Co. Inc., nearly a score racked up year-to-date gains of 50 percent or greater by the end of October. In fact, the overall Indiana database gained 33.4 percent in the first three quarters of the year. That eclipses the 18.9 percent gain in the Standard & Poor 500 Index, notes Raymond H. Diggle Jr., director of research for the firm and one of the foremost experts on Indiana stocks.
"Indiana stocks in 1991 have performed exceptionally well in the face of weak earnings and a poor economic environment," Diggle notes. With such a strong performance, this year's Indiana Business Magazine All-Star Stocks are the best of the best. We chose to recognize those in the Raffensperger Hughes database that have met or exceeded 50 percent growth this year.
A few generalizations can be made about this year's All-Stars. First of all, it was a good year to own a piece of an Indiana bank or savings institution; fully half of those on this list are the stocks of financial institutions. And, as Diggle notes, interest in over-the-counter stocks is high. Only a few of the All-Star Stocks trade on the New York Stock Exchange.
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"One of the most spectacular stories in Indiana in 1991 has been Conseco," says Diggle. The Carmel-based insurance holding company has grown to $11.7 billion in assets, and its stock skyrocketed from $14 to $62.50 in the first 10 months of the year (after adjusting for a split). That's growth of 344 percent.
"While not without controversy, earnings have more than doubled in 1991," Diggle says. "Conseco has been active in acquiring other insurance companies, and has avoided many of the pitfalls, such as junk bonds and commercial real-estate in its investment portfolio."
Conseco's fully diluted earnings per share in the first three quarters jumped 112 percent over comparable 1990 figures. Earnings per share in the third quarter were up 125 percent over '90 figures. "Our earnings momentum is strong and the quality of our balance sheet continues to improve," asserts Stephen C. Hilbert, Conseco's chairman. Indeed, shareholder equity is up 38 percent, and the debt/equity ratio has improved markedly.
MERCHANTS NATIONAL CORP.
As October closed, news of a merger catapulted Merchants National to the number-two spot. "Merchants National Corp., the third-largest banking company doing business in Indiana, led the bank stock performance parade after the stock spurted nine points when National City Corp. of Cleveland announced an agreement to purchase Merchants for $400 million," Diggle says. Merchants stock at the end of October closed at a level 153 percent higher than its 1990 year-end price.
The deal, subject to regulatory approval, will mean the exchange of 1.12 shares of NCC stock per share of Merchants common stock. When the two companies combine, they will have assets of about $30 billion, which would rank the organization among the top 25 bank holding companies in the country. Under the plan, Merchants' subsidiary banks will keep their names for now, until National City is prepared to launch a more unified corporate identity.
Prior to the merger announcement, Indianapolis-based Merchants reported substantially higher quarterly and year-to-date earnings, as well as improved loan quality. Otto N. Frenzel III, chairman and CEO, noted at the time that the recession may bring some fluctuations in non-performing assets, but he said the overall trend looks good.
Diggle tagged this Warsaw-based company a year ago as a stock to watch in the 1990s, and thus far it hasn't disappointed. Biomet stock--which a year ago was added to the S&P 500 Index--soared 135 percent in the first 10 months of this year, and Diggle says the company's activities promise more growth. "Biomet recently announced a new line of surgical tools and a joint venture with U.S. Surgical, which are viewed as promising for future growth."
Also promising are Biomet's export activities. Though, as Diggle notes, growth in the U.S. market for orthopedic implants is slowing, there is a giant, untapped market in Europe that Biomet is tackling. The company's export efforts recently were recognized with an award from the Indiana District Export Council. Comments Dane A. Miller, Biomet's president and CEO, "The orthopedic market is very much an international market."
Biomet's income statements continue to improve. The most recent fiscal year-to-date net sales figure is up 38 percent over the previous year, and the net income number is up 33 percent.
FIRST INDIANA CORP.
The stock of Indianapolis-based First Indiana, which is the largest thrift in the state, more than doubled in value between New Year's Day and Halloween, registering a 107 percent jump. The company has assets of $1.1 billion as well as strong capital ratios that are well above the required levels, and Diggle says it is seen as an attractive acquisition target.
First Indiana's net earnings for the third quarter and for the year to date are up over 1990, as are the return on average equity and return on average assets figures for the comparable periods. As Chairman and CEO Robert H. McKinney points out, net interest income is up for a number of reasons, including the popularity of the institution's home-equity loan products as well as strong demand for residential mortgage loans.
IRWIN FINANCIAL CORP.
This Columbus-based bank holding company's stock nearly doubled so far this year, racking up growth of 96 percent. Diggle notes that it has a large mortgage banking subsidiary and a high component of fee income, yielding strong earnings growth in 1991. "The size of the non-banking activities is quite large," Diggle says.
Irwin Financial's third-quarter earnings set a company record, and were up 51 percent from the third quarter of 1990. Earnings for the first nine months were up 33 percent, also setting a record. In addition, the quality of the company's assets continues to improve, with the ratio of non-performing assets to total loans declining from 2.18 percent to 1.56 percent.
RAILROADMEN'S FEDERAL SAVINGS & LOAN
Another of the All-Star thrift stocks, Railroadmen's has assets of $517 million and recorded stock growth of 90 percent in the first 10 months of the year. As has First Indiana, Railroadmen's has a strong capital ratio and may be considered an attractive target for acquisition, according to Diggle.
The most recent financial reports may indicate why investors are so enthusiastic. Third-quarter earnings are up 65 percent over the third quarter of 1990, and the year-to-date figures grew by 33 percent. "Our success is the result of our efforts to enhance our interest rate spread, and the currently favorable interest rate environment," says J.R. Kocher, chairman and CEO. That favorable rate environment, he says, has kept the company busy writing mortgages, and a third of the mortgage loan production involves refinances because of low rates.
Stock of this Bluffton-based maker of electric motors is riding on the company's improved earnings outlook. The stock's value grew 86 percent through October of this year.
The company achieved record earnings in 1990, and for the first three quarters of this year earnings are up roughly 7 percent. "There are no guarantees in today's turbulent world," notes Chairman and CEO William H. Lawson, "but we are preparing for 1992 and beyond with prudent optimism."
Another of the strong bank stocks is this Fort Wayne-based holding company of Summit Bank subsidiaries around Indiana. Its stock grew 81 percent by Oct. 31.
As did many other Indiana financial institutions, Summcorp reported record net income for the third quarter of 1991, as well as record nine-month net income through September. Richard T. Doermer, Summcorp's chairman, says the recession continues to dampen deposit and loan growth, and the commercial side of the business is hampered by weakness in the auto-parts industry, which is a big player in Summcorp's service area. "Our confidence level, however, relative to the current earnings trend is perhaps best reflected in our recent announcement of an 11 percent increase in our quarterly common share cash dividend," he says.
INDIANA FEDERAL CORP.
This large Northwest Indiana thrift is yet another that is considered extremely attractive to those looking to acquire thrifts, according to Diggle. Its capital ratio is strong, and its stock grew 73 percent in the first 10 months of 1991.
The Valparaiso-based thrift's third-quarter and nine-month earnings also were a record, up 29 percent and 28 percent from the respective periods of 1990. Non-performing assets are down, and shareholder equity is up. "Improvements in our net interest margin, increased non-interest income and lower operating expenses all have contributed to the record third-quarter and nine-month earnings," says Peter R. Candela, president and CEO.
"Anacomp barely escaped Chapter 11 bankruptcy in October 1990, when management negotiated new loan agreements with a consortium of banks," Diggle notes. It was wounded by a poor acquisition, he says, which was financed by high-yield debt.
That was the bad news. But, Diggle says, "The company paid down more than $45 million in debt from cash flow in the fiscal year ended Sept. 30, and the company seems to be on the road to recovery."
That outlook would seem to be reflected in the performance of its stock, which grew 71 percent in the first 10 months of this year. Says Louis P. Ferrero, chairman and CEO of the Carmel-based micrographics company, "Our progress on debt repayment reflects robust cash flows, which make it possible to meet our commitments in a timely and orderly manner."
More people are dining at Steak n Shake, and that translates into strong performance by its parent company, Consolidated Products Inc. of Indianapolis. The company's stock grew 68 percent by Oct. 31.
Diggle is impressed with the growth plans put forth by Stephen M. Huse, the CEO, and Richard May, president of the Specialty Restaurant Group. As many as eight franchised Steak n Shakes are expected to open annually, and the specialty restaurant division is building on its "Hardwood Grill" concept. Diggle also points to Steak n Shake's cost-effective cola brand switch, and the company's successful Central Indiana advertising campaign that holds promise for other markets as well.
FT. WAYNE NATIONAL CORP.
This financial company's third-quarter net income grew from $4.0 million in 1990 to $5.1 million this year, and year-to-date net income has grown from $12.7 million to $14.7 million. Its interest income is up, and its interest expense is down. Such results helped the company's stock grow 63 percent in the first 10 months of 1991.
Fort Wayne National Corp. likes to attribute its successes to traditional values and the ability to resist the temptation of the kinds of risky ventures that have hurt some banks. Its track record prompted The American Banker a year ago to cite the company as one that's ready to take advantage of the economic environment of the 1990s. The publication wrote: "Fort Wayne National Corp. is expert in controlling costs and maintaining a strong balance sheet."
INB FINANCIAL CORP.
This was another of the stocks that Diggle chose at this time last year as a "Stock for the '90s." He called it a sound value, in part because the banking company has no exposure to risky foreign loans.
For the first nine months of the year INB's net income increased to $35.7 million, compared with $30.8 million for the first nine months of 1990. Shareholders this year have benefited from the healthy, 62 percent growth in the Indianapolis company's stock.
This Fort Wayne-based maker of commercial and institutional food-service equipment and utensils is riding on the good news of substantially higher net income.
Third-quarter net income was $754,000, more than triple the $226,000 reported in the third quarter of 1990. Year-to-date net income this year has more than quadrupled the 1990 figures. According to Chairman William A. Thomas, demand for Lincoln Foodservice products continues to grow, particularly on the international market. Domestic sales in the third quarter were up 7 percent over last year, while international sales increased by 23 percent.
In the midst of the earnings growth this year, the company's stock has gained 58 percent.
FIRST UNITED SAVINGS BANK
Another of Indiana's strong thrift stocks this year is First United Savings Bank, a Greencastle-based institution. Its stock gained 56 percent between Dec. 31, 1990 and Oct. 31 of this year. Its financial reports are encouraging--in the quarter ended Sept. 30, earnings were up in spite of an increase in the bad-debt reserve.
President and CEO William M. Marley lamented in the 1990 annual report that the stock market has painted most thrift stocks and many banks stocks with the same negative brush, and he said he hoped the market would begin to recognize strong thrifts. Apparently, as indicated by its stock price increase, investors have taken note of First United's high capital ratio and other strong figures.
GREAT LAKES CHEMICAL CORP.
The company headed by this year's Indiana Business Magazine Industrialist of the Year, Emerson Kampen, also happens to have one of 1991's All-Star Stocks. Stock in this West Lafayette-based company grew 54 percent, in part because of investor excitement over its acquisition of the European company known as Octel. Diggle expects the acquisition and other developments on the way to have a continued positive effect on earnings.
Investors seem pleased with the company's sales and earnings performance already. Great Lakes broke the billion-dollar sales milestone in 1990 with a 41 percent gain over 1989, and sales continue their explosive growth this year. Net income growth also continues to be phenomenal.
Hillenbrand is led by last year's Industrialist of the Year, W August Hillenbrand. The Batesville conglomerate posted a stock increase of 53 percent through the first 10 months of 1991.
The company's net income grew 33 percent in the third quarter of this year and 12.4 percent in the first nine months of 1991. The company broke the billion-dollar sales barrier in 1989, topped that record by about 10 percent last year, and so far this year is running more than 6 percent ahead of 1990.
This Evansville-based manufacturer of sporting goods and office products rounds out this year's All-Star Stock list with a stock price increase of 50 percent.
The third quarter of this year was the company's first profitable quarter since the third quarter of 1989. Its third-quarter sales were 42 percent higher than last year, and set a third-quarter record. Though he acknowledges that holiday shopping patterns are hard to predict, President and CEO Robert E. Griffin expects the fourth quarter to be favorable aswell.
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|Publication:||Indiana Business Magazine|
|Date:||Dec 1, 1991|
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