 Graphic comparing Hawai'i stocks with the overall market
Laggards shine in rebound of Hawai'i stocks
By John Duchemin
Advertiser Staff Writer
CB Bancshares is a small Hawai'i bank company, not an aggressive growth machine. But its stock has been bulking up lately like a wrestler on steroids. Prices in the City Bank parent's stock have jumped 35 percent in six weeks.
Like many other Hawai'i stocks, CB Bancshares is suddenly a market leader, not a laggard, as was the case for years. Collectively Hawai'i stocks are rising at the best pace in recent memory — while the market in general has plunged.
A portfolio built exclusively of Hawai'i companies would have outperformed the market over the last nine months, according to Honolulu Advertiser research. Money equally distributed in the 11 most-established Hawai'i stocks — those with at least three years' trading history on a major exchange — would have gained more than 21 percent since April 7, 2000. Meanwhile, the Nasdaq has lost 45 percent, the S&P 500 index is off 14 percent and the Dow Jones industrial average has dropped 3 percent.
Nine of the 11 companies have gained value. Five posted gains above 35 percent. Stock in companies including BancWest, Central Pacific Bank, Schuler Homes, Alexander & Baldwin, Hawaiian Electric Industries and Maui Land & Pineapple have risen in the last several months to all-time records or 52-week highs.
These companies can thank global and local factors — including the market's dramatic shift in 2000 and Hawai'i's economic recovery — for the turnaround, stock experts say.
"If you go back a few years, most of these stocks have dramatically underperformed the market," said Brad Totherow, chief investment officer at Honolulu asset management firm Cadinha & Co. "But these days stocks that have underperformed are starting to do quite well. So it makes sense that Hawai'i stocks, which have been beaten up for years, would be doing well too."
Up from the doghouse
Until last year, the recent history of Hawai'i stocks was far from stellar. As the state economy stumbled through the late 1990s, local public companies struggled to stay profitable. Many restructured, laid off employees and closed down money-losing divisions.
Such events were not always well received by the market, which had all eyes set on red-hot technology stocks and the online boom.
Pacific Century Financial Corp., parent of Bank of Hawai'i, was rated one of the nation's worst-performing stocks in April 1999 by the California public pension fund. The stock peaked in October 1997, fell off for three years and has still not recovered. Honolulu homebuilder Schuler Homes fell from about $30 per share in late 1993 to about $6 per share in early 2000. Alexander & Baldwin shares lost more than 20 percent of their value between 1989 and 1999.
In the recent surge, however, many of the worst performers have led the way. Schuler Homes is up 95 percent since last April. Alexander & Baldwin has risen 39.3 percent. Maui Land & Pineapple, parent company of Maui's last struggling pineapple cannery, is up 37.6 percent.
These stocks are following the classic trend of "value" stocks, said Ted Jung, branch manager for Salomon Smith Barney in Honolulu. Their prices were unusually low compared with other companies, making them bargains for patient investors willing to endure a few months of doldrums, Jung said.
The market in general has shifted to value stocks in recent months, experts said. Last year's dramatic drop in many growth stocks, led by the dot-com meltdown, forced investors to pump money back into traditional markets that had become undervalued.
The market has been particularly kind to financial stocks and utilities, which many investors use as dividend-generating wealth shelters during extended downturns. Hawai'i's five finance and utility stocks certainly benefited, Jung said.
State helped
The economy also has helped. As jobs, income, land values and gross state product have risen in Hawai'i, so have many local companies' earnings.
Those with significant Hawai'i land holdings — such as Maui Land & Pineapple, Schuler Homes and Alexander & Baldwin — have enjoyed the fruits of a rebounding real estate market, Jung said. Banks have watched deposits and loans rise, and utility owner Hawaiian Electric Industries has seen power sales increase.
The market finally is catching on, said Paul Loo, branch manager at Morgan Stanley in Honolulu.
"The turnabout in stocks here can be linked to the turnabout in the fortunes of the economy — it's almost that simple," Loo said.
Still, experts caution investors from placing too much faith in Hawai'i stocks. After all, many were lackluster during the 1990s — and it's best to be cautious of a stock with a short history of gain and a long history of losses, Totherow said.
Hawai'i companies' profits must keep rising or investor interest will fall off, Jung said.
"The sixty-four-dollar question is, what will happen to these companies' earnings in the next six to nine months? Yes, they've improved, but if they don't keep it up, they'll go back to the way they were," he said. "If their earnings don't continue to improve, that will tell the market that we just had a short-term blip in the economy."
John Duchemin can be reached by phone at 525-8062, or by e-mail at jduchemin@honoluluadvertiser.com
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