Sunbelt companies bask in lively investor interest
In the world of financial markets, investors often act like the entertainment world's "groupies," clustering about certain notable stocks, hoping for sure winners and safe returns.
Usually, such a grouping of stocks is industry-related -- such as in oil or high technology. But now comes the latest and one of the largest in groups -- Sunbelt stocks.
Hot in climate as well as economic growth, the region from California to Florida has about 850 major corporate headquarters, most of them riding high on the bulge of population charts.
Unlike regional security markets, such as the Boston Stock Exchange serving the six states of New England, a Sunbelt stock package extends coast to coast and includes a wide range of Fortune 500 companies as well as fast-growing small enterprises.
The Sunbelt identity, however, is mainly a creation of the mass media, a national perspective born in the last decade to explain a migration of people and business from Northern industrial states to the increasingly air-conditioned Southern tier of the United States. Thus, while a Boston computer company might proudly call itself New England bred, a Texas bank is unlikely to pigeonhole itself as a Sunbelt success.
Still, that somewhat rootless identity has not stopped several brokerage houses and mutual funds from concentrating their efforts in the Sunbelt, hoping to benefit from the regionwide economic buoyancy.
These enterprises include the brokerage house of Houston's Rotan Mosle Inc. and such mutual fund managers as Armstrong Associates (managing Armstrong Inc.) of Dallas, Investment Advisors Inc. (managing Finomics Investment Fund) of Houston, and the Atlanta-based Montag & Caldwell (managing Alpha Fund).
Also, there is Sun Belt Investments, which was formed in late 1979 as a division of Fund Advisory Company of Houston. It concentrates its investments in publicly held stocks from the 18 states ranging from Virginia to Arkansas to Colorado to California.
The firm's "universe," says Sun Belt's managing director, Carrol R. McGinnis, has been whittled down to about 850 companies with a minimum of $25 million in revenues and a minimum of $25 million in capital. "These companies are enjoying the growth of the region," he says.
From 1975 to 1980, this grouping's stock prices showed a 2.26 percent average compound growth, compared with 2.05 percent nationwide. And the Sunbelt stocks rose six times as fast as those of companies in just the Northern states.
"Capital is clearly shifting to the Sunbelt, both foreign and domestic," Mr. McGinnis says.
In earnings per share, Sunbelt stocks have shown a 22 percent yearly rise since 1975, compared with 13 percent for the Standard & Poor's 500-stock index.
Mr. McGinnis lists three key reasons for the region's economic superiority: availability of workers, less government regulation, and lower taxes.
"These trends do not reverse themselves abruptly," he says.
Less unionization and lower wages are important too, he adds, but Sunbelt companies enjoy an abundance of labor compared with the North. And state governments tend to be laissez faire in regulation.
In 1980, per capita taxes in Sunbelt states averaged $584.23, as against $707 .92 for Northern states, according to US Census figures. A study done last year by Harris Trust & Savings Bank of Chicago found that a state's rate of economic growth is directly related to its rate of taxation.
Within the Sunbelt, stock performances are mixed. The region's banks and retailers are important riders on the region's economic wave. And not surprisingly for an energy-rich region, oil and gas companies make up 37 percent of the group, compared with an average 31 percent for the S&P index.
For most of the past year, however, oil stocks have been weak during the world oil glut. Prices will continue to be "sloppy" until the glut is gone, McGinnis says.
But the Southern grouping also includes defense and high-technology companies , including California's Silicon Valley. This latter group, Sun Belt's director understates, "is experiencing positive changes." But, he adds, high-technology stocks have gotten ahead of themselves with a high price/earnings ratio. That is correcting itself, he says, and now may be a good time to buy them.
Within Sunbelt stocks, not all companies are considered great picks. Textiles, forestry, and utilities are considered weak buys, McGinnis says. And the portfolio tends to be heavy in Florida, Texas, Georgia, and California, where there are more corporate headquarters, than in states such as New Mexico.
Still, he says, his service's "universe" has a wide "exposure." Even so, after more than a year in operation, Sun Belt Investments finds it has not taken on as many clients as it thought. "We thought there would be more interest. But there has been a wait- and-see attitude."
Mobil's bid of $7.7 billion to take over Conoco put some zest into the stock market Friday. Prices and volume rose, with the Dow Jones industrial index up 3 .42 points that day, to 958.90, for a gain of 3.23 points for the week.