Top 75 public companies

How long will it take stocks to recover from this year’s spring fling?
By Frank Maley

Gradually, it seemed, prosperity was taking hold. After hitting bottom in March 2009, major stock indices rose in their herky-jerky way throughout last year and into this one. In April, the S&P 500 cleared 1,200 — closer to the happy days before the financial meltdown of late 2008 than the despair it had brought the following spring. At least one pundit predicted the index would reach 3,000 by 2020.

Then fortune’s grip slipped. Investors grew cautious as the sovereign debt crisis in Europe worsened, fears of unsustainable government borrowing in the U.S. and other developed markets grew, and expectations of economic growth shrank. Tax credits for home buyers and other government stimuli had either ended or were running out.

The S&P 500 fell more than 15% in less than 10 weeks, giving back about six months’ worth of gains. Many Tar Heel stocks followed suit, climbing, climbing, then tumbling just as 2010 neared its halfway mark — the point at which Business North Carolina annually ranks the state’s 75 largest public companies by their market capitalization. This year, the list was compiled by Anthony Amoruso, assistant professor of accounting, and Neeraj Gupta, assistant professor of finance, at Elon University’s Martha and Spencer Love School of Business.

Shares of Bank of America Corp. fell 25% between April 15 and the closing bell on June 30, but it still dwarfed all other public companies in the state. Its market cap of $144 billion was nearly five times that of second-place Lowe’s Cos. Shares of the hardware retailer had lost more than a quarter of their value in little more than two months. That’s consistent with nationwide trends, Gupta says. “Some of the biggest losers have been financial stocks — due to increased expectations of default — and housing-related firms and retail stocks.”

Despite the June swoon, most Tar Heel public companies still gained value in the 12 months that ended June 30. BofA’s market cap rose 70.6%, while Lowe’s grew 2%. Altogether, 51 of the companies on Business North Carolina’s Top 75 gained value — none more spectacularly than Targacept Inc., which saw its market cap grow nearly ninefold. “The stock skyrocketed last summer on favorable results from a clinical trial testing the efficacy of an antidepressant, followed by a licensing agreement with AstraZeneca, which provided a major infusion of cash and the promise of significantly more based on future milestones,” Amoruso says. But Targacept, too, struggled to hold on to its gains. Its share price reached $20 on Sept. 28, peaked at $25 on May 13 and ended the first half of 2010 below $20.

As stocks limped through June, some observers feared a replay of early 1930, with shares rallying from the crash of the previous year, only to peak and fall for two more years. That’s unlikely, says Mark Vitner, senior economist at Wells Fargo & Co. in Charlotte. The economy is in better shape, and government policy is more sophisticated. He expected most companies to report solid second-quarter earnings but slow growth afterward. Market caps might not rise until November or December. “I would think that the stock prices would be lower on Oct. 1 than they were on May 1, and then we probably rally after the election.”

To see the full list, order a copy of the August 2010 issue here.  10-packs also available!