Illustration by Kip Aoki
By Russ Lynch
Star-Bulletin

Blame it on the state's poor economy, market watchers and investment advisers say. But, they add, hang onto those local shares, when Hawaii's economy starts to pick up so will the stocks' values.

"(Hawaii stocks) haven't really done anything the last 10 years," said Randy Havre, president of Honolulu Venture Capital. "We have been in a prolonged recession here, since 1990. That's what turned people off."

Local financial companies have done better than the others, especially when dividends are included, but the biggest Hawaii companies haven't shown exciting rates of return over the years, analysts say.

"A lot of our companies are looking elsewhere to get that growth back into gear," Havre said, citing moves by Bancorp Hawaii Inc. and First Hawaiian Inc. to expand outside Hawaii and Schuler Homes Inc.'s recent purchase of a Colorado home builder.

"We're going to start to see some positiveness in respect to earnings this year," he said.

Havre put together his Hawaiian Industrial Average in 1987 to monitor local stocks. In September 1987, when it started, it was at 1993.75. At the end of 1996 it was at 3784.87. "So it really hasn't done much when you look at the Dow Jones industrial average or the Standard & Poor's 500," Havre said.

Denis Wong, president of Denis Wong & Associates in Honolulu, is one of a number of analysts who says hold those Hawaii stocks.

"If you have a good investment and it (the company) is managed by professional management, it's better to hang on," he said.

Money manager Wong also blamed the economy for the low performance of Hawaii stocks. "We're losing jobs here and people are moving away to the mainland. We have an environment that is really not conducive to business," Wong said.

Still, Hawaii's banks have done pretty well, he said. A look at the performance of their shares supports that conclusion:

An investment of $1,000 at the end of 1986 would have purchased 38 shares of CPB Inc., parent of Central Pacific Bank. After two two-for-one stock splits and a 10 percent stock dividend, the investor would be holding 167 shares worth a total of $4,968 at the end of 1996.

A thousand dollars would have bought 48 shares of First Hawaiian Inc. at the 1986 closing price. After a two-for-one split in late 1989, that $1,000 investment would be worth $3,360 at the end of 1996.

An investment of $1,000 at the end of 1986 bought 20 shares of Bancorp Hawaii Inc., parent of Bank of Hawaii. The investor who held onto them would now have more than doubled the number of shares because of two stock splits. and a stock dividend. The original 20 shares became almost 50 shares, worth a total of nearly $2,100 at the end of 1996.

Of course, cash dividends are important in these calculations too, because holding onto them and sometimes better, reinvesting them to buy more shares, adds to the value increase.

Through the 10 years, CPB paid out $6.95 a share in dividends, First Hawaiian paid $9.29 and Bancorp paid $13.21.

Meanwhile, Hawaiian Electric Industries Inc., the state's biggest utility company and also in the financial business through its ownership of American Savings Bank, hasn't shown the level of stock performance the financial companies have.

The company has had no stock splits in the past 10 years, but it has been a strong dividend producer, shelling out a total of $21.88 a share in cash over the 10 years.

An investment of $1,000 in HEI 10 years ago bought just under 32 shares. By the end of 1996, they were worth $1,156, not a big increase. Reinvesting the dividends, however, and thus earning dividends on dividends, would have resulted in a total worth of $2,185. That's an average annual return of 8.1 percent.

Alexander & Baldwin Inc., parent of Matson Navigation Co., California & Hawaiian Sugar Co. and others, also hasn't seen its shares grow much in value. A $1,000 investment at the end of 1986 would have bought just over 44 A&B shares. Ten years later, those 44 shares were worth $1,100.

But A&B paid $839 a share in dividends through the 10 years, bringing the value closer to $2,000. That still is an annual return on investment, adding the stock price gain and the dividends together, of only 4.6 percent.

At its current share price, A&B is considered undervalued.

Mary Fleckenstein, an analyst at the Seattle investment firm of Ragen MacKenzie Inc., said she has A&B listed as a "hold" now, primarily because of the lack of improvement in the Hawaii economy.

"There's tremendous value on the balance sheet with their real estate holdings," she said. "I think I would be more enthusiastic about buying the stock if I saw any signs of a real pickup in the Hawaii economy."

"For them, going forward, to get a higher, more visible rate of growth of earnings, they're going to really need the economy to cooperate with them," Fleckenstein said.

Many Hawaii-connected stocks are hard to compare over a long period because of corporate restructurings and other changes. For example, C. Brewer & Co. was a private company when it spun its housing business off into a separate publicly held company, C. Brewer Homes Inc., in late 1993, so it can't be tracked over a 10-year period.

Hawaiian Airlines Inc. became a new corporate entity with entirely new stock after emerging from a bankruptcy reorganization in 1993. Holders of stock in the previous entity, HAL Inc., got nothing for their shares.

Paul Loo, senior vice president of Dean Witter Reynolds Inc.'s Pacific division, said he believes in holding on to local stocks.

Loo, like others, sees Hawaii as probably at the bottom of an economic cycle, plagued with gloomy news such as the state budget deficit. But he said he believes there will be a turnaround, boosting the value of local stocks.

"Some day the housing market will pick up," he said, and that will boost the shares of the local housing companies.

"I'm very confident about the banks," he added.

When clients ask him when they should sell Bancorp Hawaii or First Hawaiian, "I always say, 'please leave it to your kids,' " Loo said.