The prodigal cable-box-making child
holds its annual meeting here this month

A prodigal child is returning to San Diego for a visit after an ignominious retreat from the business scene in 1986. Oak Industries, formerly headquartered in Rancho Bernardo, holds its annual meeting at the Hyatt Regency La Jolla at 9:30 a.m. on April 16. And while Oak's share price has taken a terrible beating in recent months, the company’s return can be seen as somewhat victorious. Oak survived near-extinction and its future - in the estimation of this writer - is promising.

Oak, an electronic controls and components company whose history dates back to the 1930s, suddenly became a glamour stock in the early 1980s under the leadership of Everitt (Nick) Carter. The cable television industry, for which it made channel selection boxes and other equipment, was booming, and Oak rode the wave.

Oak's remarkable success dominated the news and Carter, a tall, good-looking man with a beautiful wife, was a local hero. Carter celebrated skyrocketing sales by building and lavishly decorating new headquarters, flying management off to Paris for board meetings and other extravagances. But Oak wasn’t as magical as its chief executive seemed to believe.

When the correction that so often occurs with technology stocks hit, there was carnage. In 1983, the company suspended dividends that had been paid since 1934. By 1984, the tangible book value plummeted to a minus $3.62 per share. The shares, which had traded in double digit figures in the early 1980s, declined until in 1991 they traded at $1 per share, and sometimes dipped below $1.

In 1986, when local reporters were hounding the company for an explanation of what happened and what the company expected to do about it, Oak startled the San Diego business community by holding its annual shareholders' meeting at a small facility in Hoosick Falls, near the Vermont border in upstate New York.

Oak management was irate when The San Diego Tribune dispatched reporter Michael Kinsman to cover the meeting.

"It was just like Mayberry," Kinsman says. "The barber was the mayor of Hoosick Falls and everyone gathered in the barber shop to talk."

At first, executives refused to let Kinsman into the meeting, but relented after an uncomfortable interlude. The story he filed told of a company on the run. Not long afterward, Oak moved its corporate headquarters out of the county, eventually winding up in Waltham, Mass.

As it began its agonizing turn around, the company went through several changes of management and sold off divisions simply to survive.

By 1990, Oak Industries again started making a little money. By 1991, the tangible book value had risen to $1.02 per share and earnings were up to 7 cents per share. The balance sheet and income statement numbers gradually climbed, although investors were traumatized by what had happened and stayed away. The share price lingered at around $1.

In 1993, Oak did a reverse 5 for 1 stock split to disabuse the company of its penny-stock image. Suddenly, the stock's value was recognized. By 1995, the company was selling stock for $29 per share, which, adjusted for the split, would be about $5.80 per share. If a person had purchased 100 shares in 1993 at $1 per share ($100 investment), she now held 20 shares worth $580 dollars, an average growth rate of 240 percent per year.

Last year Oak's share price peaked at $39 per share, then Wall Street analysts again got nervous, worrying that Oak once again was expanding too rapidly. The company increased its equity in an engineering subsidiary and made major investments in new products and equipment, but at an expense to the bottom line.

At first, 1996 seemed like a banner year, but business cooled off by the fourth quarter. Although earnings remained relatively strong, the share price receded to just below $20. Additionally, there was a small scan-dal when the company discovered accounting irregularities at its Oak Grigsby unit. Three employees were fired and a suit was filed against them.

Nevertheless, Oak's sales and earnings continue to rise. Cash flow is strong and Oak's chairman and president, William S. Antle III, has established a $300 million credit line to fund future acquisitions. Additionally, the company is repurchasing $50 million of its own shares.

For bargain hunters who doggedly search for undervalued stocks even when the market is high, Oak Industries is a strong candidate for purchase.

Several years ago, Barron's included Oak in a list of stocks that fit Warren Buffett's criteria for acquisition. Among the requirements was a net income of 15 percent or more of sales and a 20 percent annual return on equity. Based on its financial information, Barron's gave Oak a target price of $89.52. Oak still very nearly fits the bill, although its net income falls slightly short of the mark. If shares ever do rise to Barron's target, the investor who bought 100 shares for $1 each in 1991 could sell them for a profit of $1,690.40. An investor who bought shares at around $20 wouldn't be doing half bad, either.

Janet Lowe's latest book, "Warren Buffett Speaks," will be published by John Wiley & Sons next month. Lowe has been an Oak Industries shareholder since 1990.