Market Watch : One for Gamblers Only

Few stocks have suffered the beating that National Education Corp. has taken over the past year. Now, there’s some interesting activity in the stock that suggests it might be an attractive buy for speculators.

Last week, San Francisco investment bankers Richard C. Blum & Associates said it had picked up 273,180 more shares in Irvine-based NEC during the past two months. That brought Blum’s stake to 1.2 million shares, or 4.2%. A Blum client, which the firm won’t name, has another 582,830 shares previously acquired.

The Blum announcement helped push NEC stock up $1.125 for the week, to $6.125--a 23% gain.

NEC had been a hot stock for much of the 1980s. As the leading U.S. operator of technical and industrial training schools and a big supplier of independent-study job training materials, the firm was riding the wave of the nation’s industrial restructuring.

But things began to go awry last spring, when NEC ran into trouble digesting some of the aggressive acquisitions it had made. Last March, Jerome Cwiertnia quit as president. Two months later, Chief Executive H. David Bright disclosed that revenues were slumping while expenses were rising. Red ink began to flow, and soon Bright was out and NEC’s directors brought Cwiertnia back to run the company as president. The third quarter saw more red ink; fourth-quarter results are due perhaps this week.

Wall Street thinks NEC might earn 20 cents a share this year as it slowly works out the problems of integrating sales forces of key units. It helps that the company’s banks in December agreed to refinance $62 million in debt. But NEC still must raise at least $10 million in new capital this year to shore up its balance sheet.

Questionable as the outlook may appear, however, Blum’s group raised its stake because it sees NEC as a great value “for a long-term investor,” said Alexander Hehmeyer, managing director. The group isn’t looking to take over the company, he said, noting that Richard Blum sits on NEC’s board.

Two other big investors also hold major stakes and have bought more over the past year, said NEC Corporate Secretary J. A. Brill: Templeton Galbraith, a Bahamas-based money management firm, has more than 10%; BEA Associates of New York has over 5%.

NEC could become a fantastic turnaround story if it works out its problems. Even so, this is one for gamblers only--given that the extent of NEC’s internal troubles may not yet be known. Plus, the stock’s comeback may take a long time. “It’s easy to fall off a cliff,” Hehmeyer said. “It takes a lot longer to climb back up.”

NATIONAL EDUCATION Friday: $6.125

The Case for Broad: With mixed success, insurance firm Broad Inc. is trying to escape being mentioned in the same breath with First Executive Corp. Both Los Angeles firms are big sellers of annuities, which essentially are savings instruments. But analyst Fred Wise at Bear, Stearns & Co. says the similarities end there.

First Executive invested heavily in junk bonds and now is paying for it. Broad, meanwhile, “is very conservatively managed” and is thriving, Wise said. Long-term junk bonds represented just 4.9% of Broad’s investments at Dec. 31.

CEO Eli Broad is targeting the firm’s annuity products at the baby boom generation, a group just beginning to save money in large sums. The lure of annuities: You earn 8% to 8.5% yields, and the return is tax-deferred until you pull the money out.

Last March, Broad Inc. spun off its home building arm, Kaufman & Broad, to concentrate solely on financial services. Late last year, Broad agreed to buy the life insurance and asset management operations of bankrupt Integrated Resources.

Bear Stearns’ Wise said the Integrated deal “may be the acquisition of the decade. . . . It’s a true strategic fit for Broad.” He expects Broad to earn $1.20 a share this year from operations, versus 80 cents last year. If he’s right, Broad stock looks exceedingly cheap. The shares have fallen to $8.875 from $12 in December, as investors have dumped everything that even remotely resembles a First Executive.

“It’s a bit frustrating,” Eli Broad admits, “but one recognizes that the market is not always rational.”

BROAD INC. Friday: $8.875

Briefly: Wall Street continues to rotate money out of consumer goods stocks and into industrial stocks, apparently betting on a healthy appetite for industrial goods later this year. The opening of Eastern European markets may be a key reason. Last week, while the broad market slumped, Bethlehem Steel added 12.5 cents to $17.625; Deere rose $1.125 to $67.75.