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The bear market is back for Buffalo-area stocks -- but so far, it's been comparatively tame.

In a quarter where the stock market took a brutal beating, the 5.3 percent loss by the stocks of companies based in the Buffalo area is something most investors would gladly accept.

Even though the local stocks endured their worst quarter in almost two years in the aftermath of the terrorist attacks on New York City and Washington, D.C., their losses pale in comparison with the 15.8 percent drop in the Dow Jones Industrial Average.

Likewise, the local stocks' losses were about a third as big as the 15 percent drop in the Standard & Poor's 500, which suffered its worst quarter since the fourth quarter of 1987. And the local stocks looked like a shining star compared with the 30.6 percent plunge by the technology-laden Nasdaq composite index.

It's a pattern that has continued since the Sept. 11 terrorist hijackings. Since trading reopened on Wall Street six days after the attacks, the local stocks are down just 1.1 percent, while the Dow lost 7.9 percent, the S&P 500 has dropped 4.7 percent and the Nasdaq is off 11.6 percent.

But the outperformance of the local stocks is nothing new.

The local stocks have now beaten the Dow and the S&P 500 for six straight quarters, as the small company stocks that dominate the Buffalo Portfolio continue to gain appeal with investors, who are also dumping the technology shares they loved so dearly until last spring.

The local stocks, which badly trailed all of the major indexes when technology stocks were all the rage in 1998 and 1999, now have beaten the Nasdaq for five of the last six quarters.

Individually, though, it was still a rough quarter for the local stocks. Only eight of the 21 local stocks managed to go up during the quarter, while 13 went down and one was unchanged. Ten of the local stocks lost more than 10 Percent.

Among the winners, only three really had anything to brag about by posting gains of more than 10 percent. Evans Bancorp, the community bank that made a big splash by going public in early July, had far and away the best quarter, with its shares soaring by 67 percent.

It was the worst quarter for the local stocks since a 6.5 percent drop during the fourth quarter of 1999, which also was the last time the area's stocks lost value as a group.

M&T expected to shine

Most of the resilience shown by the local stocks can be traced to two groups, the region's defense contractors and its banks, as investors bet on increased military spending in the aftermath of the attacks and try to take a more conservative approach in uncertain times.

While Evans Bancorp was the runaway winner during the quarter, a pair of other local bank stocks, M&T Bank and First Niagara Financial Group, brushed off sluggish starts during the quarter and rose sharply during the three weeks after the terrorist strikes.

Morgan Stanley analyst Adam Compton, who recently upgraded his rating on M&T's stock to a strong buy, said he expects the Buffalo-based banking company to shine.

"M&T continues to be our top pick among the mid-cap banks, given its strong management, excellent credit risk capabilities and history of consistently outgrowing the banking industry in both good economic times and bad," he said.

Investors also looked favorably on a pair of small local defense contractors. Taylor Devices, the North Tonawanda shock absorber manufacturer that has a sizable military business, gained 21.9 percent as its earnings continue to rise. The stock also got a strong boost in the wake of the terrorist attacks, gaining almost 13 percent over the last three weeks.

Region's hottest stock

Nervous investors also turned to Wilson Greatbatch Technologies, the Clarence battery maker that provides the power source for the new implantable artificial heart. Its stock soared by 15.8 percent in the last three weeks, making it the region's hottest stock over that period, although it was up only 1 percent for the whole quarter.

Servotronics, long one of the region's sleepier stocks, had a wild quarter, soaring as high as $8.90 on Sept. 20 during a furious surge that began after trading resumed on Sept. 17, before falling back almost as much in the week that followed. Even so, the Elma servovalve and cutlery manufacturer's stock finished the quarter up 10.1 percent.

Among the losers, the tech wreck took its toll on both Rand Capital Corp. and Computer Task Group. Rand plunged 50 percent, while CTG dropped 45 percent.

Rand, a Buffalo venture capital firm, appeared to hit a grand slam earlier this year when one of its investments was taken over by Advanced Digital Technologies, a data storage company. But that grand slam turned into more of a two-run homer as ADIC's stock fell steadily in the months after the deal was announced, reducing Rand's potential profit from the investment.

Rand, which does not intend to hang on to the ADIC shares, has been free to sell its ADIC shares since mid-August and the data storage maker's stock still is trading for a bit more than the $10 per share price that Rand has valued the stock at in its portfolio.

Computer Task Group shares, which began 2000 at $14.81, now are worth just $2 as the Buffalo-based information technology firm continues to struggle with a soft market for the computer services it provides and is working with its third chief executive officer in 15 months.


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