BY SARA PITZER
SALISBURY POST

Luby Hayes, along with some other investors, doesn’t like what his Food Lion stock is doing – or, more accurately, not doing.

As of March 23, Food Lion B stock was trading at 9 1/4, down 8.1 percent for the year; Food Lion A stock was trading at 9 7/32, down 13.2 percent for the year.

On March 21, 1998, Food Lion B traded at 11 1/16, Food Lion A at 11 1/8. So the price of B stock has dropped 16 percent in the past year and A stock has dropped 17 percent.

In a letter to Post editors, Hayes wrote: ‘‘If you have anyone who knows or think they know why Food Lion stock has been such a lousy investment for so long would you please let us know.’’

Hayes and other investors are frustrated that their Food Lion stock has not gone up even though the stock market has boomed. Some analysts still rate Food Lion a buy, but local stockbrokers say grocery store chains don’t carry the glitzy, rapid-growth promise investors want.

Dr. Stephen Jolly, a faculty member in accounting at the University of North Carolina at Charlotte, has been following Food Lion for about 20 years. He says the stock will prove a good long-term investment.

Even as others debate, Food Lion is trying to bolster the value of its stock. According to a report from Bear, Stearns & Co. Inc., the company spent $50 million to buy back 5 million shares during the fourth quarter of last year. The company has another $50 million available to buy more up until the shareholders meeting May 6.

‘‘We believe Food Lion stock as it is trading now, is undervalued at its current price,’’ said Food Lion spokeswoman Chris Ahearn. ‘‘We are focusing on the fundamentals of our business to grow sales and earnings, maintain a price controlled environment and keep our prices low for our customers.’’

Ahearn said Food Lion is growing the business by adding new stores and remodeling older stores. By the end of 1999, the company expects to operate about 1,250 new and remodeled stores.

‘‘We feel by focusing on the basics of what our customers want, that is how we are preserving and enhancing value for shareholders,’’ she said. ‘‘We think that is a sound approach.’’

But rest of the story is complicated.

In the first quarter of 1998, some analysts predicted strong growth for the company. Debra Levin at Morgan Stanley Dean Whitter raised her rating on Food Lion to ‘‘strong buy.’’

John Heinbockel, of Goldman, Sachs & Co., reported on Feb. 13, 1998, ‘‘an upbeat meeting with Food Lion’s senior management,’’ confirming the company’s ‘‘turnaround is on track.’’

Heinbockel wrote: ‘‘We remain ever more impressed with the company’s longer term competitive positioning and ability to satisfy its core middle-to-lower income customer base. . .’’

In February 1999, a year later, some analysts remained enthusiastic, at least partly because earnings rose. Same store earnings, a key measure in the grocery industry, rose 3.7 percent for the fourth quarter of 1998. Annual same store sales increased 2.6 percent over 1997, the best performance of any comparable grocery store chain.

Edward Comeau, Stephen Chick and Charles E. Watson of Donaldson, Lufkin, & Jenrette upgraded their rating to ‘‘buy.’’

But in spite of enthusiastic reports from analysts, investors are not buying.

Most of the analysts were not available to comment. Heinbockel does not talk to the press at all.

Among brokers, representatives at Interstate Johnson Lane in Salisbury, Charlotte and New York said nobody there now follows Food Lion.

Other stockbrokers in the Rowan-Stanly-Cabarrus area, as well as one in Virginia, all had similar ideas about why Food Lion stock continues almost to stand still in an aggressively bullish market.

They were glad to share ideas, but because they all sell Food Lion stock, not one of them was willing to be quoted by name. They do not all agree on every issue, but at least two different people brought up each of the following points: nFood Lion has lost its niche in public perception as the lowest-priced grocery store. According to this argument – not based on any formal surveys – the public used to see Food Lion as the low-priced, no frills grocery store. They saw Winn-Dixie was in the middle and Harris Teeter at the high end. Now, having added bakeries, delicatessens and such non-food items as greeting cards, Food Lion has become ‘‘just another grocery chain’’ in some investors’ minds.

• Although Food Lion continues to add stores, the rate of growth has decreased. One broker said, ‘‘When a company with 400 stores was adding 100 more stores a year, it was a 25 percent increase. Now, with more than 1,000 stores, adding 100 a year is only a 10 percent increase.’’

• Grocery store stocks do not have the glamor of those technology stocks currently driving the market. One broker said, ‘‘Even though they (Food Lion) do things right, the investment community just ignores them because there are so many hot items out there.’’

All the brokers interviewed said Food Lion compares favorably to other grocery stores, but that the grocery store industry in general is not a high performing stock. After the growth spurt while the chain was growing rapidly, the stock has settled into behaving like a typical grocery chain stock.

The brokers all said they were selling or had sold their own Food Lion stock and were recommending many clients sell theirs because other stocks can earn more now for investors.

One broker said, ‘‘Grocery retailing is never a zippy dot com kind of business. It is an honorable business. It’s performance can be predictable if not stellar.’’ Under some circumstances, he said he would buy Food Lion stock. ‘‘In the midst of a meltdown, I would buy, if you could buy at eight bucks a share and sell at 11, that would be worth doing.’’

• Food Lion, like other grocery store chains, has a thin profit margin. Brokers say the stock is fairly valued at 16 times earnings.

Explaining the gap between analysts’ recommendations and investors’ activity, one broker said, ‘‘Analysts have agendas that are not pure. Analysts get awfully wedded to the people who run these companies and the industry they’ve been brought up in. The success of an analyst is often driven by how much retail activity he can bolster within a firm. The analyst’s responsibility is to write about certain companies and propel the stock to ever higher heights.’’

An analyst writing about grocery stores compares one grocery company to another, not to stocks in different categories.

The brokers said it was unrealistic to compare grocery stock with hot items such as Microsoft which make the market seem to be doing better than it really is.

Stephen Jolly, the UNC-Charlotte faculty member, agrees with the brokers. He said even though the market is high, most stocks are down. ‘‘The number of advancing stocks is a lot less than the number of declining stocks. It is a very misleading market in that significant portions of the gain are attributable to relatively few companies.’’

He said of about 10 thousand public companies actively trading, most of the gain is probably in 100 companies.

‘‘Food Lion is not one of the 100 right now,’’ he said. ‘‘Only the biggest blue chips are in favor.’’

He said take-over and merger speculation pushes stock higher. ‘‘Food Lion is not a candidate for that kind of consideration. It’s already been taken over by the Belgians. What trades is minority stock.’’

Jolly said groceries aren’t nearly as exciting as web pages right now, but he recommends holding on to Food Lion stock if you have had it a long time and don’t really need the money.

‘‘Food Lion is an excellent company, excellently managed,’’ Jolly said. ‘‘The real bump in the road was a double bump, the ABC adverse publicity plus the attempt at the Texas market. That was just a different world from where they had been. One of the real secrets of Food Lion is from the very beginning, except for Texas, the company knew its market very, very well and fit itself into that market.’’

Jolly said he has Food Lion stock, will keep it and would recommend it, ‘‘if it is an appropriate type of investment, thinking long term, at least five years. I would think it would do pretty well.’’ Jolly said he has done well as an investor by not following day-to-day stock actions and staying focused on the long term.

Even the stock brokers who are dumping their Food Lion stock don’t necessarily write the company off. One said, ‘‘Will they come back? Definitely maybe.’’