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Technical Market Action STOCKS WITH FAVORABLETCHNICAL PATTERNS It is my opinion that the stock market is in a long period of accumul.tion, and that the trading range of the last seventeen months is, in technical language, ‘e. base formation prior to an important upside move. ile that is the pattern of the various markt averages, the patterns of individual stocks are quite diversified with some stocks having cocpleted their accumulation periods and seemingly ready to ‘move ahead hile other stocks have incomplete or relatively unfavorable patterns and have little appeal to the investor or speculator. Thus, it would appear that selection will be of price importance over te period of the next two years. With this idea in mind, I have checked the technical patterns of more than 1200 listed issues and eliminated every issue that did not meet the following requirements. (1) A broad potential base pattern that suggested a possibility of 50 appreciation for better grade or medium grade issues and 75 to 100 for the more speculative stocks. (2) A pattern that suggested that at present levels,prices were at or near an important buying point. It was my original intention to select thirty or so stocks, including in the group some investment issues, medium grade stccks, speculative stocks and very speculative stocks. After checking over my technical patterns, however, I soon dis- covered that I had embarrassment of riches. There were some 250 issues that met the requirements noted above. To select thirty issues out of such a large group was difficult, so ! tried to make the task Simpler qy eliminating the investment and very speculative groups and concentrting on medium grade end speculative issues. Below are the thirty-one issues finally selected, together with a brief analysis of each. There are seventeen medium grade issues and fourteen speculative stocks. These issuel have technical patterns that suggest.a possibility of substantial price appreCiation over the longer term. It is possible that they may spend some more time in the present broad trading ranges and purchases should be made during periods of irregula- rity sUch as the present. , While these thirty-one issues are the final recommendations out of more than 250 candidates, I question the ability of anyone person to select the thi!ty outstanding issues from such a basic group. For that renson,I am also adGing some statistics on the eliminated issues at theend of-thisltter. 17 RECOMMENDED .MEDIUlA GRADE ISSUES ADDRrJSSOGRAPH-MULTIGRAPH 1947-8 Approx 1947 Range Price Div. 1947 Earnings l’h. 2.35 7.8 Company manufactures machines for addressing,mailing,office printing and dupl.cating from type and accessories such as type, plates and cabinet drawers. CapHalization consists of 4.38 million in funded debt and approximately 754,000 sharBs of common. The technical pattern is favorable with a substantial long j;erm head and shoulders formation. The stock is at a strong support level and a penetration of the 1946-1947 highs would indicate an ultimate price objective in the 50-70 level.. BIGEloOi’I-SANFORD CARPET CO ……’ 1R9a4n6ge 1947-8 Approx 1947 1947 Range Price Div. Yield Earnings 8Jt – 53 66 – 461 56 4.00 7.1 OO. oV . I b loLl Company is a leading manufacturer of carpets and rugs. Long term eDt is apprOximately 5 millions followed a smsll issue of preferred and 309,109 shares of common. Outlook for the industry is good due to long deferred demand. Technical pattErn is attractive and stock is at good support level in 56-54 area. BORG WARNER CORPORATION 1946 Range 1947-8 Approx 1947 1947 Range Price Div. . Yield Earnings Company is 613/4 – 36 55-375/8 46 I engaged in manufacture of automoYt;Lv2-e 2.05 parts, 4.4 -8.50-E- ( . ‘StI’f’ household products)!i specialty steels and parts for agricultural machinery and industrial power trans- mission. Output is diversified and new products have been added. Company recently paid ’75 cents quarterly and at indicated rate of 3.00, yield is 6.5. Excellent technical pattern. Stock is at,strong support level of 46-44 and potential base pattern indicates new high levels. Capitalization consists of 192,100 shares of 3! preferred and 2,336,740 shares common. Tht oplntON expressed In thts letter .,. the personal intel’JH’atatlon of charts by Mr. W. Tebell .nd ere not presented as the opinions of Shields & Company. \. Technical Market Action .IxlEHLER.-JJ.RVIS CORP. 1946 Range 1947-8 Approx. 1947 Range Price Div 377/8-23)’4 39t-283/4 30 1.62i 1947 Earnings 5.4 J7….9G’ -E- castJg pro5cfThe company is a merger of Doehler Die and Vi. B. Jarvis die castings for automobile and consumer durables markets and chrome plated automo- bile parts, plumbing accessories, refrigerator, hardware, etc. Technical pattern is excellent and at present levels stock’is near 1947 low. Potential base pattern suggests possibility of ultimate 50-60. Stock reached high above 1946 in past year. , Capitalization consists solely of 1,042,644 common shares. FLINTKOTE COMPANY 1946 Range 1947-8 Range Approx. 1947 1947 Price Div Yield Earnings 46 7/8 – 25t 3-24 ‘/8 ‘ 1. 50 4.5 Products consist mainly of roofings,’shingles and related lines. A-ls6”OOn-E’ fnctures protective coatings, paperboard, tile products and road construction prod- ucts. Large backlog indicates sustained earnings. Recently pai 50 cent dividend indicating a possible 2.00 rate and 6 return. Technical pattern is good and potential base indicates a possible 60. Capitalization consists of 98,000 shares of 4.00 preferred and 1,183,921 common. HEWITT-ROBINS, INC. 1946 Range 1947-8 Range Approx. Price 1947 1947 Div. Yield Earnings 39 -22 29 -20 22; 1. 00 4.5 -4-.-5e-E Company produces mechanical rubber product;-‘ onveYing machinery, coe and power transmission belting, various types of hoses. Also has entered sponge rubber field with Restfoom. Demand for products should continue strong, with possi- bility of added earnings from Restfoam division. Capitalization is small with slightly over 2 millions in debt and 278,714 shnres of common. Upside’penetration of long 29-20 trading rll.llge would indicate substantio.lly higher levels. INDUSTRIAL RAYON CORP. 194 1947-8 Approx. 1947 1947 –!!R!Qanngg!’!.e—!Ran!!!!lg;e—‘!P!riigc!’!.e–Div. Yield Earnings 52 – 32)’4 50 – 35t 42 2.50′ 5.9 -877Jr Mll.llufactures rayon yarn by Viscose process. 3’1 Slightly more thll.ll half a’b business is production of high tenaCity yarn for use as tire yarn. Stock is selling high in relation to pre-vlar levels but industry h,s shov.n great growth Il.lld costs have been reduced. Capitalization consists solely of 1,518,650 shares of common. Technical’ pattern is good. Stock recently penetrated trading range on upside and has reacted back ito range on recent markt irregularity. INTERNATIONAL MINERt.LS & CHEMICAL 1946 Range 1947-8 Range Approx. Price 1947 1947 Div. Yield Earnings 45 -27 2U6 i 6.1 it4.35 Company and its subsidiaries are principally engaged in production of potash, phosphate rock, superphosphate and complete and mixed fertilizers. Also has line of industrial chemicals and food products. f,ith resumption of exports, high demand and new lines, earnings Should continue to rise. Stock has extremely long potential bas, area with range. an indication of large percentage appreciation on u, pside penetration of MESTA MACHINE 1946 Range 1947-8 Range Approx. Price 1947 1947 fuM Earnings 6lt -397/8 47t – 357/8 38 2.50 . 6.6 45’fOO-E’ Company manufactures steel mill eqUipment Z1 end equipment used in oth3e.r0m-etal industries. Requirements of steel industry as well as foreign business Should be substantial. Low for last ten years in stock has been 24. Technical pattern attractive with long trading range i ;4-47 area. Capitaliza.tion is simple with slightly less than one million shares of common outstanding. . -2- The opinions upreued in this letter are the personal tnterprelation of ch.rts by Mr. dfttund W. Tabelt and arG not presented as the crpinions of Shields & Company. Technical Market Action MONTGOMERY H.IJ\D & CO. 1946 Range 1947-8 fumge Approx. 1947 Price Div. 1947 Earnings Enrnings of this 104 – ni’ 645/8 – 49 second largest mail orGer h5’0o\1nu1C’1sI3e 3.00 appears 6.0 to have -8,EKl-B- rcvrefd ) the downtrend in evidence since last quarter of 1946. Substandard merchandise ac- quired’ during war appears to have ben largely clecred out and buying policies have been conservative. Stock is selling at practically the low of last tilree years. Technical pattern potentially favorable and stock appears oversold. NEW YORK AIR BRAKE CO. 1946 fumge 1947-8 Range Approx. 1947 1947 Price Div. Yield F.arnings 69- – 3 4 – 321/8 36 3.50 9.8 -5…Ge-E- Company manufactures air brakes for railway cars and locomotives anhl developed with VJestinghouse Air Brake under cross-licensing agreement a new type of air brake which has been ordered to be by A.R.A. as standard equipment on all freight cars for inter-railroad transportation. Demand for air brakes by railroads should be strong for several years. Capitalization consists solely of 259,120 shares of common. A long potential acclliulation area has been built up in the issue over the past seventeen months and substantially higher levels would be indicated on an upside penetration. PHELPS DODGE CORP. 1946 Range 1947-8 Range Approx. 1947 1947 Price Div. Yield Earnings 48 – 293/4 48 .14- 361/4 4 4.20 10.0 e-E’ Corporation is third .1argest copper com’panyI.\f\he country. All bu ery small fraction of production is in United States. Produtive capacity has been subs- tantially increased through development of MorenCi ope pit mine. Reserves are large. Technical pattern best in copper group with ultimate possible price IE-vel of 75 or better indicated. Capitalization consists solely of slightly over five million shares of coon. SHARON STEEL CORP. 1946 , Rc.11ge – —1947-8 Approx. nirige –Price. 1947 Div. -Y-. ield 403/8-231/4405/8-24.14 32 2.00 6.1 10.89 , ‘JO Company procuces pig iron and a diversified line of steel products used by automobile, food packing, cheJlical, oil refini.ne, shippnlZ, household appliances and office furniture industries. All of these indu8’tries have good prospects. Company is in process of expansion and improvement program. Capitalizetion consists of 4 million in long term notes vnd 617,242 shares of common. Technical pattrn is good and stock is a.t strong support level. Upside penetration of 1946-47 highs would in- dicate possibili of ultimate 60-70 price level. SOUTHERN PACIFIC CO. 1946 fumge 1947-8 Range Approx. 1947 1947 Price Div. Yield Earnings 51 – 34 471 4’IL 4.00 8.5 This principal Pacific Coast railroad has not only sharply rEduced its funded debt and fixed charges in the last seven yars but it has also greatly in- creased its oash and working capita.l. Recent freight rate increase will add to earnings. Stock seems undervalued on technical baSiS, with a strong potential base pattern. Strong support level in 46-43 area. Stock recently made new high for 1947- 1946 period and present d appears to be excellent opportuni to purchase issue. SQUARE D COMPANY 1946 Range 1947-8 Renge Approx. 1947 1947 Price Div. Yield Earnings 25 1/8 -15 J/8 185/8 -1314 16 \no 1.30 8.1 3OO-E2.01 CI Company makes vt’.rious electriC devices and supplies including sVritclies, l..I panelboards, fuse cabinets, starters and molded insulation. Company has also strengthened its position in aircraft flight instrument field. Has been going through expansion progra.a. Capi tr.lization consists of 1,377,480 shares of com.’lon. Stock has been in narrow trading range of 18-14 seventeen months. Upside penetrt’.tion would be excellent technical signal and indicate possibility of strong upward move. -3- The opinions expressed ‘n this letter ere the personal interpretation of chart, by , Mr, Edmund W, r.bell .nd ar. not presented as the opinions of Shield. l Company.