Tabell’s Market Letter – February 11, 1949

TABELL'S MARKET LETTER 35 WALL STREET. NEW YORK 5. N. Y. Digby 44141 The rails continue their downdrift and at Friday's close of 48.70 were at their lowest point since March 1948 when the rail average started its advance to the year's high of 64.95. After the break in October, 1946, the rail average slowly built up a strong techfiicallpattern. 'fte reacting to approxImately ,44, 1/2Jin october, 1946, theradl'averagerallJtBd back to, 53; in early ili947(. Thelnext reaction carried,' the verage to;a new low of 41 in May). 197. The next advace in mid-1947 to approximately 53 failed to carry above the previous high. On the next decline, the rails held at 46 1/2 in December, 1947. These three successive lows of 44 1/2-41-46 1/2 built up a head and shoulders bottom pattern which was penetrated on the upside in April, 1948. The subsequent high of 64.95 was reached in July, 1948. During May through October of 1948, the rail average built up a distributional top that indicated a possible decline to the 50-48 range. The fact that this range has been reached, plus the fact that the average is in the 53-45 support area, indicates that the rails may be near a turning point. On the basis of earnings, yields and improvement in financial condition, the rails seem greatly undervalued. That is, unless we are on the verge of a long, .deep business depression resulting in several years of deficits. Even the most pessimistic do not expect that. The table below is self-explanatory. It shows, for example, that Southern Pacific earned over 10 last year and that it yields over 10 based on its present price of 42 and 1948 dividends. As the stock appears to be on a 5.00 basis, although it actually only paid 4 50 in 1948, it might be said that the yield is even higher. It also shows that the stock is selling at only slightly more than four times 1948 earnings. Earnings for the last ten years totaled 94.39 of which only 21.25 were paid out in dividends. A total of 73.14 was retained ih the company thus strengthening its financial condition by reducing debt and by improvements. This amount of 73.14 is over 30 more than the present price of the stook. Equally fantastic examples will be found in the list. TABLE ONE Approx. Price Atchison, Top. & S.F. Atlantic Coast Line Baltimore & Ohio Delaware & Hudson Great Northern Rwy Pfd Illinois Central Kansas City Southern Reading Company Northern Pacific Southern Pacific southern Railway Texas &.Pacific Rwy Union Pacific 91 38 9 37 39 23 35 20 15 43 37 40 82 Est. Earn. 1948 23.33 9.32 7.73 13.95 8.91 14.60 15.42 5.44 4.96 10.27 12.51 15.06 14.24 Price Times Earn. 3.9 4.1 1.2 2.7 4.4 1.6 2.3 37 30 4.2 30 2.7 5.8 Div. 1948 8.00 4.00 4.00 3.50 1.00 1.50 1.00 4.50 3.25 4.00 6.50 …; , cJ .( Yield 8.8 10.5 10.8 9.0 2.9 .5 6.7 10.5 8.8 10.0 7.9 Total Total 10-Yr. 10-Yr. Earn. -Di-v.- Balance 145.87 47.00 98 .8 114.84 2.75 90.09 60.16 60.16 85.34 16.00 69.34 73.36 21.00 52.36 92.16 92.16 56.86 1.00 '55.86 43.50 10.50 33.00 44.75 6.00 38.75 94.39 21.25 73.14 107.13 17.00 90.13 98.99 17.50 81.49 81.23 33.50 47.73 Adjusted for two-four-one split July 1, 1948 Some of the newly re-organized roads also appear very reasonably priced. Ten-year figures are not available. Most of these issues are selling at just slightly more than twice 1948 earnings and have generous yields. TABLE TWO Approx. Price Chicago, R0k Island Denver, Rio Grande Gulf, Mobile & Ohio St. Louis,-San Francisco Seaboard Air Line February ll, 1949 A- Paid in 1949 29 24 11 9 15 Est. Earn. 1948 11.41 1531 513 . 3.46 6.81 Price Times Earn. 25 1.6 2.1 2.6 2.2 Dividend 1948 3.00 2.00 .50 1.00-A 1.00 -Yi-el-d 10.3 8.3 4.5 11.1 6.7 EDMUND W. TABELL WALSTON, HOFFVAN & GOODWIN This memorandum Is not h..ve lin Interest In lome to or be at! construed 115 an of the securitIes offer or solkltallon of mentioned hereIn. The offers to foreQoing buy or sell anI securities, From mllterial has been prepared by tuims easto time Wliiston Hoffan matter of In ormlltlC!, & GoodwIn may only It Is. bll!ed upon information believed reliable but not necessarily complete, Is not quarllntef!d as accurate or final. and is not Intended to foredole Independent InqUiry,