Tabell’s Market Letter – August 04, 1950

P-,',—————————– — ——- Walston-Hoffman &, Goodwin, SAN FRANCISCO, CALIF, NEW YORK, N. Y. PHILADELPHIA, PA. LOS ANGELES, CALIF. .,9'- 8AKERSFJElD BEVERLY HillS EAST ORANGE, N J. HARTFORD, CONN LONG BEACH MODESTO OAKLAND RIVERSID!! SACRAMENTO SAN DIEGO SAN JOSE EUREKA FRESNO HAGERSTOWN, MD. HARRISStJltG, PA PASADENA PIITSBURGH, PA. PORtlAND, ORE. SANTA ANA' SEATTLE, WASH STOCKTON VALLEJO TABELL'S MARKET LEnER 35 WALL STREET. NEW YORK 5. N. Y. Digby 4-4141 In last leek's letter I expressed the opinion thThtWRf iaj ,line conpanle. of;er outstrmding profit pDss'Lbili tL s fur I!!-m9'on , 'st')ck buyer vlhose chie, interest is in long term capitBl gains ruther than in vurrent income. I stated twelve reaL,ons some technical and some unda i', nental, for thIs conclusion. Lee us novi consider some 01 the 'Leemingly un- ,favorable factors in the airline situation. At the em, c' World War II both the .'3.irlines aI1d the investing pu;lic ,.-ere ver' optimistic on t;,e future of the industry. The companies e;;panded rapid 1\' . Tey borrolved money, boug.ht ne'; equipment, hired big sto.f,s and extenled their routes. Passenger revenue increased sharply in 'he period bet1'ecn 1)46 an6 1948, but not uS l'apidl- as the te0 rapIdly ex- ,panl ec. coses. Ac a result, most companies lost money in the three-e.lr per, ,,'. Air rle,ll S;)',)sidies, '.hih ;,ad been reducec. 2, in 1945, were L ,s,a),'ply inreasc( i1 1948 In an eff rt to assist se;;e Clf the more mar,;inal ',;. ' ,p'lies. In 1049, 1;ile picture slc,'l;; started to c'lanGe. Costs l'ere cut '. tlL',rply ariC, as trafic cClnJinue1 to increase, '1 large '.i'1ount was c'.rried , 'n Lnto net In ),0. This improvement 1li',S coneinued lnto 19S0 vlhic- brings \'.p t e possi!.ility cf rl cu'c in /,ir .nil pY,1ents , I shall n0t atte1Pt to enter into the argument of novi f.lUch of' air ,',8il Pl,- is '-,r serviceD render0( an h01 much i8 sultic',y. Tile iolportlnce -. tle question varies itl indi,vidu;-;l companies. Air rfall revenues are less th,m ''7 ,r t0tal reVC;1Ue 'r E23tern All'line, a; ag,,inst 2'J Lor SOFle ,, t ,e sFi.ller c.arr.Lers. ',';le rne v,l'ies ,'idelr , Some of t1,e smller 'cr'rrLer; receive tel, tir,lee as ;.111 p2r ton i1'.-1 '5 so(,le or t'1e .'.trol1Ger ,', ;.irlL1e, In m.' event;, as totnl reVUlUe increase3, the per(,2nt,fe )l de- po-t'ence 'n ir ..ail vlill r.ecli1e. Mail ',;'.S 11 , total re\'enUe3 ',n 1949 ', s ,,;ainst 3'; ,.n l(;iO, ,'tal o,ir iLil r.eveme ,1 1949 12.S 58 .illion. ,'- I '!e c-nBjder r1.',t h2.1 ,' it ',',as c;uC)sic.J (lhi l ' is ver; q'-estion)le) it ;;'J.s still a s!la11 (-3t Lor !laincainin, approxi,ately 1000 tr–.nspcrt plC'.nes ' '1' potentlal 1een3e purposes. It in ver; s'lall s cor'.psrec. '''-;'1 s'1e 3 , ''illi,n (ove).' one hun(cre(, times as ;mch) I.e h;,lve t,ed up in.'ar.1 p'ice ftlp)rts oi pe;il1uts, potr coes 1.d ct-er 1'c.rm cor(Jc(l icier, . Un 2er t iC pr2cent ',;v'tential ';a1' e;1erc.ency, it is ('oubtul that dn, c'lange '1111 be ,ue ''n lr ''i.l rates. An(tieCi' possi'ilit7 is the co,,;ml',deel'if, o' the airIleet in , ' r e;;wrcenc)', Thls ,ppers doubtful. In Worl,l W-i II appro;'i–mtely 40 cf '/e' 0 airline pl,mefl Here t.ken ewer J,'Jt i;1Cre'1sinc; load fae or of tile re,;',.t.r,,' planes 1(' T'C th,n ut'I'set the (Lference. During 1943 tc 1945, plQ,nes ,,;-'pec'ateci. ;.;; p.ppr( xi, ,E',telJ- 90 capacit' ; '3 co;–.par8d with appro;i Cltel;' (0 , ii'l 1;41 ad 10il . ,'he '1V'-, ',Ie factors end t1e very attrC'.!'cive technical p;tterns ,appe.ilr to greatly' ,''ce,;,,; t;e potentiall- unLevc', l.)le o.ctors. Fron a tech,,';Jc.l lOilt (,f 'Ie'. ,the –)l'\'inc ss'.1er have at,-';cactive .raph p;ttrns . (1) In t.!e Cl VL en(,-p(l.).n( pref erreL stocle c;roup, Afilerican Alrllne3 , j'3,'0 pref'errec' sellinL at ;-5' and convertitle lnto 4.6 shares 0' cO.r.;on, ir-.l( Unite; Alr Li.!,.50 preferred, \,, convertible into 4,2 shrres 01 1 C 'rJ ,)11 appe2r nttrac ti ve i'or incont plus appre' iation. (') In tlle ')etter c;raoe CO!!1;lOr, steel; class,f; cation Alerican Airlines , ( 1) ) C(.1( Eastern Airl''nes (1(; ) are ,1utstandc',g, 7he 19115-2!6 ;',Ihs ,'ere ;,1 1/2. and 33 -!-. Be,t lssues are in strong L,ancIcl position ,',nel ilave .11 ,jependeflce ,'n E',.Lr . il subsidie,. The ch,;rt potterns indicrte at ,,'.(,' t an appr( ',1 .,'ti(',1 (' tl e 1911'46 highs. . c) III tl v)re 0peul,tive ;,r('up, 'illuse ejJenaEnce on .ir , a'l cub- ;31 les is l'J)t ,',(Jr.' Llp0rtmt, I 1I0Uld inclUde li',ed Air LinelJ (13 ) and I ' Wil (,O ). TlE. 14116 lliC'lS I'ere 62 1/2 Qnd-' , S. Neitle2 0' tlJese S3ues ''Gr;;' in as scunC 'innncLl positio') aIS A'eric'..L a,ld Ecst;el'n b;t cC,clld ShOll '; re,-.ter pe','ce.l'ca 'e ppr.;latIr,n 11 a ;.)OU 8.irl..e (,mrf(' and t;reat(,, 105ses 'J C. Q. ,.- ec 111in I !o.r'cct.. . , (it) In t' ,e Rztre ,el' specllat,Lve ,-,roup I l1c,,',ld choose We. te.rn Air Line; . ,( 1' ) an' 31 ;Li,,'l Alr;'2-S ( 10) cmd ,,;,'r,thnst AirlL'lcs (12). 'rhe 1945-6 , ; ,,-,b ',!el'er.upe t,',vel-' he; 1/2 ,'r WRstern, 3'( 1/2 i'or ErcenL'f' 'l' 63 1/2 . 'r \'rtl es (,. ,.p;'eGe ..LBS'.leS are pel'1.1,,tive b ' t Llat.. ( ',.1 Lc1e Q,ppreci2. cJ lon if' PrJElS . i I i L.l . C) All t,le abrve issues f.re listec on t 11e N.Y.S.E. I', the unlis'ced tel' Delta Airlir.o,,, '/'. is cLlts-candln,. TL 194,-46 high .. as 69 1/2, ';',e Ji;;pany i.s ,,ne 01 ,e tetter resional 0ar iers, S..nce 19 1!1,coLp'.ny has ('urneL .me in ever' ear \'lith 8F!eptlon 01 1,)7 a,1d has p,',ld dividends AIn' lIT\tttt.lse jind\O; lnitf,s' i som;cJr '0…. l..fipon in'ormafon eJle\l'fld e .r CI til ane; ar Of ,ollcitatlon ell of the securities mentioned herein. tel/able but not necessarily compl.fe, of The Is onlofoffre.ngqolltllolnlt9bnumtyeaetdoerr l.laelJ..IchLcWulr,bft,l&eoerr/h.f.i.MFlp,rAonmbdyi1is'f.Iin.&lorl-ttl1Iti'n.;4lletnM'td teDWdralosftofoInnr,efodHrOmoJfaeftmiolannndeo&pnelyGn.doMoItdIwIsi)nnbqaumslea.yd ….. … …….. . – – .. -.. '. ;, . .- – — –