Tabell’s Market Letter – May 04, 1951

, Hoff &- Goodwin -'t;-,''',,'',,0;,'' !,,-''''''''''!,'''-'',''''', ''''r'''''''','',',,' '.W1O,I StOl ,1 l . 01011 ,,',''''''','''' 0,, ,.''b,,,',,'-I,II-,,-', i.n &4mU!-Jz& OU f.-i TA'AET L;''';j; NEW YORK S, N, Y, PHILADELPHIA 2, PA. ., ;'''' . . '.;.. ILOS ANGELES '13, CALIF. SAN FRANCISCO 4, CALIF, i'ij ! The advance of average has continued into the an- f ticipated 260-265 area. The average reached a high of 264.44 011 Friday 1' ;Tle ra11G succeeded in betterirg the April high of 84.83 but, at Friday' s ! high of 86.51, were still cor;siderably beow the February high of 90.82. ,,' i'; The present advance into new high territory by the industrial i,, aver82;e, gii.'es us an opportunity to compare the internal technical strength; if',' of. the Jr.arket at present with that of the January-February rise. ;; ' So far, the 2vicenc s at hand is unfavorable on a nUlaber of CQu;ltsi, ;';;', Of the fifty-two group averages that I chart, only some eighteen or nine- — teen have bet cered the February highs. The balance of thirty or so are I still below the previous highs. This indicates that the breadth of the ;', V ;-',market actio,l is not strong and that a relatively small nUl'ber of groups , ,;are responsible for the rise en the average. , ', Volume indications are also unfavorable. The volur.le on the L' present advance is cO;lsiderabl,' below that of the January-February rise. ', ,'; In Ja1.uary there were seven days during which volume topped the three , tmilli()n share mark and nine days in January-February during which volurae c',' \'las f'lore than two nillion shares. On the present advance there has been ,.- ' only three days in which volume was slightly more than two million shares. ,,, k, The same unfavorable action is noted when new highs and lows and ;nuwber of advancing and declining issues are compared with the totals of the ,Januapy-February rise. ' ,, All of these unfavorable comparisons suggest extreme caution .The market must be given more time to prove itself, but the evidence at hand ;,i'iat the moment confirrs my thoughts that the market is in the process of ;' forming a broad distributional top. r I'', The growth stocks have been among the leaders in the recent rally 2rhis type of security is eagerly sought by wealthy long term investors aDd ; ; institutions and trusts. 'rhe r.lain characteristic of growth stocks is, of i' ;'' course the continued growth in earnings and price over a period of years ,,' ;,regaodless of gene,'al economic conditions. MONSANTO CHEMICAL is '.,1 / ,, ,'example. In 1929, the company earned 481 and sold at a high of 13 3 4. ,' ;' vii th only slight i1!terruptions, earnings have steadily increased each year. ;! ;;; 1950 earnings were 5.7 and the recent high was 89 1/2. This is in con- ; '' trast to cyclical stocks such as U. S. Steel with widely fluc tua ting earnings' deper.ding on general business. 1929 earnings were 7.06 on the present f; capitalization. There was a defic it of 1. 26 in 1938 and 1950 earnings 1'Ieret' 1 7 .23. c'' ,', The fear of the possible effect of excess profits taxes held back,.;, 'the growth stocks until recently, but the release of first quarter earnings ,- ,showd that, despite a much heavier tax burden, the growth characteristics ,were still dominant. This has been the reason for recent strength. ',' '; On the unfavorable Side, the great demand for this type of issue ;,; , ,has resulted in their selling at high price-to-earnings ratios and at 10Vi , , , yields. j101rSANTO, at the present price of 88, sells at 16 times 1950 earn- , fings of 5.37 to yield 2.9 on the 1950 dividend of 2.62-/,. Most of the demand for growth issues has been in the field of ,' ,. chemicals like ronsanto and Rohm & Haas, ethical drugs like Pfizer and ;' !,,,'Merck, and specialties such as Minnesota Mining & Manufacturing.Neverthe- ,less, not all the growth issues are in these few obvious industries. r ' ; one is willing to seek out Situations, there are issues in less select ;; -conpany .' greater that are obtainable at greater yields with the possibility of eveD price appreciation if one is willing to have patience until the ;'t ;.' general investing public realizes the grovlth, potentials. ' , Some of these issues are in industries not usually associated with ,.., long term growth but rather with cyclical characteristics. For example, in V, i,'; the rail field there is Min,leapolis, St .Paul & Sault Ste Marie (Soo Line) ; j,.selling at 15 to yield almost 7. This road taps the rich Alberta oil and ,)gas fields where there should be tremendous growth in industry and popula- '' '.' tiOI1. The growth of the south and west has already resulted in sharp price / increases in railroads in those territories while eastern rails have done ;', ,' little marketwise. Even a feast or famine industry like steel has developed,' ;' ;grovlth s.tuations like Ganite City SteeL Utility operating companies in f ;'grO\';th territories alsc have interesting, if less spectacular, price appre-;.;, ciation possibilities. EmmND W. TABELL ' ! ; TVl -. 't–. '-jl -. 11 m,lttor d not to b, conltrued III a offer or solicitation of offen to buy or II m al n, edWin may -; t- hive olin 1nt.r,,' 1 loml or all of the Ilcu,I,111 merdionld hr,l th. forlQoinQ meterial hal b.. prepared by 1,11 a, I matt.r of Information only. It is bued -. t)7Jfuipton7!In;f'or'mfIa!ttilon't4b1i,l1I,eiv'eId;At;7liab;'l1e,,butfn;ot7Tn-ecelWftirily'ico-mZp-l,t.,-Ist..n/otS;.uariaJn…5d-alr'a2ccuroa.t.forffiinal,/linSdi'snotintenld;e'dtofo!rf.clao;s3eR;Itndr,p,endren1t'inquir,y;.; … .' .. '