Tabell’s Market Letter – January 25, 1957

,.' ' \ I WalstIoncn, &Co. Membe1's New Y01'k Stock Exchange NEW YORK PHILADELPHIA ' LOS ANGELES SAN FRANCISCO BASLE (Swa,.,ld) OFFICES COAST TO COAST CONNECTED BY DIRECT PRIVATE WIRE SYSTEM TABELL'S MARKET LEnER January 25, 1957 The rails were the weakest section of the list during the past week and the rail average, at Friday's low of. 148.32 reached the lowest level since the Eisenhower heart attack decline of September, 1955 when the rails declined to 144.07. The industrial average, on the other hand, managed to close the week above the previous week's closing level of 477.46 after reaching an intra-week low of 471.06. The industriais continue to hold in the broad 500-460 area which has contained the average for the past five months. The selective action of individual stocks continues and will probably continue for the foreseeable future. Continue 4to.thl. ikethe- action of most ofthe stocksinmy recomm.e.n.ded list of January Of the stocks in our recommended list, two of the less inspired performances have been turned in by MAGMA COPPER (82) and WESTERN PACIFIC (57) Both will have to do a good deal of work in order to form bases and penetrate the overhead supply which, of course, exists after a sharp decline. Both,on ,the other hand ,look reasonably attractive for purchase on current weakness. It is interefrting to note that Magma was first recommended by this letter some twenty-one months ago at an adjusted price of 68. At that time, the company's new San Manuel development was expected to be at least eighteen months away from full production, and the copper price was 33/ per pound. Despite the fact that, as of this writing, San Manuel hafr been in partial production for over a year, should attain full pro- duction within three or four months, and copper now sells for 361 per pound, Magma has declined to within 10 of the original recom- mended price. The reason for this is, of course,that Illagma enjoyed a sharp rise in 1955-56 as the price of copper skyrocketed to 461 per pound. As the copper price declined, Magma followed the trend, accelerated by reports that extensive mechanical and labor difficulties were being incurred at San .Manuel.,. .with attendan.t. diffLc,ulties on getting into-f.ull production. All of these reports were true and, as is the case with many new mining ventures, the target date for maximum output had to be pushed forward. It is now expected, however, that the mine can be on a normal output basis by April. The only remaining question is the copper market. The copper price is not so much of a factor here. Magma was originally recommendett anticipating 12 – 18 earnings on 331 copper. The main current diffi- culty in copper is that production has been cut back and there should be eome diffIculty in selling the full 70,000 ton San Manuel output. This, however, is only a temporary factor, and the strong possibility remains that, over the long term, the price of copper will again rise. With most of the unfavorable news fully digested, Magma at current prices appears fairly cheap. Western Pacific, at present levels, provides a better-than-5 cash yield, annual stock dividends, and perhaps one of the best growth potentials available in the rail field. – Indeed, recent forecasts of 1957 rail earnings project a larger 1956-1957 earnings gain for Western Pacific than for any other Class I carrier. Recently released earnings were 6.29 per share before funds and may rise to between 7 – 8 per share before funds in 1957. Tax adjustments may cause upward revision of these figures. Meanwhile', the extensive modernization pro'gram should permit substantial cost reductions, more than offsetting current tax benefits arising from certificates of necessity. Over the long term earnings could rise to a point substantially in excess of the above figures. c AWTamb EDMUND W. TABELL WALSTON & CO.INC. This market letter IS not, find under no circumstances IS to be construed as, an ofTer to !'ell or n contnln'(1 her!in IS not guaranteed as to .J.ccurncy or completeness and the furntRhlllg thereof IS not, C I Off D t 8m kh Id th eof may bh)avWe aahn-tmonte&r.csCtooI.n Itnhce A,elcluerxllplCre'!ssmIOenntsIOorneodmhnelroenmarT'hIsSumbJ'clrlckt''',ehtatnergeISv.mlthtocunddclotInCnC. , pWreasc'nettl . , 'and not liS a complete analYSIS AdditIOnal mformatlon WIth respect to any sculllIes referred to herein \HIl be furnIshed upon request dn;\o dCyWN 301