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, … .!! ,II' II' , 'If fI' P . . . . CI 'f( ' g g fCf W SI'1' NEW YORK Wdlston &CO.——–Inc. Membe,'s New YOTk Stock Exchange PHILADELPHIA' LOS ANGELES SAN FRANCISCO BASLE ISw;'..,I.,dl OFFICES COAST TO COAST CONNECTED BY DIRECT PRIVATE WIRE SYSTEM TABEll'S MARKET LEnER February 21, 1957 Although the recent downside penetration of the 500-460 area Signalled a Dow Theory bear market, the decline did not carry too far. Afterreaching a low of 453.07, the average returned to the 500-460 area, reaching a high of 471.22 on Monday, February 18th. The average closed today at 466.93. This action is very similar to that of 1948 when a Dow Theory bear market signal was given by both the industrial and rail averages,but, after a short decline, the market rallied back into the former trading shelf. This is one more confirmation of the theory held by this letter for some time – that the market is in a broad consolidating area similar to 1946-1949 and 1951-1953. The present market has held for over twenty months in the 524-433 area or range of roughly 17 from high to low. This is approximately the same percentage range that characterized both the 1946-1949 and 1951-1953 period. The probability now seems to favor the fact that the market will continue to hold in this range for an indefinite length of time and again underscore the fact that individual stock selecttion will be of paramount'importance. In connection with individual stock selection, it is important to note that individual stocks and industry groups have consistently shown better I'elative strength than the market. A study of the relative price action of all of the 103 industry groups covered by Standard & Poor's weekly averages show that selected issues in forty-four groups have shown ah.ve average action. These industry groups are tabulated below Agricultural Equip. Air-Conditioning Airplane Mfg. Airplane Equip. Amusement Baking Bus Lines Carpet Cement Coal Construction Office Equip. Shipping Drugs-Proprietary Oil Producing Shoe Mfg. Electrical Control Oil Prod.-Canada Steel Elec.& Elec.Equip. Oil Refining Household Equip. Paper Cup Sugar-Cuban Insurance-Fire Photography Sugar Refining Iron Ore – Railroad Equip. Tank Car Machinery-Const. Real Estate Tobacco-Cigarettes Machinery-General Refractory Mat. Tobacco-Cigar Machine Tools Roller Bearings Utilities Natural Gas Shipbuilding Vending Machines COPPERVIELD STEEL COMPANY Statistics Copperweld Steel appears Current Price I't'ridfend- , Current Yield 31 ' 2.00 6.5 to be an outstanding bargain in the specialty steel group, based on future expansion plans which ' do not appear to have been recog- Long Term Debt 8,278,000 nized by the market. The stock, 2.50 3.00 Cum.Pfd.Stock Cum.Pfd.Stock 12,697 shs. 56,906 shs. at current levels around JIJ is fairly priced in relation to 1956 Common Stock 784,910 shs. earnings of 4.08 per share and yields close to 7 on the'2.00 Earned Per Sh.1956 4.08 annual dividend rate 'which is am- Sales-1956 100,500,000 ply covered by earnings. The pre- sent price does not appear to Mkt.Range – 1955-57 33 1/2 – 21 1/4 take into account a possible 50 Convertible into 2 shs. common to 100 increase in earnings over the next six to eighteen months through 1952 which could occur as a result of the company's expansion program. The low price earnings ratio also fails to take into account the improved efficiency status of the company brought about by the above mentioned ex- pansion program. The above fundamentals are supported by an excellent technical pattern. ThiS market letter IS not, and under no Circumstances IS to he construed as, an offer to sell or a sohcltatlOn to buy any securities rderred to herein. The informatIon contailled herein lS not guaranteed as to accuracy or compleWncss and the furmshlll)l thereof 1& not, and under no circumstunccs lS to be construed as, a representatIon by Walston & Co, Inc AJl expre'SlOns of opinion are subJect to change Without notice ,,'alston & Co, Inc, or any Officer, Director or Stockholder thereof. may h.l\'e an mterest in the secuTltuS mentIOned herem ThiS market letter is Intended lind pre'ented merely os II gelleral, lllformal commentary on d.lY to day maret news and not liS a complete analySIS Additional mformatiOn With respect to any SecUlltlCS referred to herem \\111 be furm&hed upon request \VN 301 —— -2- Copperweld's sales can roughly be broken down into four divisions' (1) the Steel division accounting for roughly 50 of sales, (2) the Wire' and Cable division, more than 30, (3) the Ohio Seamless Tool division 15 and (4) the Flexo Wire division, less than 5. As can be seen the above, the Steel division which produces electric furnace quality alloy and carbon steels in semi-finished form is the most important factor in the company's sales mix. It is on this division that a large part of the company's recent expansion has been concentrated and it is from better profit margins in this division that a large part of future expansion of earnings may come. The other major product, copper-covered steel cable, is used extensively the utility and communications fields and continued demand for this product is foreseen. In 1955, Copperweld embarked on a 12 million expansion program. 5 million of the capital required was raiSed by sale of common stock which effected more than a 50 diluticn of the stock outstanding at that time. Additional capital was raised by the sale of notes. Prior to the beginning of this program, the Steel division had melting capacity of 618,000 tons of ingots per year. It could finish, however, only 460,000 net ton ingots per year, thus giving an effective capacity of only 320,000 net tons of finished products. When the expansion program is completed, additional blooming and finishing facilities will enable the company to process its entire melt output, thus giving the Steel division an effective finished product capacity of 460,000 net tons or a 40 final increase. This expansion program is expected to be complete by the third quarter of this year. It is very difficult to assess the precise effect which the expansion program will exert on Copperweld's per share earnings. It is true that an expanded sales base can be looked for – perhaps as high as 120 million as compared with 100 million shown in 1956. However, the most significant effect of the expansion program will be to increase profit margins by further integrating Copperweld's plant and improving operating efficiency. In prior years, Copperweld's operating income as a percent of sales has been unusually low in comparison with most companies in the steel industry. If this could be raised to a pOint only a bit more in line with the industry average, an expansion in earning power to an annual level of between 5.00 and 8.00 per share could easily be seen . Current prices for the stock, which mark it at some 7 1/2 times last year's earnings of 4.08 per share and afford better than a 6 yield on the 2.00 dividend, do not seem to take into account the improved earnings picture and better efficiency which could be brought about by completion of modernization. The favorable fundamental picture is reinforced by an excellent technical pattern which gives the stock an initial objective of 41 followed by a long term 68 with support encountered just under current levels. The stock is being added to our recommended list and is suggested for purchase as a long term repre-' sentation in the steel industry. AWTamb EDMUND W. TABELL WALSTON & CO. INC.