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'I I i J;;L! ' Walston &- Co. – – – – – I n c . – – Members New York Stock EXchange NEW YORK PHILADELPHIA LOS ANGELES SAN FRANCISCO BASLE Sw,,,.,,d I OFFICES COAST TO COAST CONNECTED BY DIRECT PRIVATE WIRE SYSTEM TABEll'S MARKET LETTER 15, 1957 Further patience will be required,but the stock market is slowly grind- . ing out the pattern that I suggested over a year in my article publish- ed in the Commercal & Financial Chronicle dated December 29, 1955. To quote in part – Certainly, it seems highly improbable to expect in 1956, the same rate increase in activity that was witnessed in 1955 or to expect the s rate of advance in the stock market that was experienced in 1954 and r955. The rate of business increase in 1955 was two or three times the long-term- rate while the stock market has advanced almost 100 in 27 months. A conti- nuation of the present rate of-advance in the stock market would mean a pri level of about 1500 in the Dow-Jones Industrials by 1960 which seems a bit fantastic even to a confirmed bull like myself.Breadth-of-the- market action indicates that the market shows signs of waning upside momen- tum despite the fact that the averages are advancing to new highs. This div gence usually indicates either. a decline or a long consolidating period.The action of the various averages also tends toward a somewhat cautionary atti tude after the turn of the year. Actually, the market as a whole has made – little headway since July 1955 (high 490). A few stocks have had sharp ad- vances while the bulk of the market has moved sideways.All of the varied technical approaches confirm the fundamental findings that the bull market has reached a mature stage. If this turns out to be the case, the market will follow one of two possible correctionary patterns before the long-term advance is resumed. One possible-pattern could be a sharp 1946- type of 25 or so followed by a re-accumulation area. This could carry the industrial average back to the 400-360 area. The other possible pattern could be a 1951-1953 type of consolidation with the average hold- ing in a broad trading area while individuaJ issues and groups adjust piece meal with some groups declining while at the same time other issues and groups are advancing but eventually the whole market correcting any tempo- rary overvaluations. A study of the graphs of over 1,200 individual issues suggests that the 1951-1953 pattern is the more probable one. At the present moment,many individual issues indicate the possibility that they are forming distribu- tional tops that may need some more time to complete. In most instances, these issues are ones which have advanced-very sharply in the last year or two and are selling at very high'price-to-earnings ratios and extremely low yields that are based on possible future earnings and d'.vidends rather than on the present. They could be quite vulnerable in the event of a change in the high investor confidence prevailing today. On the other hand,there are also quite a few issues today that have been more or less neglected marketwise and are still selling at fairly rea- sonable price-to-earnings ratios. Issues of this type would suffer little marketwise in the event of a general decline and might even move against the trend if fundamentals favored their group. The broad economic pattern and the more intelligent approach to invest- ing that has prevailed in recent years, favors a possible piecemeal read- justment over a period of a year or so rather than a sharp decline. – I believe the 1956 range will be 520 high and 430-420 low as against a pre- sent price level of 485. 1956 should be a year of extreme selectivity. In the of present conditions, it is hardly necessary to change the above fourteen-months-old forecast except in timing. The range in the Dow- Jones Industrial since July 1955 has been 524.37 high,reached in – April 1956. The low was the Eisenhower heart attack low of 433.19 in Octo- ber, 1955. The most recent low was 453.07 reached last month. . Friday's close was 474.28. This is a relatively narrow twenty-month tradin range of 17. It compares with similar consolidating periods like the 18 trading area of-thirty-six months duration in 1946-1949 and the 18 trading range of twenty-eight months duration in 1951-1953. If the time element of the two previous consolidating periods is applied to the present market,the averages could continue to hold in roughly the 524-433 range until October 1957 or July 1958. ThiS, from a technical viewpoint, would be a very cons- tructive development. It would set up a long resting and re-accumulation area with the possibility of an upside breakout to a new and higher price plateau. usThll, market letter IS not and under no circumstance., IS to he construed as, an offer to sell or a solicitatIOn to buy any referred to herem. The mformatlOn herem IS not to accuracy or cumpletenes& and the furm'hlnl thereof ll not, and under nu Clrcumstames IS to be as, a representatIOn hy Wal;tun & Co, Inc All expressiuns of opmlOn are subJect to change Without notLce Walston & Co. Inc., or any OfflCer, DLtcctor ur Stucl..holJer thereof, may an mterest m the seeuLltLe. mentIoned herem ThIs market letter 10. mtended dnd presented merel a general, mformdl commentary on ddY to day market news .md nut as a complete anahsls. AddltlOnal mformatlOn WIth respect to any seeulltles referred to herem WIll be furmo.hed upon request 'VN 301 e – — .- -2- It is entirely possible that, during this period, the market might work moderately lower to further correct the segments of the market that advanced too rapidly over the past twenty months. However, most of the vulnerable situations have been pretty thoroughly corrected as witness the 20-30 decline in various blue chip growth issues. Any further weakness, when, as and if itoccurs, should not be disturbing to the long term investor. It should be welcomed as presenting an excellent buying opportunity because the fundamental economic pattern is extremely favorable over the longer term. As I have continually stated, individual issues will continue to outpace the general market. Reprinted below is my complete recommended list. These issues have been discussed in previous letters. They are recommended for substantial long term capital appreciation and not necessarily for near-term price movement. Present Price Allegheny Ludlum 62 Amerada Petrol. 112 Amer.Cyanamid 76 Bell & Howell 38 Bristol-Myers 47 Calgary & Edmonton 27 Carborundum Corp 43 Carrier Corp. 58 Champlin Oil 26 Columbian Carbon 45 Copperweld Steel Crucible Steel 30 Eagle Picher 45 -Eastern Airlines 40 Fansteel Metal. 48 Food Machinery 58 Dynamics 60 'General Electric 56 I General Rwy Signal 30 Gulf 120 Hewitt-Robins 40 Intern11 Nickel 105 Petrol. 49 Johns Manville 48 Joy Mfg. 64 Kansas City South. 68 Kennecott eopper 109 Magma Copper 76 Martin, Glenn L. 41 Masonite 30 MN aitn1e1r aDl si s&t iCl lhee mr s. 27 28 North.Natural Gas 55 Northern Pacific 42 Petroleums 20 Pan-American World 16 Panhandle East Pipe 51 Penn Dixie Cement 36 Pittston Company 64 Rayonier 29 Richfield Oil 66 Royal McBee 33 Sperry Rand 21 Sunray Mid-Cont. 24 Sylvania Elec. 41 Tennessee Corp. 52 Timken Roller Bear. 92 United Airlines 31 U.S. Steel 59 WYaelsete&rnToPwanceific 56 29 Price Recom. 16 103 67 42 37-35 16 60-58 24 50 31 30-29 24r2 45-44 51 50-48 56 19 107 25 90 34 50 23 85-83 130 75 38 46 32-30 48–47 40-39 11 12 46 39-37 45 4038 75-74 31 25-24 25 49 50 96 40-38 65 73 18 Yield 3.2 1.7 3.9 2.6 3.4 0.4 3.7 4.1 3.8 5.3 6.2 5.3 4.9 2.5 2.1 3.4 3.3 3.6 4.5 2.1 5.0 3.5 2.9 4.7 4.4 5.9 6.4 4.0 5.7 0.7 3.6 4.7 4.5 5.0 3.5 3.3 1.9 4.8 5.3 4.2 3.8 5.0 4.9 4.7 15..46 5.1 5.3 5.2 Comment Buy-Holdfor substantial appreciation. Buy-Hold.Long term potential 180. attractive issue in chem.group. Buy-Hold for substantial appreciation. Recently made new high.Continue hold. Hold for objective of 35-38. Continued retention is advised. Excellent vehicle for long term growth. Buy-Hold.Intermediate objective 37. Price action slow.Hold for income. Excellent for both yield & cap.gain. for substantial appreciation. Buy-Hold .Selling at -only 8 times' e-rnings Price action slow.Patience required. Continued retention is advised. Excellent lit growth.Buy on weakness. Hold for intermediate object.of 70 Hold for long term growth. Buy-Hold.Excellent lit pattern. Continue to hold for long term gain. Buy-Hold for substantial appreciation. Continue to hold for long term Hold for intermediate objective of 60. Hold for income and appreciation. Hold for intermediate object.of 75-80. Price ation may be slow.Hold -for income. sharply.Near support.Good yield. Buy-Hold for substantial lit appreciaticn Near support. Lit pattern very strong. Underpriced at present levels. Lit pattern gaod.patience required. Hold for long-term growth. Buy-Hold.Very strong lit pattern. One of the better rail patterns. Hold for intermediate object.of 25. Price action slow.Patience required. Buy-Hold for very stl' on g l!t pattern. Continue to hold for long term gain. Long term objective over 100. Price action slow.Patience required. Hold for income. Buy-Hold. Excellent l,ang term pattern. Price action slow. Patience required. Hold for long term gain. Buy-Hold.Near strong support level. Excellent long term growth pattern. Buy-Hold.Excellent long term pattern. Price action slow.Patience required. Continue to hold for long term gain. Has reacted sharply.Near support level. Near support level.Continue to hold. EDMUND W.TABELL vJALSTON & CO. INC.