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-W–a–lsIntocn.-&-Co..; Membe,'s New YOTk Stock Exchange NEW YORK PHILADELPHIA LOS ANGELES SAN FRANCISCO BASLE (Swa,I.d) OFFICES COAST TO COAST CONNECTED BY DIRECT PRIVATE WIRE SYSTEM TABELL'S MARKET LEnER March 29, 1957 There was a better undertone in the past week's market with up- side volume tending increase slightly. Volume indications on our long term breadth-of-the-market gauges are slowly beginning to show improving action. It appears that the market is beginning to show de- finite signs of waning downside momentum. Many stocks that formerly had vulnerable patterns have suffered severe price declines over the past year and the number of issues that need further substantial cor- – -rectiM- is ainlin1Sfllng. dB'eTnotmean'ari- immediate-Droad all advance, but rather a further continuation of the broad trading area in which the general market has already held since July, 1955. Some stocks are still in need of further correction and others– need further time to consolidate. There are, however, a growing num- ber of issues that are beginning to break out on the upside of long trading areas. Issues of this type will show the best action over the next six months or year while the remainder of the market corrects and consolidates. HOUDAILLE INDUSTRIES, INC. Statistics Diversification has teen a Current Market Current Dividend Current Yield 18 1.00 5.6 popular policy in many companies over the past few years. Too often, however, corporate Funded Debt 12,954,000 diversification has been pushed too fast, coupled with a rise- 2.25 Cum.Pfd.Stk. 190,000 shs. in common stock prices far be- – – -C0mmon- S-tock- ,-337 -normal– expect-a-t-i-ons c of — Sales, 1956 75,423,565 Earned per Sh.-1956 2.02 earning power. Many times, however, a company can be found where a diversification program Mkt.Range 1957-53 18 3/4 – 12 has been carried forward on a sound, intelligent basis and plus 5 stock dividend. where the common stock is most moderately priced relative to potential earning power. Such a company, we believe, is Houdaille Industries, Inc. Houdaille started its corporate existence as a major supplier of a wide line of auto parts. As it became evident that this line lacked growth potential and was becoming increasingly unprofitable, a concentrated effort was made to do two things (1) to drop unprofitable lines, and (2) to expand to new fields where capital could be put to more profitable use. This program has been carried forward over the past few years and the results have been truly impressive. At current levels, however, the market price of the stock apparently fails t. reflect the changed complexion of the company. Most of this diversification has been carried on under the aegis of Mr.-RalpI1F. Peo and a capable young executive team.- Mr; Peo hadbeen president of Houdaille until 1946 when he left the company to form Frontier Industries, Inc. In 1955, Houdaille and Frontier were merged and Mr. Peo and his assistants returned to Houdaille, which later changed its name from Houdaille Hershey Corporation to the present title. Without going into th2 history of all the various acquisitions and mergers which made Houdaille what it is today, it to break the company's sales into three major fields. They are auto bumpers and bumper hangers, (2) construction materials and aggregates and (3) air- craft parts. Other divisions which do not fall within these three classi- fications have been added and while many of them have a significant growth potential, they do not now bulk large in , sales or earnings. i market letter IS not, and under no cIrcumstances is to be construed as, an offer to or a SOhcltntlOn to buy any referred to herein The mformation conuuned herem IS not guarnnt('cd us to accuracy or completeness and the (urm;hmv thereof l'l not, and under no circumstancc;'! /8 tobcconlltrucd as, II rCprCllcntntJO) hy Wnlston & Co. Inc All expressIOns of opinIOn are subject to change wLthout nobee W …lston & Co, Jnc, (lr OULcer, Director or Stockholder thereof, may have nn Interest In the securities mentIOned herein ThiS market letter 18 Intended and pre!.entcd merely as a general, Informal commentary on day to day marhet ,,,,news lind not as a complete analysLs AdditIOnal informatIOn wIth respect to any aecuntles referred to herem wilFbe furlllshcd upon request WN 301 – io -2- The most interesting field in which Houdaille is now engaged is the construction materials field. Few people realize either the profitability or growth potential of this field. In many cases, due to a depletion allowance and other favorable factors, a profit margin as high as 10 after taxes is obtaiLable on construction sales. The Federal road building program and the expanding highway network will entail a terrific increase in new road construction and in repairs to existing roads. Houdaille appears in an excellent position to participate in the above mentioned trends. Houdaille's construction materials division produces crushed stone, gravel, sand and concrete. These products are utilized mainly in road building, but are also used in the commercial and residential construction fields. The first construction materials company to become a part of Houdaille – was Bu-fGalo Crushed .s-t0ne .. Thre ,..mone com– panies in this field were acquired during 1956, including one company in upstate New York and two in northern New Jersey. Houdaille now has thirty- two construction materials operating units located mainly in upper New York state, northern New Jersey and eastern Pennsylvania. All of these units are in excellent condition to benefit from extensive turnpike repairs in the areas served. million has recently been put into expansion of this division with more slated to be spent. It is felt that ultimately the construction materials business will become by far the most important facet of Houdaille's operations from a profitability standpoint. The second major portion of Houdaille's business is the production of auto bumpers and bumper hangers. This is now the only auto equipment item which constitutes a major part of Houdaille's sales, and it has many qualities which make it superior to the average auto parts supply tion. Among these is the fact that bumpers 'ire constantly becoming larger and more complex units, thus allowing for full capacity production even when over-all aut0 production declines. It is felt that Houdaille will maintain its sh'l.re of this market over a period of time,and thatsales should grow at a faster rate than auto production due to the increasing size of bumpers. –'A third maJor product-nne in 1;118 HoudaHle pic-rure hydraulic components which the company sub-contracts for major aircraft producers. This line appears relatively attractive in view of an expanding defense program. In 1956, Houdaille earned 2.02 per common share, an increase from 1.79 in 1955. Profit margins increased substantially as unprofitable lines were eliminated, and net after taxes was up 11 with sales down 11. Subtracted from earnings were more than 800,000 in nonrecurring items in connection with the disposal of machinery and a change in depreciation practice. This amounted to 63f per share. 1956earnings, it will be noted, included results on a large part of the pro fitable construction business for only part of the year,since three com- were acquired during the period. On this basis, 1957 earnings should reach at least 2.50 per share on a greater number of shares outstanding and could well substantially exceed this figure. Thus, current prices mark the stock at only nine times 1956 earnings and 6-7 times anticipated 1957 earnings. Dividends will probably continue at 1.00 per share, affording a yield of 5 that may be supplemented by stock dividends. Over a period of time, earnings should continue to increase as a result of growth in the present construction division and aided by fur- ther acquisitions in this profitable field. — – From a technical point of view, the initial upside objective over the intermediate term is 33 with a much hgher objective over the longer term. Strong support is encountered at 16-15. The stock is as an excellent speculation on the ability of an astute management t9 substantially increase earnings over a period of time. EDMUND W. TABELL II AWTamb WALSTON & CO. INC. I ft /f !, i' . at.