Tabell’s Market Letter – May 16, 1958

Tabell’s Market Letter – May 16, 1958

Tabell's Market Letter - May 16, 1958
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NEW YORK Walston &- Co. – – – – – I n c – – – Members New York Stock E,rchange SAN FRANCISCO LOS ANGELES PHILADELPHIA OFFICES COAST TO COAST CONNECTEO BY O/ReeT PRIVATe WIRe SYSTEM CHICAGO TABELL'S MARKET LETTER May 16, 1958 Faced with disturbing developments abroad, the stock market declined sharply 0 Wednesday, but recovered some of its losses later in the week. At the intra-day lows of the week, the Dow-Jones Industrials at 453.84 were down over ten points from the recent high of 465.14 and the Standard & Poor's 500-Stock Index was down over a point from the recent high of 44.23 to 42.91. As noted in last week's letter, a technical correction of the advance from the October lows is needed. No definite tops have been formed but a correction could retrace a third to two-thirds of the advance from the October lows. Thi cou1ameaii'adecline to roughly'the 443430-range in-the 42-40,.range on the & Poor 500-Stock Index. I have mentioned several times in my letter that I felt the market, as measured by the averages, was building up a wide accumulation base similar to 1946-1949 and 1951 1953. I believe that the market will, therefore, hold in a wide trading range bounded roughly by 460-480 on the upside and 430-420 on the downside for quite some time. The market is, in my opinion, in the early stages of this trading area. It may continue to hold in such a trading range for as long as two years. The economy probably has about reached its low paint, but it may be quite some time before it again advances sharply. Another factor that indicates a longer consolidation area is that the market is much higher today, in terms of price/earnings ratios, than in either 1949 or 1953. This is particularly true in the case of the high grade blue chip issues. Let us take 1953 as an example. The Dow-Jones Industrials started an advance in September 1953 from 254 that finally culminated in a high of 525 in April 1956. The market started its advance while business was still declining. The Federal of Production was 133 in September 1953 and did not reach its low of 123 u '1 f P954 by which time the Dow-Jones Industrials had advanced to R subsequently reached a high of 147 in late 1956. Thus, a case be ma at the present mar- ..,ket is similar ady.ance in in h . ueyon!. many stocks are greatly overvalued as 't 953 he table below shows \ \ JEarned 1953 Earned Recent 1958-Est. Price PiE Ratio Union Carbide. Goodrich 0 35 13.4 19.4 8.6 2.10 3.10 4.00 59 86 54 28.1 27.7 13.5 These three i s, based on a continuation of the trend of the 1958 first quar- ter, will earn abou e same amount as in 1953 yet General Electric, for example, is selling at 58 7/8 today as compared with an average price of 26 in 1953 and at 28 times earnings as compared with 13.4 times earnings in 1953. This, fortunately, is not true of the entire market. Some of the consumer goods type issues that we have been recommending over the past nine months compare favorably with 1953 ratios First Nat'l Stores National Dairy Philip Morris' Zenith Radio Earned 1953 4.17 2.32 5.01 6.31 Aver. Price 1953 47 31 48 37 PiE R-at-io 11. 3 13.4 6 5.9 Earned 1958-Est. 5.75 3.40 5.25 ;;. 10.00 Recent Price 64 45 54 w-75 PiE Ratio 11.1 13.2 10.3' 7.5 – It will be seen that these three consumer goods issues and special situations are still modestly priced. In terms of the general market, it appears that a great many issues are too high to support a further price rise at this point. A Etnp carr.ir.gs inCrEase is needed for the market to move above the 460-480 level and that does not appear to be a near term possibility. Therefore, a long continuation of the trading range is anticipated as probably earnings have about reached their lows. In the meantime, issues with still advancing earnings and issues still in declining trends, but with a chance of a nearby upward trend will still present gcod possibilities of price appreciation. I will endEavor to point oat issaes of this tYge in subsequent ietteI S. ThiS marhet letwr IS not. Ilnd under no circumstances 1'1 to be constrllcrJ IlS atl piTer to ,;cll or a 90hcltatlon to buy nny SCCllrlties refcrred to herem 'l'hc mformn.tlon cnnt(lllled hel em IS not Itunrlltltced Il'l to nCcuracy or and the funllshln)! p'IJIl Ml(htlFI() crqmJ'\l1tbt!1l1'l IT to be construed JlII, II rcprcsenta- tlUn by Wal'lton & Co, Inc All CXprelSlono; of oPInion nrc subJect to ch,llIgc &,vGo. Dlrcctors, Stockholders find Eml,luy'C') thelCQf, purchnbe, ell and may ha\e an mtreo;t In the IH!CUrltlcs mentIOned ht\1'f11l\ ….. J-fttcn;i-tl.tjIQd pre-entcd merely as a general. mf(lrhlllJ ommcntnry on day to riny mark(!t nev-s and not ns n complete analYSIS AdltlUon\W J,c,llonhes referred to herein will bc fUI upon fcqlle'll. \\-; JOI

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