Tabell’s Market Letter – January 05, 1962

NEW YORK Walston &Co. —–Inc, —….;;- Members New Y01'k Stock Exchange SAN FRANCISCO LOS ANGELES PHILADELPHIA CHICAGO OfFICES COAST TO COAST AND OVERSEAS TABELL'S MARKET LETTER January 5, 1962 fhe action of the past week may be an indication of what we may expect for most of 1962. The week featured extreme irregularity. Most of the weakness was concentra- ted in the overexploited issues selling at historically high valuations. The more real- istically priced stocks were firm or mOderately higher. The short livEd rally from the December 22nd low of 714. 60 to the December 28th high of 738.79 has apparently ended. 'As note(fi;;-our letter of Dec-emoer22no;'tlie December intra-day low of 714. 60 was an important point to watch. When the December low is broken early in the next year, the trend for the remainder of the year is usually down. Today's intra-day low was 709.74. Most economists expect 1962 to show an improving business pattern over 1961. The 1 Federal Reserve Board industrial production index, now 116, may reach 130 by mid-1963 The Dow-Jones industrials are estimated to earn around 31. 50 in 1961, increasir;g.; 15 to 20 to 36. 38 in 1962. There is only one fly in the ointment., Has the stock market already dis co unted the improving business pattern There is no doubt that, statistically, the market is extremely high as evidenced by the earnings trend and priceI earnings ratios of the Dow-Jones industrials in 1950 and from 1955 to date '-, , -1950 1955 1956 1957 1958 1959 1960 1961 Earnings 30.70 35.78 33. 34 36.08 27. 95 34. 31 32.21 31. 50 Avg. pIE 7.0' 12.2 14.9 13.1 17. 19.5 21. 5 From the 1950 low to the 1961 high the Dow has e earnings moving sidewise. This has been brought about by a ,.oe)fa s. st, the market was ridiculously undervalued in 1947-1950 period. for common stocks brought about, by an the as a tremendous deman increase in,institutional – funds available for investment. r ldence has risen sharply since the 1947-1950 period. /Yw lingness to pay three times as much for earnings in 1961 as in 19 The h' f ce factor is what makes the market vulner- able. A return l a o ,in our opinion, too fantastic to even consider. This would mean t e ould sell at 225. The investment bargains of 1947- 1950 will not be avai a gain in the lifetime of any investor, However, it is possible that a return to 19 aluations might occur. In 1956, the average pI E ratio was 14. 9 times earnings. If we allow for an increase in earnings to 38.00 in 1962 and apply a 1956 valuati'On of earnings the average would be selling at about 566. It can be said, with considerable justification, that straight annual ea rntngs since 1950 do not show the true picture because the quality and stability of earnings are much better today than ten years ago. The table below shows the cash flow earnings of the Dow-Jones industrials in recent years. These are earnings after taxes but before deducting depreciation and depletion 1950 1955 1956 1957 1958 1959 1960 1961 Cash Flow 40.35 53.20 51. 70 56.90 50.25 57.40 56.20 57.00 These cash flow figure s 'probably show a earning!;l,gr'!.. .. ever, even these figures indicate that the market is historically high. In 1956, the price cash flow ratio ranged from 8.9 to 10. O. A,pplying these ratios to an estimate of 65.00 cash flow for 1962 would result in range of between roughly 575 and 650for the industrial average for 1962. Low Jones Ind. Dow Jones Rails 714.84 146. 60 EDMUND W. TABElL WALSTON & CO., INC. This 15 not, and under no circumstances IS to be construed as, an offer to scil or n SolLclwtion to buy secuntIes referred to herein The information conta n erem 18 not gUaranteed as to accuracy or completenes8 and the furnI8hmg ill not. nnd under no circumstances 18 to be construed a8 a representn tlon by Walston & Co. Inc. AU expreSSlons of OOlnIOn are subject to chanp;-e wlthout notice. Walston & Go Inc. and Offlcers SU;ckholders and EmploYCf!1I thereof. purchase. sell and may ha.ve an mterest in the secuntics mentlOned herem ThlS market lettc'r 111 and OJ; a general ',nformhnl..commentnrl' on duy to day market news ang not us a complete nnalysls Ac1lLtlOnnllnformation Wlth respect to any securities referred to herem wlll urnls …. WI\ JOt