Tabell’s Market Letter – August 31, 1962

— FILE COpy Walston &Co. Inc Members New York Stock Exchange NEW YORK SAN FRANCISCO LOS ANGELES PHILADELPHIA CI-UCAGO OFFICES COAST TO COAST AND OVERSEAS TABEll'S MARKET lETTER August 31, 1962 After reachmg the lower part of our projected advance to the 620-650 level at last week's high of 622.02, the Dow-Jones Industrials declined to an intra-day low of 598.81. This is normal technical action. The decline was halted at the upper part of the 600-580 support level. Volume dropped off during the selling period. Thursday's trading volume was the smallest in over three months The breadth indices showed above aver- age action during the week. Friday's advance of 6. 86 points retraced a good part of the 11. 42 -point decline of the first four days of the week. I would expect the advance to go on to the upper part of the 620-650 area. Friday's rally was led by the savings and loan issues;Tliis gFOup wasrec6mmendtmih-'ouy-Ietter of – The shares of the paper companies have been showing below-average price action since 1956. Prior to that time, the papers had been among the leaders of the rise from the 1949 lows. After the stodgy price performance of this group over the past six years, it is difficult to realize that International Paper, after adjusting for stock dividends rose from a 1949 low of 3 1/4 to a 1956 high of 42, or an advance of over 12000/0 as compared to the 350/0 trading area in which the stock has held since 1956. The reason for the poor performance of the paper stocks in recent years is not difficult to find Since 1955, the industry has increased capacity at the rate of about 50/0 a year while sales have advanced only about 30/0 a year. This has resulted in overcapacity and price cutting and lowered profits despite increased sales. Figures from the American Paper & Pulp Association indicate that capacity in 1962 will be up only 2. 40/0 from 1961. Present plans call for a rise of 1. 60/0 in 1963 and 1. 30/0 over 1963 in 1964. If production I and consumption continue to increase at the rate of the past several years, the gap bet- I ween capacity and production will gradually be closed price conditions will be improved This has already been reflected in imp vi ni9gs for the first half of 1962. In most cases, the paper stocks are w r ar trading areas they have occupied for SlX years. Even a rise to p t e six-year level would result in sizable percentage . I . , ing issues covering vanous segmen Sel d i s appear to be at a buying -inc .- while you waTt.- Thefollow-' er J6dUstry and related fields are recom- .– , mended. Crown Zellerbach e West Coast paper company I troubles k 1962 earmngs somewhat, but estimates are around 2.50 pe a , and 1961. The yiel s -4 30/0 to 2 33 in 1961 The stock sold above 60 in 1956 Dominion Ta't- emical (16 1/ 2) is one of Canada's ten largest companies. While not entlrely company, 640/0 of sales are pulp and paper with 200/0 in building materials and 160/0 in chemicals Earnings for 1962 are estimated at 1. 50 compared with 1. 29 in 1961 Yield is 4.40/0 before Canadian withholding tax. The stock is llsted on the American Stock Exchange. Great Northern Paper (37 1/2) is the largest independent newsprint company in the U. S. Owns over two million acres of tlmberlands. Also is large producer of specialty papers which are an increasing percentage of sales. Reported earnings are around the 3.00 per share level, but cash flow is over 9 a share. The company pays 1 00 to yield 2.70/0. The stock sold at a high of 108 1/2 in 1956. Rayonier (18 3/4) is the world's leading producer of highly purifled pulps used in the manufacture of textile fibers, tire cord, cellophane and photo film Additimal products are paper pulps, fine papers and lumber Earnings for the first half of 1962 were a share compared to 62' in the 1961 period The sto'ck yields 4.20/0 on the 80 annual divi- dend 30/0 stock dividends were paid in 1959,1960 and 1961. Foreign sales are now about 400/0 of volume and should increase as world-wide demand for purified pulps is expected to widen. Union Bag-Camp Paper (36 1/8) is the result of merger in 1956 of Union Bag & Paper and the Camp Mfg. Co. The FTC has brought suit against the company to break up this merger. Final outcome of this suit 1S uncertain. Earnings of the company have held up relatively well compared to other paper companies. Estimated earnings of 2. 60 for 1962 would be the best since 1956. The yield on 1. 50 dividend is 4.20/0 Dow-Jones Ind. 609. 18 Dow-Jones Rc Us 123.75 EDMUND W. TABELL WALSTON & CO. INC. This market letter is not, and under no circumstances 15 to be construed as, an offer to sell or n lIolicltation to buy any seeurities referred to herein The information contnmcd herein 18 not guaranteed lLB to accuracy or completeness and the furmshlng thereof IS not, and under no Circumstances IS to be construed as, a representa tion by Walston & Co, Inc All expressIons of opimon are subJect to change without notice. Vfalston & Co, Inc, and Offlcera, Dlretora, Stockholders and Employees thereof, purchase, sell and may have an mterest In tne securities mentIOned herem ThiS market letter IS mtended and presented merely as a InOIml\! commentary on day to day market news ang not as a complete analYSI!; Additional Information With respect to any securities referred to herem furDlshed up()n request.