Tabell’s Market Letter – October 12, 1962

Tabell’s Market Letter – October 12, 1962

Tabell's Market Letter - October 12, 1962
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FILECOMV W—a-lsttnocn.&–C-o-. Members New York Stock Exchange NEW YORK SAN FRANCISCO LOS ANGELES PHILADELPHIA CI-UCAGO OFFICES COAST TO COAST AND OVERSEAS TABELL'S MARKET LETTER October 12, 1962 Gloom and pessimism is rampant, but there is little change in the actual technical market pattern. The indications continue that we are in the long tedious process of forming a long-term base, and this requires downside price movement along with upside. From a shorter term point of view, ability of the Dow Industrials to move above 600 would indicate a further extension of the advance from the June lows. A decline below 570 would indicate a return to the 550-525 level which we consider a long-term buying area. CLUETT, PEABODY & CO. INC. Current Price Current Dividend -E Current Yield -, 1. 65 3.7 – It is a stock market axiom that the whole is usually worth considerably less than the sum of its parts, but in the case of Cluett, Long-Term Debt 6,302,278 Peabody, the present discount from a realis- 7 Cum. Pfd. 22,566 shs. tic valuation of the divisions taken separately 4 Cum. 2nd Pfd. 4, 186 shs. appears to be rather excessive. Common Stock 1, 985, 658 shs. Any man who has ever worn an Arrow Sales -1962-E Sales -1961 175,000,000 138,610,000 Earn. Per Sh. 1962-E Earn. Per Sh. 1961 3 40 3.02 I shirt is familiar with Cluett's basic clothing business. It is a business which, while hardly glamorous, appears to be an attractive and expanding operation. Cluett has expanded sales from 97 million in 1958 to 13B million Market Range 1962-61 531/2 – 3a 1/2 in 1961. In the same period,pre-tax income from sales million to 11 1/2 million, and profit margins have roug 0 from under 4 .Further growth is foreseen as Cluett is adding considerably to its baaie 0 r ishings and, in an effort .e ''''otect and expand its markets, has en field. The company is t..Apanding into the growing wea arket with a wide line of Lady-Arrow shirts'a;nd -blouses ue 0 he'black-,on'the'women's wear operation for the first time this ye , e s are expected tQ increase to 175 million, and although . to entrance into the retail ff.eld, pre- tax income inc ase t . 5 iIadh; . Entirely s p censing of the sa any's production and retail operations is its liized Plus trademarks. Sanforized provides technical services for 141 li es 1 countries and royalty income after applicable expenses has increased in r since 1953 and should continue to increase at approximately a 6/. growth rate. \lI'Or 1962, it is estimated at some 3.75 million before taxes. Let us now assume that the clothing manufacturing and retailing operations of Cluett should be valued at a conservative rate of 12 times 1962 earnings. Let us more- over apply a 20 PiE ratio to the high-grade royalty income which requires little or nothing in the way of production facilities and investment and which, in a sense, provides an annuity for Cluett. After adding these two valuations and subtracting debt, preferred stock and minority interest, we arrive at a total valuation for the common equity of around 46 a share or, just about what Cluett sells for today. Why, then, get excited about a stock which appears to be only fairly valued The answer is that we have not taken into account the company's 50 owned Clupak, Inc. which licenses a unique process for the production of extensible paper. The potentials inherent in the Clupak process are staggering. In 1961, total tonnage of Clupak paper produced was 38 greater than in 1960. Yet, at the moment, Clupak's penetration of the unbleached Kraft paper market is only B and unbleached Kraft constitutes only one outlet for the process. Cluett is currently involved in litigation concerning the process which should be decided shortly, and a favorable decision could clear the air for sharply expanded licensing. The investor in Cluett at current prices is, therefore, buying an expanding appar- el operation at a slight discount and is paymg absolutely nothing for the tremendous growt inherent in Clupak. From a technical pOint of view, the stock is selling just above strong support at 40-35 and has a shorter-term upsi.de; potential of 55 with much .levels possible over the longe,r-term. The stock, orlgmally suggested at 2B 3/B, 1S agam recom- mended for long-term mvestment. EDMUND W. TABELL Dow-Jones Ind. 586.47 Dow-Jones Rails 11B.04 WALSTON & CO INC .. Thla market letter is not, and under no circumstances i1I to be construed as, an ofter to BeU or a eoitcltatlon to bU) any 6eCurities referred to herein. The information contained heretn ie not guaranteed lUI to aeeUlacy or completeness a.nd the furnishmg thereof Is not, and under no elr-cumstanees ls to be con..t.rued as, a repreaenta- twn by Walston &; Co, Inc. All expressions of opinion are Bubject to change without notice. Walston & Co, Tile., and Oft'lcera, Direct.. .8, Stockholdere and Employees thereof, purchase, &ell and may have an interet in the seeurities menttoned herein. This market letter 18 intended and merely as 8. general, informal commentarY on day to day market news an4 not as a complete analysis. Additional mformatJon with respect to any securities referred to herein will be furnlehed upon request. . WN 301 r or

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