Tabell’s Market Letter – January 10, 1964

Walston &Co. Inc – – – – – Member.. XCII rk Stock Euhan(fe NEW YORK SAN FRANCISCO LOS ANGELES PHILADELPHIA CHICAGO OFFICES COAST TO COAST AND OVERSEAS TABELL'S MARKET LETTER January 10, 1964 At the weekJ,s.intlla-daY-high'of-7S0. 59, the Dow-Jones Industrial average reached the lower range of the 775 -795 upside potential. The breadth index moved ahead also, but still remains below the June and September highs despite new highs in the averages. Continue to advise taking profits On strength in order to build up cash reserves for later purchases. Vul nerable stocks should be switched into better quality defensive issues such as the issues mentioned below. Despite the strength in the averages, there are ma ny groups that are selling much nearer their lows of the past several years than their highs. One such group is the tobaccos. This letter is written before the issuance of the report of the United States Public Health Advisory Commlttee on is ';m not present- any thing particularly new. It will be the Committee's evaluation of the many medical reports on smoking that have been published in past years. It is presumed that the report will be de- cidedly unfavorable as far as cigarette smoking is concerned and it is understood that a sec- ond report will follow at a later date giving what precautions should be taken to protect the public health. These might possibly include restrictions On advertising and stricter labeling requirements. There is also the threat of liability suits from cancer victims Health scares are not new in the cigarette industry. The first such scare was in 1954 Per capita consumption of clgarettes dropped sharply as a result, but the recovery was rapid largely due to the growth in popularity of the filter-type cigarette and the great increase in women smokers. In the period between 1955 and 1962, the five leading companies increased volume by 47. Whether a possible drop in consumption steep a recovery is, of course, problematical. The price sWlngs in the group have been Prices are adjusted for stock splits during the periocf\ vA 1954 61 ';J Low . '0Y v.Bll be followed by as inc 4, as noted below. 2 Low Close 1/10/64 1-/ 2- –1-… Lorillard 0 8 723/S 393/S 74 1/4 451/4 Philip Morris Reynolds Tobacco CY 4 125 S 3/S S91/4 611/S 341/2 75 42 1/2 As can be see rom table above, th; price decline from the 1961 high has been quite drastic. However spite the decline in price, earnings have been steady and yields are above average. American Tobacco Liggett & Myers Lorillard Philip Morris Reynolds Tobacco S&P Rating B B AA A Close 1/10/64 2S 1/2 74 1/4 45 1/4 75 42 1/2 1961 -E2a.-r4n0 6.47 4 22 5. 61 2 91 Last 12 mos. Earnings 2.39 6.07 4. 20 6.00 3 10 PiE Ratio 12 12 11 13 14 Dividend 1 50 5. 00 2.50 3. 60 1. SO Yield 5. 3 6. 7 5. 6 4S 4.2 At present price levels, the tobacco issues have, in our opinion, probably discounted most of the adverse publicity of the U. S. Health report. If they should sell off sharply, they would present an interesting long term speculation. The quality issue in the group is Reynold Tobacco. Smokers are expected toturn increasingly from regular brands to filter and mentholated brands, and Reynolds has the top ranking filter (Winston), the top ranking mentholated filter (Salem), in addition to Camel, the top ranking regular cigarette. 1963 should be a record year in sales and earnings. Further diversification into other lines of consumer goods is probable. In 1963, Hawaiian Products, a producer of fruit drinks, was acquired The technical pattern of the stock appears favorable. The downside objective of the 1961 top of 36 has been reached and the stock has built up a sizable potential base in the 35-47 area. Reynolds is being added to our recommended list if available in the 43-40 area. American Tobacco also appears to offer above-average attraction. Dow-Jones Ind, 77433 Dow-Jones Rails lS0.15 EDMUND W. TABELL WALSTON & CO. INC. , hll\ lYIurk!!t letter IS not. and under no cirCllmstnnc(; IS to be ('on..tl tied nil, nn Uff('l t UI n sohcltatln tn flny I efcil cd lo hel em The )nfm mntmn ()ntnmcd herein h. not )!uarantcerJ as tl) nCC1111\CY or coml,letene,s and the CUI nlshlll). the! ('uf nut. nni! unlit'! 111 ('11 \ to be CUlltlllOO n.. , n 1cprc,,('ntn. tIm) Wnlston & Co Inc All c,preSSlOns uf oPIniOn are lubJect to chnnJ,!e \\'Ithmtl notIce, Wnl.,\on & Cu lilt', n)Hl Stoc1..huldels nn,\ Emlllovees thereof. !lUI sell nnd mny hlnc an mtetest in the menlwn('d het ('111 Thl!. market Jettel 1-. intended lind III e,ented mer…ly Ih n I('n(') nl. mformal commentm' on ria to ,lay mark('t ncW nnd nol as a complete AddLtlnaJ 1I1fOl mahon \\ lth le11ed to Imy CCII\ Ill('\, I efl'r! to helem ' 111 he rUI t1J)on reQuest \\ ,\ lOl