Tabell’s Market Letter – July 10, 1964

W—-a–l-s–tIonnc–&—-C–o–. Memben New York Stock Exchange NEW YORK SAN FRANCISCO LOS ANGELES PHILADELPHIA CHICAGO OFFICES COAST TO COAST AND OVERSEAS TABELL'S MARKET LETTER July 10, 1964 CLEVITE CORPORATION Current Price 46 At its present price, the common stock of Current Dividend 1. 40 Clevite Corporation sells at some 11 1/2 times Current Yield 3.1 Long Term Debt 4. 50 Cum. Pfd. Common Stock -Sales 1964-E Sales 1963 6,631,247 24,031 shs. 1,948,339 shs. 110,000,050 103, 150,000 Earn. Pe r Sh. '1964-E Earn. Per Sh. 1963 4.00 3.57 1964 estimated earnings of 4.00 per share. It has sold at a higher price/earnings ratio than this at some time during every year since 1956 and, indeed, never sold this low in relation to earnings during most of the 1960-61 period – wilen tile stock The failure of Clevite's stock to command a higher multiple probably stems from a tenden cy on the part of the financial community to place the company in one of two categories, Mkt. Range 1964-60 72 1/2 – 31 1/2 neither of which fully describes it. Manyana- lysts, on the one hand, tend to regard the stock as a rather unglamorous auto equipment company and thus unable to command a high multiph. Others tend to regard it as a rather marginal scientific-technological operation whose value was over inflated in the speculative boom of the early 1960's, and should correspond- Mingly be downgraded today. Such an either-or analysis inhiJits a real understanding of ClevLitee.t us take the first conception. Clevite is, admittedl , a to the automo- tive industry. Some two-thirds of its sales are accoed b e earings and the greater number of these find their way into automob' i0 e to draw, moreover, an extremely close correlation between sal nd' ces of auto production. Stop- ping at this point, however, fails to take into t t e ellence of Clevite's bearing , a.multiplicity of sizes and types of bearings. u of process control, these bearings are turned out using I it1\ The efficiencies of this plant are at least partially demon f that the company has been able to increase earn- ings in each of the s ur. , pite the impact of heavy losses in the semiconductor area which reached 1 . 63 and will only be partially mitigated this year. On the other han , 't IS to easy to point to these semiconductor losses and downgrade Clevite along with the r of the semiconductor industry. This divison, located in Natick, Mass., has, admitte y, been a thorn in the company's side in recent years, but it is by no means the company's only venture in the scientific area and, indeed, results of the other tech nological divisions stand in happy contrast to it. Brush Instrument is the largest prOducer of pen-writing oscillographs used in various research applications, and sales of this division have expanded sharply over recent years with gratifying profit rna rgins. Basic research takes place in a number of different areas, including that of Naval armaments and the company's research capability in metallurgy, particularly as it applies to the problem of metal to metal contacts which manifests itself in bearing manufacture, is high. The ring bearing, to be discussed below, is a product of just such research. Clevite, in summary, appears to be selling at record lows in relation to earning power at a time when significant imp.rovement is in the offing. Such improvement couldctake place in a number of areas. (1) Certainly a strenuous effort will be made to eliminate or reverse the, semiconductor losses. (2) Brush, and the other scientific divisions, should add increasing amounts to earnings over the years. (3) A new product, the ring bearing, could have an important impact on the entire bearing field. This bearing, consisting of two concentric ring operates on the principle of metal to metal contact as does the familiar sleeve bearing, but incorporates capabilities of the much more expensive ball, roller and needle bearings. The total market for bearings of this type is over 900 million annually and it is easy to see the significance that even a small penetration of this market would hold for Clevite. While commercial sales of the ring bearing are not imminent, they provide a strong long range plus. From a technical point of view Clevite has an upside objective of 57 followed by considerabl higher levels, with support not too far under the current market. It is being added to our recommended .list.fo.r..long..term .capitl appreciation. Dow-Jones Ind. 847.51 Dow-Jopes Rails 218.20 ANTHONY W. TABELL WALSTON & CO. INC. Thl.. m,lrket Jettel IS lIot. nnd under no cIrcumstances IS to be construed as, nn offer to sell or 8 soliCItatIOn to buy any o;ecunl1C,'s referred to herem The information rtlntllincd herem IS not Junrnntccd as to ac('uracy or and the furnlshmg- thereof not, and under no circumstances IS to be construed as, n rePresenta. 1wn hy & Co Inc. All eKpr(!'1stQnll of O)lInJon nre subject to chllnfe Without 'Walston & Co, Inc, and OfflcefB, DIrectors. Stockholders and Implov('('s thereof, purchase, sell .md mllY have an interpst III the seCUrities mentIoned hereHI. ThIS market letter IS mtended and presented merely as a general, IlIformnl commontnry on dny to flay market news and not us n complete Additional information With respect to any securltles referred to hereill WIll be fUl nlhc!l upon requeMt \\ X 301