Tabell’s Market Letter – August 23, 1965

– – Walston &- Co. —-Inc — INVeSTMENT BANKERS MUTUAL FUNDS MUNIC'''Al BONOS Members New York Stock Exchange and Other Principal Stock and Commodity Exchanges TABEll'S MARKET lETTER OFFICES COAST TO COAST AND OVERSEAS August 23, 1965 After last Friday's sharp breakout to a new closing high, the Dow-Jones Industrials continued their advance in the early part of last week. Moderate profit-taking entered the picture on Thursday and Friday, and the week's close was 889. 92. For the shorter term, the upside objective for the Dow remains 910-915. This pattern may broaden further. However, the main area of concern should continue to be the action of individual stocks. For many years, one of the primary concerns of the security analyst considering a stock was the stock's yield. The level, history and stability of a stock's dividend was considered to be one of the major factors in determining its investment quality. As short a time ago as the early 1950's, the basic rationale for increased institutional purchase of com that blue chip equities provided an income more tharitWice afforded by corporate bonds and other forms of investment. Years and increased emphasis on growth have changed all this. Bonds of highgrade companies now often provide greater income than the same company's stock and individual investors can obtain more generous income from sav i ngs institutions than from many equiti This is due, of course, to the realization that fixed income investments do not provide the growth potential and inflatiOn protection obtainable from a well-selected stock portfolio. Still, there are many investors, who, wh ile wishing this protection, still require a certain level of dividend income. Many stocks in our recommended list combine yields of 40/0 or better with attractive capital gain potential ana some of these stocks are reviewed below. One of the first groups that comes to mind for the investor seeking both growth and generous income is the rails. To our way of thinking, the bination of fundamental and technical attractiveness, and, f r an interesting comn, no fewer than six carriers are in our recommended list. They are ster 8 1/4), Atchison, Topeka & Santa Fe (32 1/2), Denver & Rio Grande ( al;8), i Central (525/8), Kansas City Southern (41) and Southern Railway (56 earnings and yield around 50/0 –in most cases, -merger-savings c ell between 9 and 14 times mo rom a fundamel1tal point of view, -in – ents-tomanY1'oads.-A-better-regu- – latory climate would appear labor restrictions appear slow t . competition for traffic and archaic Technically, the rails at their low of last June had reached all trend. Mesabi Tru i.a i and appear now poised to resume a long term up13 3/4) are a unique security which, we believe, deserves a place in the portfoli of y income-minded investor. The Trust's income (all of which is paid to certificate h rs under the Indenture) consists of royalties from production of taconite pellets from innesota properties, leased to Reserve Mining Company. Republic Steel and Armco, the joint owners of Reserve, are obligated to take Reserve's entire output and capacity is being expanded. A unique clause in the lease provides for price escalation based on inflation. In 1964, 77 was paid in royalties on the Certificates, and a similar amount is expected for this year, providing a 5.6 yield. Moreover, a large portion of the income is, after a certain holding period, exempt from ordinary income taxes. 1964 was the first year in the past decade that per share earnings of Re olds Tobac (43) did not show year-to-year improvement. This was, of course, due to the affect of re- ports on the dangers of cigarette smoking, which penalized both third and fourth quarter earnings with the result that 3.02 was reported vs. 3.13 in 1963. For both of the first quarters of 1965, however, again improved arid results for the full' year are expecte to resume their upward trend. Meanwhile, diversification continues with the recent acquisition of Penick &Ford. As the leading factor in its industry, Reynolds, we feel, deserves a higher investor recognition, yet current prices make it available on a 4. 2 yield basis with a payout ratio of less than 60. Other stocks in our recommended list that are suggested for income investment to- gether with their prices Can (51 7/8) 3.8, Clevite (44 5/8) 4.0, Eaton Mfg. (50 1/8) 4.3, El Paso Natural Gas (19 7/8) 5.0, Royal Dutch (37 3/8) 4.8 and Vulcan Materials (18 3/8) 4.3. Dow-Jones Ind. 889. 92 Dow-Jones Rails 215.67 ANTHONY W. TABELL WALSTON & CO. INC. Thl8 market letter 18 ;published for your convenience II.nd information and IR not an offer to eell or 8OlIcitation to buy any rteeurltlea dlseussed. The in. formation was obtam(!(. from we b(!heve to 1t- reliable, but we do not guarantee Ita accuracy Walston & Co.. Inc and ih offiters, directors 01' etnptoyee8 may have an Interest In or purchA.8e and seU the secuntles referred to herem. i' i ,