Tabell’s Market Letter – May 23, 1969

Wdlston &Co. —-.,;;..; Inc -..;;……;;….;;;.; Members New York Stock Exchange and Other Principal Stock and Commodity Exchanges OVER 100 OFFICES COAST TO COAST AND OVERSEAS -IL &' TABEll'S MARKET lETTER May 23, 1969 Tobacco, ctivine, rare, superexcellent tobacco, which goes far beyond all the panaceas, potable gold and philosopher's stones, a sovereign remedy…. .. Anatomy of Melancholy REYNOLDS (R. J.) TOBACCO COMPANY Current Price Current Dividend Current Yield Long Term Debt 38 3/8 2. 20 5.7 34,000, 000 Controversy always has been the forge at which the metal of stocks as well as that of in- vestors in general has been tested. It is hkely to remain so in future, as the more things chang …. 3.60 Cum. Pfd Stk; 200,000 sh;'- dustry has been clothed in controversy for sev– — – Common 40,235,552 shs. eral years now as anti-smok;mg campaigns wax Sales-1969-E Sales-1968 2. 1 billion 1. 9 billion Earn. Per Sh. 1969-E 4.15 Earn. Per Sh. 1968 3.71 and wane almost in time with the change in sea/ sons. Except for one brief period in 1964, the effect of all this notoriety seems to have had very little effect on earning power, for in the cases of the industry's leaders, per share earn- Mkt. Range 1969-1968 505/8-37 ings have been in a strong uptrend. Once again the shadows of concerned dis- cussion have entered the tobacco picture. Now it is the fear that the Federal Trade Com mission will require even stronger warnings to be used in all Cigarette advertising regarrl- ing health hazards. This fear already has caused the equities in the in- dustry to decline rather sharply in recent months. The de -n \ vicious in several instances, resulting in the almost sudden h t eery e investor continually seeks a genuine bargain. The shares of REYNOLD AC prevailing market levels are believed to constitute such a bargain. Reynolds is the largest of the cmgar;e a act weathervane for-'tne \i'iaustry, renec I -g – – v – s and as such has acted as the or not. From an early h5 the point where today it 's sell' . h on been ravaged by selling pressures to level near 38. This decline of approxi mately 250/0 from its I' i r ' s een without its compensating factors. Based on earnings projecti 4. s e, or better for the current year, RJR sells at an at- tractive price-to-ea n s I' of less than nine to one, well below its 12-to-1 average ratio of the last fifteen y s. The current 5.7 return afforded by the seC'lre 2.20 annua dIvidend, a definite aidate for liberalization, is well above the 4.60/0 return that is the average for the 1953-1967 period. The fear of more stringent health warnings being forced upon the industry by the FTC has created worries about the future of tobacco advertising on TV. It is quite possible that TV advertising will be sharply curtailed…. resulting in enormous cash savings to the cigarette companies. Certainly much of the funds will be directed mto other areas of ad- vertising, but, as in the case of Reynolds which in 1968 expended almost 80 million on TV advertising, the curtailing or cessation of TV advertising (perhaps a blessing in disguise to millions of TV viewers) would have an impressively favorable effect on earnings. RJR spen roughly 2.00 a share on advertiSing in 1968. As one leading financial service stated, The -noimplications for RJR's earnings picture, if most of this moneyeould be retained, is almost staggering. Time alone ';ili tell, but there is doubting that-the prevailing fe-aI'S have about worked their wor st on the stock's price. In addition to the plusses afforded by rising earnings, continued diversification into non-tobacco lines (aluminum, packaging, Chinese foods, grocery products, vinyl films) suggests a steadily.lessening dependence on tobacco, although this end of the business will con tinue to be the all-important factor. The recently approved merger with McLean Industries, the largest containerized freight service system in the world, is expected to bear favorably on longer-term earnings prospects. Techmcally, RJR is on top of its support zone at 38-36 and the upside objectives remain 54, initially, and 74 eventually. With downside risk from this level believed to be quite small, the other factors in this situation combine to suggest Reynolds Tobacco as an above-average purchase for investment at this time. The stock already is on the Quality & Long-Term Growth part of our Recommended List. Dow-Jones Ind. 947.45 ANTHONY W. TABELL-HARRY W. LAUBSCHER Dow-Jones Rails 238. 30 WALSTON & CO. INC. ThiS market Jetter IS lJubhbht..d for ff,(OnVl'lllenc(' ,Ult'l Infol In,llmn IInrl …. nt III r In sell t …Iu It,ll, ttl forrnntJon a… ohtnme,j from we lwht'H' to 1,11.1J,1( lmt \\1' tlo not. It!; .Ir UI.I' W X C emltoYl'C,\ may hnve RII lntN(!st JIl or J)urrhn'll' Ilnu s11 thl L'amb rcfl'II,j to hClcm un ….fUr II WI 111' nnd d The wor ' WN301