Tabell’s Market Letter – December 08, 1972

Tabell’s Market Letter – December 08, 1972

Tabell's Market Letter - December 08, 1972
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TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIVISION OF MEMBER NEW YOAK STOCK eXCHANGe. INC. MEMBER AMERICAN STOCK eXCHANGe – December 8, 1972 Greater than the tread of mighty armies is an idea whose time has come. 0 o – – -, -, Victor,Hugoc Hugo's oft-cited quotation is equally applicable to the equity market as to other fields of endeavor. For stock-market purposes, however, it is necessary to append to the quotation and say, An idea whose time has come–again. For there are seldom any new ideas in the stock market–only old ones which, at irregular intervals, become rediscovered as blinding flashes of revealed wisdom. One such notion, dormant for almost ten years and now, apparently, in the process of rediscovery, is the concept that util- ity stocks, as a class, might constitute attractive investment vehicles. The table below cites price and earnings statistics for the Standard & Poor's Utility Index plus two representative utility stocks, Florida Power Corporation, generally regarded as a growth utility, and New England Electric System, a typical example of the more stable income type. All figures given are for the year-end except 1972, where present prices and full-year earnings estimates are used. I S & P UTILITY mDEX I FLORIDA POWER CORP. /NEW ENGLAND ELECTRIC SYSTEM Year End I Price Earnings gain P,1; ratio I Price Earnings gain P;tratio I Price Earnings gain P;t ratio 1962 61.09 3.06 5.2 20.0 44 1.59 27.7 25 1.36 18.3 1963 66.42 3.22 B.6 20.6 44 1.59 27.7 27 1.46 7.3 18.4 1964 74.52 3.50 B.6 21.3 47 1.77 11.3 26.6 29 1.50 2.7 19.3 1965 75.51 3.8B lO.B 19.5 46 1.B9 6.7 24.3 30 1.60 6.7 18.B 1966 69.35 4.16 7.2 16.7 48 2.12 12.1 22.6 28 1.73 8.1 16.1 1967 66.08 4.40 5.7 15.0 46 2.27 7.0 20.3 26 1.93 11.5 13.4 1968 69.69 4.41 0.2 15.8 42 2.51 10.5 16.7 2B 1.94 0.5 14.5 1969 56.09 4.61 4.5 12.2 49 t970. S1.V, 4.67–1.13.255 1971 59.834.92 5.3 12.1 46 2.91 15.9 16.8 22 1.96 1.0 11.2 3.0B 5.8 17.8 23 1.98 1.0 11.6 3.ci2.l.9-i5224-5-3.5- -Ii. 7'— – – 1972 62.35 5.16 4.9 12.0 50 3.35 10.9 14.9 27 2.30 12.1 11.7 10 year compound 5.3 7.8 5.4 growth rate The figures are interesting. The first relevant conclusion is that, for the past ten years at least, there has been absolutely no reason to own these stocks. Both the Index and New England Electric are selling today below where they were selling in 1964, and the price of Florida Power is not that different. The second obvious conclusion is that, despite the lackluster performance, the fundamental record for the industry is fairly good. Earnings for the utility average have managed to grow at a rate of 5.3 a year compounded, an increase which has been duplicated by New England Electric. Florida Power, meanwhile, has been growing at a rate half again as great as that of the industry. , It is also notable that the market has tended to accord to the Index and to the two stocks fairly con- sistent pie ratios relative to each other. In recognition of its growth rate, Florida Power has consis- tently sold at a higher multiple than the mdustry as a whole, and New England Electric at a very slightly lower one. What the table clearly shows, however, 15 the fact that, despite the fundamentally good record, the market has tended to place a decreasing value on utility earnings over the past decade. A dollar of earnings by the Utility Index was worth 20 in 1962 and is worth only 12 today, and the record of the price-earnings ratios of the two stocks is similar. Now all this is just another example of the point that we, as market technicians, repeatedly feel com- pelled to ra-ise, i.e. that prices depend on investor sentiment as much as on earnings. The earnings record for the utility industry over the past decade is impeccable. Its price record is dismal. The im- portant factor at the moment is not that fundamentals have improved; they have simply stayed the same. It is that technical factors suggest a possible change in the attitude which the stock market might take towards the industry. In 1964, the Standard &Poor's Industrial Average sold at a lower pie ratio than did the Utility Index. At mid-1972, the Industrial pie was almost twice as great. Florida Power can be bought today at less than 15 times estimated 1972 earnings, affording a 3.5 yield. New England Electric, with a more slowly growing earnings trend, affords a 6.2 dividend return. The investor in selected utilities today, it seems to us, is assured of reasonable income and, even should the present technical strength prove ephemeral, slow capital growth in line with continuing earnings improvement. Should the market again come to regard utility stocks as highly as it did in the early 1960's, the capital-gains potential would be rewarding indeed. NOTE The above comments are bas ed largely on technical factors. Further information is available on request. Dow-Jones Industrials (1200 p.m.) 1033.71 S&P (1200 p.m.) llB.64 AWTrk ANTHONY W. TABELL DELAFrELD, HARVEY, TAB ELL No statement or expression of opInion or any other motter herein contained IS, or IS to be deemed to be, directly or Indirectly, on offer or the soliCitation of on offer to buy or sell any security referred 10 Or mentioned The matter IS presented merely for the converlence of the subSCriber While we believe the SOlJrces of our Informa han to be reliable, we In no way represent or guarantee the accuracy thereof nor of the slotemel'1is mude herern Any action to be tak.en by the subscrrber should be based on hiS own Investlgohon cmd 'nformatlon Janney Montgomery Scoll, Inc, as a corporation, and Its officers or tr!mployees, may now have, or may later toke, poSitions or lrades In respect to any seCl,lfll,eS menhoned rn th,s or any future Issue, and such pOSition moy be dr/ferent from any views now or hereafter expressed rn thiS or any olher Issue Janney Montgomery Scott, Inc, which IS registered With Ihe SEC as an IIlVestment adVisor, may give adVice to lIS mveslment adVISOry and othel customers Independently of ony statements mode In thiS or In any other luue Further rnformotlon on any security mentioned herein IS avorlable on reques

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