Tabell’s Market Letter – May 04, 1973

,.I TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIVISION OF MEMBER NEW YORk STOCK EXCHANGE. INC MEMBER AMERICAN STOCK EXCHANGE May 4th, 1973 The sharp market rebound of Thursday and early Friday constituted what is, so far, the most s'gnifi- cant attempt at a reversal of the downtrend in effect since January. Although many of the signs of a — c la-s s ic one-dayc IImax -were peesent, -additiona l–evlderfcewould be-deslrable-before 'suggestlng-that' the – reversal was one of Intermediate or major proportions. . As security analysts these days get to estimating earnings for 1973, at the same time examining the prices of the stocks whose earnings they are estimating, there is developing what could be called the gee-v.hiz school of financial analysis. For It Is, by this time, no surprise to anyone that the combirn- tion of a market downswing and an excellent 1973 economic outlook have brought many price-earnings ratios to their lowest levels In years. It Is interesting, however, to put this phenonmenon Into perspective. It will be recalled that the absolute historical nadir for price-earnings ratios in general was in 1949 when the certainty of a post- war depression caused wide-spread pessimism. The following table compares the PiE's of the thirty stocks in the Dow Jones Industrial Average with their PiE's for that long-ago year. The first three columns show the current price, 1973 estimated earnings and prlce-earmngs ratio for each of the thirty stocks. The next three show the 1949 price-earnings ratio, the pnce at which the stock would sell were 1973 earnings to be capitalized at that ratio, and the percentage difference of this price from the current one. Recent Earnings 1973 1949 1973 Earnings x PCT. Stock Price 1973-E PiE 1949 PiE Difference Allied Chemical 34 2.70 12.611.2 30 -11 Alcoa 57 5.00 11.4 10.7 54 -5 American Brands 40 4.70 8.5 8.7 41 3 American Can 32 3.25 9.8 9.6 31 -3 American Tel. & Tel. Anaconda 'BetfileheinSteel-'- 53 4.65 11.4 14.8 19 2.80 6.8 9.6 311—3-75—O-' 2.9 69 .27 .- II 30 ,-.J '-63- Chrysler 33 5.50 6.0 3.7 20 -39 du Pont 171 10.00 17.l 11.7 117 -32 Eastman Kodak Esmark 136 3.85 35.3 12.0 46 23 3.45 6.7 7.3 25 -66 9 Exxon 97 7.25 13.4 7.4 54 -44 General Electric General Foods 60 3.25 18.4 8.8 29 25 2.20 11.4 9.2 20 -51 -20 Genera I Motors 72 8.50 8.5 4. 1 35 -51 Goodyear Tire 26 2.85 9.1 4.8 14 -46 International Harvester 29 3.90 7.4 6.0 23 -21 International Nickel 30 1.75 17.1 13.5 24 -20 InternatlOnal Paper 34 2.75 12.3 4.1 II -68 Johns Manville 22 2.80 7.9 8.2 23 5 Owens Illinois 34 4.25 8.0 11.1 47 38 Procter & Gamble 102 3.70 27.5 16.2 60 -41 Sears 98 4.35 22.5 8.5 37 -62 Standard 011 of Ca lifornla Texaco 84 38 7.00 3.60 12.0 10.5 6.0 5.8 42 21 -50 -45 Union Carb.de 42 3.90 10.8 12.2 48 14 United Aircraft 37 4.50 8.2 7.2 32 -13 U. S. Steel 33 3.60 9.2 4.4 16 -52 Westinghouse 34 2.45 13.8 5.7 14 -58 Woolworth 21 2.85 7.4 12.3 35 66 Some of the results do, Indeed, Justify the gee-whiz reaction, notably the fact that no fewer than eight of the thirty components of the Dow are today available at lower mult.ples than was the case twenty-four years ago. As the table clearly shows, however, the vulnerability of a number of stocks could be great. That vulnerability, moreover, .s not confined to stocks with relatively high multiples. One would expect to see Eastman Kodak and Sears vulnerable to PiE erosion. However, the table also shows us that many current multiples in the 8-12 range would Indeed be subject to further decline If 1949 stan- dards were to be applied. None of this is meant to suggest that large numbers of stocks are Hkely to sell at 1949 levels–al- though the fact that eight are already doing so should give us pause. We do suggest,however,that a sense of historical perspective Is useful prior to becoming overly excited about current multiples. DMow-JlonOeOs Industrial (1200 p.m.) 110.84 p.m.) 953.49 ANTHONY W TABELL DELAFIELD, 'HARVEY, TABELL No statement or expression (;iF Opinion or (Iny other matter herem contomed IS, or IS to be deemed 10 be, dllcctly or wdlrectly, on offer or Ihe 5011(lIo110n of on offer 10 buy or sell ony security referred to or menhoned The moHer IS presented merely for the converlence of the subscriber Whde oNe bellevebhe sourcs ofbour hnfln tlon to be reliable we In no way represent or guarantee based on hiS own'lnvestlgotlon and mformotlon Janney the accuracy thereof nor of Montgomery Scott, Inc, as the statements a corporation, mude herem Any and Its officers or actIOn to be token y the su scn er s au employees, mOf now ha'he, or may later t ke e, poSlllOnS or trades In respect to any securities mentioned In thiS or any future Issue, and such POSition may be different from any views now or ereadf ter exprete hln thiS or ony other Issue Janney Montgomery Sco!l, Inc, which .s registered wl'h the SEC as on Investment adVisor, may give advll;e 10 Its Investment a VlSOry an ot er customers Independently of any statements mode In thiS or In any other Issue Further information on ony security mentioned herein IS avodable on request