Tabell’s Market Letter – June 28, 1974

TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGE June 28, 1974 .. 'But he has got nothing on,' said a little child. o – '-r — .;– ..!- ;.-H9.n2JrlJi!!n l\ers, Thmgeror s. e Clot!' The classic cop-out of the techmcian, when he has nothing more to say about falling markets, is to talK . about fundamentals and to proclaim that stocks are cheap. We plead guilty to this in the present instance, although it is, In fact, true that stocks cheap, and we think due note ought to be taken of the fact. The following table is an update of a study we last published a year ago. As we all know, the absolute historical nadir for price-earnings ratios was 1949, during which year the Dow-Jones Industrial Average it- self sold at 7.2 times earnings (a ratio which, if duplicated for the entire average today, would place the Dow around 643). The table shows a recent price for each of the 30 components of the Dow, a consensus estimate of 1974 earnings and the price-earnings ratio based on those earnings. Next is shown the 1949 price-earnings ratio, the pnce at which the stock would sell were 1974 earmngs to be capitalized at this ratio,and the percentage dlfference of that price from the current one. Stock Recent Price Earmngs 1974-E 1974 1949 PiE 1974 Earnings x 1949 PIE Pet. Difference Allied Chemical Alcoa American5rands American Can Amencan Tel. & Tel. 37 4/10 9.0 11.2 46 41 5.50 7.5 10.7 59 35 S.25 6.7 8.7 46 27 3.80 7.1 9.6 36 46 5.35 8.6 14.8 79 24 44 31 33 71 Anaconda' Bethlehem Steel Chrysler duPont —- Eastmanoda-k 21 4.50 4.2 30 4.75 6.3 16 2.25 7.1 162 12.00 13.5 1-03 4,.-2-0 -24-.5 9.6 2.9 3.7 11. 7 12-.-0 43 104 14 -53 8 -50 140 -14 50-..,..,,,,,,,!F''-.,,-5L- — Esmark Exxon General Electric 26 5.00 5.2 70 12.00 5.8 49 3.35 14.6 7.3 36 7.4 89 8.8 29 38 27 -40 General Foods General MotorsGoodyear Tlre International Harvester InternatlOnal Nlckel International Paper Johns Manvllle Owens Ilhnois Procter & Gamble Sears Standard Oll of California Texaco Union Carbide Umted Alrcraft U,S. Steel Westinghouse Woolworth 24 2.60 SO 4.00 16 2.60 23 4.25 27 3.50 48 4.40 17 2.80 39 5.75 HTO 3.80 83 4.50 27 5.50 25 5.75 41 5.50 26 5.00 45 6.25 12 1.90 .-l!i..b.Bl 9.2 12.5 6.2 5.4 7.7 10.9 6.0 6.8 26.3 18.4 4.9 4.3 7.5 5.2 7.2 6.3 5.5 9.2 4.1 4.8 6.0 13.5 4.1 8.2 11.1 16.2 8.5 6.0 5.8 12.2 7.2 4.4 5,7 12.3 24 16 12 26 47 18 23 64 62 38 33 33 67 36 28 11 33 -68 -23 13 74 -62 35 64 -38 -54 22 32 63 38 -37 -8 120 AVERAGE 803 89.39 780 Amazingly enou-gh. 18 of the 30 Dow components -more-thanhalf, are now selhn(;iat price-earnings – – ratios lower than those of 1949. Were all of the 30 components to be capltalized at 1949 PIE ratios at the end of this year, assuming the earnings esllmates hold up, the Dow would sell for 780, only 20 some odd pOInts below current levels, and an equal dollar amount Invested In each component at leday's prices would produce an 8 gain by the end of 1974, were 1949 p/r ratios to be uniformly applied at that time. Now, Wall Street lS full of perfectly rational explanations as to Just why thls should be the case. The bond-stock YIeld relationship. It can be argued. is today precisely the reverse of what It was In 1949. and the host of economic problems now facing us have all been studiously documented. Nonetheless, there comes a time when It IS necessary to emulate the httle boy In Andersen's faIry tale who IS the only one unsophisticated enough to pOInt out a simple and obvious fact. That simple and obvious fact, insofar as most stock pnces are concerned, is that they are today, by any historical standard, amazing bargains. Dow-Jones Industrials (1200 p.m.) 802.80 S & P Compo ( 200 p. m.) 85.99 J\NTHONYW. TABELL DELAfIELD, HARVEY TABELL Cumulative Index (6/27/74) 491. 99 J\wT/lb No statement or expreSlon of opinion or any other mattIJr herein contained I, or IS to be deemed to be, directly or ondoreelly, on offer or the sollcltotlon of an offer to buy or sell any secvrlty referred to or mentioned The mailer IS presented merely for the convellence of the subSCriber Whole we believe the sources of our Informahan to be reliable, we In no way represent or guorontee the accuracy thereof nor of the statements mude herein Any aellon 10 be token by the subscrober should be based on hiS own Investigation and Information Janney Montgomery Scoll, Inc, as a corporation, and Its officers or employees, may now have, or may later toke, poSitions or trades In respect to any eCVrlheS menfloned In thiS or any future Issue, and such pOSition may be different from any views now or hereafler elpressed In Th,s or any other Issue Janney Montgomery ScOTT, Inc, which IS registered With the SEC as an ,vestment adVisor, may give adVice to lIS ,vestment adVisory and othel customers ,ndependently of any statements mode ,n Ihls or In any other Issue Further information on ony serurlly mentioned herein 15 available on request