Tabell’s Market Letter – May 14, 1976

Tabell’s Market Letter – May 14, 1976

Tabell's Market Letter - May 14, 1976
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TABELL'S MARKET LETTER 909 STATE. ROAD, PRINCETON, NEW JERSEY 08540 DIVl910N OF MEMBER NEW YOAI( STOCK EXCHANGe, INC MEMBER AMERICAN STOCK eXCHANGE May 14, 1976 May has arrived, and it has brought with it a number of events, including a successful — First -. and'a Ann sPEl ual,M Ctilcu arket lardo Techni gw'ood c'isa'nas'ioAn sso in ciati Prin on cet Seminar on, 'New , – 0 J which eiey. w – e It disc l'ias ussed also'o in fo t u his gnt space witlnr last -tne sweaeseonk,al,-J appearance of FORTUNE magazine's compilation of statistics on America's 500 largest industrial cor- porations. I Those who have been exposed to this letter in past springs will know that we are some- thing of a FORTUNE 500 freak. There are, almost invariably, we feel, investment parables that can be adduced from a scanning of the figures, and we think this year to be no exception. Such a scanning is, of course, at least partially, an exercise in hindsight, and it should be stressed that no implica- tions are being made here about the investment merits at the moment of any of the companies men- tioned. Nonetheless, we think a look at the record is interesting. Perhaps the most fascinating statistic that FORTUNE has compiled is the total return, including capital appreciation and dividends, on each of the 500 companies. It has done this for both the year 1975 and the 10 years ended December, 1975. The first set of figures underlines the fact that 1975 was, indeed, a rather good stock market year. The median total return for all 500 companies in 1975 was 5f. 23 per cent and investment in American Bakeries, the best-performing stock on the list, produce a 251 per cent total return. Nonetheless, 44 of the 500 companies produced a negative total return in,1975 in the face of one of the most expansive bull markets in history. It is, however, the figures on total return for the decade which are most intriguing. Purely by accident, the base period 1965-75 is particularly faSCinating in that the Dow, on December 31, 1965, was exactly 969.26, within just a few pOints of where it is today. The difficulties accom- panying stock market investment over the past decade are underscored by the median total return for '' .. ,….the.,,5.00companiesP4lt..3.0JLper9.entandth.ef;'lctthi;l.t.J 76 of the 500 showl'.rta Ilg!ltive total.!tu,,rn….IJ…,.. over 10 years. ' . . .. . .' . It was, nonetheless, possible to earn above-average rates of return in the marketplace. The following table shows the ten highest stocks in terms of total return over the decade as computed by FORTUNE together with their price/earninqs ratio on December 31. 1965. Name Total Return 1965 PiE Ratio Name Total Return 1965 PiE Ratio Fleetwood 43.05 8 Baker International 24.87 13 Archer Daniels Midland 27.70 16 Westmoreland 24.49 12 Utah International 26.89 9 Philip Morris 24.40 12 MAPCO 25.45 14 Masco 23.02 16 Pittston 25.44 12 Burroughs 21.63 22 The list is interesting, we think, in that, with the single exception of Burroughs, it in- cludes none of the typical institutional glamour issues (Philip Morris may now be a member of the club but was not 10 years ago when it was purely a tobacco company). Advocates of growth via technology will find the list disappointing. In addition to three coal stocks, whose presence can be explained by the peculiar energy developments of the past decade, it includes a mobile-home maker, a soybean processor, a pipe line, an oil well driller and, of all things, a manufacturer of faucets. Likewise, the advocates of paying high price/earnings ratios for assured growth will be disappointed by the list. GOing back to the end of 1965, the S & P 500 stock index was selling for 17.8 times earnings and the Dow 18.3 times. Again, with the Single exception of Burroughs, every one of the best performers was, in 1965, selling for a multiple lower than that of the Dow. –Indeed i it can be'conversely argued' that investment in high-muHiple growth stocks ex-. . – poses one to a greater risk of being wrong if the growth potential fades. FORTUNE (1965 price/earnings ratios in parentheses) also provides us with a list of the five lowest total returns over the decade which comprises Lockheed (13), Addressograph Multigraph (24), Genesco (15), Avco (14) and Litton Industries (38). As can be seen, at least two of these issues were accorded growth multiples accord- ing to the conventional wisdom of ten years ago only to be shattered when the growth failed to materi- alize. The FORTUNE figures strongly suggest, we think, the validity of the age-old axiom that concentration on values is the best way of achieving investment results. Dow-Jones Industrials (1200 p.m.) 994.02 ANTHONY W. TAB ELL S & P Compo (1200 p.m.) 101'.51 DELAFIELD, HARVEY, TABELL Cumulative Index (5/13/76) 603.97 AWT/jb 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 to or mentIOned The matter IS presented merely for the conVel'lenCE of the subscriber WhIle e believe Ihe sources of our mforma- han fa be relIable, we In no way represent or guarantee the accuracy thereof nor of the statements mude herein Any action to be token by the stlbscnber should be based on hIS own Investigation and Informatron Janney Montgomery Scott, Inc, as a corporation, and Its officers or employees, may now have, or may lofer tae, POSItions or trades m respect 10 any securlfles menfloned In thiS or any tllure Issue, ond such position may be different from any views now or hereafter expressed rn thIS or any other Issue Janney Montgomery Scott, Inc, which IS registered With the SEC as on Investment adVisor, may 91ve adVice to Its Investment adVisory and other customers Independently of any statements mode In thiS or In any other Issue Further Information on any security mentIOned herein IS available on request

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