Tabell’s Market Letter – July 06, 1984

,. TABELLS MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 924-9660 July 6, 1984 As almost everyone is aware, we celebrated. this week, the 20Sth anniversary of our nation's independence. More parochially, we also celebrated the anniversary of the July 3, 1884 publication of . the Customer's Afternoon Letter. For those who missed the Wall Street Journal artlCle on the subject, -w – that publication was the enterprise- ofwo- geriUemen-nameij'!.Dow and Jones, and-thnssuein questiOn-was — -0— the first to publish an average of various stocks. That average has been maintained, more or less con- tinuously, ever since, so this week, in effect, saw the 100th blrthday of the Dow-Jones Industrial Average. That first ur-Dow-Jones. instructively. contained 11 stocks, nine of which were railroads and most of which Bubaequently went bankrupt. The average has been able to maintain continuity and rele- vance over the years through periodic sUbstitutions. although, as is proper for a venerable institution, the authorities at Dow-Jones are reluctant to make wholesale change. We thought, however, we would celebrate the birthday by offering those authorities some — admlttedly gratuitous — advice on brinsing the average up-to-date. To this end, we suggest six stocks currently m the average be replaced by others as outlined below. The way to view an average of only 30 stocks, it seems to us. is to view each stock as a proxy for the broad industrial category to which it belongs. To do this, we classified the 30 Dow stocks into 16 such broad categories based on Standard & Poor's Industrial groups and compared the weight for each of the 16 categories to its weight in the S & P 400. We did not mean to imply, in this exercise, any Itsuperiorityll of the S & P average. However, since it is capital weighted, it is a fair proxy for the importance of each category to the American economy. The final column of the table below shows the ratio of the Dow-Jones Industrlal weight to the S & P weight, and the table is ranked in order of these ratios. IndustrIal Catesor StOCKS In DJIA Z Wht – DJIA I W,ht – SIP 400 RatIo Contw'rs – lletal and Glass AC,OJ 6,46 0,55 11.75 Steel 1U11nl(f1ll & Metals – MiscellaneolJs BS,X M,N 3,25 0,65 5,00 3.42 1.C2 3,35 A,tural H'fhlner Ihscellar,eous Industrial & HIgh Tech.) AHRLD,T,n.,HHM 0,54 15.15 0,27 7.78 12.,9050 – PC.h..ea.lieeaLlLsoIreCshte.J1oCQOulcsts- Hlseellaneous PPO,UK 37..616 2\4';.,0121.-11,,'\97.0,7 -1 r;Moo-I)iJfdl (Uee, ElI'IIenl 8rI J HI 145 fFioeorodspIacOether Cons,,, (2) AHB,GF,PG UTX 122.,5796 120.,4143 1.26 1.06 Drus I nOi.lt.1 SUP. hes RetaIl HR 7.12 6.93 1,03 5,1 5,12 5.24 0,9B COIiPuters & BUSlnl!SS EQUIPment 011 IBM CHV,XON,TX B.34 9173 B,61 19,37 0,75 0,44 FInancIal (1) Autos,Aut Parts,TrucKsITlres AEX 2.24 (2) Food,Brewers,Soft DrIoKs,CosmetlcsrSoapsrTobacco It is worth noting that 24 of the 30 stocks in the Dow re in the top 133 S & P 500 issues. There then intrudes a gap, and six Dow stocks find themselves in the lower half of the 500. (All subse- quent numbers in parentheses refer to the ranking in the 500.) The six are International Harvester (448), Bethlehem Steel (311), Inco (290), American Can (284), Owens-Illinois (273), and Woolworth (267). The most overweighted group, as the table shows is obviously, Containers, and it would appear appropriate that American Can and Owens-Illinois be removed from the Dow. The next is Steel, and the smaller of the two companies, Bethlehem Steel, could, it seems to us, be appropriately deleted. Third is the Aluminum-Metal category and it woula seem to us sensible that Inco one of the six smaller companies go. The same reasomng would apply to International Harvester. The next most overweighted groups are the Chemical and Miscellaneous Industrlal categories. Furthermore, Allied Corp., stilI partially a chemical company, is in the latter category. It would thus seem that either it or Union Carbide, the smaller of the two chemicals, would be a potential deletion candidate. It is suggested above that a total of six stocks be dropped. What might be six appropriate re- placements Paradoxically, the only drastically underweighted group in the Dow is Oils and the average, which has three oil stocks already, appears to need another one. Ou suggestion would be Chlt'mberer (9) in the related oil-well equipment field, but Standard Oil of Indiana. (6) or Atlantic Richfield -(13 ( or domestic flavor) would also be appropriate. For our other suggestions. we examined industrial categories' not now contained- in the DJIA. Two Electronics categories constitute 2.92 of the 500, with none of the nine issues currently in the Dow. Hewlett-Packard (18) the largest, could appropriately be added. Many of today's industrial companies have been grouped together in Conghnerates, 2.39 of tlie S & P. Tennero (47) is the largest of these. Publishing constitutes 2.11 of the S & P. It would be chauvinistic for Dow-Jones (104) to in- clude itself in its own average, but it could go with Dun & Bradstreet (82) or Gannett (86). Two per- cent of the S & P is taken up by four groups generally imolved with consumer activity outside the home. McDonalds (61) is the largest company in this category. Finally, 1. 38 of the 500 is accounted for by a broad group of 21 companies generally associated with machinery. Caterpillar Tractor (80) would be a sensible new member of the thirty. Dow-Jones Industrials (1200 p.m.) 1115.95 S & P Composite.(1200 p.m.) 152.13 Cumulative Index (7/5/84) 1873.05 ANTHONY W. TABELL DELAFIELD, HARVEY, TAB ELL INC. No stalemnt or expression of Oplnton or any other matter herein contained IS or IS to be deemed to be, directly or lndl'ectly an oller or the SoliCitation of an offer \0 buyor sell any securJ\y referred \001 menlloned The matter IS presented merely for lhe convenience of the subSCriber While we believe Ihe sources 01 our Informal Ion to be reliable, we In noway represent Or guarantee the accuracy thereof nor 01 the statements made herein Any action to be taken by Ihe sUbSCflber should be based on hiS own Inveshgatlon and Informal Ion DelafIeld, Harvey, labell Inc. as a corporatron and Its officers or employe('S, may now nave, or may later take, positions or trades In respect to any securrhes mentfoned In thfS or any future f55ue, and sucil posftlon may be dtflerent from any views OW or hereaUer efpressed In thiS or any other Issue Delafield Harvey. Tabell Inc which IS registered With the SECas an Investment adlsor, may give advice to ItS Investment adVISOry and olhe t'tstomers Independentty 01 any slalements made In thiS or In any other lssue Furlher information on any securltv menlloned herein IS available on request