Tabell’s Market Letter – July 16, 1954

a sharp decline despite the rapid long-term advancing phase. From advance we have witnessed over a techmcal approach, there seems the past nine months. I do believe, little likelihood of a major de however, that some pause or 00- cline in stock prices In 1954 For solidation is needed and that the the long-term Investor, I advise straight line advance In the av- retention of common stock equierages will be replaced by a wide ties that will ultImately benefit trading area in which mdividual from the continued long-term lssues will show extreme selec- growth of the country, ThiS, as tiVlty. I would expect that for the always, will require careful selecnext 6 to 18 months the Dow- tion not only as to quality but as Jones mdustrial averages will hold to price level. After the consohIn an area bounded roughly by datmg period has been completed, 350 and,300. DurIng this period, I expect a renewal of the advance many Issues could continue their WIth an ulhmate objective, III advance while others consolidate about 1960, of 450 to 500 under and form re-accumulatIon areas. normal market conditions and 600 ThIS in no way changes my or higher In a period of specula- thoughts that the market is in a tlve excess '., ,- 4 , f (USED AS MARKET LETTER ON JULY 16,1954) Reprinted Irom 17u1 COMMERCIAL and FINANCIAL CHRONICLE Thursday, July 8. 1954 Siock Markel at Mid-Year- Coming Paase That Refreshes By EDMUND w. TABELL General Partner, Walston & Co. Members N. Y. S. E. Market analyst, on criteria of earnings, dividends, comparative bond yields, and technical factors, maintains market is not vulnerable, despite recent advance. Mr. Tabell traces past divergent course of several groups of designated issues and predicts intensification of selectivity. Concludes while some period of pause and consolidation is required, the D-J Industrial Average even under normal speculative conditions will advance to the 450-500 level by 1960. My article entitled 1954-The seems to be little hkehhood of a Beginnmg of a New Bull Mar- major declme III the stock market ket/' published in the Jan 7, III 1954 The chances rather favor 1954 Issue of the Commercial a rise of about 25 from current and FInancial levels by the end of the year. ChronIcle, This will be the start of an ad- ended WIth vance that wIll gradually broaden the followmg out to include a larger segment paragraph of the market In the At the hme the artIcle was m a i n, 1954 written, the Dow-Jones IndustrIal should be a Average was around 280 At last good year for week's high of 338, the average the InvestOr had almost reached the 2;) ad- who contmues vance mark of 350 and had sur- to hold, and passed the mInImUm objectIve of buy, the com- 325 mentIoned ear 1 i e r m the mon stock Jan 7 artIcle. Also, thIS advance eqUIties that has been accomphshed by mid- WIll ulti- year rather than the end of 1954 mately bene- Has thiS sharp 83-pomt advance fIt from the Edmund W. Tabell from the September 1953 low of continued long-term growth ot 255 placed the market m a vul- the country. ThiS, as always, Will nerable pOSItion reqUIre careful selectIOn not only Admittedly the advance has as to quality but as to-pllce level been steep, but let us see how It FlOm a techmcal dPproach, there compares wIth the two other in- termediate term advances in the past five years For S1 of Earnings 1929 1930 For SI of Same Income Dividends S10 In Bonds 2990 1560 The Five-Year Pattern 1937 1660 1946 1680 22,20 2840 1075 90 00 The first rise started at 160 in Today 11 50 18,75 6,50 June, 1949 and carried to 230 in From a technical viewpoint, the June, 1950 before it was Inter- market does not appear vulnerrupted by the Korean outbreak able despite the sharp flse of the ThIS was a nse of 31 In 12 last nine months. However, it has months. The subsequent COrrec- gone a long way toward correcttion carried back to 195 or about ing the undervaluation that pre- 15. vailed in September, 1953 and The second rise started m July, may be in need of a rest or con- 1950 at 195 and by January, 1953 solidation before the advance is had reached 295. ThIS was a rise resumed. This applies particu- of about 51 in 30 months. The larly to mdivldual stocks, Many subsequent correction carried back have advanced sharply and have to 255 or 13. reached their upslde objectives. The present rise started in Sep- They do not appear too vulnerable tember, 1953 at 255 and has ad- but rather need a period of con- vanced to 338 or 32 in mne solidation or re-accumulation be- months. A 14 correctlOn would fore resuming the long-term up- bring the market back to 300 trend While this is occurring, Here is ho'w they compare many other issues that have not yet reached their upside objec- Subsequent tives may continue their advance. Datc- Advance Time Decline Shll other issues may continue to June t949-Junc 1950 31 12 mos 15 do little or nothing marketwise July 1950-Jan 1953 51 Sept 1953July 1954 32 30 mos 13 9 mos and still another group might decline sharply, although the num- It would appear that the present ber in this group appears rela- nse is out of line only in respect tively small. In other words, it to the time element. This could appears that the one way mar- be corrected by a consolidating ket of the past nine months may penod. be replaced by a wide tradmg Whlle the averages have nsen range with even more selectivity sharply, this does not apply to the than that witnessed in the recent general list of stocks A recent selective advance compilation showed that 65 of the listed stocks were still below Price Diversion Again theIr 1946 highs despite the fact that the industrIal average reached 338 as compared with a 1946 high of 213 As compared with previous high penods, the market, even at present advanced levels, does not appear vulnerable. The table below shows how much you paid for 1 of earnings and 1 of dIvidends in three perIods of stock market The market pattern I envision over the next year or, so may be very similar to that of the period between September, 1951 and September, 1953 when the averages held in roughly a 13 range between 295 and 255 but during which period individual issues followed extremely diverse price patterns. highs as compared with the pres- The price action during that ent and also how much you had Deriod could have been roughly to pay to get the same income broken down into four categories from common stocks as compared or groups and price action over with high-grade bonds Today's the foreseeable future may fol- figures are approximate; low about the same pattern. 2 I Group A mcluded many of examples of issues that advanced the growth issues that advanced during the 1951-1953 consolidat- sharply from 1949 to 1951 or 1952 mg period would include Boemg and then underwent a long period Bullard, C LT. Fmancial, Com' of consolidation before resuming merclal Credit, Flonda Power & their advance and reaching new LIght, Gillette, Gulf States Utili- high territory. Manv of the lead- tIes, Houston .Light & Powe'r, ers of the recent advance were in McGraw ElectrIC, NatIonal Dairy, this group. For ex.ample, duPont Seaboard Airline, Southern Rail- rose from a 1949 low of 42 to a way and Te)as Utilities. 1951 high of 102 and then spent approximately 28 months in the Issues Declining to New Lows 102-79 range in preparatIon for Group C would include those the recent rise to 143lh. As an- issues that declmed during the other example, Mmneapolis Hon- 1951-1953 penod and reached new eywell advanced from a 1949 low lows in 1954 Some have shown of 22 (adjusted) to a 1951 high certam signs of a possible change of 57 and then spent 16 months m trend recently. Just a few of in the 46-57 area before resuming these issues are American VIscose its advance to the recent high of from 78 to 31, Case from 36 to 15, 99;2 Mmnesota Mining advanced Celanese from 58 to 17, Electric from 17 (adjusted) in 1949 to 54 Storage Battery from 46 to 24, Na- m 1951 and spent some 16 months in the 39-49 range before resum- tIonal Distillers from Masonite from 36 to 17 3a6ndtoNe1\7 ing its uptrend to 70. National Jersey Zinc from 82 to 38. At the Lead advanced from a 1949 low of present moment, there are only a 9 (adjusted) to a 1951 high of 33 few issues with vulnerable patand then spent two years in the terns as compared with a rela33-26 area before resuming its tively large number in 1951-1952 uptrend to the recent high of 51th. Some Do-Nothing Issues Many other examples could be cited of issues that spent long 'Group D would include. those consolidating suming theIr periods before readvance. To men- issues that did little or nothing marketwise in the 1951-1953 pe- tion a few-International Paper riod and in some cases since 1949. National cash Register, Scott Some of the issues in the light Paper, Westinghouse Electric blue chip category have shown much better action since Septem- Continually Advancing Issues ber, 1953 and some have advanced Group B mcludes issues that to new high territory. To mentIon continued to advance While other a few-American Potash, Babcock Issues were consolidating during & Wilcox, Black & Decker, Cor- the 1951-1953 period For example, Carner Corp. advanced from nell Mead Dubilier, Cutler Corporation, Nati oHnaalmGmyper a 1951 low of 22 to a 1953 high of sum, Penn-Dixie Cement, Sham- 45 and has since continued its rock OIl, Sperry Corp. and Yale advance to the 1954 high of 62 & Towne. Other issues have done Continental Can advanced from little since reaching theIr 1951-, a 1951 low of 32 to a 1953 high of 1952 highs. Some of the chemicals 56 and has continued its advance lIke Dow and Monsanto and many to a recent hIgh of 71. Douglas of the oils are in this category advanced from a 1951 high of 36 Some of the potentIal advanCing and has continued its advance Issues of the next year or so may to 78. General Electric advanced be found in this group and in '.from a 1951 low of 18 (adjusted) Group C. to a 1953 high of 25 and has con- In conclusion, I do not belIeve tinued its advance to 48;2 Other that the market is vulnerable to