Tabell’s Market Letter – June 24, 1960

Tabell’s Market Letter – June 24, 1960

Tabell's Market Letter - June 24, 1960
View Text Version (OCR)

FILE COpy Walston &- Co. Inc —,;..; Membe,'s New YO!'k Stock Exchange NEW YORK SAN FRANCISCO LOS ANGELES PHILADELPHIA CKlCAGO OFFICES COAST TO COAST AND OVERSEAS TABELL'S MARKET LETTER Jun 24, 1960 At Wednesday1s intra-day low of 639.22, the uow-Jones Industrials had re- acted twenty-four points from early June high of 663.64. This is approximately a one- third correction of the sixty-seven point advance from the May low of 596.61, which is normal technical action in an advancing phase. Furthermore, the retracement has carri d back to near the top of the three-month 637-596 range which should furnish a good suppo t level. So far, the technical action of the averages has been normal, but there has as yet been no confirming signal by my breadth-of-the- market studies. The index has so far failed to better the March high and is way below the high level reached in April, 1959. However ,it'has declined very little in the past two weeks and is only a short 'distance from the March high. Regardless of what the stock market does over the next few weeks, or few months, the general outlook for the long term, i.e., the next five to ten years, remains the same. An understanding of this outlook is obviously important to the intermediate term trader or speculator since, to a great extent, the general market outlook will de- termine the type of security he wishes to own. For this reason, a few obvious truths about the long range prospects for the stock market bear restating at this time. The easiest way to view the prospects for the equity market over the next ten years is in contrast to the past ten. The last decade started at a time when stocks, in general, were more undervalued than they had ever been in previous history. It was only logical that this undervaluation should be corrected and a large part of the 1950l s was spent correcting it. Thus, from 1947-49 to 1957-59, the Dow-Jones Indus- trial average increased some 200, based on its 'e two periods. Earnings, however, increased only 53, an average a 1 r f growth of some- thing under 4 1/2 compounded. This was a rewarding to those who were perceptive enough to 0 e s d ved extremely gni th rrific undervalua- tion which prevailed in the equity market ar only trouble is that it – cannot-be-expected to go on – – – — -, —- The realization that the' f an e chip stocks had gotten rather out of line when measured thinking of investmen mana r eAA'iization accounts 'n i has slowly crept into the r second half of the last decade. This real- t ather desultory performance of such former favorites as Du. t rs, International Paper and Standard Oil of New Jersey over the pa f w s. The new favorites became the super-growth stocks, w1-ich, it is r ned, are going to exhibit earnings growth far outstripping that of the econom ver the next decade. The growth prospects in these issues, it is argued, warrant the payment of an extraordinary premium over their value based on current earnings. There is absolutely nothing wrong with this theory when applied to, say, Texas Instruments, where a lead in development and research assures terrific expansion in earnings over the long term. It becomes a little ridiculous, however, to start applying the same multiples to every operation that starts out with an M. I. T. graduate and a few coils of wire and puts the magic word electronics in its name. All of the above allows us to draw a few conclusions as to the general climate of the equity market over the next few years. (1) In conspicuous contrast to' the last decade, it will not be easy for the unsophisticated investor to amass large capital gains. (2) It will not be possible to follow the old saw buy good stocks and hold them. This policy worked wonderfully between 1949 and 1956. Its recent results have been disappointing and will continue to be so. The Dow-Jones Industrial average,composed largely of blue chip companies,will,five years from now,probably be within 20 of where it is at this mome!'t. (3) Investment success will be attained by continued seeking for companies which will grow faster than the economy as a whole. For those companies where growth is assured, the payment of a premium is undoubtedly justified. However, in many cases, equally good opportunities will be found in companies where no premium need be paid and where growth prospects have not yet been recognized by the market. no w-Jolle s fncl. jr. T 1 1li.1S !(!.tj;er is nil undr Is to he construed as, an offer to sell or a EDMUND W. TABELL Uri, T ,.,.,rYI\T ., ,., r. T1\J r' herein. The mformntlOn or completeness and the thereof IS not, and uniler no Clrcumstances 18 to be construed as, a representn- bon by \'i.'alston & Co. Inc All cltpresSions of opmion are subJect to change 'Hthout notIce. Walswn & Co. Inc. and Officers, DIrectors, Stockholders and h\nUr,fffli.tJw.rN, purchase, sell and may have nn mterest in the SCCUrlticz; mentJOnoo herem Th1S market letter lS intended and presented merely as It !Zener!ll, mfo'ffndl t51rlrhMrl..ary on dny to day market news lind not as a complete analYSIS Add!tlUnal mformatlon With respect to any Rccurlbcs referred to herem will he furOlshcd. request. . . WN 301

Download PDF