Tabell’s Market Letter – February 24, 1961

Walston &Co. tnc. Members New York Stock Exchange NEW YORK SAN FRANCISCO LOS ANGELES PHILADELPHIA CHICAGO OFFices COAST TO COAST AND OVERSEAS TABELL'S MARKET LETTER February 24, 1961 At Friday's high of 659.56, the Dow-Jones Industrials had exceeded their Februar 3rd high of 657.20, although the important June high of 663.64 remains to be breached. As expected, a good deal of supply has continued to be encountered in the 640 -660 range, as evidenced by the heavy volume of trading coupled with the sluggish advance in the averages. It is interesting to note, however, that, as this churning goes on, breadth 0 the market continues to improve and our breadth index is now at its highest level since th Fall of 1959. For this reason, a constructive attitude toward the market, together with emphasis on individual issues appears to be – — — —-,.- – ' The progress made by the meat packing industry over the past decade constitutes a dramatic example of a successful comeback by a major industry. At the beginning of the 1950'!,the industry was plagued by inefficient and antiquated plants, locations which emphaSized closeness to market rather than to sour ce of supply despite the fact that transportation of the end product was cheaper than transportation of live cattle, and a recurrent inventory problem which made it vulnerable to wide changes in raw material prices. As is usually the case in depressed industries, these difficulties were most sorely felt by the marginal producers. SWIFT & CO., the largest factor in the industry, was the only company relatively immune to drastic earnings fluctuations and, despite the fact that profits displayed no strong growth trend, the stock attained an invest ment status considerably greater than that of the other companies in the industry. Since that time, enormous strJdes have been made. As could be expected, the most drastic improvement took place in what were then Wilson & Co. followed an aggressive program of reducing slaughterhou f coo sC8.nd closing down ob solete divisions. Thus, although 1959 sales were 0 0 eo 9 levels,net income had almost doubled. Armour & Co. also closed a 1 r s obsolete slaughter- housesand,,,in,additiOn,-bUiH,up,an,excenenemo i per to account for some 600/0 of earnings. Even as 19 wever, the drastically improve profitability picture in both of these Ii been taken into account by the mar keto Wilson sold as low as this letter at a price of 5 1/ for purchase at that time by s \9ii'i low was 9 3/8. At their recent highs, Yiilson had reached / d r 0 6.1/2. The impro een far less marked. Indeed, profit margins in the past two years have i d to rove to any great extent from their average levels of the early 1950's. For ob '0 easons, the common stocks market appreciation from 1957 lows has been only as great as that of the smaller companies. ,vhile the entire industry appears attractive, there appears to be some justification for ranking Swift as the most attractive participation therein at this time. In contrast to its smaller competitors, Swift's emphaSis has been on modernization rather than the closing of obsolete slaughtering facilities. Thus, the company's sales have held up better than those of Armour and Vlilson, and more leverage now exists in Swift which is esti- mated to show 408 of sales per share in 1961, vS. 291 for Wilson and 375 for Armour. As this letter has previously pointed out, the raw materials picture for the industry will probably improve drastically in the latter part of 1961,and with its greater slaughtering capacity, Swift will be in a better position to take advantage of this trend. a large part of the increased supply of cattle will be of poor quality, Swift's margin should also benefit from a tenderizing process which it has developed in order to make a marketable product from low-cost raw material. In addition to the above positive factors, Swift probably has better defensive qualities than its competitors, with a superior balance sheet and per-share working capital approximately twice that of the other two companies. For the fiscal year to end Oct. 31, 1961, Swift's earnings are expected to improve to around ;;4.00 per share vs. the 3.09 earned in fiscal 1960,and some liberalization of the dividen from its current level of 1. 85 is possible. From a technical point of view, the recent upside breakout to 48 indicates a possible initial 64 followed by 90. Strong 'support exists at the 45-40 level. Although as mentioned above the outlook for WILSON & CO. (49) is also positive, we are suggesting that clients who have held this stock since our ori inal recommendation, acce t rofits and transfer th funds 0 IS to be construed as, an offer to sell or 'tm 'th accuracy or and the furnishtng t.hereof…ANt..la.d.\H\Wr.110 to herein The mformatlon ,onet.rucd os. 11 rcprescnta- (t),…..Q… AU,eJlmessJoP of opInIon are subject to change WithOUt. WaJii.l(JlrnMo.P.Jn!fAd Directors, Stockholders and D an mterest In the secuntles mentioned 'h1tefHIel!.l.8'ntYl'resented merely as '!- general. ,vW Jormformlll commentary on day to day market am not as a eomplete analysis Additional mformatlOn With respect to any secuntles referred to herem . ,.. -,'