Tabell’s Market Letter – October 25, 1965

–Walston &Co. Inc INVESTMENT BANKERS MUTUAL FUNDS MUNICIPAL BONDS Members New York Stock Exchange and Other Principal Stock and Commodity Exchanges OFFICES COAST TO COAST AND OVERSEAS I FTTFR n October 25, 1965 The market strength continued last week with new highs in the Dow-Jones Industrial average being reached on four out of the five trading days, culminated by a peak of 959. 39 on Friday before light profit-taking set in. This was close to the current upside objective of 960, although the Rails, which reached a peak of 238.70 this week, can be read to a possible long term 255. However, a survey of all listed stocks shows that a great many leaders have reached upside objectives and may be in need of some consolidation. As usual, the best pro- tection which can be afforded against investment risk at these levels is to make sure that portfolios are restricted to issues with a favorable outlook. Such a stock is described below. – SUNDSTRAND 'CORPORA TION – – Current Price 33 3/4 Last week's letter outlined at some length what Current Dividend 1. 00 we conceive to be the exceedingly bright future for Current Yield 2. 90/0 the machine tool industry. We discussed in some Long Term Debt Hi, 850, 000 Common Stock 1, 657, 908 shs. detail the growing acceptance of numerically con- trolled or NI C machine tools – – the automatically operated tools which go so far to reduce costs and Sales 1965-E 90,000,000 improve productivity. Sales 1964 82,400,000 Earn. Per Sh. 1965-E Earn. Per Sh. 1964 2. 15 1 . 83 One of the most attractive participations in the growth of NI C tools appears to be Sundstrand Corpo ration, which has been in our recommended list for some time. anly prominently iden- Mkt. Range -1965-64 343/8-18718 tified with the mac e which constitutes some 250/0 oGfi ent ut produces other items which appear to hold promise for earnings ove next years. Sundstrand's entry in the a e tool field is the Omnimil, which currently is estima ted to 30 machine tool shipments. Backlog, however,–continues-to-increase and t 0 ore, cts a considerably-higher percenta-ge of N/c machines than do . te possible that machine tool sales under this stimulus could incre se at e e a 1 0 to 150/0 annually between now and 1970, and, as automatic machine r – r proportion of total sales, profit margins, which have already sho i ease since 1963, could continue to widen. Sundstrand, ho v ates in other areas which appear to have growth potential. One of the most promisi the company's aviation division, most of whose sales originate from one item – a co nt speed drive which is used to stabilize the flow of power from the engines to the aircraft electrical system. Through technological superiority Sundstrand has managed to achieve the lion's share of the market for these devices. The company is pres- ently selling to every producer of commercial jets, and each jet requires six units — one for each engine and two spares. The units wear out fairly quickly and replacement volume is si zable and will continue to grow as the number of planes in the air increases. Sales of constant speed devices to the government are also important, but are becoming less so as commercial sales continue to grow. Still a third Sundstrand product with considerable growth potential is the hydrostatic transmission used in the construction, material handling and agricultural equipment indus- tries. This transmission has the ability to vary sp'eEOds with constant engine turnover and with no clutch. Sundstrand has recently moved into a new plant which will produce these transmissions and currently start-up costs are producing a small loss in this area. Break- even should be reached in mid-1966 and, commencing in 1967, hydrostatic sales should add measurably to earnings. Recent results have undoubtedly reflected the trend in capital expenditures, but also the excellent growth shown by N/c machine tools and aviation products. Per share earnings increased to 1. 83 in 1964 from 1. 21 the previous year and are expected to reach 2. 15 in 1965, possibly approaching 3.00 for 1966. 1965 sales are estimated at 90 million vs. 82.4 million in 1964. The present 1. 00 dividend is conservative in relation to present high cash generation capability. From a technical point of view the stock has an initial objective of 44 followed by a longer term objective of 70. The recent move upward has been sharp, but any periods of minor weakn.ess.shQuldprovide an !)xcellent buying opportunity. Dow-Ji5rfe'sT 'Irldtt95'2;ifZ'''' .. – . ANTHONY W. TABELL Dow-Tones Rails 235 61 WALSTON & CO INC This market letu-r 18 pubhshed lor your convenience Rnd mformation and is not an offer to Bell or 8OI1cltation to buy any aeeurltles dlseussed. The m. fonnation WRS obtained from soure'S we believe to t.. rellllble. but we do not guarantee its act'urnc Walston & Co., Inc. and its officers, directors or emttloyees may have an Interest In or purchASe And sell the seeurltles referred to herein '-,– – – –