Tabell’s Market Letter – February 12, 1971

— —— – -.. — ……… TABELL'S MARKET LEIIER ,L 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMaER NEW YORK STOCK EXCHANGE MEMaER AMERICAN STOCK EXCHANGE – February 12, 1971 The stock market continues to behave with an almost eerie normality. Three Weeks ago, we ven- tured to suggest in this space that the historical record failed to support the contention that a short- – terll!Lcprrctton .was ,neces sarilyJikelyand, that ..!Lcollttn!liIJgadvance1!!!',o!lJdnotbcunu sgal. Sin4'—-,… that time, the Dow-Jones Industrial Average has advanced some 30 points. Last week we suggested that volume, which, at that time, had just set a daily record of 22 million shares and a weekly record of 100 million shares, could probably increase still further with daily peaks approaching the 30 million share level. Two days later, on Tuesday, trading exceeded 28 million shares, and this week's total volume will probably exceed 110 million shares. The rise, it seems obvious to us, is quite soundly based. This is true, not only when purely technical factors are considered, but also, we think, based on fundamentals as well. The following table shows the 1970 earnings for the 30 stocks in the Dow-Jones Industrial Average (in some cases estimated), a consensus estimate of 1971 results for each company, the high and low pie ratio at which each stock sold between 1966 and 1970, and the price at which each stock would sell, applying these pie ratios to estimated 1971 earnings. Per Share Earnings 1970 1971-E Multiple Range Current Possible High & Low 1970 – 1966 Price Based on 1971 Earnings Allied Chemical 1.55 1.85 29 – 10 28 53 – 19 Aluminum Co. 5.20 5.50 20 – 9 65 110 – 50 American Brands 4.03 4.35 13 – 7 46 56 – 30 American Can 3 . 55 3 . 90 17 – 9 42 66 – 35 American Tel & Tel 3.99 4.30 17 – 12 53 73 – 51 Anaconda 3.90 3.00 16 – 5 22 48 – 15 Bethlehem Steel 2.05 2.50 15-7 23 38-18 Chrysler DuPont -6.76 2.00 7.65 15-7 29 l 29 12 30-14 2-21 .Ui7 Eastman Kodak 2.55 2.85 37-22 77 105-63 General Electric 3.60 4.50 32 – 17 105 144 – 77 General Foods 4.72 5.00 23 – 14 83 115 – 70 General Motors 2.09 6.50 17 – 11 82 110 – 72 Goodyear Tire 1.80 2.50 17 – 11 31 43 – 28 International Harvester 1.92 2.75 17 – 8 34 47 – 22 International Nickel 2.80 3.20 28 – 12 46 90 – 39 International Paper 1.85 2.20 18 – 10 36 40 – 22 Johns-Manville 2.02 2.40 19 – 11 44 46 – 27 Owens-Illinois 3.90 4.05 26 – 10 59 105 – 41 Procter & Gamble 2.80 3.00 25 – 14 59 75 – 42 Sears Roebuck 2.95 3.25 26 – 17 81 85 – 55 Std. Oil of Calif. 5.36 5.60 16-7 53 90-39 Std. Oil of N.J. 5.90 6.25 17 – 9 72 106 – 56 Swift & Co. 2.24 2.60 22 – 9 36 57 24 Texaco 3.02 3.20 16 – 8 35 51 – 26 Union Carbide 2.64 2.90 21 – 11 44 61 – 32 United Aircraft 4.20 U.S. Steel 2.72 -Wes-tingho-UseElecti-iC-3-0-6 4.40 3.75 4'700 n 25 – 6 38 16 – 8 33 g'(4'7'7 110 – 26 60 – 30 1 10if-'S6 – Woolworth 2.30 2.50 19 – 8 45 48 – 20 DOW-JONESIND.AVER. 52.28 61.58 885 1315 – 660 The results are interesting. According to the projection, Dow earnings should advance some 18 for 1971. Assuming it is correct, then almost half of the 40 rise in the Dow to date has been recognition of improved 1971 prospects rather than a simple advance in multiples. The projected price probabilities for the Dow are equally interesting. Even the lower end of the range is above the 1970 low emphasizing again the abnormality of last summer's prices. The median figure between the high and low multiples is 927, and, based on peak multiples, a price of better than 1300 could be justified on the basis of estimated 1971 results. Of even more interest is the fact that all but six of the 30 stocks in the average are in the lower half of their prOjected price range and 11 of the 30 are in the lower quarter of that range. The numbers strongly suggest, it seems to us, that a great part of the rise so far has been based on probable earnings recovery and that speculative mark- up is only a minor factor in the advance so far. Dow-lones Ind. (1100 a.m.) 887.46 S&P (100 a.m.) 98.10 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL AWTlffiR No stotement or expreSSion of OPiniOn or any other moiler herem contained IS, or IS to be deemed to be, directly or Indirectly, on offer or the soliCitation of on offer to buy or sell any security referred to or mentioned The moiler IS presented merely for the convenience of the subSCriber While we believe the sources of our Information to be reliable, we In no way represent or guarantee the accuracy thereof nor of the statements mode herein Any action to be token by the subscnber should be based on hiS own Inveshgatlon and Informahon Montgomery, Scott & Co, as a limited partnership, and Its portners or employees, may now have, or may lafer fake, poSItions or trades In respect to any secufllies mentioned In thiS or any future Issue, and such pOSItion may be different from any views now or hereafter expressed In thiS or any other Issue Montgomery. 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