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Ghémïcal Shares Outrun thé Market This Year 1957 L o w s = 100
hernicais Catch Up Chemical shares, by and large, have turned in a topnotch performance on Wall Street this year. Despite a bit of backing and filling during the early days of June, C&EN's averages of chemical stock prices are up about 15% since the first of the year. In contrast; the market as a whole shows an advance of only about 3%. In fact, few groups—notably those in the "glamorous" electronics and space age fields —have been more in the limelight. Among individual gainers: Stauffer, up over 259& ; Allied and Monsanto, nearly 25%; Rohm & Haas, about 20%. Go back to the 1957 lows, and the gains for chemicals look even more impressive. Until early this year, however, stocks of the larger firms had been lagging slightly behind the over-all averages on the rebound, even though the smaller firms had moved ahead smartly. Now, however, both chemical groups have outpaced the general average. A number of interrelated factors lie behind the renewed interest in chemical issues. Foremost, probably, is the
sharp recovery in earnings and the widening profit margins most companies are reporting. Excellent earnings reports for the past couple of quarters came as a pleasant surprise to many investors. Stock splits have helped companies like Stauffer, Pennsalt, Nopco, and Thiokol. Moreover, the excitement generated by the Governments missile program has rubbed off on many. To these plus factors you can add a rash of optimistic brokerage reports on the industry. A few sharpshooting Wall Street analysts, eying the first signs of recovery, began plugging chemical shares at least a year ago. Since then, many more have hopped on the bandwagon. For the most part, Wall Streeters* optimism remains undimmed. The consensus is that industry profits will continue to look favorable right into next year—except for a possible dip in the summer quarter. And many analysts expect that chemical shares will continue to outperform the market. Moreover, professional investors seem little worried about the high
market prices of chemical stocks in relation to current earnings and dividends—even though you have to look hard to find a stock with a dividend yield over 396. Some point out that prices are not out of line with past standards, especially if you compare them with cash flow (earnings plus depreciation). There are a few skeptics, of course. One comment: Chemical earnings often hit a peak early in the recovery cycle—as they olid for many firms in 1956. If investors expect the same thing to happen this year, they may decide to make some early switches to other industries. Company directors, too, may b e loath t o boost dividends if they expect to step up expansion plans over the next couple of years. Thus, dividends could prove a disappointment, even though most investors do not buy chemical shares primarily for income. Certainly, though, nobody is selling the industry short. Value Line Investment Survey sums it up this way: "There are few clouds on the horizon. Many companies will set n e w profit records this year. Some dividends will be raised." • JUNE
15,
1959
C&EN
23
