Bad Earnings & Good Stocks

A heavy stream of first-quarter earnings reports last week showed many important companies down sharply. To the surprise of some and the relief of many, Wall Street reacted more with a yawn than a yowl. Stocks on the Dow-Jones industrial average climbed higher on four of the five trading days, wound up at 449.31 with an eight-point weekly gain, 30 points above the low.

After dropping 20% from its bullmarket high, the Big Board has already discounted the recession--at least in its current state--and is looking ahead for the upturn. The 20% decline is perhaps too conservative, since it counts only those 30 blue-chip stocks (of 1,521 on the board) that comprise the Dow-Jones industrial average. The price of many other stocks has dropped much more than earnings, sometimes as much as 50%. By the same token, some of the blue chips in the average may still be priced higher than their earnings warrant, and may be in for a rough ride.

On the Bottom. In oils last week, company after company turned in reduced earnings. Texas Gulf Producing Co. slipped 38% in profits for the quarter; since its stock has already tumbled 44% from the 1957 high, there was little reason for investors to sell and little reaction to the earnings. Socony, Standard of New Jersey and Phillips Petroleum moved ahead by a point or more as investors gambled that the low point had been reached.

The same was true of chemicals, where Du Pont reported a 17% cut in quarterly sales; its stock, which had declined 15% from the peak, climbed almost two points. Aluminum Co. of America's President Frank W. Magee reported a 38% drop in earnings. Yet when he also announced that March orders were the highest since October, Alcoa stock rose slightly.

Still other stocks climbed when the bad news failed to live up to investors' expectations--or when dividends were not cut quite so sharply as feared. Caterpillar Tractor, whose earnings tumbled 76% to $3,400,000 for the quarter, rose 1 1/8 points at the announcement, since many investors had expected the company to lose money.

Profits for Some. The selective character of 1958's market reflected the spotty nature of the recession itself. While heavy durable-goods industries have been hard hit, many service industries and non-durables still boom ahead. Cigarette Makers P. Lorillard, Philip Morris and Reynolds are still climbing the filter-tip wave to new highs both in earnings and stock prices. Fat first-quarter earnings for Safeway Stores, National Dairy, Kroger, National Tea, all nudged their stocks slightly higher.

A few Wall Street bears say that the test is still to come when the big auto and steel companies report in the next few weeks. Yet those earnings should not come as a shock to anyone. Everyone knows that both industries are doing poorly. Chrysler Corp. admitted last week that it will go heavily into the red in 1958's first three months, after earning $46.5 million last year. Stock reaction: a decline of two points, as investors, who have already chopped Chrysler 48% from its bull-market high, held steady.

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