A Certain Caution

Despite assurances from the economists that a new boom is coming, many a U.S. businessman last week could not conquer an uneasy hunch that for a while yet U.S. prosperity would be a kind of austere affluence. In a panel discussion of the business outlook sponsored by the First National Bank of Chicago, President Ralph Lazarus of Federated Department Stores predicted that steadily rising personal income would continue to improve retail sales, but added: "We foresee substantial growth, but not a sharp, runaway boom." President Robert S. Ingersoll of Borg-Warner Corp. looked for only a "gradual and minimal" upturn in durable goods. And Chairman James Price of National Homes Corp. wrapped his gloom in jargon: "Commercial construction, in our opinion, is enjoying what appears to be a terminal bulge in the current cycle. More and more cities have built their way into surplus office space."

Though the stock market is no longer as faithful a mirror of the total economy as it once was, it inevitably reflected some of the caution. While the Dow-Jones index of blue chip industrials last,week inched back toward its alltime high of 706, many of the highly speculative "glamour" or "futuristic" issues stood far below their recent giddy peaks. Some had been selling at 100 or more times earnings. For one list of ten selected glamour stocks-(see chart), the fall-off since May amounted to nearly 18%.

Red Ink. Warnings to small investors against heedless speculation, delivered by New York Stock Exchange President Keith Funston and others, have had some effect. But the disappointing performance of the growth-stock companies probably did as much as anything to deglamorize them. Many just did not live up to their great (but exaggerated) profit expectations. Transitron, which made its debut last year and quickly scaled to 60. is now down to 24 because 1960's black ink has turned to red. Pale profits in vending machines have sent Vendo down more than 50% from March's peak of 77 1/4, while the earnings pinch has also clipped Polaroid, Fairchild Camera, Bell & Howell and Universal Match.

Some of the growth spectaculars had run into competition. The transistor field has become crowded, and price cutting is rampant--with the result that early starting Texas Instruments is off more than 100 from its May 1960 peak of 256 1/4, while Thompson Ramo-Wooldridge has slumped from last February's 82 3/8 to 57. FarringtonManu-facturing.whichclimbed to 57 on the merits of its optical scanner, is down to 13 now that competitors have similar machines. By contrast, companies that are well diversified or solidly backlogged with defense contracts are holding up well. Litton Industries is close to its historic high at 134, as is Beckman Instruments at 131 3/4. Avco last week hit an alltime peak of 23 1/2.

Blue Chips. Investors are switching into the stocks of well-seasoned companies that tend to grow in step with the economy. Many of these business-cycle stocks went unnoticed during the "glamour" boom and some are still underpriced. In fact, 25% of the stocks on the New York Stock Exchange are selling below their April 1956 levels, though the Dow-Jones has advanced 170 points since then.

Wall Street's current caution is thus selective and its general mood optimistic. "In the next six months or a year," says top Securities Analyst Edmund Tabell of Walston & Co., "the market will move higher under entirely new leaders. These will be the glamour stocks of five years ago--chemicals, paper, aluminum, rubber." Says Bruce Dorman, research director for Reynolds & Co. in San Francisco: "Copper issues have been very big, and machinery, steels and chemicals are all doing well." Nor are all the professionals ready even to write off the 1960-61 glamour issues--especially if the economists should prove right about a coming nationwide boom.

* ABC Vending, American Machine & Foundry, American Photocopy, Avnet, Brunswick, Fairchild Camera, Perkin-Elmer, Revlon, Varian, Vendo.

This file is automatically generated by a robot program, so reader's discretion is required.