Investment Notes
By CUSTOS
rr HE dullness of equity shares, damped down 1 by new issues and the selling of a few speculators nervous about the capital gains tax, and the strength of gilt-edge stocks, spurred on by the fall in Bank rate to 5, per cent., have narrowed the reverse yield gap to 0.9 per cent. (This is the amount by which the yield on old Consols-6.2 per cent.—exceeds the average yield on the Financial Times index of industrial or- dinary shares-5.3 per cent.) At the peak of the equity boom in May, 1961, the gap was as wide as 1.7 per cent. Even if the gap disappears it will not mean that investors have forsaken equity shares; it will only mean that govern- ment policies have for the time being knocked industrial profits and frightened off speculators. But that is a situation which cannot last in- definitely and it behoves the long-term investor to try to find the growth companies of the next trade revival.
Motor Components
A .revival in the motor trade is under way- BMC at 16s. lid. yielding over 6 per cent., is still a good gamble—and I have already drawn atten- tion to the component companies as attractive speculative investments. CLIFFORD MOTOR COM- PONENTS is a company manufacturing steering wheels, valves and special-purpose machine tools. Its profits rose steadily in the four years ending March, 1961, and we shall know in August whether its profits have been adequately maintained, as some anticipate, in the year just ending. Towards the end of last year it acquired SPECIALLOID in conjunction with Associated En- gineering. The chairman spoke optimistically of future prospects last year and I believe that these still hold good. At 9s. 3d. the 2s. shares yield 5.2 per cent. on the 25 per cent. dividend, ex- cluding the 21 per cent. tax-free capital pay- ment of the previous two years.
Tin Shares
This might be a good opportunity to buy a few tin shares. The market fell sharply on the news that the American strategic stockpile was as much as 164,000 tons, worth about $442 million. Everyone in the metal market had been expecting a release from the American stock- pile. The question is whether Congress will authorise a release and, if so, how and when. Some release is urgently wanted because demand is at the moment outstripping sup- plies. The International Tin Council long ago exhausted its stocks and has just advanced its floor and ceiling prices to £790 and £965 respec- tively. The price of tin fell this week to £963f, but it is not expected to stay down for very long. Tin producers realised an average price of £880 last year and will probably average a price of over £950 this year. The following companies should do well:
Yield % Price Div. ield Gopeng 5/- 52/6 est.5/- 9.4 S. Malayan 5/- 33/3 4/- 11.8
Tronoh 5/- • 31/3 2/71 8.2 GOPENG is a merger of four mines with a long life and low mining costs. It has proposed a one-for-four scrip issue. SOUTHERN MALAYAN has six dredges and by equipping one to a greater digging depth the life of the reserve areas could be greatly extended. TRONOH, like Southern Malayan, has six dredges and could also extend Its life by dredging deeper. This company has large holdings in AYER HITAM, Gopeng and Southern Malayan. To avoid direct mining risks the investor could buy BRITISH TIN INVESTMENT, which has large holdings in the leading Malayan companies. At 20s. the 5s. shares return 8.9 per cent.
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