10 FEBRUARY 1961, Page 34

Investment Notes


THE switch from bear to bull market in equities has gathered further pace in a rather dangerous atmosphere of take-over bids and rumours. It can be called a technical move, be- cause sooner or later trustees will be empowered to invest half their funds in equities, and institu- tions which have been out of the market (fixed trusts and insurance funds) are preparing to come in. But it can also be called an irrational move, because profit margins are being cut and company profits, according to official estimates, are already starting to fall. My advice to inves- tors is to be more and more selective, more and more choosy. I would ignore the star turns of 1960. For example the Clore-Cotton twins—CITY CENTRE and CITY AND CENTRAL—are making a bid for CITY OF LONDON REAL PROPERTY obviously in an endeavour to acquire some solid income to bolster up their development gambles. I would call attention to a more solid trade—DELTA METAL—whose aluminium interests were amal- gamated with Kaiser Aluminium in James

Booth Aluminium. Other acquisitions have since been made and I expect a good report for the year to December. At 20s. 6d. the shares yield 4.2 per cent. on the last dividend of 171 per cent.

Gold Shares

Up to this point I had been in favour of hold- ing gold shares on the supposition that there was a chance of a write-up in the dollar price of gold. The new President has killed that chance. He has left the South African market not only exposed to its political risks but to the risk that (when he gets down to the reform of the IMF) he will propose schemes making for greater economy in the use of gold. Another disturbing factor has been the stretching-out of the uranium contracts in a new agreement between the Union and the UK and US Governments. This will affect some of the mines' profits almost at once. For example, Harmony, of the Central Mining group, will have its uranium profits halved; those of West Rand Consolidated, of the General Mining group, will be cut by 25 per cent. in 1961 and by 50 per cent. in 1962. It is significant that gold shares have been weak for most of this week. Looking at the chart, they had re- covered half their big 1960 fall in the three months since September last. Now it seems as if they will lose half their recovery. Some shares show by their current high yields that they have already discounted most of the risks, but at the moment of writing ANGLO-AMERICAN, the leader of the market, is returning not much over 51 per cent., RAND SELECTION about 5.6 per cent., and UNION CORPORATION about 6 per cent. By com- parison with some 'recovery' industrial shares they seem unattractive.

Copper Shares

Last October the copper mines of Northern Rhodesia started a 10 per cent. cut-back in out- put to help bring down the world copper surplus and the big American producers have now fol- lowed suit. It is hoped that by the summer a balance between supply and demand will have been reached, especially if the new American Government succeeds in reviving its economy. The current results of the copper companies will show declines in profits of 25 per cent. to 30 per cent., and the current dividend yields of around 15 per cent. must not be regarded as realistic. In spite of a fall of over 40 per cent. from their 1960 high, copper shares are not yet safe to buy. SELECTION TRUST at 85s. yields just over 8 per cent., but this dividend, too, is in some doubt although nearly a third of its total profits comes from American Climax. 'CHARTERED' at 71s. 9d. yields 11 per cent. This company has justified my past recommendation by declaring a higher final dividend, making 7s. 6d. for the year to September last against 5s. 6d. Its profits were up by nearly 25 per cent. and only half were dis- tributed. For the current year the company is facing lower earnings and much greater political risks. These adverse factors seem pretty well dis- counted in the current yield.