COMPANY NOTES
By CUSTOS THE trouble about a bear market is that it may take an unconscionable time in establishing itself. The present one started on July 22, 1955, after the Financial Times index of industrial shares had touched 223.9. But not until February 15, 1956, when it fell below the March, 1955, low of 175.7, could the chartists say that it was technically a bear market. As my readers know, my colleague and I have been bearish about industrial shares for a considerable time. However, as this page is not written for professional operators but for the genuine long-term investor I have never recommended complete liquidity. When a national economic crisis looms ahead the correct course for the professional is to get into cash and leave it on deposit at a bank or a building society. When the crisis is at its height Bank rate will be raised to its maximum and short-term bonds will be at their lowest. The professional then moves from cash into select shorts. For example, Exchequer 2 per cent 1960 which at 894 gives a flat yield of nearly 24 per cent. and a yield to redemption 'grossed up' at 8s. 6d. tax of no less than £7 ls. 2d. per cent.
When the crisis looks like being over- come the signal will be a rise in these short- dated bonds. The professional will then move from shorts into medium-longs, or, if he is convinced that the crisis will be quickly overcome, he will jump directly into the irredeemable stocks and buy old Con- sols or `Daltons' which at the moment are around 534 to yield 44 per cent. Then when he has enjoyed his rise in these he will switch into the best equities. These are the classic rules of the professional investor. I recall them for what they are worth, but give this warning. No two crises are exactly alike. This one is quite unlike the 1929-31 crisis because the world outside Britain was then in a state of slump. Today it is in a state of boom. Twenty-five years ago a National Government was formed to meet the economic crisis. Today we have a Conservative Government with a large majority. I am not suggesting that the
crisis will quickly be overcome. The Chan- cellor is capable of raising Bank rate• if necessary still higher, which would depress the 'shorts' still further. But a beginning might be made with National War 24 per cent. which is redeemable on August 15 next. At 98ii the 'grossed-up' redemption yield is £6 13s. 4d. per cent.
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It is much too early to think of jumping into industrial equities, but it is permissible to take a look at some vulnerable ones which will become tempting to buy when the crisis has nearly been overcome. In the slump at the end of last week BRITISH MOTOR CORPORATION 5s. shares fell to 7s. at which the yield is 8.45 per cent. on the 12 per cent. dividend which was last covered 4.6 times. The export sales of British motor cars may be declining but BMC is well entrenched and in Australia is planning to double its local production. GREAT UNIVERSAL STORES 5s. (A) shares have fallen to 32s. 3d. to yield 9.25 per cent. on the 60 per cent. dividend which was covered last 2+ times. HOOVER 5s. shares (once as high as 53s. last year) are now 26s. 6d. Of the hire-purchase finance companies BOWMAKER 5s. shares dropped to 16s. 9d. to yield 6+ per cent. on the 22+ per cent. dividend Which was over twice covered. All these shares rallied this week but no one could say that they have yet seen their worst. In the vulnerable build- ing trades WALL PAPER deferred were quoted as low as 66s. 9d. to yield 5.95 per cent. on the 20 per cent. dividend three times covered. None of these companies is expected to cut its next dividend. In the steel group, which is not vulnerable to the Macmillan squeeze, STEWARTS AND LLOYDS were sold down to 61s. 6d. at which the yield on the 174 per cent. dividend 6,7 times covered was 5.65 per cent. The shares subsequently rallied to 63s. In this case the market may be discounting only a 15 per cent. dividend in view of the conservative- ness of the directors. For a short-term rally I would select HAWKER SIDDELEY which at 33s. 6d. ex bonus yield 5.2 per cent. on the equivalent of 84 per cent. Here the dividend might well increase.
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