WISE INVESTMENT

THE best that can be said of the stock markets is that they are at any rate no worse than a week ago. Some may consider this very faint praise indeed, but experienced investors will know that it is much more difficult to check a gradual fall in values than to begin it. There -is, of course, a moderate volume of bread-and-Putter- business :passing, but it is insufficient to: make brokers 'cheerful or. ac give a definite lead either up or 'down. , , _ In these circumstanees•iris bf greater- significance than it sounds that the general sentiment i ill one of optimism. As I have pointed out before, there :is -no great hope of any marked revival in, business, until_ afier the holidays, but most people are confident of- an auttunn- recovery. It is true that this confidence is partly based -on rather nebulous hopes of some form of international economic co-operation, but it also reflects a _general belief that if such co-operation is forth- coming the economic recovery has a long way to go before we need worry about any recession.

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A BATCH OF PREFERENCES

Meanwhile, as brokers hopefully :Paint out, the Preierii times are good buying opportunities, . at any rate for .those -who share my, optimism. It seems clear, however, that a higher yield basis will be required in future than has been the case during the past four years, partly in consequence of the upward trend of interest rates which. now seems firmly established.

To my mind investors now definitely shy at yields of only 31 per cent. or 31 per cent., however good the security. It therefore follows, in my opinion, that at I the present time what one would normally regard as second grade preference shares, yielding 41 per cent. to 5 per cent., may prove sounder holdings from the point of view of maintenance of market value than investments of higher standing and consequently offering lower returns.

The type of preference share to which I refer is illustrated by the following examples :

Times Price. Yield.

covered. s: d. s. d.

Aspro 51% Cumulative Preference Britisli Tyre and Rubber 71%

' Shires .) Cumulative Preference Shares .. - 6 to

32 u 4126 23 4 15 .o

" Butler Machine Tool 5% Cumulative Preference Shares.. m 9 (ex-div.) .

Hoover 5% Cumulative Preference Shares .. 9 23 0

4 .

Worthington Simpson 6% Cumula- 6 '25. 6' - 414 o tive Preference Shares ..

Alf these shares. offer yields. which i must be Considered• reasonably attractive even allowing' for the general rise in interest rates since the beginning of this year. On the basis of latest 'earnings, their dividend reqUireinents are -amply covered, and in each case there is reason to believe that current earnings are at least maintained. For the time being, therefore, see no reason to expect any set-back in their prices, or to regard the ineome, offered as being other than -well-sectried. Nevertheless, ,the cornPrinies are concerns which operate ih trades subject to „considelable fluctuations aridWCh haVe not yet built up positions Of impregnable stiength. For this reason I would advise spreading-an investment-over three. or tbur of Mein rather-than-placing all- one's eigs-in One-basket.

* * * * t A SOUND Hi/TEL SHARE

Hotel shares, as a class, have a reputation for rather wide fluctuations in profits and dividends. Thete fluctuations make them unsuitable outlets for investors who lack close acquaintance with conditions in' the industry which would enable them to anticipate changes In its fortunes. I do not think, however, that this objection can be raised against Trust Houses Li Ordinary shares, which I consider an attractive investment at 30s., yielding approximately £4 13s. 6d. per cent. Many readers are no doubt acquainted with some of the Company's 200-odd hotels. They will know that it his catered particularly for -those whose purses are not so long: is they might be, and has offered particular attractions to the motorist by assuring him of food and lodging at more or less standard prices at all the Company's premises. Hence 1-think it reasonable. to assume that in future, although profits will inevitably vary with general trading conditions, the popularity

4)6 o 416 o

of motoring Will give the '..-ompariy .4 substantial volume of fairly stable business. . _ The yield of £4 _t3s. 6d. per cent. is based on the dividend of 7 per cent. paid for the:year to March 31st last. In that year Profiti rose from £184,539 to £223,616, and net earnings on the Ordinary shares were 9 per cent., thus covering the dividend with a moderate margin. During tht.,r-year the companfi, interests were expanded by the rieguisitionof hotels at: Ascot, Saiii,bury and Bexhill., These, acquisitions ed the geneally satisfactory :trading _conditions should ensure continuance of the rising trend of earnings seen for inyeral years pint. _ : * * * * _ SHIPBUILDING CUM ARMS EQUITY However much one may regret it, it appears ingvitglild that armament makers will _be active over the next few-Years: Although their-pnafit ire, rightly, to be restricted theyWill presumably experience rising -earnings with the iriatailed turnover. One of the more attractive shares in thiiield is John Brown and Co. ros. Ordinary, Perhaps chiefly lot the paradoxical reason that armaments are by no mearis :the only interest of the- company.

Actually, its principal concern is shipbuilding, and its name will 'be ferrembered as .1.11e builders of the 'Queen Mary' and its sister ship. In 'addition, John Brown has varied iron and steel and engineering interests with --a' wide range of products. The shipbuilding yards have naval Orders in hand, and the company has another finger in the armanients pie through its control of -Thomas Firth and John Bi.awn,, the second largest maker of armour plating. This subSidiary,i. however, is also only partially an armaments maker, -aa_its main interest is the manufacture of special steels of all was, including stainless steel cutlery. - I like the shares because the company has such importagll interests in industries which are forging ahead, apart alto:. gether from its -rearmament activities,-although-thete:i0I-* doubt add substantially to profits: mkx the next few yeans.1 At the current price Of 355. dd. the is Z5 121. 6d: per cent. on last year's dividend -of 15 per cent., free of tax, which was adequately covered by earnings of 20 per cent., and feel justified_ in anticipating an increase' in the distribution fdr the current year, ' * * „ * Venturers' Corner In Canada, as in other countries, railroad earnings fell so severely during the depression That not even maintenance expenditure could be kept up. It it therefore natural that the recovery in traffics now being seen brings as much joy to the hearts of the railway equipment makers as to stock- holders.

One company which is understood - to- be benefiting very considerably is the National Steel Car Corporation. This company was reported recently to have orders in hand amount- ing to over $io,000,000. It 'is the leader in its own field, and supplies both railroad and street car companies, making also automobile chassis and body woodwork. In addition there is a useful sideline in the manufacture for Canadian distribution of snow ploughs and similar products of the _La Plante Choate Manufacturing Company.

Before the depression good profits were earned, rising to $8.83 per share in 1930. There was then a sharp and severe slump, but after losses in the three .previous years, 9 cents per share was shown for the year to June 3oth last. In the current period, which closes at the end of this 'month, there should have been further improvement, although the full benefit of the orders received will not be seen until the following accounts are available.

The shares are now quoted around $5o. There is no debenture or preference capital to have got into arrears, and as it is believed that the plant has been well written clown, there are also no arrears of depreciation to worry about. Hence bigger business will bring a sharp upswing in eaitiings, and I should not be surprised to see a net figure .of around $4 per share for 1937-38. CURATOR. [Readers' enquiries, or requests for advice, regarding particular shares will be answered periodically as spare-permits. Corre- spondents who not itit deiire their' namis to appeir-thould append , _ „ initials or a plendanym to:their quations‘