Investment Notes
By CUSTOS
0 PINION in the City remains sharply divided about the prospects of the equity share markets. The Sunday papers remain bullish- you cannot sustain reader interest in a Sunday column on gloom-while weekly papers like the Investors' Chronicle announce that the great post-war bear market in 'gilts' has ended and that the cult of the equity is wilting away. The people who run systems have been knocked badly, for the sharp rise and fall in the Financial Times index this year put them into the market and took them out at a net loss after meeting expenses. But the position of the equity investor has not really changed. It is always difficult to make money out of equities except in the boom periods when the public takes leave of its senses and buys everything on hearsay. In the long run only the shares of companies with clever man- agements and good growth records pay out well. The search for them goes on endlessly and I do my best to call attention to the winners and the good investment shares depressed by new issues. For example, LAPORTE, ROYAL and EAGLE STAR, lately recommended, have begun to move up and
can still be bought in 'letter' form free of stamp. But the general equity market is not yet a 'buy.'
Motor Shares and Components
The huge crowds round the Jaguar stand at the Motor Show brought home to the investor that JAGUAR is still the only sure growth stock in this troubled market. But at 81s. 6d., to yield only 1.2 per cent. on dividends and about 91 per cent. on last earnings, the shares are not exactly cheap. The great uncertainty facing our motor industry is the Common Market. The UK share of the continental market in cars has declined in the last two years from 27 per cent. to 18 per cent. and the foreign share of the British market has gone up to about 10 per cent. in spite of our tariff. When these tariffs are down for the, continental exporter, how will BMC, ROUTES and the others fare? It is probably best not to take the risk and confine investment to a component share like WILMOT-BREEDEN, which has already a French subsidiary doing well in the Common Market. This company makes bum- pers, locks, radiator grills and engine cooling fans and parts for aircraft and domestic appli- ances. It also manufactures electronic instru- ments and hydraulic equipment. The non-motor sections helped to stabilise profits last year. The 5s. shares have come but from 17s. to 14s. to yield 4 per cent. on dividends and 104 per cent. on earnings. The 20 per cent. convertible prefer- ence shares of 5s., to which I have previously called attention, can be bought at 18s. to yield 5.6 per cent. They are convertible share for share into ordinary at the end of 1963 and 1964. Another good component share is ASSOCIATED ENGINEERING, which, with CLIFFORD MOTOR COM- PONENTS, is making a bid for its rival SPECIAL- LOW, makers of aluminium alloy piston rings and power couplings. Associated Engineering makes piston rings for cars and lorries as well as parts for generating sets, compressors and pumping equipment. It already has subsidiaries in France and Italy. Clifford Motor makes steer- ing-wheels, valves and valve gear. A purchase of Associated Engineering 5s. shares at 12s. 9d. to yield 5.2 per cent., and Clifford 2s. shares at 7s. 10fd., to yield 6.2 per cent., should turn out well.
Convertibles
Another attractive convertible is the new PLESSEY 5 per cent. loan stock, 1971-74, which has been issued in part-satisfaction for recent acquisitions. Dealings started this week at 99. Conversion into the ordinary at the equivalent of 45s. 14d. can be exercised on December 31 in any of the years 1962 to 1965. Plessey is a well-managed company in the electronic indus- try with a fine growth record. It will take time to digest the two acquisitions-Automatic Tele- phone and Ericsson Telephone-but its long- term prospects are promising. The shares have been as high as 45s. 14d. this year and 61s. 6d. last and are now quoted at 40s. to yield 3.7 per cent.
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