WISE INVESTMENT

As I suspected, the rarying point for gilt-edged stocks had almost been reached when I wrote last week. Selling ceased- abruptly as soon as " par plus accrued interest " was practically realised as the price of War Loan; and subsequent buying has enabled the market to straighten out its line somewhere well in advance of the ground occupied during the worst stage of the decline. The market will remain uneasy for some time, but is gradually recovering its sang-froid. My own guess— it cannot be more—is that quotations will settle down around current levels, with War Loan standing close to 103 and Old Consols between 77 and 78. The adjustment this implies should not be heart-breaking for gilt-edged holders.

Having recovered its breath, the Stock Exchange has now had time to sort out its ideas about the new outlook for high- class industrial shares and, to judge from the rally in quotations, second thoughts have proved less disturbing than first fears. British Oxygen, Imperial Tobacco, Turner and Newall, Cour- taulds and most other sturdy leaders of the industrial ordinary share market have rightly attracted bargain-hunters. In the case of British Oxygen and Turner and Newell, particularly, the dynamic aspects of the business, implying big earning potentialities, are so apparent that to regard the ordinary shares as stable dividend-payers subject to money influences is un- imaginative and incorrect.

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RAILWAY PRIOR CHARGES If I am right in surmising that gilt-edged stocks are about to acquire a new stability on a yield basis of roughly 31 per cent., then it is time for investors in search of income in the industrial prior charge market to think about making their purchases. Prices in many cases have tumbled even more precipitately than those of gilt-edged, especially in the home railway section. Here is the story of the recent fall of the four " blue chips " of the railway prior charge market :

Current

Price Jan. 4, Present yield

price. 5937 0/ /0

£ s. d.

L.M.S. 4 p.c. Debentures 1031 1 rol 3 18 0 Gt. Western 4 p.c. Deb. io6 1181 3 16 o Southern 4 p.c. Deb. .. 105 1161 3 16 9 L.N.E.R. 4 p.c. Deb. 104 - 107}. 3 18 6 The cover behind the interest is in each case so ample that these stocks justly rank very little behind gilt-edged in point of security. The Southern and Great Western Debentures are trustee securities, but the L.M.S. and L.N.E.R. issues do not enjoy trustee status. Except when the status question is pnportant, all four stocks may be regarded as of equal merit.

In a more speculative category, but distinctly attractive for investors who can afford to venture rather further afield to obtain a higher income, are L.M.S. 4 per cent. First Preference, and also the 4 per cent. 1923 Preference. On the basis of last year's net revenue, which I anticipate will be at least main- tained, despite increased expenses, in 1937, the dividends on both these preferences were amply covered. At 831 L.M.S. First Preference yields £4 z 5s. 6d. per cent. The 1923 Prefer- ence, at 76, returns £5 5s. 3d. per cent.

• * * * * A CANADIAN FLEXIBLE TRUST Do you dislike carrying all your eggs in one basket ? If you do, and also believe in Canada's industrial future, the Canadian Investment Fund should make some appeal. This is a flexible trust, under good management, specialising in Canadian shares. The Royal Trust Company, of Montreal, holds the assets, and the managing company maintains an active market in the shares of the Fund at their net asset value. The Fund began life in ;932, well in advance of Canadian recovery, the shares, of a par value of r dollar, being issued at 24 dollars. The present quotation is 51 dollars, the break-up value of the Fund having more than doubled in five years. Dividends have been paid quarterly since May, 1933, and the total distributions amounted to 14 cents per share in 5935 and i6 cents in i936. On last year's dividend, therefore, the shares yield just over 3 per cent. . The portfolio, details of which are sent to shareholders every quarter, normally consists of about 35 representative Canadian common stocks, a few high-grade American common stocks and a leaven of Canadian preferred shares and bonds, while shareholders have the right to present their shares, if they wish, to the managing company for _repurchase at the liquidating value at the time. Canadian stocks have already risen con- siderably this year, but as I have indicated in recent notes, the possibilities of further improvement are by no means ex- hausted. This Fund seems to me to offer quite a useful means of acquiring a stake in Canadian recovery without incurring undue risks.

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A METAL MERCHANT'S SHARE The Throgmorton Street toboggan in base metal shares is making some exciting runs but, promising as the prospects may be, I feel reluctant to invite the ordinary investor to take a seat. A less exhilarating but more comfortable method of participating in the activity in metals is to buy the shares of the Amalgamated Metal Corporation. This is_a holding company, owning the capital of the British Metal Corporation and Henry Gardner and Co., two of the largest metal and ore merchanting firms. The business consists mainly in the marketing and distribution of base metals and ores, and is obviously enjoying a very considerable increase in turnover. For the year ended March 31st, 1936, when metals had scarcely begun their big rise and activity was not at a high level, profits rose from £277,623 to £322,956 and the ordinary dividend was raised from 5 to 6 per cent.

The next accounts are due in April and will reflect only partially the improvement in metal markets. I am confident, all the same, that profits will show a substantial increase and that the dividend will be raised to at least 74 per cent. The indicated yield on the £i shares, now quoted at 34s., is therefore about 41 per cent., a reasonable return in the light of the dis- tinctly favourable prospects for the current year. A holding in Amalgamated Metal shares is also an indirect method of acquiring an interest in rubber, as the Henry Gardner subsidiary carries on an important trade in rubber as well as in metals.

Venturers' Corner

If, as I anticipate, there is to be an acceleration of the Govern- ment's road-making plans, there should be speculative possi- bilities in the shares of companies engaged in the road materials business. Of these undertakings the old-established William Griffiths and Co. seems to me to be in an interesting position. This company carries on business as quarry masters, stone and granite merchants and contractors, and also has works near Canterbury for the manufacture of concrete sewerage pipes and other cement products. Before the depression it regularly paid a 121 per cent. dividend on its los. shares and earned a good deal more. Between 1932 and 1934 earnings contracted when construction work fell off, but a 5 per cent. dividend was paid. Only in the year ended October 31st, 1935, was a divi- dend omitted, when profits, which had ranged between £17,000 and £27,000 before the slump, fell to £1,730.

The latest accounts, covering the year ended October 31st, 1936, already mark the beginning of recovery. Profits have improved, in spite of keen competition and low selling prices, to £7,958, and dividends have been resumed with a payment of 5 per cent. Quoted just under their par value the iris. shares are therefore offering a yield of rather more than 5 per cent., with quite a chance, I imagine, of a gradual rise in divi- dends over the next few years. The company has a neat balance-sheet, the total assets of £252,476 including nearly £5o,000 in cash and gilt-edged stocks. -

CUSTOS.

[Readers' enquiries, or requests for advice, regarding particular shares will be answered periodically as space permits. Cor- respondents who do not desire their names to appear should append initials or a pseudonym to their questions. Replies to correspondents appear this week on page 448.]