Weakness in Cans

Even in a stock market buoyed with business recovery and inflation prospects, it is possible for the unwary investor to get his fingers burned. If, for example, a market-follower had bought 100 shares of American Can on Oct. 22, 1935, he would have invested $14,962. A corresponding flyer in Continental Can on Nov. 20, 1935 would have cost $9,925. As last week's market closed, 100 shares of American Can were worth $12,300 and 100 shares of Continental Can were worth $7,900. On the two investments, the buyer would be out $4,687. Yet last week's market averages stood above their 1935 high point. Entrance of Owens-Illinois Glass Co. into the tin-can business (TIME, Feb. 3) was one reason cited for weakness in can stocks. But Owens-Illinois has thus far gone into cans in only a small way, and both American and Continental commonly tie up their large customers with long-term contracts. A more reasonable explanation was a downward revision in estimates of American Can's 1935 earnings. American Can had been figured to make almost $7 a share. More recent estimates pared prospective earnings to $6 or less, compared to actual 1934 earnings of $6.72. The price of tin plate (and therefore of tin cans) has not changed since the end of 1933, but in 1934 both the big can companies were selling at 1934 prices cans made out of 1933 tin plate. When the old inventories were exhausted, the differential ceased to exist. Continental Can, however, probably made about $4.25 in 1935 against $4.02 in 1934. Both can stocks were favorites in the 1935 bull market. At its 1935 top, American was selling at about 25 times probable 1935 earnings and its $5 dividend represented about 3.3% return on the cost of the stock. Continental sold up to about 23 times earnings and its $3 dividend gave the investor approximately 3% on his money. The ballyhoo over canned beer-- a novelty which will not really meet its test until the summer of 1936--gave both can stocks an added fillip of enthusiasm which has been modified on second thought. Barring a slump in the 1936 fruit and vegetable pack, the future would appear to hold no menace for the can business which stands high among the more stable and profitable of U. S. industries.

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