Surprise in Utilities

Like Rip Van Winkle, utility preferred stocks last week snapped out of a long nap. In the stockmarket they started climbing briskly on greatly increased trading volume. At week's end the senior shares of American & Foreign Power were up two and three points to new 1942 highs (double the year's lows); Electric Power & Light preferreds had jumped five and six points; Electric Bond & Share preferreds were up more than six points; Empire Gas & Fuel 8% preferred topped a phenomenal rise with eight more points to hit 166 7/8 -- an alltime peak and nearly double the year's low. Not since late 1940 have utility stocks (common or preferred) shown any mildly comparable get-up-and-go.

For last week's strength Wall Street had two pat reasons: 1) most utility stocks are undervalued on the basis of assets and earnings; 2) the SEC's recent dissolution orders (under the "Death Sentence" Act of 1935) may eliminate enough corporate red tape and legal flimflam to enhance the value of outstanding preferred shares.

On point No. 1 there is little doubt. Although total U.S. power output has doubled since 1929, utility common stocks are 90% below the 1929 peaks, are 35% under the 1932 depression lows. Some utility preferred shares sell at two times earnings, yield 10-20% at present dividend rates.

Point No. 2 is a speculator's book of dreams. Nobody knows how long it will take to break up the utility holding companies, who will buy the underlying operating companies or how much they will pay. An example of the dream possibilities is Electric Bond & Share (with five associate companies and over 40 subsidiaries) which the SEC wants to break up. But before E.B. & S. can do so, it must collect $27,925,000 due from its affiliate Electric Power & Light (which has nine subsidiaries); and E.P. & L. must collect the money from its subsidiary United Gas (which has seven subsidiaries). And before either of these sub-holding companies can pay up--combined cash on June 30: $10,314,000--they must acquire cash by selling some of their subsidiaries to somebody. This particular x-dimensionAl dream whirls so fast that even top-notch utility experts are dizzy.

Black market gasoline rationing coupons were quoted by the Wall Street Journal at 4-c- a gallon. Lively trading was reported.

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