Return of the Bulls

"There appears to be justification for 'sensible' bullishness," reported Herbert H. Weitsman of L. F. Rothschild & Co. last week. This cautious appraisal illustrated Wall Street's changing mood. Only a month ago, traders sat in their storm cellars, waiting for the market squall that would knock stocks lower and lower. Since then, noticing patches of blue in the sky, they have gradually emerged. Most Streeters last week felt that the market was not going to take a hard fall, and may even be headed for a strong summer rally. Last week the market rose for the fifth week in a row, picked up 4.2 points to close at 628.98 on the Dow-Jones industrial average.

Wall Street's change in mood was caused by the fact that so far this year stocks have twice rebounded strongly after piercing the 600 mark on the Dow-Jones industrial average, leading Streeters to believe that that was probably the market's low for the year. Equally important, Wall Streeters were beginning to have doubts about the coming "1961 recession," a cliche believed in a few months ago as if it were an established fact. What gave them pause was the steadiness of the economy, the prospect of more defense spending, and easier credit engineered by the Federal Reserve.

Positive Dynamics. In this atmosphere, Wall Streeters are finding more and more use for one of the Street's most overworked words: selectivity. (The current definition: "Selectivity means that the stock you own goes up.") The best example of "selectivity" is the remarkable performance of the glamour, or growth, stocks. The blue-chip stocks included in the Dow-Jones average do not really reflect what has happened to these stocks. For months the blue chips have in general shown little or no gain, and many have lost ground. In the past year Standard Oil (N.J.) has dropped from 51 1/4 to 40 3/4, Du Pont from 25 3/8 to 204 3/4, General Motors from 50 3/8 to 44, Anaconda from 63 3/4 to 50. While the blue chips have been down, many of the growth stocks have been really scooting (see chart).

Growth stocks are not confined to missiles and electronics, also include such varied fields as drugs, office equipment and vending machines. Over the past year, Texas Instruments has jumped from 121 to 236 1/2, Merck from 79 to 95, Universal Match from 74 to 157 3/4 after one split. Even the blue chips that have picked up some glamour have been doing well, such as IBM, Minnesota Mining & Manufacturing and General Foods. Compared with the traditional price-earnings ratio of 16 to 1 for the blue chips, many of the glamour stocks are selling at up to 70 times earnings.

Wall Street has been mesmerized by the growth stocks' promise of future earnings and it is willing to pay a premium to get them, especially since their capitalizations are often comparatively small. The blue chips, with a huge number of shares outstanding, are viewed as high priced for the future growth opportunities they offer. General Motors, for example, with 284 million shares outstanding, has to earn $284 million in order to make another dollar per share.

Glamour Millionaires. Besides piling up capital gains for investors, the growth stocks have also created a new class of millionaire among the executives who head the companies. Texas Instruments' Chairman J. Erik Jonsson owns 381,132 shares now worth about $90 million. Charles ("Tex") Thornton, president of Litton Industries, bought his original stock at 10-c- a share, has seen it go to 82 3/8 after one split and a stock dividend, now owns 292,820 shares worth $24 million.

Some Wall Streeters fear that the growth stocks, by their headlong rise, have already outrun their future. Even such a fervent apostle of growth as Sam Stedman of Loeb, Rhoades has his doubts; last week he sent out a memo warning that some glamour-stock prices were too high, advising caution in buying them. So last week many an investor took a second look at the stodgy old blue chips. Gains were run up by motors, oils, coppers, rails, utilities, and even by steels, which led the market after the industry cut steel production to the lowest point in nearly two years. Apparently Wall Streeters figured that the only direction in which the steel industry could go was up.

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