New-Issue Fever

In ordinary times, U.N. Alloy Steel Corp. would scarcely be a phenomenon to excite Wall Street. Even though the ten-year-old, Boston-based firm, which imports and distributes Japanese and Austrian specialty steel products, showed an 18% return on its invested capital, its profits last year reached only $315,529. It operates with seven warehouses and 30 salesmen. Yet last week, when Alloy Steel brought out its first public issue of common stock, eager buyers not only snapped up the entire 358,150-share offering at $10, but bid the price up to $19 a share in the first hour of trading.

Monarch Industries, a Middlebury, Ind., manufacturer of mobile homes, met an even stronger reception: from an issue price of $6.50, its shares rose nearly 200% to $19 by week's end.

Over the past few months, the investment community has been gripped by a new-issue fever rivaling that of 1961-62. Through the end of May, 156 U.S. companies put their stock on the over-the-counter market for the first time, nearly triple the number that went public during the first five months of last year. By the end of last week, about a third of those new issues had doubled in market value.

Entranced by Tomorrow. "Investors are looking for the Xeroxes of tomorrow," explains Raymond Kiernan, vice president for over-the-counter trading at Merrill Lynch, Pierce, Fenner & Smith. As a result, much of the new-issue surge involves computer soft ware and leasing companies, whose prospects for future growth entrance many buyers. Last month Advanced Computer Techniques Corp. soared from $7.50 to $29 a share the day it was issued. Underwriters are still gasping over the performance of Educational Computer Corp., a manufacturer of teaching devices. From an offering price of $7.50 on March 7, the company's stock has shot up to $85 for a 1,033% gain.

The new-issue fad has also spread heavily to franchising chains and medical-service firms including convalescent homes. The stock of year-old Minnie Pearl's Chicken System Inc., a Nashville-based franchiser of fried-chicken outlets, has jumped from $20 to $44.50 since it was issued May 1. American Medicorp Inc., formed in January to buy and run hospitals (it now owns three), last month brought out a 345,000-share issue at $20; last week it was selling at $43.50. Superior Surgical Manufacturing Co., a textile firm that makes white garments for both doctors and bakers, has climbed from $11 to $18 over the past month. Sun-Glo Products Corp., a producer of Christmas-tree ornaments, has nearly doubled in price, from $3.50 to $6 a share.

Even companies operating in the red have been able to cash in on the trend. Despite losses of $10,679 last year (on sales of only $36,068), Manhattan's Applied Synthetics Corp., a maker of plastic bags for phonograph records, last month successfully floated a 260,000-share issue at $1.75. By last week the stock was up 229% to $5.75.

Speculative Worries. During the last new-issue spree in 1961, small investors were seized by a mania for almost any company with onics in its name--and thousands were burned when the stock market collapsed in 1962. Many brokers contend that the average caliber of companies bringing out stock this year runs considerably higher. Still, there are worries. In a "thin market," the price of speculative securities can plunge as swiftly as it can rise.

The Federal Reserve Board recently showed its concern by asking Congress for power to limit stock buying on credit in the over-the-counter market. Such margin requirements have long applied to the nation's securities exchanges, and at week's end the Reserve Board tightened them further. For stocks the maximum loan was cut from 30% to 20% of the purchase price; for convertible bonds the loan ceiling dropped from 50% to 40%. By its action, the Fed strove to curb speculative excesses where it can, and thus to help keep the stock market on a more even keel.

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