WALL STREET: Every Man a Capitalist

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Among the top specialists: ¶Robert L. Stott, 54, partner in Wagner, Stott & Co. with stocks of 18 different companies (Union Carbide, Gulf Oil, National Steel, J. P. Stevens, etc.). ¶William Meehan, 41, head of M. J. Meehan & Co. with 25 stock issues (RCA, National Cash Register, R.K.O., Deere & Co., etc.).

¶James Crane Kellogg III, 40, senior partner in Spear, Leeds & Kellogg, Wall Street's biggest specialists firm with 55 stocks (American Airlines, Boeing, General Tire, Union Oil, etc.), who put up $618,000 for 25,000 shares of American Airlines alone to support the market during the cardiac break, at one point was $163,000 in the hole. ¶John Coleman, 53, head of Adler, Coleman & Co. (53 stock issues, including American Tobacco, Armour, Motorola). ¶Benjamin Einhorn, 48, partner in Astor & Rose, which handles Sperry Rand and 14 other stocks.

Up Dividends. Looking at 1955's stock market, Wall Street's specialists think that it is based, to a large degree, not on speculation but on the present prosperity and the bright future of U.S. business. For the first half of 1955, corporate profits after taxes hit an annual rate of $21 billion, 162% better than 1929. And the forecast for the second half year is even better: profits of $23 billion, well over last year's figure and almost equal to the 1950 record. On the basis of sales and earnings, many stocks are not regarded by Wall Streeters as too high. The price-earning ratio which economists use as a barometer of market health shows Moody's industrials priced at 13.6 times annual earnings v. 17.3 times earnings in 1929. Furthermore, investors are getting the biggest returns ever; dividends will reach an estimated $11 billion by year's end, $1 billion better than 1954, $5.2 billion better than in both 1929 and 1946, when the World War II bull market ended. However, there is little doubt that some stocks are too high in relation to earnings and dividends. Stock-bond yields i.e., the rate of dividends on a stock v. the interest rate on a bond, have been narrowing steadily (see chart), are now only 1% apart. Thus, in a high market with lower stock yields, investors have normally tended to shift away from stocks, buy bonds for added security, and thus start the market down. In the current market, some 100 of the 958 dividend-paying stocks on the Big Board are paying less than high-grade bonds, e.g., I.B.M. (at 399½), Du Pont (at 237), Amerada Petroleum (at 87¼).

But many brokers question whether the fact that stock yields are close to bond yields will cause much of a shift into bonds. High income taxes have discouraged buying for dividends alone; many investors are buying more for growth and capital gains, thus are willing to purchase stocks that are selling for 20 and 30 times earnings, although a stock that sold for 10 times earnings was once considered about right.

Actually, the scramble for blue chips, which are the stocks chiefly used in the averages that measure the market, has made the overall market look higher than it is. Many lesser-known stocks have had only a modest rise and many have even fallen. Last week, 38 stocks were at their lows for the year, and others were from 10% to 30% below their bull-market highs.