The Intelligent Investor_ The Definitive Book on Value Investing - Benjamin Graham [188]
TABLE 18-7. Pair 7.
These figures appear the more anomalous when comparison is made with those of Presto. One is moved to ask how could Presto possibly be valued at only 6.9 times its current earnings when the multiplier for General was nearly 10 times as great. All the ratios of Presto are quite satisfactory—the growth figure suspiciously so, in fact. By that we mean that the company was undoubtedly benefiting considerably from its war work, and the shareholders should be prepared for some falling off in profits under peacetime conditions. But, on balance, Presto met all the requirements of a sound and reasonably priced investment, while General had all the earmarks of a typical “conglomerate” of the late 1960s vintage, full of corporate gadgets and grandiose gestures, but lacking in substantial values behind the market quotations.
SEQUEL: General continued its diversification policy in 1969, with some increase in its debt. But it took a whopping write-off of millions, chiefly in the value of its investment in the Minnie Pearl Chicken deal. The final figures showed a loss of $72 million before tax credit and $46.4 million after tax credit. The price of the shares fell to 16½ in 1969 and as low as 9 in 1970 (only 15% of its 1968 high of 60). Earnings for 1970 were reported as $2.33 per share diluted, and the price recovered to 28½ in 1971. National Presto increased its per-share earnings somewhat in both 1969 and 1970, marking 10 years of uninterrupted growth of profits. Nonetheless its price declined to 21½ in the 1970 debacle. This was an interesting figure, since it was less than four times the last reported earnings, and less than the net current assets available for the stock at the time. Late in 1971 we find the price of National Presto 60% higher, at 34, but the ratios are still startling. The enlarged working capital is still about equal to the current price, which in turn is only 5½ times the last reported earnings. If the investor could now find ten such issues, for diversification, he could be confident of satisfactory results.*
Pair 8: Whiting Corp. (Materials-Handling equipment) and Willcox & Gibbs (Small Conglomerate)
This pair are close but not touching neighbors on the American Stock Exchange list. The comparison—set forth in Table 18-8A—makes one wonder if Wall Street is a rational institution. The company with smaller sales and earnings, and with half the tangible assets for the common, sold at about four times the aggregate value of the other. The higher-valued company was about to report a large loss after special charges; it had not paid a dividend in thirteen years. The other had a long record of satisfactory earnings, had paid continuous dividends since 1936, and was currently returning one of the highest dividend yields in the entire common-stock list. To indicate more vividly the disparity in the performance of the two companies we append, in Table 18-8B, the earnings and price record for 1961–1970.
Table 18-8A. Pair 8.
TABLE 18-8B. Ten-Year Price and Earnings Record of Whiting and Willcox & Gibbs
The history of the two companies throws an interesting light on the development of medium-sized businesses in this country, in contrast with much larger-sized companies that have mainly appeared in these pages. Whiting was incorporated in 1896, and thus goes back at least 75 years. It seems to have kept pretty faithfully to its materials-handling business and has done quite well with it over the decades. Willcox & Gibbs goes back even farther—to 1866—and was long known in its industry as a prominent maker of industrial sewing machines. During the past decade it adopted a policy