Evening star., 1924-12-14
RA|LR0AD:ST0CKS
GR|PATTENT|ON
& '~N
Danger Seen in Expecting
Weak Issues Suddenly to
Turn Strong by Merger.
CHANGES TO BE GRADUAL
Uncertainty Over Money Bates
Vital Factor in Past
Weeks Markets.
CHANGES TO BE GRADUAL
BY GEORGE r. HUGHES.

BY GEORGE r. HUGHES.
Special Dispatch to The Star.
NEW YORK. December 1S.-Rail
way securities have again held tn.
center of the stage In this weeks
investment market. For the mos,
part 1t has been speculative oblixa.
ttons. in which interest has been con.
centrated
Probably the most important de.
velopment was the giving Of consen,
by the Interstate Commerce Conmis.
sion to the acquisition by the Mis-.
souri-Pacific OF the New Orleans
Texas and Mexico. This was in accord
with the commissions tentative plan
Tor consultations and It might have
been expected that approval would be
given. but until the decision vas &C.
tually rendered the financial commu.
nifty did not feel at all certain about
the outcome The Importance OF this
decision is that II seems TO point tc
favorable action on some Of the other
combinations now being planned, OF
which the most important Is the
Nickel Plate group.
Investments Need stady.
The result was to stimulate buyina
or the various obligations Of the
roads concerned in this and other con
soiidatlons. There Is great danger
ner that speculative enthusiasm will
30 too far Economies In operation
and increasing TRAFFIC may reason.
ably be expected from these voluntary
mergers, but in the last analysis the
investment merit Of, any security
rests first on the value Of the prop
eTty, on which. 1T, La. a lien. and eec-
ond on its earning power. These
fundamentals are too often overlook
ca by those who assume that when
you marry q weak road to q strong
road"the securities Of the former are
at once raised to the investment plane
or the latter.
ACCOMPANYING the. discussions al
ready under way there have been
many rumors OF others; In prospect.
whether true or false, such rumors
help along speculative movement,
but the prudent investor will be wary
about going along with the current.
ihis Is not meant to minimize the i'm
portance of the very real improve
ment in railroad conditions. Taking
tho class l railroads. operating reve-
nues for October showed a decrease
OF 90 per cent under the same month
q year ago. 100 ~-.-..--
Operating Revenues Lowered.
.Operating expenses. however. were
feduced "a per cent under those for
Cctooer, 1873, SO that the net operat-
Ing income for all these roads in Oc-
tober was $127.1o5. 100, compared with
sio3.715.Io0 In October Of last year.
HnIs net operating income, by which
meant what Is left after the pay
ment of operating expenses, taxes and
e0alpment rentals. but, before inter
est and other fixed charges, was the
largest this October for any month
since August, 1918. On this basis an
upward movement In railway secu-
rifles Is entirely logical. It is a mis-
take, however, not to discriminate
between the prosperous and the non
prosperous between the strong and
the weak, just as it. is q mistake to
assume that mergers will work mira.
cles.
To illustrate the present condition,
there are number Of cases where raiI.
ROAD stocks are selling to yield no more.
ana IN few instances less than the
senior securities Of the same road. Rail-
road bonds Of assured investment status
returning from 5h to 6 Der cent have
been neglected to buy stocks which at
prevailing dividend rates and market
prices give the investor a smaller in.
come.
Shifting Sometimes Dnneeroua.
OF course. the explanation is-and
within limits 1t is q correct expisna-
tfon-that the market price OF the stocks
Is hxed not by the present dividend, but
what may reasonably be expected
iii the future, earnings considered. This
IS commonplace Of all speculation.
and yet 1t is exactly what. makes spec
ulation dangerous. The future does not
always turn out the way rosy. dreams
OF the spectators paint il. Meanwhile,
shrewd buyers may profitabiy pick up
the new neglected investment oblisa-
ttons. So =, :, = =
The investment situation with the
utilities Is veryssimilar to that In rail-
road securities. Sound utility preferred
stocks are to be had yielding from 81
to per cent, while the common stocks
OF the same utilities are being bid up
20 unheard-oS prices. justified perhaps
by reported earnings, but entirely un-
attractive from the standpoint Of pres.
ent income.
Preferred stocks Safer.
II the outlook is so bright and the
financial condition of these companies
is 80 strong as the quotations for their
common stocks would indicate, the pre-
ferred stocks are on the bargain counter.
True. the preferred stocks have limited
possibilities Of price appreciation, but
they are great deal safer.
Doubt as to the course Of money
rates has held Down quotations for
htgh-grade investments this week.
There Is not very much change In the
prices Of Government loans, but they
SHOW no tendency to advance. It is
rrostiy corporations and banks which
how hold Liberty bonds, and they may
bs expected to sell when and II they
need money In business. On the other
hand. the amount Of Liberties out.
standing is constantly being decreased
through operation Of the Treasury's
sinking fund. and II the quotations
should fall below. par the British gov.
eminent would at once come into the
market as the largest buyer. 80
No Worry Over Gsl1 Exports. :
sThe first mortgage rails OF the
szyangs bank type have not been 30
much affected by the signs OF hard
ening probably for the reason that
saving banks have no reason to sell.
There has been some buying by in.
sprance companies Of selected issues
AyefaGing around 5N per cent.
~ good deal OF attention is being
paid to the matter Of gold exports
which because of their influence on
thes money market would have an
e6ect upon all those hiIh.grade
bSnds. There Is as yet no indication
OF exports In sufficient volume to
Nuke any great impression upon our
GfAAt gold surplus.
5Eepynsht. 1924. b. ConssltdatsA rress.,
!, FAVOR STOCK SILIT.UI.