Evening star., 1929-01-03

a new year." He points out that with
British restriction abolished rubber can
find its proper economic level for the
first time since 1922 With the price
of rubber close to production costs, low
er prices are improbable.
In addition to the favorable price
situation demand for tires has increased
rapidly in recent years, increasing $50
per cent since 1921, and forging ahead
rapidly in 1923 with the prosperity of
the motors. If 100000 automobiles
are produced this year. as predicted
further rapid increase in tire sales is
indicated. Prosperity for the tire in
dustry seems assured.
Present Earnings Determine Prices.
Four of the leading rubber company
stocks are shown on the chart. which
is constructed SO that percentage
changes are shown, with allowance
made for the fact that some stocks
are low-priced and others high. Since
the June break Goodyear has had the
greatest percentage rise, with Fisk Sec
ond and Goodrich a close third, and
United States tagging behind in the
improvement. At the prices shown on
the chart United States is selling at
IL times average earnings over the past
six years, Fisk. times: Goodrich, 1873
times. and Goodyear, q times. Thus
on the basis of past earnings, United
States and Fisk are selling lower than
the others.
The prices at which these stocks are
selling are more in line with last years
earnings estimates, for Goodyear is es-
timated about ST. Goodrich, around 81,
while Fisk and United States show a
slight loss. Some consider, however,
that the market is paying too much
attention to present earnings, which,
because of the different ways in which
these companies handled inventories,
are not SO significant as would appear.
Different Accounting Methods.
While all companies in the first half
of 1923 took heavy losses by writing
down the cost of crude rubber to mar
ket prices, only Fisk and United States
followed the unusually conservative
practice of also writing down goods in
process as we'll as finished articles.
Both of these companies, therefore,
showed heavier losses, but, on the other
hand, they should find the sale of those
goods more profitable. While the
heavier losses taken by these companies
are more theoretical than real, they
are reflected in published statements
and the prices of their stocks declined
more sharply than Goodrich or Good
year. Today, however, they should be
in an excellent position to show earn
ing power in the future.
All of these companies have large
amounts of bonds and preferred stocks
outstanding which must be taken care
of before dividends on the common can
be expected. Recently they have been
readiusting their capital structure to
make them more flexible. While bonds
and preferred stocks are burden when
the industry is depressed, they are an
advantage in prosperous times, for COM
mon stockholders do not have to share
the large profits.
Merger Talk.
There is considerable talk of mergers
in the tire industry. Recently much
has been said about Litchfield-Dillon-
Rad interests vying with Soldering
Davis-Otis interests for control OF
Goodyear, and the recent sharp ad-
vance of the stock lends color to this
gossip. Some believe if the latter group
wins control it will attempt to merge
Goodyear with Seiberling and United
States in which the du Points are said
to be taking an active interest.
(Copyrght. 1927