Evening star., 1931-05-23
Buying for Profit
BY GEORGE T. HUGHES.

For giving prompt and detailed IN
formation as to its operations, the
model industrial company Is the United
States Steel Corporation. If other or
ganizations were as punctilious about
furnishing facts and figures as to their
financial position and trade outlook
shareholders would have no reason to
complain. That is one argument in
favor of the securities Of the Steel Cor
poration and one explanation of their
popularity.
Not only is the annual report replete
with informatory statistics, but quar-
terly statements are made regularly.
These contain not only the net earn
ings after expenses and taxes, but the
amount written of for depreciation and
the deductions for bond interest. The
former of these items Is of great i'm
portance. The total may be compared
with that of the same period in other
years and the percentage of earnings
deducted for depreciation readily ar
rived at.
1t takes only an average familiarity
with financial statements to read and
understand the reports of the Steel
Corporation. In addition, the company
makes public once a month the amount
Of its unified orders and these may be
compared with the same items the
month before and the year before, CIV
ing a line on the trend of the business.
Other information Of value available to
those interested Is the proportion of
Steel common and Steel preferred held
in the names OF brokers, compared with
that held by investors. These figures
give a line on the floating supply.
1t is the rule, although there have
been exceptions, that the number of
stockholders increases as the price of
Steel common declines, and vice versa.
Any deviation from this distribution is
of significance. Once a year also the
names Of the largest shareholders, with
the amounts owned of preferred and of
common, are made public. Finally, the
steel trade journals give weekly an es-
innate OF the percentage of capacity at
which the Steel Corporation is operat-
ing. The result Is that Steel stockhold-
ers, actual or prospective, have all the
information essential to chart an intel
ligent course.
In these days of trade depression, of
falling prices for securities and of divi-
dend reductions and omissions, investors
are ultra cautious. They want nothing
but the most conservative holdings and
even in bonds only the very highest
grade is acceptable. Because of the
widely advertised troubles of the rail-
roads the preference is now given to
public utility mortgage obligations. A
few suggestions then as to methods of
analysis may be in order.
In the first place, the bonds of the
operating company rank above those of
the holding company 1t used to be said
Of railroad bonds that they were good in
proportion as they were near the rails. "
BY that was meant the mortgage posi-
ton Of the bond, how many prior liens
there were. Similarly 1t may be said OF
public utility fixed charge obligations
that they are good in proportion as they
are near the power house"
In general way, therefore, the bond
which is mortgage-secured on tangible
property With the first claim on earn
1ngs Is the best. There is one qualif1ca-
tion, however, and that relates TO the
question of marketability. Even the
operating companies are as a rule the
resultant of various consultations and
among their mortgage bonds will be
found in many cases issues secured on
property OF subsidiary. AS far as Sc
curity goes, these underlying bonds
take preference over all others, but be-
cause they are usually outstanding in
relatively small amounts and usually
unlisted they have a poor market. This
Is particularly true of odd lots.
An investor who can afford to buy 10
or 20 or more bonds need not worry
about this feature, but the small cap
italist who has only one or two and
wishes to realize will often have TO shop
around for some time and perhaps make
a price concession before he can sell.
Such would do better to buy general
mortgage bonds subject to the prior lien
CT these underlying issues because OF
the greater ease with which the former
can be disposed Of.
(CopyHAsht ls3i.)