The Wilmington morning star. [volume] (Wilmington, N.C.) 1909-1990, 1945-01-12
BABS0N IS WARY
OF RAIL STOCKS
By ROGER W. BABSON

BY ROGER W. BABSON
gASON PARK. Fla, Jan. IL.
Wall street is always to bea-Ish
or too bullish. These brokers are
honest, but very temperamental:
Two years ago, when railroad
stocks were selling for 80 percent
Of their present prices, the aver
age Wall Streeter would not touch
them. Today, at three times those
1912 prices, they are urging that
rails be purchased.
Many good things can be SAID
for the railroads. They have done
a wonderful job during the wa
and are entitled to much credit.
MANY of the roads, have reduced
their debt or now have large bank
accouncts. Also, they are beneflt-
ing from low interest rates. They
have a better standing with the
Government because they have
demonstrated they are essential to
winning the war. The United
States will henceforth protect its
railroads as part of any pro-
gram for military preparedness.
1t also should be remembered
that the railroads must, to some
extent, share with any prosperity
ahead. If we are to have a post
war national income of from Sl0O
to s12o billions year, the rail-
roads postwar gross earnings
must exceed their prewar earn
ings. This 1 believe is possible, but
I ask, Have the prices of most
railroad stocks and income bond
not already more than discounted
this?"
The gross earnings of the rail-
roads will, however, not increase
proportionately to the national in
come. The railroads will have
much more competition after the
war than before. The new great
pipe lines which have been built
will take away much Of their Oil
business. The resumption of both
coastwise shipping and river
transportation should materially
reduce the earnings OF such roads
as Atlantic Coast Line, Seaboard
and Illinois Central. Southern Pa
cific, Atchison and other transcon-
tinentals will suffer from the open
ing of the Panama Canal. Also
thew will have more airplane and
bus competition.
Most railroads are today in poor
shape physically. They must spend
billions after the war-not only
fire new equipment-but for MAR
tenance is being greatly neglected
today. Personally, 1 had much
rather buy the stocks of com
panies which sell equipment to the
railroads than to buy the stocks
of the railroads.
Some brokers claim that t h e
rairiads will profit from initiation,
but l don't see this unless they
get a greater increase in freight
rates. All these must be approved
by the I. c. c. and these bureau
Gratis act very slowly. Increased
rates seldom keep up to the in
crease in the prices of the hun
dreds of things which the rail-
roads must buy.
Imitation will result in higher -1iv-
ing costs which will mean that
railroad labor will demand in
creased wages. Railroad engi-
neers, firemen, conductors, freight
men. station agents and common
labor are well organized. AS soon
as the war is over they will de.
mand higher wages and will get
them. In fact, during peacetimes,
railroad labor has SKINNED tie
cream about as East as it rises,
leaving only the skinned milk for
Investors.
Although equipment concerns
and railroad labor profit from
large railroad gross earnings. yet
we may see such greater gross
earnings during the postwar peri
cd W h o u t investors proflting
therefrom. Investors are intersst-
ed only in what the railroads have
left as net earnings after the in
creaaes in the cost of LABOR, equip
n4ent, supplies, etc I now e
little chance for increased net
earnings. Most things point to low.
er postwar net.
Most holders of railroad stocks
admit that lower net earnings and
lower stock prices are ahead for
the rails; but 80 percent of in
vestors say: 1--WE will wait until
the war is over before selling .
reply: Tell me VINO is going
TO buy the rails when all you pres
ent holders try to cell at e
timer"
Begign now to unload rail stocks
and income bonds. Don't try to
'hit the top. The fellows who
buy from you must have some
chance for a profit in order for
them to risk buying rails. Don't
be a hog; but be satisfied with