Show BUSINESS ind and the thi STOCK MARKET by BABSON'S REPORTS INC Copyright fl 1973 Tho The Magic Returns to Chemicals The phasing out of marginal and obsolete ob 0 obsolete solete cutting cost reducing or personnel trimming in basic bas bass ic research and renewed emphasis on immediately marketable products were all basic factors in the recovery affecting the chemical Industry in 1971 and 1972 Such stress on practical business management management man mans coupled with selective price boosts in some strong sectors and price in weaker areas reversed the ominous downtrend which had led to widespread with the industry as a whole Overall the che makers have been buoyed by a a. a strong demand for both basIc and nd specialty items decreased competition from petroleum companies and an an almost zero market entry by newcomer For the first time in many years demand is outpacing supply The Research Department of Babson's Reports Reports Re ports sees the chemical industry as being in a a powerful new upswing aided by a robust US U.S. economy All Records Shattered in 1972 1912 Breaking all records last year chemical chemical che che- mical producers scored gains in sales earnings and productivity Output of major industrial chemicals and synthetics synthetics synthe tics was up about 14 percent Sales actually act act- actually grew more rapidly than the Gross National Product Most significant of all profits were up more than 20 per per- the cent largest gain in 10 years These advances exceeded the term long average aver age trend f for r the entire industry The comeback begun in 1971 and since has accelerated-has convinced the doubters that the making of chemicals has not yet turned Into a stodgy commodity commodity- type operation with little growth In fact fact a major feature of the performance performance mance in hi 1972 and into 1973 has been the resurgence of pf many products which had been showing relatively little or below be be- low low average average growth in in inthe the years just before Phit Ph Phase II A Further Blessing Although many chemical stalwarts were still far from bumping up against Phase II ceilings on on profit margins in 1972 the probability of such a happening in 1973 was developing But Phase II provides somewhat greater flexibility it now seems to the Babson Staff making it easier to prevent price adjustments more so than under Phase II at l least ast In the absence of mandatory controls producers should be able to hike prices on those products which have been in short supply Specifically companies the option of making 1971 one of the two base years and an average price increase of 15 percent is now permitted without regard to the profit margin test With industry shipments slated to ad ads advance vance by 15 percent in 1973 operating rates by 86 percent or more and capItal cap caps ital spending also on the rise experts foresee profit margins reaching the 1966 record again Babson Investment Candidates Candidate For the majority of stocks of chemical chem ical companies we are currently advising ad ads a Hold position The Babson Staff does does however consider that Culligan Culligan Cul Cul- ligan International Monsanto Company and Corporation are worthwhile worth while recommendations for new commit ments merits At present all three are selling at relatively low price earnings multiples multiples mul on the New York Stock Exchange Culligan holds a prime position in the water treatment equipment field and is expected to increase earnings materially for the 1973 fiscal year ending April 30 bolstered by quickening European operations Monsanto is a well well well-diversi diversi fied fled producer with earnings slated to advance sharply this year The company com corns pany has succeeded In making cant inroads on many markets which should make for revitalized growth Penn Penn- walt is a leader in chemicals pharmaceuticals pharmaceuticals pharmaceuticals phar- phar dental products and and specialized specialized instrument equipment Manage Manage- Managements Management's Managements Management's ments ment's ent's programs to reduce costs and restructure its operations should be translated into higher earnings for the present resent year |