National Geographic : 1968 Mar
LET US BE YOUR INVESTMENT INFORMATION CENTER Food for thought from Merrill factors can move your stocks Every business day, 22 million American shareowners de termine the "value" of stocks. Reason: their decisions to buy, sell, or sit tight move prices up and down, or keep them steady. There are a myriad factors on which investors and analysts base their decisions - and thereby affect the prices of your stocks. Take a min ute now to scan five of the elements which appear sig nificant to Merrill Lynch ana lysts. Then clip coupon for results of their recent anal yses of any of the 28 major companies listed opposite. Leverage A brief explanation - and a word of caution Don't let Wall Street terms like "leverage" bother you. (If you've ever jacked up a car in anger, you know what leverage means.) In the market, a stock is called "high-leveraged" if the company is obligated to pay a large amount of bond interest (and/or preferred dividends) in relation to earnings. Example: if a company earns $600,000, and must pay bond interest of $500,000, it has just $100,000 before taxes available for dividends to stockholders. If the company has a good year, and earnings increase to $700,000, it still only owes $500,000 in bond interest, but has $200,000 before taxes available for dividends. Dou ble the amount that was avail able before. If the company has a poor year, and earnings drop to $500,000, it still owes $500, 000 in bond interest. There's nothing at allleft for dividends. With a high-leveraged company, even a small rise or fall in pre tax earnings may make a dramatic Clip coupon for our analysts' appraisalsof major companies. difference to the price of the stock. Up or down. Some speculators have made fortunes in high-leveraged stocks. Some have lost fortunes. Moral: don't play around with high-leveraged stocks-unless you can afford to lose as well as gain. Price-Earnings Ratio In line? Above the line? Or somewhere down the line? To get the "P/E ratio" for the stock that interests you, check the price in your newspaper, and the annual earnings-per-sharein the company's regular financial re ports. Example: your stock is selling at $30, and annual earnings are $2 per share. Price-earnings ratio: 15to1. The P/E ratio of any stock is only meaningful when you compare it with the P/E ratios of other stocks in the same in dustry. If other stocks in the same indus try as yours have a higher aver age P/E ratio (30 to 1, for in stance), there may be something about your company that requires further investigation. One possibility: the projected earnings-per-share (those antici pated for the current year, or even for next year) may be lower than those in the company's lat est report-and well-informed in vestors may be selling the stock. For our Research Department's earnings forecasts on more than 2,000 companies, stop by your nearest Merrill Lynch office. News and Rumors Plain or fancy, fact or fantasy? It takes a bold man to say with certainty whether the market is going up or down. (Only your barber knows for sure.) Merrill Lynch does not know for certain what the market will do. We spend millions of dollars analyzing the news, but the market makes up its own mind - every minute, every hour, every day. The market reacts not only to news, but to rumors. Rumors about a company's earnings, its management, its newest product. Sometimes these rumors turn out to be true. More often they are false. True or false, they cause some people to buy and sell. The result is that prices move up or down-because the price of every stock depends on supply and de mand. Suggestion forskeptics: If you'd like to check on what is behind the rumors, check with Merrill Lynch. Our analysts have a city editor's ear for hard news. We also have a network of 170 of fices around the world and 310, 000 miles of private wire. Result: we can get news to you fast.