Remembering the Obvious http://www.rememberingtheobvious.wordpress.


The Security I Like Best
A continuous forum in which, each week, a different group of experts in the investment and advisory field from all sections of the country participate and give their reasons for favoring a particular security. (The articles contained in this forum are not intended to be, nor are they to be regarded, as an offer to sell the securities discussed.) PHILIP L. CARRET Partner, Granbery, Marache & Co., New York City Members, New York Stock and Curb Exchanges

American Maize Products With the stock market at or close to its 1929 high, depending on the average one uses, a certain degree of caution appears desirable in making selections. In the long run, the price of a stock depends on the earning power behind it and the dividend return to its holders. In a period of active business and high stock prices, a prudent investor will look for c o m p a n i e s whose future earning power seems reasonably assured by reason of inherent stability or special circumstances. One immediately thinks of food companies, public utilities, chain stores in the inherent stability group, companies with huge backlogs of government orders, aircraft manufacturers and others, in the second category. My own particular choice at this time is a food stock, American Maize Products, traded over the counter and selling around 19. With the single exception of 1949, the stock has sold above its present level in every recent year, reaching a peak of 33 bid in 1946. This might seem to indicate a sleepy management and a company sliding down hill. On the contrary, the company has an aggressive management and an expanding business. The business of grinding corn and selling the resulting starch, glucose, corn oil and animal feeds is inherently stable. The starch, corn sugar, corn syrup and corn oil are not only used directly by consumers but are important raw materials to bakers, confectioners, ice cream and vegetable shortening manufacturers. Non-food uses are myriad as in the manufacture of paper, textiles, soap, explosives and many other products. The profit margin is affected by many government interferences with the working of natural economic forces—sugar quotas, corn crop price supports, O. P. S. regulations and others—but the industry consistently operates in the black. Until a few years ago, American Maize Products had no brand- name product sold over retail store counters. It depended solely on bulk sales to other manufacturers. After* intensive product and market research, the company developed a pre-cooked corn starch pudding. Then began a major campaign for consumer acceptance of the new product named “Amazo.” This project was financed in 1948 with a $2,700,000 15-year term loan carrying a 3¼% interest rate. The struggle for the housewife's dollar is no penny ante game. For the first three years after Amazo was launched, losses were of the order of hundreds of thousands of dollars a year. To make matters worse, unrealistic price ceilings on animal feedstuffs cost the company further large sums in 1951. In the face of these losses, the business as a whole has consistently made money. In the 10 years 1942-1951, American Maize earnings ranged from $1.05 a share low in 1948 and $4.72 high in 1946. Average for the 10 years was $2.62 a share, amply covering the $1.00 regular dividend rate and such extras as were paid in the period. Book value of the 300,000 shares of common stock increased from $20.71 to $35.32 a share over the same period. Control of American Maize is held by William Ziegler and associates. Directors include so eminent a business leader as Donald K. David, Dean of The Harvard Business School, among others. The management has a vital stake in the success of the company, is obviously courageous and expansionist-minded. At the same time, President Sander and his colleagues believe in a tight-fisted financial policy. This is a fairly unusual combination of qualities. There are strong indications that Amazo has won the fight for market acceptance. When this product begins contributing to company earning power instead of draining it away, the long-run favorable possibilities for dividend policy and price appreciation would seem obvious.

Philip L. Carret

Remembering the Obvious