All investments carry some risk, but there are some industries that are more susceptible to collapse than others.
What are the "less-stable" groups? And why? In a boom such as the present one, which has shot many stocks to all-time highs, it is difficultand possibly misleadingto stigmatize any particular stock category. Still, some fairly acceptable generalizations can be made. Railroads, most machine-tool and agricultural-equipment manufacturers, autos, aircraft, building-trades suppliers, many metals all these would have to be graded below the best. These are not necessarily unstable industries, but they may be subject to seasonal cycles, limited to a somewhat narrowly based market, or prone to special problems that are in the nature of the business.
Everyone knows, for instance, that the future of the railroads is cloudy. High tax burdens, the costs of labor, maintenance, and new equipment, unprofitable commuter lines, and the inroads of truckers and airlines on freight business have many rails in deep trouble and make their stocks somewhat chancy investments.
The weakness of a generalization, of course, is that it is so general. It is quite conceivable that many investors would prefer to have a piece of a well-managed, steadily productive railroad such as Atchison, Union Pacific, or Chesapeake & Ohio than of a B-rated utility. Perhaps the way to make the point is to say that while there may be exceptions, the likelihood is that more good stocks will be found among utilities than among rails.
Agricultural-machinery manufacturers are necessarily tied to farm prosperity. Reapers, binders, harrows, and tractors move slowly when the prices of wheat and corn are down. Machine toolsthe great cutting, drilling, stamping, and rolling rigs that shape and form Alcoa's aluminum sheets, Ford's fenders, and Inland's I-beams, as well as every other patterned metal part in industryare, for all their importance, cyclical items. And so are the raw metals they work. Copper, aluminum, steel, and the rest all are stockpile items, subject to the ebb and flow of business.
Steel companies historically are among the first to feel the pinch of recession. Steel users are inclined to rest on their inventories at the first signs of trouble, and, certainly in years past, the automatic reaction of the steelmakers has been to bank their furnaces. Steel, of course, is a prime material. It is employed essentially to make new things. A poor year in automobiles will hurt the steelmakers, while the petroleum industry, for instance, can make a profit selling gasoline for cars in being. Steel has also lost some ground to plastics, particularly in the toy field and in sheathings for various products. On the other hand, it is acquiring new business through the rising demand for specialized alloy steels to withstand the high temperatures and stresses of the rocket and missile age. On balance, the prospects for income in steel are somewhat less sure than in a number of other industries and this is reflected in the record of consecutive dividends. Except for National and Inland, the steel companies do not have an impressive record for consistent, long-term payments and cannot be considered unfailingly top-grade investments. Their attraction lies in the fact that when they hit, they frequently hit big.
Automobiles are a necessity subject to cyclical swings. Since much buying is artificially induced (it is not based on absolute need), any stringency in the economyas we saw in 1957or any shift in buying moodas, for example, away from big carsmay tempt the public to go another year with the old bus, or buy a Volkswagen, and thereby put a serious crimp in automakers' profits. And as go the automakers, so go the manufacturers of sub-assemblies and accessories.