DOW 3,000: The Investment Opportunity of the 1980's

During two decades--the 1920s and the 1950s--prices of the 30 blue-chip issues measured by the Dow Jones Industrial Average more than tripled; and Minneapolis investment advisors Blamer and Shulman contend, in this interesting If not wholly persuasive exercise, that the 1980s will be the third such occasion. Partly, they rely on the ""R-factor"": the corporate practice of retaining healthy chunks of profit for use in the business. Though the inflation-adjusted book (or liquidating) value of Dow stocks has grown significantly, their total worth discounts this benchmark by a margin wider than at any time since the Depression. During the go-go Sixties, Blamer and Shulman also note, equities were bid to levels appreciably above book values, leaving virtually no margin for error; further, today's premium-priced takeovers and corporate tenders for outstanding shares are very like liquidations. So they project a return to historically normative relationships--meaning that, if Dow stocks sell at 90 percent of their anticipated book value, the Industrial Average will indeed top 3,000 by decade's end. Applying the same sort of by-the-numbers logic to price/earnings ratios (what investors are willing to pay on the open market for $1 worth of reported income), the two optimistically expect a Dow multiple of 14 times. Also covered as plus factors are the latest reduction in capital-gains levies, the inflation outlook (B & S assume an annual eight percent average), the likelihood that pension funds will jump on the equity-investment bandwagon, and market psychology. Roughly half the text is then devoted to capsule reviews of the 30 Dow stocks --Alcoa, AT&T, DuPont, GE, IBM, etc.--in a long-range perspective. (Anyone who sends the authors a stamped, self-addressed envelope will be entitled, moreover, to updates.) It's an inviting and closely reasoned thesis--with no guarantees attached.