Growth Stocks and the Chemical Products Industry

Abstract

DURING THE PAST DECADE, stocks have attracted widespread attention as a separate and unique class of common stocks which are distinguishable from income and cyclical stocks by the presence of several discernible characteristics. In recent years a considerable volume of literature has been published recounting the merits, risks and expectations of investment in this unique class of common stocks. Even a greater volume of information pertaining to the superior.features of specific equities has emanated from the offices of stock brokerage firms as sales literature. But despite the existence of a sizeable literature, only a small number of published articles have attempted to explore the theoretical dimensions of the subject of stock values.' The present state of knowledge reflects a paucity of adequately formulated theory by which the behavior of this class.of common stocks can be explained and evaluated. Moreover, no basis of general agreement seems to have developed in solving the complex problems of selection, timing and pricing of securities.2 In general, it is probable that we are now passing through the natural history stage of descriptive inquiry, in which significant empirical studies of stocks are being conducted by financial analysts but very little is yet being attempted in the more hazardous areas of generalization and theory. The object of this article is modest. It makes no claim to theoretical formulation. Rather, its purpose along descriptive lines is to examine a noted growth and in this case the chemical products industry, from the standpoint of its behaviorally significant investment characteristics. In pursuing this aim, the inquiry will break down into component areas. First, the significance and limitations of the growth industry approach to the selection of common stocks will need some explanation. Second, the salient characteristics will be postulated by which we believe that stocks as a class may be identified. Third, the statistical findings of a case study of the chemical products industry3 will be summarized and presented in tables. In particular, the comparative investment performance of several leading chemical stocks will be developed to illustrate the nature of investment results that have been produced by a growth industry from the standpoint of longterm ownership. Finally, quantitative criteria of stocks will be suggested, and will be employed in this article as a guide to classifying each chemical stock examined as to whether it has exhibited the distinguishing investment characteristics of a stock. As measured by the quantitative criteria, the study will provide evidence that a majority of the chemical stocks examined have clearly attained the postulated level of stock performance. It should be noted that conclusions developed as to the investment performance of the chemical stocks pertain only to their long-term past records, and are not intended as a forecast of the future potential of these specific securities. However, as a general proposition, we believe that a knowledge of the past performance and present position of particular stocks is a useful and intelligent guide to a forecast of their future potential. After all, any reliable estimate of common stock values must be based on past and current information and probable expectations.