One on One With Alan Skrainka, Chief Market Strategist at Edward Jones
Monday, August 14, 2006
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SUSIE GHARIB: Our market guest tonight is telling his clients that it`s a good time to buy the stocks of large dividend paying companies. Joining us now to explain, Alan Skrainka, chief market strategist at Edward Jones. Hi, Alan.
ALAN SKRAINKA, CHIEF MARKET STRATEGIST, EDWARD JONES: Hi, Susie.
GHARIB: Tell us why you like these large cap stocks that pay dividends.
SKRAINKA: I think it`s a great time to buy them. You can get some of the world`s best companies today at very average price as when compared to the market P/E. These are companies, these are high quality large dividend paying companies that do a little better than non-dividend payers when the market is going up and they fall half as much when the market is going down so they`re very good choices in an uncertain environment. GHARIB: So can you give us some examples of stocks that fit that criteria?
SKRAINKA: Sure. We like 3M. We like Proctor & Gamble, Johnson & Johnson. These are all leading blue chip companies. They`ve increased dividends for 40 consecutive years or more and they all continue to grow their businesses at a very good pace.
GHARIB: Do you own any of these stocks Alan or does your firm do any business with them?
SKRAINKA: No, not at all.
GHARIB: OK. Moving on a little bit to get your perspective on the market, we saw that today the markets had a little bit more investor confidence because of the easing of tensions in the Middle East, also with oil prices coming down. What is your outlook?
SKRAINKA: Well, we like the market. We think there are a lot of cross currents right now. Half the street is worried about the higher inflation. Half the street is worried about a slowing economy and all that worry is creating some good opportunities. One of your reporters spoke about the 12 consecutive quarters of double digit earnings growth. That earnings growth has created a P/E ratio for the market of about 15. That`s at a 10-year low. That`s why we see good opportunity.
GHARIB: Let`s talk a little more about that. Yes, there are concerns about a slowing economy. There`s worries about a recession and then on the other side, there`s concerns that maybe the economy is going to grow faster and we`re going to have inflation pressures. Aren`t any of these impacting your optimism about the market?
SKRAINKA: Well, I like the fact that there`s so much to worry about. That`s what`s creating good value in the market. And of course at the end of the day, we`re just going to have to wait and see how the environment plays out. In the meantime, our advice to investors is focus on the things you can control, the diversification in your portfolio, the quality of the investments you own and then look for opportunities as prices move lower.
GHARIB: This week we got two important inflation reports coming out, the producer price index and the consumer price index. If they come in, let`s say, higher than expected, will this at all skew your investment strategy?
SKRAINKA: No, it won`t. We don`t believe you can create a well thought out investment strategy that`s going to change month to month with the economic data. In general, inflation is a lagging indicator. Maybe it`s too soon to expect very good news here. We have to wait for the economy to slow down and respond to the higher oil prices and the Fed rate hikes before we get better news on inflation.
GHARIB: So what`s your view on bonds?
SKRAINKA: We like bonds as well because we don`t think inflation will get out of control. We think investors should ladder their bond portfolio with roughly a third short-term maturities, a third long term and a third immediate and this should (INAUDIBLE) out the wide swings in your principal and income or rather than trying to time interest rates.
GHARIB: Again, another, what if type question. What if the Federal Reserve raises interest rates at its September meeting? What would be your view on bonds?
SKRAINKA: Well, our view won`t change. The Fed is minding the store. They`re keeping a close eye on inflation so it doesn`t get out of control and that`s why since June of 2004, in spite of 17 rate hikes from the Fed, long-term interest rates as measured by the 10-year Treasury are roughly unchanged.
GHARIB: All right. Just to wrap it up then. What is the key issue that you`re focusing on with your clients right now in terms of investment strategy?
SKRAINKA: Well, the key issue is the economy is slowing down to a more moderate, more sustainable rate of growth. This should take some of the inflation pressure off. And it`s a good environment to look for opportunities among the dividend paying blue chip large companies.
GHARIB: OK. All right. Thank you very much, Alan. Glad you came on the program.
SKRAINKA: Thank you, Susie
GHARIB: We`ve been speaking with Alan Skrainka, chief market strategist at Edward Jones.
