One on One with Hugh Johnson, Chairman of Johnson Illington Advisors
Monday, October 08, 2007
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SUSIE GHARIB: Our guest tonight says the outlook for the stock market is positive, but investors will still be faced with some tough issues. Joining us now to explain, Hugh Johnson, chairman of Johnson Illington Advisors. Hi, Hugh.
HUGH JOHNSON, CHAIRMAN, JOHNSON ILLINGTON ADVISORS: Hi, Susie.
GHARIB: All right, tell us what you mean by positive markets but tough issues for investors.
JOHNSON: Well, I think that first of all the trends, the major trends in the financial markets collectively, just the stock market, sector performance, capitalization performance is very positive. In other words, the direction of things is positive are up now, but I think we're starting to get into a valuation problem meaning we're not quite overvalued, but the upside potential in the market is probably only 2 percent between now and year end, 4 percent by the end of 2008. It's going to be a tougher environment so you've got to be very, very good as an investor. You've got to be really good at picking individual stocks and picking sectors.
GHARIB: So maybe is it time to lighten up on stocks. Are the best days of the stock market behind us?
JOHNSON: No, I don't think so, Susie, I think we are still in a bull market and I think the bull market has further to go. The bottom line is I think that the returns that investors are going to receive or get from the equity markets are going to be better than the returns they're going to get from the bond markets. So I think you need to be fully invested in equities. But the returns are certainly not going to be very exciting. Something between 5 and 10 percent is about the best you are going to do in the equity markets, but that will still beat bonds.
GHARIB: So what is going to be most important for stocks? Is it going to be the upcoming earnings that we're going to be getting or is it going to be what the Fed does about interest rates?
JOHNSON: I think both of them are very important, Susie. But I think right now the more -- the more immediate focus and concern is clearly the earnings reports. You know, we kind of know now what the impact of the credit crunch is on the economy or we're starting to get a sense of it. We saw that in the employment report that was released last Friday, some impact but not as severe as we had expected. The real question now is what will be the impact on corporate earnings? And we're about to get the earnings season and of course see exactly what the impact of the credit crunch is on the earnings of many companies. Obviously financials and some of those home builders are going to be watched very carefully.
GHARIB: For investors who have money and want to put new money to work, is this a good time to be investing, do you think?
JOHNSON: Yeah, I think it is a good time to be investing. But I think again you've got to be really savvy, very good given the fact we've gone from being really cheap or undervalued which was great to being just modestly undervalued and with not much upside potential. So pick the right sectors. Look at industrials, look at technology, look at what is working in the market and I think you will be fine. But you've got to be really much better. It's not just that easy. It's not fish in a barrel time any more. You've got to be good as an investor.
GHARIB: Are there one or two stocks that are your favorites like sure to increase in the near term?
JOHNSON: No sure bets in this one, but Susie there are a couple that I own and all our clients own. And that would include in the technology sector which I very much like is Cisco and Oracle. I always liked in the industrial area United Technologies and we also just bought Verizon in the telecommunications sector of the market. Those are three sectors and individual stocks which as I say, I own and our clients own and I think they will be good performers in again, a difficult environment.
GHARIB: Hugh, we've seen gold prices going up. Do you think that -- does it make sense to invest in gold itself or in to gold mining stocks?
JOHNSON: I wouldn't. And I will tell you why I wouldn't. I think that one of the principal reasons that investors buy gold is to hedge against inflation. When I do some number crunching on the leading indicators of inflation, it looks to me that core inflation is going to stay, core consumer inflation around the 2.1 to 2.3 level, 2.1 to 2.3 percent per year right through 2008. So I don't think you're going to need to hedge against inflation when core inflation is so low. I don't like gold. I wouldn't buy it at this level whether we are talking about the actual material or metal itself or we're talking about stocks.
GHARIB: All right, Hugh, thank you so much for coming on the program.
JOHNSON: My pleasure.
GHARIB: My guest tonight Hugh Johnson, chairman of Johnson Illington Advisors.
