"Market Monitor"-Chris Orndorff, Head of Equity Strategy for Payden & Rygel
Friday, June 09, 2006PAUL KANGAS: My guest market monitor this week is Chris Orndorff, head of equity strategy for Payden & Rygel, a firm which manages over $50 billion. And Chris, welcome back to NIGHTLY BUSINESS REPORT.
CHRIS ORNDORFF, HEAD OF EQUITY STRATEGY, PAYDEN & RYGEL: Thanks Paul, glad to be here.
KANGAS: What in the world -- and I mean that literally -- has caused the recent tumble, not only on Wall Street, but in the global markets as well?
ORNDORFF: I think really it can all be simplified down to the market volatility being a reaction to Bernanke, Fed Chairman Bernanke and the market just sort of getting used to each other.
KANGAS: They`re not friends yet but apparently...
ORNDORFF: No, they`re not friends, but then Bernanke didn`t have the benefit of being a commentator on NIGHTLY BUSINESS REPORT like Greenspan did.
KANGAS: That`s true. That`s a good point you make. But you think he`s going to do all right in the longer run?
ORNDORFF: I think he`ll do just fine. The key to inflation is unit labor costs. And if unit labor costs go above the rate of inflation, then you get both profit margin squeezes as well as higher interest rates. Neither one of those things are happening because unit labor costs are behaving themselves. I think the Fed has done its job.
KANGAS: Have such steep losses in the world`s market, especially on Wall Street, have they been overdone?
ORNDORFF: I think they`ve been completely overdone. The market`s pessimism is unwarranted in my opinion. Corporate earnings are still good. I think you`re going to see positive surprises and maybe even positive guidance in the second quarter in July when the earnings come out and I think it`s a good opportunity to buy some bargains. KANGAS: Well, going back to Mr. Bernanke, do you think the Fed is overplaying the threat of inflation? Last time you were with us in November, you said complacency about inflation was the danger. Do you think they`re overdoing it?
ORNDORFF: Yeah. I think the complacency now is gone.
KANGAS: It`s turned the other way?
ORNDORFF: That`s right. I really think that the fears are unfounded. I think the Fed`s going to do its job.
KANGAS: One more rise, a quarter point?
ORNDORFF: One more rise and I think we`ll be finished.
KANGAS: On that last visit with us in November, you boldly predicted that oil would be at $70 plus per barrel which was right on the money as it turned out. Where it`s going from here?
ORNDORFF: I think $70 is going to be the peak. I think the next time we meet it will probably be in the low $60s for probably the next year. It`s going to tail off from here.
KANGAS: That`s heartening to hear. Well, last November you had two buy recommendations. Let`s see what they`ve done since then. We see Coach down 17 percent. It got into the early 30s and then back down where it is today. Are you still with it?
ORNDORFF: We still like it. It`s not your typical consumer stock and people are nervous about consumer stocks.
KANGAS: This is the leather goods manufacturer.
ORNDORFF: That`s right, some of them rightfully so, but Coach is an excellent maker of handbags, briefcases and accessories. They have a very strong presence in Japan where the consumer`s at a different stage of the cycle and sales and earnings growth are still rising 20 percent plus.
KANGAS: And you would still buy it at this level?
ORNDORFF: I think it`s a good buying opportunity.
KANGAS: United Tech has done all right, up over 12 percent. Still with that?
ORNDORFF: No, I think a lot of the things that we talked about in the last program are already priced into the stock and so I`d probably take my profits.
KANGAS: That`s going to hurt the Dow a little. How about some new recommendations?
ORNDORFF: Sure, I think the first one is a company called American Movil. It`s the largest mobile telecom provider in Latin America (AMX).
KANGAS: It`s had quite a rise as we look at that chart.
ORNDORFF: That`s right. Over half their revenue comes from Mexico where they have a 70 percent market share. They also have a very strong presence in both Brazil and Colombia. What I like about it is high cash flow generation, a solid balance sheet and a cheap valuation make it a good buying opportunity.
KANGAS: All right. I see it has backed down in recent weeks along with the market.
ORNDORFF: Exactly.
KANGAS: How about a second recommendation?
ORNDORFF: Sure, the next would be a company called Ecolab (ECL) which doesn`t do anything exciting except make money. They`re a specialty chemical company focusing on the cleaning and sanitizing markets. They have a solid 15 percent earnings growth. They`re a leader in their field.
KANGAS: You liked that before on a previous program.
ORNDORFF: I have. I`m sort of returning to that stock and I think it`ll do very well. The circle to customer strategy that they have is really paying off.
KANGAS: We have time for one more recommendation.
ORNDORFF: Sure. The last one would be Burlington Northern (BNI), again another stock that I`m returning to from an earlier program and this is more of a logistics company than a railroad, but shipments in both coal and grain have been doing very well. People are excited about ethanol. Ethanol is made from grape and grain gets shipped by rail.
KANGAS: It`s done very well in recent months and a little downturn recently, so perhaps a good buying opportunity? Is that what you`re telling us? ORNDORFF: I think it is. They have great operating ratio improvement, good volume increases, sales and earnings growth have been exceeding expectations. I think it`s a great opportunity to buy.
KANGAS: So it`s a little different this time than it was in November. You`re much more bullish than you were then.
ORNDORFF: I think so. The think the market has really given us a good opportunity. Earnings growth is good and I think the Fed is near the end.
KANGAS: Do you personally own any of these securities that you`ve been talking about?
ORNDORFF: I sure do. I owe them myself and we owe them in our paid and U.S. growth leaders fund.
KANGAS: OK, fair enough. I want to thank you for joining us once again, Chris.
ORNDORFF: Always a pleasure, Paul.
KANGAS: My guest, Chris Orndorff, head of equity strategy at Payden & Rygel.
