"Where Best To Invest?"-Mutual Funds
Monday, January 15, 2007PAUL KANGAS: Our regular market monitor guest Randall Eley of the Edgar Lomax Company had a stellar 2006. His Edgar Lomax value fund logged a 22 percent return last year. It was also named to the "Wall Street Journal's" category kings list in its latest quarterly review of mutual funds. Randall, welcome back to NIGHTLY BUSINESS REPORT and congratulations on that impressive return.
RANDALL ELEY, PRESIDENT, THE EDGAR LOMAX COMPANY: Thank you. Thank you for the invitation and the congratulations.
KANGAS: Our viewers know you as a value investor who trades only in the stocks of Standard & Poor's 500 companies. Why is that?
ELEY: Because these companies are large household names, they're integral to the economy. The United States as the economy and country we know it to be wouldn't exist without them.
KANGAS: OK, Randall, question is, do you see the Federal Reserve making a move here and if they do, will that be the key to where the market's headed this year?
ELEY: I think the key issue is debt. Fed governors certainly would love to not cause a recession, but I don't think they actually have power over whether a recession will occur or not. The big issue they have to face right now is what happens to the U.S. dollar. We have in the last fiscal year and this is through this past September 30th, Federal debt grew by about 7.5 percent, while the GDP grew only by 5.9, not even quite 6. You can't have that continue, so if they loosen, we could have a free fall start on the dollar and so I think the jury is out and in the end, we could end up with a recession before the year is over.
KANGAS: Understood. Well, tell me about your strategy for this coming year.
ELEY: I think the primary ingredient is going to be earnings. We're looking for the largest amount of earnings we can get and pay the lowest price for that and as a result, our portfolio looks a little bit odd for a market that we think will see a slowing economy at the very least, at least slow in growth. We have most of our positions or the biggest position is financials. We are holding about a 32 percent weighting in financials, primarily the banks such at Citigroup, such as JPMorgan and we are holding a much smaller value in utilities that is normal, only about 2 percent.
KANGAS: Are there any specific issues that you like?
ELEY: I specifically like, in addition to the two banks I mentioned, we specifically like in the telecom sector, Verizon in particular, but also AT&T. And in consumer discretionary, we like Limited and Black and Decker. Now consumer discretionary, we don't have an over market weighting, but these companies have earned a substantial amount of money. They have just announced less than expected sales in December. That's fine. They are still earning a lot of money. Their stocks are falling and so as a result, we think they're good purchases.
KANGAS: You sound relatively bullish, but what would turn you into a screaming bear - what would be the development that would do that?
ELEY: If we see the Federal Reserve actually will raise rates one more time.
KANGAS: That would really scare you out of the market.
ELEY: Well, it would scare us enough that we would advise clients where they are asking for our general advice to lower their weighting in the market.
KANGAS: Randall, do you own any of the stocks that you just mentioned or do you have any other disclosures to make?
ELEY: I own, and that means our clients, the company and our shareholders, we own all of them.
KANGAS: OK, very interesting and I want to thank you very much for sharing your thoughts with us.
ELEY: And thank you for having me back Paul.
KANGAS: Thanks for being with us. My guest, Randall Eley, president of the Edgar Lomax Company.
