Jeff Saut, Chief Investment Strategist at Raymond James Offers His Market Outlook
Monday, October 22, 2007SUZANNE PRATT: Joining me now with more about today's market activity and his outlook for U.S. stocks is Jeff Saut, chief investment strategist at Raymond James. Jeff, welcome back to NIGHTLY BUSINESS REPORT.
JEFFREY SAUT, CHIEF INVESTMENT STRATEGIST, RAYMOND JAMES: Good evening Suzanne.
PRATT: Excuse the noise behind me. Let me start by asking, why do you think the stock market was so resilient today?
SAUT: It probably got overdone on Friday. Wall Street is to some degree a superstitious place. It was the 20th anniversary. Also, I think the sense was that the sub-prime situation was not behind us. And this morning, those fears were allayed to some degree out of comments out of the Federal Reserve and it pretty much anticipated better than expected earnings report out of a couple tech stocks.
PRATT: But you're still concerned about the economy, aren't you? You're concerned that the credit crunch is going to deepen further. Why is that?
SAUT: Well I hadn't really called it a credit crunch yet. I thing we're moving that way and I think the risk is that we do go into a honest to gosh credit crunch. And then you have the potential of morphing into a recession. And I think that's what's got the Federal Reserve and the central banks of the world worried and that's why they've injected liquidity at a pretty astounding rate over the past I guess couple months and why they've cut interest rates.
PRATT: And you're also worried about the consumer. You're worried -- where are we do you think in terms of the credit cycle and the consumer?
SAUT: We've noticed a pretty big up tick in credit card debt over the past couple of months. If you've levered most of your assets, your first house, your second house, your 401(k) and are still in need of cash, the lender of last resorts becomes the credit card. And if that's the case, then it suggests that we could, could be at the peak of a credit cycle until a financial economy that is dependent on ever-increasing amounts of credit. It does suggest a slowdown.
PRATT: So given all these question marks, particularly with respect to a recession, a possible recession, what do you think an investor should be doing in this environment?
SAUT: I think you can either focus on themes that should do well irrespective of an economic slowdown or you can focus on individual stocks that are just plain cheap.
PRATT: So what are you doing?
SAUT: We have been recommending large cap pharma because they're cheap on their own merits, on historic look. They're cheap relative to the stock market in general and they're cheap relative to the risk free rate of return. They have decent dividend yields and they have the highest free cash flow yields in years. We're using "strong buy" rated Pfizer and "strong buy" rated Johnson & Johnson.
PRATT: OK. Any other areas that you're particularly keen on right now?
SAUT: I've said for the past four months, if I had one stock to own, it would be General Electric. It's still 30 percent below where it was in the spring of 2000. It has a decent dividend yield. It's cheap relative to itself, cheap relative to the market and it plays to a lot of themes that we think do well irrespective of an economic slowdown.
PRATT: Do you have disclosures to make about any of the stocks you just mentioned?
SAUT: Yeah, I own 'em all.
PRATT: OK. What about the financial services sector? What are your feelings about that? It's gotten beat up lately.
SAUT: I avoided the large cap banks because I quite frankly can't figure out their accounting. JPMorgan has notionally (ph) $60 trillion worth of derivatives on its books and I just can't figure it out. I do like some of the smaller community banks. I don't think they have the same issues as a lot of the large cap banks.
PRATT: Other than the economy, what else worries you do you think potentially about the market right here?
SAUT: I lived in and around the beltway for years. I'm quite concerned about the traction that protectionism is gaining inside the DC Beltway as well as the increasing movement towards intervention and overregulation.
PRATT: Ok, Jeff, let's leave it there Thank you so much for joining us this evening.
SAUT: My pleasure.
PRATT: My guest this evening, Jeff Saut of Raymond James.
