"Market Monitor"- Chris Orndorff, Head of Equity Strategy for Payden & Rygel
Friday, January 25, 2008PAUL KANGAS: My guest "Market Monitor" this week is Chris Orndorff, head of equity strategy for money management firm Payden & Rygel which is based in Los Angeles and welcome back to NBR, Chris. Good to see you.
CHRIS ORNDORFF, HEAD OF EQUITY STRATEGY, PAYDEN & RYGEL: Thanks, Paul, great to be here.
KANGAS: I will cut right to the chase. Now despite the sell-off on Wall Street today, do you think Wall Street did hit a bottom this week?
ORNDORFF: I think we are very close to the bottom. The market pessimism is a little bit overdone. Certainly we are in a market downturn, an economic downturn, but if you look at the jobless claims, what they've been prior to past recessions, they're much better so I think this downturn is going to be a bit more shallow than the stock and bond markets are currently pricing in.
KANGAS: So you are telling us that the U.S. economy can support a stock market at roughly this level?
ORNDORFF: I think so. I think earnings growth is going to be a little bit more resilient, not in financials or in some of the other sectors, but more the defensive sectors. I think it will be enough to buoy the market.
KANGAS: On your visit with us in June, you were expecting the Fed to hold interest rates steady. You were a little off the mark there but who could foresee how bad this housing thing was going to get. What do you think the Fed is going to do now?
ORNDORFF: Well, I think we really have somewhat a banking crisis. And one of the ways you get yourselves out of a banking crisis is to steepen the yield curve, that is to make the difference between short-term interest rates where banks borrow and long-term interest rates where banks lend wide. And that is what the Fed is going to do. They are going to be accommodative. I think bringing the Fed funds rate down to maybe 2 percent this year.
KANGAS: That's quit a jump even from here. Not a jump but a dive.
ORNDORFF: Right.
KANGAS: Now you were expecting oil to come down into the mid $40 per barrel range which proved a little bit too optimistic. Do you stay with that forecast? Is it going to get down there?
ORNDORFF: Well, I will raise it up to $50, in the 50s but I think the direction as the economy slows, demand is going to come off and I think oil will recede into that level.
KANGAS: OK. On that last visit in June you had three stock buy recommendations for our viewers. Let's see how they did. Cognizant (CTSH) at $37 now down to $26. But it got as high as $45. You took it all off the table, didn't you?
ORNDORFF: I wish. It is still a great company though and a great IT services provider.
KANGAS: OK, so you are staying with that one.
ORNDORFF: Yes.
KANGAS: Las Vegas Sands (LVS) is up but it was a lot higher. It got to $148.
ORNDORFF: It a great company. We took some money off the table there and super growth in Macao and Singapore.
KANGAS: Any stock that is up from where it was in June now is a good stock.
ORNDORFF: That exactly right.
KANGAS: A good call. We had a third recommendation from you back in June and that was Ford Motor which just can't seem to get started so to speak.
ORNDORFF: I went out on a limb there and unfortunately hasn't worked out. I think the next two years are probably going to be tough for the company.
KANGAS: OK. How about some new stock recommendations.
ORNDORFF: Sure. The first is Chattem (CHTT) which is a leading over- the-counter health care manufacturer. They make products like Gold Bond lotion, Selsun Blue shampoo and Dexatrim (ph). Earnings growth a little bit more modest at 9 percent, but extremely stable. In a jittery stock market Paul, stable earnings.
KANGAS: And the stock is well down from its high, recent high.
ORNDORFF: I think it a good opportunity.
KANGAS: How about a number two selection.
ORNDORFF: Well, continuing with the stability of earnings theme Coca- Cola (KO), which of course everyone knows, 75 percent of their profits actually come from outside of the U.S. Those economies are doing better than the U.S. so that's going to help.
KANGAS: The weak dollar also helps their overseas sales.
ORNDORFF: Certainly. And Coke has made great sides in the noncarbonated beverage market which is the fastest growing part of that category.
KANGAS: OK. Number three selection.
ORNDORFF: The third one is Potash Corp. (POT) of Saskatchewan which is a fertilizer company. And you know one of the most significant developments of the last decade is the rising wealth of developing or emerging market economies as they grow and get more wealthy. They also eat more. That requires more fertilizer.
KANGAS: Along with your theme of steady earnings.
ORNDORFF: That exactly right.
KANGAS: We have time for one more. We are closing in.
ORNDORFF: Sure and staying with one of the other themes that I have had, the gaming industry, I still think has got fantastic growth. MGM (MGM) is --
KANGAS: That is despite that fire they had at the casino in Vegas today.
ORNDORFF: That is exactly right. The other properties there are the Mandalay Bay and the Bellagio. They have done some really smart joint venture deals with Abu Dhabi and Dubai and China and I think it's a great opportunity at this point.
KANGAS: As long as they don't get a fire in one of their casinos in Macao.
ORNDORFF: That's exactly right.
KANGAS: Chris, do you personally own any of the stocks we've mentioned here or have other disclosures to make.
ORNDORFF: We sure do, plus we own them in our U.S. growth, Payden U.S. growth leaders fund.
KANGAS: Very good indeed, interesting and we will watch those selections.
ORNDORFF: Thanks.
KANGAS: Thanks for being with us and we will look forward to your next visit.
ORNDORFF: My pleasure Paul.
KANGAS: My guest, Chris Orndorff of Payden & Rygel.
