"Market Monitor" -Randall Eley, President, Edgar Lomax Company
Friday, February 22, 2008PAUL KANGAS: My guest "Market Monitor" this week is Randall Eley, president of the Edgar Lomax Company, an investment advisory firm based in Springfield, Virginia. Welcome back to NIGHTLY BUSINESS REPORT, Randall. RANDALL ELEY, PRESIDENT, THE EDGAR LOMAX COMPANY: Thank you for having me, again, Paul.
KANGAS: When you were last with us in August and the Dow was 1,000 points higher than it is now, you were correctly cautious, not so much because of the sub-prime mess, but because of debt in general. You were concerned about the huge government debt and the amount of debt consumers are carrying. Are things improving along this front?
ELEY: Actually, I hope on a temporary basis, it has gotten worse. The economic stimulus bill Congress just passed and the president signed is going to add about one and a quarter percent, by some calculations of GDP to government debt. That could increase government debt as much as two percent. So hopefully after the election, the Federal Reserve will be able to get back on a normal track.
KANGAS: So does this keep you cautious about the stock market generally?
ELEY: It does. Because I think differently from last time, I think the Federal Reserve may have succeeded in softening whatever slide we will see in stock prices. But I think this will only be a postponement in the bear market, not a true new bull market.
KANGAS: What are the indicators you are looking at to determine your investment strategy?
ELEY: Well, we actually - we're bottom up stock pickers which mean we look at specific companies, but we do look around generally at the environment and it is a fact of life that government debt, debt in general has been growing but you can see in the government debt statistics has been growing so rapidly that sooner or later as the government pulls back and consumers also spend less on credit cards, corporate earnings will slide and stock prices eventually will slide also.
KANGAS: What investments would you avoid like the plague right now?
ELEY: I think the whole small cap concept, which was being sold, so energetically pursued by many investors over the last seven years I think is likely to be cool for a time.
KANGAS: OK.
ELEY: And whether that is private equities, small cap stocks in general, many of the high yield bonds that hedge funds were buying, I think we are going into an environment that investment grade large companies are going to do the best.
KANGAS: Last August you gave our viewers three stocks to buy. Let's see how they have done since then. We have Pfizer (PFE), which is down six percent, American International Group (AIG), down 24.4 percent, are you still with these? Do you still like them?
ELEY: Pfizer I would hold, but I wouldn't buy anymore and I like the other two.
KANGAS: OK. American International Group, you are still with that and ExxonMobil (XOM).
ELEY: That's right.
KANGAS: Up 3.1 percent. So it has been a rough market indeed. So you didn't fare too badly. How about some new recommendations, Randall?
ELEY: Yes, this time I am going to give you four. I will start with Chevron (CVX) and I like it first because of the energy company, no matter what the economic environment, we don't have to worry about if they have a market, but it has a P/E ratio of 10 and this is with the S&P at 18.
KANGAS: It is also a member of the Dow 30.
ELEY: It sure is and it also has a dividend yield of two and a half percent, a little bit more, about 2.6.
KANGAS: Right.
ELEY: So we are being paid quite a bit more than the market.
KANGAS: OK, second choice?
ELEY: Another energy, ExxonMobil -- I have liked it for a long time.
KANGAS: You are going to stay in there with that, it has been pretty good to you, hasn't it?
ELEY: That's right and the P/E is only a little higher at 12, dividend yield a little lower but this is a company that has done a very good job of growing earnings over the years.
KANGAS: All right, a third choice.
ELEY: Next, Dow Chemical (DOW) and here we have a P/E of 13 but the big thing I like about Dow is its dividend percent, 4.2 percent. That is more than twice the S&P 500 so here is a company that no matter what the economy throws at us, we should get a good return.
KANGAS: And a choice number four?
ELEY: Finally I would give you American Express (AXP).
KANGAS: I can see why you like it. It's had a terrific fall, nobody wants it but you, right?
ELEY: That's right. That's right. People are concerned, because they are having higher delinquencies but the fact is their write offs have been nothing like many financials so I think they can grow their earnings next year and also grow their dividend.
KANGAS: All right. Interesting choice and we will check them out over the next few months. Do you personally own any of these securities you have mentioned Randall?
ELEY: I own them all.
KANGAS: Well, that is a vote of confidence, that is for sure. Any last minute thoughts? We have about 10 seconds.
ELEY: Just in general, good stocks are always appropriate to be held in a portfolio, but one should be careful in this environment, because a lot of debt has to be paid.
KANGAS: All right. It is always a pleasure to have you with us.
ELEY: And always a pleasure to be here.
KANGAS: My guest Randall Eley, president of the Edgar Lomax Company.
