"Market Monitor"-Randall Eley, President of the Edgar Lomax Company
Friday, January 09, 2009PAUL 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, Paul. Good to see you.
KANGAS: I'd like your reaction to today's big rise in December unemployment.
ELEY: I think it's one indicator. Certainly the one that most people care most about that we're in a serious recession that has not run its course.
KANGAS: You've expressed concern in the past over the mounting debt levels facing both consumers and the Federal government. What is your take on the Obama stimuls plan which will likely add hundreds of billions of dollars to the Federal deficit?
ELEY: I think it's a continuation clearly in a somewhat different direction, but a continuation of what we've already been seeing. We have a situation whatever the administration in office, there's a lot of pressure and a lot of suggestions from economists in general and other political factors to do something to help the economy. But the fact is we're hoping to ease the stresses and strains, nothing is going to be able to stop the recession from working out this debt situation.
KANGAS: Where in your opinion does the housing industry stand currently?
ELEY: I think the safest thing to say is that we're closer to the bottom than we were a year ago or certainly the last time I appeared with you in August, but I don't know exactly where it ends, whether we have another year or two to go. But the real estate market, like the stock market is actually a less risky place in which to buy a home to live in. Investigating is a serious enterprise and I think this whole market, set of market declines we've been seeing is reminding people that you shouldn't try to make money trying to flip homes or play the stock market.
KANGAS: Right. Well, the stock market's recent behavior, has it convinced you that we've seen a major bottom?
ELEY: I'm not convinced that we've seen a major bottom. We may have seen a short-term bottom and I hope the short-term bottom will turn out to be extended, really over the next couple of years or so. But I do feel, I feel much more comfortable investing in S&P 500 stocks today than I have in some time.
KANGAS: Briefly, where do you think oil prices are headed?
ELEY: I think we're closer to a bottom in oil. Now we may see it go a bit lower. After all, five years ago, oil I think was about $20 to $25 a barrel less than today but sooner or later, inflation is going to return and I think oil will be one of the factors we see rising the greatest.
KANGAS: Now last August you gave our viewers four stock "buy" recommends. Let's see how they've done since then. We see Chevron (CVX) down 13.6 percent and today they did give an earnings warning. Are you still with it?
ELEY: Oh, yes. That's very normal to give an earnings warning.
KANGAS: OK and Dupont (DD) down 44.4 percent. Who would have guessed that, quality company.
ELEY: That's right.
KANGAS: OK. Let's have a look at the other two. It's been a rugged market as we say. Blue chips like Caterpillar (CAT) down 38, over 38 percent. Home Depot (HD) down 13.3. Still with those?
ELEY: That's right. As sharp as those stocks are down, Paul, an equal weighted portfolio in those stocks was down 3 percent less than the S&P 500.
KANGAS: OK, now incidentally, some of our viewers would like your thoughts on Dow Chemical (DOW). That's a stock you've recommended in the past, but it's certainly struggling now. What to do?
ELEY: That's right and I still like it on any earnings basis but I think balance sheet is key here and until we know exactly what's going to be worked out as Dow is finishing its acquisition of Rohm & Haas and until we know what's going to happen to substitute that Kuwaiti deal, I'm a believer it's better to keep your powder dry and wait.
KANGAS: OK. How about some new recommendations Randall?
ELEY: Yes. I'm going to give you four again. I'd like to start with Alcoa (AA). Here's a company in the cyclical industry that obviously earnings can decline greatly as management (INAUDIBLE) have told us. But we can buy that stock today at a 5 P/E ratio over the last year, a dividend yield of over 6 percent and a price to book of 60 percent by the way.
KANGAS: Less than 50 seconds left, let's move it along.
ELEY: All right. I like to keep Chevron (CVX) where we have a P/E ratio of 6 and a dividend yield of over 3.5 and I like to also keep Dupont (DD). Here's the case that, if at first you don't succeed, try, try again. Dividend yield 6.5 percent by the way.
KANGAS: You can wait when you're getting a return like that. You can be patient.
ELEY: That's right.
KANGAS: OK. One more.
ELEY: And finally ExxonMobil (XOM). This is a stable company, P/E ratio of nine, dividend yield of over 2.1 percent but this is a well-run company.
KANGAS: Do you personally own any of the stocks mentioned or have other disclosures?
ELEY: Own all of them.
KANGAS: Very good. We've run out of time, but thanks for being with us once again.
ELEY: And thank you very much too.
KANGAS: My guest, Randall Eley, president of the Edgar Lomax Company.
