"Market Monitor"-Randall Eley, President of the Edgar Lomax Company
Friday, June 26, 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.
KANGAS: On your last several visits with us, you've expressed concern about the mounting debt in this nation, not just government, but personal. No improvement recently?
ELEY: I think we are seeing improvement, but in the household debt. So individuals' area. We certainly are not seeing an improvement in government debt yet. This is Federal government. But that's going to have to come, because we can't continue to have the rapid increases. But in the last six months, individual debt is down and that's good long-term.
KANGAS: Do you think that's because investors are expecting a long and tough recession?
ELEY: I think it's primarily because people can't borrow as much as they could before. Housing prices are down. Credit conditions are tighter and that credit which is available is more expensive.
KANGAS: So you don't see the debt right now undermining investors' sentiment on Wall Street, for example?
ELEY: I don't think long-term it is. I think this is a factual matter that it's difficult for people to borrow as much money as before and as a result, the economy is behaving in a slower manner.
KANGAS: What are your thoughts on the stock market's recent performance? We had a nice rally from the bottom in March, but what about now?
ELEY: I'm relieved that it's come back as strongly as it has. But I'm not sure the economic facts are going to give it room to continue rolling up. So over a number of years, actually, I expect to see some back and forth, hopefully no worse than what we saw in the 70s, but where the market rises some and then falls again. But I don't expect a break out any time soon to new all-time highs.
KANGAS: Sort of a trading range type of market, correct?
ELEY: That's right.
KANGAS: OK and of course you seek the safety of only Standard & Poor's 500 stocks in your portfolio?
ELEY: That's right.
KANGAS: Now, on your last visit you had four stock buy recommendations. Let's see how they managed to do since then. Alcoa (AA) down just a half a percent, that's not bad in the crazy market like we've seen.
ELEY: And a cyclical company at that.
KANGAS: Right and Chevron (CVX) down 9.4 percent, big blue chip, not hard hit, but certainly no winner and Dupont (DD) off one tenth of a percent. And Exxon (XOM) was the biggest loser of the group here. How do you explain that?
ELEY: I think people were looking at companies whose earnings clearly could grow, such as the technology companies and I think they simply were ignoring and making a mistake about it. Companies that clearly have earnings, but they're not going to grow rapidly.
KANGAS: Patience will pay off.
ELEY: That's right.
KANGAS: New recommendations, Randall?
ELEY: We're going to begin with Merck (MRK). Here we have a drug company with a very low P/E, 7 and a high dividend yield of 5.6 percent and I don't think there's any issue about their ability to be profitable.
KANGAS: And Chevron (CVX), you still like it? You'd buy it here?
ELEY: I want to stick with it. They are still making money and I think sooner or later investments have to (INAUDIBLE)
KANGAS: And ExxonMobil, you're still with that?
ELEY: For the same reason.
KANGAS: And a new one.
ELEY: The new one will be Johnson & Johnson (JNJ). So you notice we're not very diversified in this portfolio by industries. But there's no issue about these companies' ability to make profits. Johnson & Johnson is way down, so you can buy. They're pretty stable earnings at a lower price.
KANGAS: Everybody likes Johnson & Johnson but Wall Street, apparently.
ELEY: That's right. But sooner or later I think investors have to appreciate earnings that come in at a steady clip.
KANGAS: Right. Any last minute thoughts for our viewers? We have about 30 seconds.
ELEY: Yes. I think the primary thing to remember is that we're in an economy that has to be worked off and it's going to take some time and to be patient while doing that. Save and when investing, invest in companies with stable earnings.
KANGAS: And you're saying as far as you're concerned, the only good companies to invest in are those that are in the Standard & Poor's 500 index?
ELEY: I wouldn't say the only, but they tend to be the safest.
KANGAS: OK. Now, any of the stocks you mentioned tonight, do you personally own?
ELEY: We automatically, we buy whatever we recommend.
KANGAS: OK, personally, OK.
ELEY: Definitely.
KANGAS: As always, it's a pleasure to have you with us, Randall, thanks.
ELEY: Thank you.
KANGAS: My guest, Randall Eley president of the Lomax Company.
