"Market Monitor"-Randall Eley, of the Edgar Lomax Company
Friday, October 16, 2009PAUL KANGAS: My guest "Market Monitor" this week is Randall Eley, the president of the Edgar Lomax Company, an investment advisory firm based in Springfield, Virginia. Randall, welcome back to NIGHTLY BUSINESS REPORT.
RANDALL ELEY, PRESIDENT, THE EDGAR LOMAX COMPANY: Thank you, Paul. Good to see you.
KANGAS: How important do you think this week's move above the Dow 10,000 mark is?
ELEY: It's important in giving people confidence that the economy is continuing to be a vibrant one, although much slower than we would like, but other than that, I'm not sure the number has a particular meaning.
KANGAS: OK. Are you impressed by the third quarter corporate earnings reports we've seen so far?
ELEY: I'm impressed that the declines are not as great as they could be, but when you consider some of the write-offs we're hearing, such as some of the bank reports today, you can see that this economy still, in the corporate sector, has quite a bit of bad debt to resolve.
KANGAS: So what is the biggest problem facing the economy, the debt?
ELEY: Yes. Facing the economy, the debt overall and when it comes to investing, stock investing, corporate earnings are simply not going to be able to grow at as rapid a rate as they have since World War II because consumers are not able to continue increasing their buying.
KANGAS: What are you worried about more, the consumer debt or the government debt, which is really mounting?
ELEY: On a more immediate basis, consumer debt because that's where corporations have generally turned to for earnings growth. But somewhere in the next three to five years, the government is going to need to do something about its increasing debt load, too.
KANGAS: What about the weakness in the dollar, quickly?
ELEY: It's important in that it's really going to affect our standard of living if the dollar continues going down, but we're going to get some declines because much of the government's pay off of debt will be through monetization.
KANGAS: How about the rise in gold above $1,000 an ounce? Is that a signal of inflation or something else?
ELEY: I think it's a signal of what we can expect for the dollar, which is some declines, continuing declines in the future. But it is a signal that inflation, real inflation and sooner or later, we will see some of the effects spill over to the CPI.
KANGAS: On your last visit in late June, you recommended four stocks. Let's see how they've done since then, all blue chips, all Standard & Poor's 500 issues of course. That's all you'll buy, Merck (MRK) and Chevron (CVX), very nice gains, 23 percent and 16.5 percent respectively. You still like them?
ELEY: Both of them.
KANGAS: OK, then the other two that you recommend back in June were ExxonMobil (XOM) and Johnson & Johnson (JN). They're up, not as big as the other two, but 6 percent and almost 7 percent, very good. I congratulate you, some good picks.
ELEY: Thank you.
KANGAS: Are you still bullish enough to recommend some new stocks?
ELEY: Oh, yes. Let me first say I like all four of those. I think the potential for profits continue, but I certainly do. I have recommendations going forward.
KANGAS: How about some new ones?
ELEY: First, I would like to start with one of the four we had before and that's Chevron. It continues to be a good value with a P/E ratio and this is trailing 12-month earnings in this market of only 10 and a very substantial dividend yield, 3.5 percent.
KANGAS: That's right. You recommended that before and it did well. It was up about 6 percent and you think it's got further to go.
ELEY: I think it could have much further to go.
KANGAS: OK, another recommendation Randall.
ELEY: Also another repeat and that's Merck. Here you're looking at a P/E ratio of only 12 and this time a dividend yield of 4.6 percent. This dividend yield is twice that of the S&P 500.
KANGAS: So while you wait for appreciation in the stock itself, you're getting a nice return.
ELEY: That's right.
KANGAS: OK, how about some more recommendations?
ELEY: The third one is a new one and this is AT&T (T), a company whose earnings have been coming in steadily and we can even expect growth if the economy declines with a P/E ratio a little high at 13, but still not high, but a dividend yield of 6.4 percent. I mean, that's the kind of stock we really like in this kind of market.
KANGAS: And the trading symbol is easy to remember, big T on the big board.
ELEY: That's right.
KANGAS: OK, how about another recommendation?
ELEY: The final one is Wal-Mart (WMT). Here is a company I don't think you have to convince very many people ought to continue to be profitable in the future. They've been very competitive in this deep recession we've gone through. And with a P/E ratio of 15, a little bit lower dividend yield, but I expect that dividend to grow consistently in the future.
KANGAS: And the stock is well below its all-time highs.
ELEY: That's right. It did so well in the bear market, I think people were afraid to buy more.
KANGAS: That's interesting. Randall, do you personally own any of the securities mentioned here or have other disclosures about them to make?
ELEY: As usual, I own all of them.
KANGAS: You believe in what you like.
ELEY: That's right.
KANGAS: OK, very good. I appreciate your being with us once again. We'll look forward to your next visit.
ELEY: Always a pleasure.
KANGAS: My guest, Randall Eley of the Edward Lomax Company.
