"Market Monitor"-Randall Eley,President of the Edgar Lomax Company
Friday, March 02, 2007
PAUL 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: Let's cut right to the chase. What happened to the markets this week, both overseas and especially on Wall Street?
ELEY: We're going through what could very well be a normal correction. No one can guarantee it won't end up being a bear market, but remember, it is not normal to have gone for nearly four years, depending on whatever commentary you read, since we had a week in which the market was down about 4 percent.
KANGAS: I remember you were on a panel I moderated in Orlando just about a month ago and you were the only bearish near-term analyst there and you made a great call. You said this market is way overdue for a correction and I compliment you.
ELEY: Thank you and Paul, I just want to point out, we have a long- term on it. When I say we, this is the Edgar Lomax Company, our analysts, optimistic view of the markets, but you have to be careful when markets have been going straight up for a long time.
KANGAS: On your last visit with us in September, you correctly predicted the Fed would keep interest rates unchanged for an extended period. Do you see any change in that over the next few months?
ELEY: Over the foreseeable future, I expect a continuation of the same. The Fed has to protect or at least they're trying to do their best to protect the value of the dollar. I see the flicker of some success here. So far this year, the dollar is holding its own against major world currencies.
KANGAS: It had a rough week this week, especially against the yen, but you think this will improve?
ELEY: That's right. Earlier this year it had been going up. So the fact that it has fallen some, it is just a correction. Over the last year, it was down 6 to 7 percent against major world currencies, but the last two, two-and-a-half months, it is about flat. We need to be flat before you see a positive reversal.
KANGAS: Now, has your investment strategy changed in the wake of this wild week on Wall Street?
ELEY: Not in the least. A well thought out investment plan should always have asset allocation and buying. So if that's 50 percent stocks or 50 percent bonds, then this sort of slide in the market gives the investor that has new money coming in a chance to buy. But I wouldn't buy just because it fell and I certainly wouldn't sell because of that.
KANGAS: But you would be more inclined to buy after the sharp downturn this week?
ELEY: Oh, yes. The stock market is always a lower-risk place to buy after a fall like this.
KANGAS: Well how about the big cap versus small cap, mid cap? Where is your favorite?
ELEY: I'm absolutely convinced that the best place to be is big cap. They've been out of favor for a long time and your mid-caps have been very hot so far this year. It may be the last chance for a while to get into big-caps while they're still relatively cheap.
KANGAS: OK. In any case, the only stocks you'll buy for your clients are big cap stocks because they all have to be members of the Standard & Poor's 500 index, correct?
ELEY: That's absolutely right. We can find some good low P/E ratios there.
KANGAS: In September you had three buy recommendations. Let's see how they have done since then. There we see ExxonMobil up 2.8 percent. And IBM was a real winner, up 11.7 percent and it wasn't too popular at the time. You had one other stock that I believe also moved higher and that was Merck, up nearly 8 percent. So three on the upside, very good call.
ELEY: And they both pay good dividends. So you add the dividends on top and you made some nice money.
KANGAS: How about some new recommendations?
ELEY: We're going to give you three again. First Chevron (CVX), you have a very low P/E stock in this market with a nine and this is nine times earnings for the last year and a nice dividend yield, 3.1 percent, also an energy company. We don't have to worry if they can be profitable in a recession.
KANGAS: OK, fair enough. Let's have another one.
ELEY: The second is Dow Chemical (DOW. Here you have a little higher P/E yield, but still cheap at 11, times past year's earnings and a little higher yield, 3.5 percent. So you'll be paid while you wait for the earnings to come in.
KANGAS: We have time for one more.
ELEY: And the final is Altria (MO). Here you have a spin off of Kraft Foods coming up, which, it should help that stock to bounce well in the near future and in the meantime, you get a little bit more than 4 percent dividend yield.
KANGAS: All right. Do you personally own any of these stocks, Randall?
ELEY: I own every one of them. So do our clients and the shareholders of the company.
KANGAS: You'd like tose, the new three, you liked way back in April of last year and they're higher than they were then now. So we'll see how they fare. Thanks very much for sharing your insights with us.
ELEY: Good to see you again.
KANGAS: My guest, Randall Eley of the Edgar Lomax Company.