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Mr. CEO, do stock prices make any sense?
February 26, 2009 / 3:58 PM / in 9 years

Mr. CEO, do stock prices make any sense?

CHICAGO (Reuters) - Remember Dow 14,000?

<p>Traders work on the floor of the New York Stock Exchange February 26, 2009. REUTERS/Brendan McDermid</p>

Some 7,000 Dow points ago, in October 2007, the outlook for U.S. businesses was rosy, earnings were up smartly, banks had money and lent it. People actually bought cars.

Times have changed, as have stock prices. But at half their peak level, do stocks reflect a worst-case scenario, or do they accurately measure the prospects for American business?

Reuters posed that question to executives this week at the Reuters Manufacturing and Transportation Summit in Chicago. Most of them have spent decades in business and lived through many previous recessions and market panics.

None ventured that stocks were a screaming buy, but many said selling was panicky and overdone. Others begged to differ.

Prices reflect an expectation that current levels of economic activity will persist for a long period, said Ed Campbell, who heads Nordson Corp (NDSN.O), a maker of precision dispensing equipment that sells to a wide cross-section of U.S. industry.

“The $64,000 question is, what’s the shape of this recovery?” he said. “I do believe the stock market, again, will lead any recovery, and perhaps it may be wrong before it’s right.”

Brad Bell, CFO of water treatment and industrial services company Nalco Holding Co NLC.N, said stocks were held hostage by credit markets. When credit improves, so will equities.

And Caterpillar Inc (CAT.N) Group President Ed Rapp said he saw signs of panic and, therefore, bargains.

So is he buying?

Yes. Rapp said he recently bought Caterpillar shares, but leaves the rest of his portfolio to professionals.

Terex Corp (TEX.N) CEO Ron DeFeo said most of his equity was in shares of his company, which competes with Caterpillar in some markets. Prices reflect diminished prospects, he added.

“I think we lived beyond our means, and now we’re going to have to work our way out of that,” DeFeo said.

He bought municipal bonds about a year ago, which “has proven to be not too stupid.”

FINANCIAL ARMAGEDDON?

PayNet Chief Executive and co-founder Bill Phelan asked: “Have we reached financial Armageddon?”

But Phelan, whose firm tracks commercial lending, hastened to add: “I don’t think we have. I think this is a business credit cycle. Nobody realizes how severe these recessions, and how impactful, are on human beings until you’re actually in one.”

Seeing some very low valuations, Wick Moorman, head of U.S. railroad Norfolk Southern Corp (NSC.N), asked his financial adviser to buy stocks a little at a time.

“I just kind of close my eyes and throw it out there,” Moorman said.

Some executives, like General Electric Co (GE.N) Vice Chairman John Rice and YRC Worldwide Inc (YRCW.O) CEO Bill Zollars, said much of their money was tied up in company stock.

“I continue to be a substantial holder of GE stock,” Rice said, “and I don’t plan on selling shares until after I retire.”

Reporting by Nick Zieminski; Editing by Lisa Von Ahn

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