"Market Monitor"-Derwood Chase of Chase Investment Counsel
Friday, June 02, 2006PAUL KANGAS: My guest market monitor this week is Derwood Chase, president of Chase Investment Counsel, a money management firm based in Charlottesville, Virginia. Welcome back to NIGHTLY BUSINESS REPORT. Good to see you again, Derwood.
DERWOOD CHASE, PRESIDENT, CHASE INVESTMENT COUNSEL: Thanks very much, Paul.
KANGAS: When you were with us last in August of 2005, you said interest rates were more important than the price of oil in deciding stock market strategy. Well, they`re both quite a bit higher now than they were then. Are you still of the same opinion?
CHASE: Well, I think so, Paul. The interest rates are particularly important with this many people in debt, not only consumer loans, mortgage loans and so forth, not to overlook the higher oil prices which are impacting consumer spending as well. And the market hasn`t done a whole lot since then, either.
KANGAS: Well, that`s true. But where do you think these two factors are headed? And let`s start with interest rates. Are we seeing a topping out finally?
CHASE: I think we`re close to it. I`m not that kind of an economist so maybe one more increase. But I think the Fed`s indicated they want to see the data and I think they`re telling the truth on that one.
KANGAS: And oil?
CHASE: Long term I think oil prices are going higher. Right now I don`t see any reason why they should go higher. And of course natural gas prices are well down from their peaks.
KANGAS: That`s true. What is your present stance on the U.S. stock market right now?
CHASE: Well, it`s a bit of a tug-of-war. Companies have a lot of money and are buying in their own shares or buying other companies in many cases and certainly the business -- level of business activity is very good. We are particularly mindful and I guess we`re cautious because, you know, the midterm years, if you take the presidential four-year cycles, haven`t been very good. After long periods of Fed tightening, we`ve usually had some significant problems. So I`d say we`re cautious on the market, think that there will be a significant correction sometime this year or early next.
KANGAS: OK. A lot of uncertainty out there about the midterm election, no doubt about that. On your last visit with us in August, you gave our viewers three "buy" recommendations. Let`s have a look and see how they`ve done. Amgen not well at all, down 13 percent, didn`t get much higher than the price that you looked it at nearly 80 then. Are you still with it?
CHASE: We eliminated it. It broke down technically and we eliminated it about 5 percent lower than where we were talking about it last August.
KANGAS: Well, Wellpoint is just about where it was then. It`s been a little bit higher but not much changed since your recommendation. Are you still with that?
CHASE: No, we`ve eliminated that as well.
KANGAS: OK, there was one other recommendation that you gave us back in August, XTO Energy which has done very nicely, up over 17 percent. That kind of makes up for those two on the down side, doesn`t it?
CHASE: Yeah and we still hold that, Paul.
KANGAS: You still hold it, OK. Would you buy it at this level?
CHASE: It`s a strong hold. If you didn`t have expiration, natural gas, it would be certainly be a strong holding in that area.
KANGAS: Do you have new recommendations for our viewers?
CHASE: Well, we like energy service companies a little bit better than just outright energy companies right now. Baker Hughes (BHI) is involved in all kinds of drilling, evaluation.
KANGAS: We`re looking at a chart here and it`s really had quite a rise. That doesn`t scare you off, though?
CHASE: No, their earnings are going to be up solidly this year and they should be continuing regardless of the prices, whether it`s U.S. companies which only control about 15 percent or national ones. We think it`s going to continue up.
KANGAS: We have little less than a minute. We have time for maybe two more recommendations.
CHASE: Well, Met Life (MET) is pretty defensive. They`re by far the largest insurance company in the United States, largely group and United Technologies (UTX) is....
KANGAS: Let`s have a chart on United Tech. Ther it is. It, too, has had a pretty decent rise.
CHASE: They`re number one in 65 percent of the areas that they compete. I`m sure your viewers would recognize the Carrier, Otis, Pratt & Whitney engines.
KANGAS: So you like high-quality names, that`s pretty obvious by those three choices. Do you personally own any of those stocks?
CHASE: I don`t directly own any of them. Either through Chase Growth Fund CHASX or Chase mid cap growth fund. I`m one of the largest holders of both of those funds and we do own them.
KANGAS: Derwood, we`re out of time unfortunately, but thanks for being with us again.
CHASE: My pleasure.
KANGAS: My guest, Derwood Chase of Chase Investment Counsel.
