"Market Monitor"-Robert Drach, Publisher of the "Drach Weekly Research Report"
Friday, January 19, 2007PAUL KANGAS: My guest market monitor this week is Robert Drach, publisher of the "Drach Weekly Research Report" based in Tallahassee, Florida. Bob, welcome back to NIGHTLY BUSINESS REPORT.
ROBERT DRACH, PUBLISHER, DRACH WEEKLY RESEARCH REPORT: Good to see you again Paul.
KANGAS: Last July on your last visit with us, the Dow was struggling at the 11,000 level and you said it would head much higher as soon as the Federal Reserve stopped raising interest rates. Well, the Fed just did that and here we are above 12,500 and that was a good call. I compliment you.
DRACH: Well, thank you.
KANGAS: Now, however, a lot of economists are predicting a Federal Reserve rate cut, but the economy really isn't slowing down that much and inflation is of concern to the Fed. How do you see this scenario unfolding?
DRACH: The Fed data that was important in July with their August cut is not a factor anymore.
KANGAS: None?
DRACH: No, I would not be concerned about the Fed until next March or April. But right now, you want to be concerned about corporate insider selling. Fed data -- we got the elevation from the Fed. Now we have this corporate inside selling has come in. We have a little froth, so I wouldn't look for the Fed. I would look for a correction from those data sets.
KANGAS: How accurate is an increase in insider selling as far as predicting market movement?
DRACH: It depends on what else is going on, but it's usually a three or four month lead and that data got big in December. It's just a caution time. I'd love to be bullish like I was in -- last July, but it's time to take a little money off the table, I think.
KANGAS: How big a decline do you think that this might precipitate?
DRACH: Usually they're soft, but you don't know until they start. And the Fed might not be able to bail them out. You have a flat-yield curve. The Fed could lower rates and long-term rates could go up anyway. So don't count on (INAUDIBLE)
KANGAS: Anyway, it's a time for caution.
DRACH: It is a time statistically to be.
KANGAS: Many of our viewers know you manage NIGHTLY BUSINESS REPORT's model investment portfolio. Let's see how you did with that in 2006 overall. And there we see the Dow industrials actually beat you out last year. That's the first, I think.
DRACH: Every once in a while they'll get ahead of us, but overall, we get ahead of them more. We had a rough first half, actually.
KANGAS: Now let's see how the model has done since its inception under your management back in 1995 and there is a little different picture. Your portfolio is way up, 315 percent.
DRACH: We beat them more than they beat us.
KANGAS: Yes, you do. Anyway, I compliment you on a great job. We appreciate the time you spend on our model.
DRACH: Thank you.
KANGAS: Going back to July of last year, you had four stock recommendations. Let's see how they've done since then. Let's start with the first two. Dollar General up almost 21 percent. McCormack up nearly or 12 percent, good calls there. And let's have a look, I think there were two more. United Health Group up 17 percent-plus and William Wrigley, an 11.3 percent rise. All winners and are you still with them?
DRACH: Some of them I've gotten rid of and added different ones. But pretty much the same. The thesis is quality stocks that are discounted.
KANGAS: You're taking some money off the table on those four?
DRACH: I think you should do that until March or April. Why not? That's your risk period.
KANGAS: Bob, given your guarded market outlook, are there still some stocks you would be buying?
DRACH: You can look. I would be wanting high-quality depressed stocks like Walgreen's.
KANGAS: OK. There's a chart of it right there, kind of a bouncy time of it.
DRACH: Commerce bank shares.
KANGAS: Let's have a look at the chart on Commerce.
DRACH: They all kind of look kind of down. You can see they are off their highs.
KANGAS: Yeah, you like that.
DRACH: Yeah, I don't want anything high. Universal Forest Products, this will look better to you this one probably. See that really looks bad.
KANGAS: Oh, my goodness.
DRACH: The worse they look, the better we like it.
KANGAS: I know. Seems to work.
DRACH: And Expeditors International.
KANGAS: That's a NASDAQ issue as well.
DRACH: But I would like to make clear the caveat that this is not an entry point. If you watch the web and know, but it's dangerous here for the next month or so.
KANGAS: This is sort of like shopping and putting these in your cart but not going to the cashier yet.
DRACH: Well, it's run up a little bit too much. Your earnings have not kept pace with the rise (INAUDIBLE) price earnings ratios are going up. It's just a warning (ph) time.
KANGAS: Bob, do you personally own any of the stocks we've been discussing tonight?
DRACH: No, that's purely educational.
KANGAS: OK. I want to thank you for being with us once again. We'll look forward to your next visit.
DRACH: Thank you, Paul.
KANGAS: My guest, Robert Drach of the "Drach Weekly Research Report."
