6/14/02: Market Monitor- Robert Drach, Editor & Publisher of the "Drach Weekly Research Report"
PAUL KANGAS: My guest market monitor this week is Robert Drach, editor and publisher of the "Drach Weekly Research Report." Welcome back to NIGHTLY BUSINESS REPORT, Bob.
ROBERT DRACH, EDITOR, "DRACH WEEKLY RESEARCH REPORT": Good to be with you again, Paul.
KANGAS: You've been basically very negative on the stock market since your last visit with us in early January. Do you see any signs that the market is close to making a major bottom, or can we expect more of the same kind of frustrating weakness that we've been experiencing here?
DRACH: Well, we spoke in January, I thought the market - the popular averages, at least, had an 8 percent vulnerability.
KANGAS: I recall that. And as a matter of fact, why don't we go back and check the record to see how you fared with that recommendation. You saw an 8 percent drop coming in the Dow Industrials, through today so far this year your model portfolio that you do for our program is down only 3 percent, Dow off 5, a 12 percent drop on the S&P 500, NASDAQ down 23 percent. So in comparison you've done very well. And if we go back to the initiation, when you first started doing our model portfolio back in May of '95, you have done very well, up 188 percent. Congratulations.
DRACH: Well, that's just the result of alternating between a conservative and aggressive stance.
KANGAS: Right. What stock groups right now do you think are reasonably priced if any?
DRACH: I think we finally hit the parameters we talked about in January.
KANGAS: You actually see some light at the end of the tunnel here?
DRACH: Yes. For the first time we'll publish a buy indication this year. And it will be moderate.
KANGAS: Well, that's interesting.
DRACH: Yes. When you look at those, you can see in the initial board that the Standard & Poor's and NASDAQ bleached what we thought, the 8 percent decline, but the Dow has been resilient. But this morning it made it. And so that pretty well triggers here - is for the anticipated decline. So we become more aggressive, yes.
KANGAS: So you for the first time this year you have a buy signal out, what would you buy here?
DRACH: I think you want high quality stocks, as always, that are relatively discounted. In the drugs, Schering- Plough (SGP), Merck (MRK) , in retailers, Home Depot, Casey's General Stores (CASY) which is traded on NASDAQ. In the financials, State Street (STT), Synovus Financial (SNV). But also add Dollar General (DG) to the retailers. And I wouldn't mind General Electric or McDonald's (MCD) here.
KANGAS: Well, you like GE back for quite some time, and of course it's way down from the mid 40s where it was when you first recommended it, down to just around 30 now. But you like it here, especially, I guess.
DRACH: That's part of the reason we're down a little bit for the year.
KANGAS: Right. But the thing that's got you in trouble actually and caused that 3 percent decline in the model portfolio for NBR were mostly the drugs, like Schering- Plough and Merck and Pfizer (PFE). But you had a good winter and that was AFLAC (AFL) in the insurance group, that stock is up from 23 in early January to the 31 level, that's good percentage move. Are you staying with it?
DRACH: No. I like them a little lower. But one of the things that's happened is that there hasn't been normal rotation of the market. That's one of the reasons we took a conservative stance. Now we're seeing some broader breakdown among high quality stocks. The other thing I like is the public is very dispirited here, the sentiment survey shows excessive pessimism, which reduces overhead supply.
KANGAS: Well, you always mention exchange support, the specialists, and you see that happening, they're going long.
DRACH: We're getting - finally we're getting some support at higher quality issues, which we've been waiting for. It's just coincidental that today is the day we'll publish the first buy indication.
KANGAS: Of this year.
DRACH: Yes. It will be moderate, and any weakness will expand.
KANGAS: So you're not in for the long run here, you're just in for perhaps a summer rally?
DRACH: I'm in for whatever run it takes to take the money.
KANGAS: OK.
DRACH: When the data shifts we'll leave, we're just beginning to get the data. Hopefully it will stay there for a long time. I think you'll have an up year from these levels, because it's very rare the market stays down three years in a row. But stay with higher quality stocks that are discounted as always.
KANGAS: OK. So it's very interesting. The favorite groups, once again, this is an unusual occasion here for you so far this year, first time on the buy, which of the groups did you favor the most?
DRACH: Well, I favor the higher quality issues in a variety of groups, like I mentioned the drugs, Schering- Plough, Merck, in the financials, State Street, Synovus, in retailers, again Casey's, Home Depot, and Dollar General, and then round it off to nine, we'll take General Electric and McDonald's.
KANGAS: OK. It's nice to hear someone that wants to buy some stocks for a change. Thanks very much Bob.
DRACH: Thank you, Paul.
KANGAS: My guest, Robert Drach, editor and publisher of "Drach Weekly Research Report." |
