06/27/03:"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": Thank you, Paul.
KANGAS: I see by your latest weekly report that you have a negative rating on the current U.S. stock market. Does that mean we're still in a bear market?
DRACH: Not necessarily. But let’s briefly back up to the first of the year when we spoke. The January rally was not sustainable. And the easy entry points statistically were early to mid-February. And the subsequent rally since then has very likely run its course which means the focus needs to change to individual stocks rather than thinking the popular averages are going to salvage it.
KANGAS: Well, back in early January, when you were last with us as a "Market Monitor," you gave us seven recommendations: Home Depot (HD), GE (GE), McDonald’s (MCD), Automatic Data (ADP), Total System Services (TSS), UST (UST) and Philip Morris (MO). Six out of these seven are higher. The only one lower, Automatic Data, only by 3 points. Some great calls there, do you still own them or have you taken some money off the table?
DRACH: We move them around like on the side – but yes, we’ve taken money off the table in the overall hardcore timing. But we move them around. If they get overly overpriced, we’ll take them out and switch to something more discounted.
KANGAS: Well, you know, you have been managing our basic timing model portfolio on the NBR Web site since May of 1995. And we have a graphic showing how successful you have been in your management of that little basic timing portfolio. Your Drach portfolio is up 198 percent compared to the Dow, 109 and then smaller gains by NASDAQ and the S&P 500. And then let's look at the number of stocks that you have owned during that time. You have taken 261 positions, 243 have been profitable and only 18, and none even. That's a great record, Bob, I congratulate you.
DRACH: Well, keeping at a higher win ratio is very important because it helps maintain your capital base. So that's the first thing we look for. And then to do that the easiest way is to stay with high quality discounted stocks, a very basic, simple approach but it does quite well.
KANGAS: It certainly seems that way. Now are you looking to buy any stocks now that are different from the ones I just mentioned or do you still like all of those?
DRACH: No. We'll switch a bit. And it's always updated on the site which is archived daily, most of it. But now, you know, they hate new ones now. They hate Freddie Mac (FRE), for example. So we’d go there, Federal Home Loan, FRE, known as Freddie Mac. Avery Dennison (AVY) is certainly hated now.
KANGAS: Yes, that was under pressure earlier in the week.
DRACH: So, yes, we took them…
KANGAS: Well, you – just as an example, the last you were with us in January, McDonald’s was on everybody's sell list and said, that’s good enough for me, buy it.
DRACH: Yes. That was on everybody's hate list. Mad cows and everything else. But you understand the higher quality ones and really looking for market dysfunctions. There is not as many now because the market is elevated.
KANGAS: Right.
DRACH: But you could go a little bit deeper, maybe State Street (STT), Synovus Financial (SNV), and I think GE is still discounted.
KANGAS: OK. Now do you or your interests own all of these stocks that you mentioned or no?
DRACH: No, we use this as a modeling. There is far more refined analysis we use for other things.
KANGAS: OK. So you just stay in those stocks that have been overly discounted but they have to be high-quality companies?
DRACH: Oh, absolutely. But then when they become – when they elevate, something else can take their place. It’s a rotational process.
KANGAS: Well, how do you determine – what are the criteria for – which ones do you select?
DRACH: Well, we want to stay with the higher quality stocks, A…
KANGAS: Yes, but what is high quality to you?
DRACH: Well, you can stay with, I would say, anything A or A-plus with Standard & Poor and probably in the upper 15 percent of ValueLine, with earnings predictability. That can give you kind of a measure. But they rotate constantly. So the advantage is taking advantage of rotation. When they’re down, they go up, something else will come down. You just move them back and forth.
KANGAS: So when they get a little overpriced, out you go, and then you look for those that have been discounted.
DRACH: The whole concept is wholesale to retail, using stock as inventory, very simple.
KANGAS: All right. So there's still money to be made in this market, just don't pay attention to the basic averages.
DRACH: Yes. I would say with the caveat that – well, they are selected. If they watch the site, we may have to switch position more rapidly now.
KANGAS: OK. All right. Bob, thanks very much for being with us.
DRACH: Thank you very much, Paul.
KANGAS: My guest "Market Monitor," Robert Drach, editor and publisher of "Drach Weekly Research Report." |
