DAVE HARRIS: Welcome to Dave On Stocks podcast #39. I'm Dave Harris. This show is for Monday February 12th 2007. I'm a long term investor with a diversified portfolio of stocks.

I think it's time to take advantage of the weakness in semiconductor stocks. The Philadelphia Stock Exchange semiconductor index (SOXX index) was on a roller coaster ride last week and took a hit Friday by dropping 6.49 points. Micron Technology (MU) warned investors about weak demand and a decline in memory chip prices. The domino effect was a sell off of Intel (INTC) stock. That was a mistake in my view, and now is your chance to pick up some Intel shares at a discount. I have a buy recommendation on the chip maker. They had a loss in the 4th quarter but still beat and I think their revenue guidance for the first quarter looks good at around 8 to 9 billion. I see INTC going to $25 per share. Semiconductor stocks are on the way up this year and I think you should have one as a core portfolio holding in the long term. INTC closed Friday at $21.03 per share.

I see increasing revenue for 2007 and 2008 for Texas Instruments (TXN), the mobile handset chip maker. The chips allow phones to surf the internet, check email and play video. The company expects stronger demand this year as they reduce costs. Although they offered a lower than expected first quarter sales guidance, I'm expecting TXN to raise forecasts by mid-year as conditions change. I think the stock is going to $40 and suggest you buy TXN. The stock closed at $30.92 per share Friday.

Microchip maker Broadcom (BRCM) had a lower 4th quarter profit because of weakness in the sector. I think that's probably temporary and have some confidence that inventories will improve. Scott McGregor, the Chief Executive, said the company is comfortable with where the market is headed. Overall earnings matched Wall Street expectations. I suggest you hold the stock because I don't see the shares going much higher at this point. BRCM closed Friday at $34.22 per share and it's pretty expensive with a price/earnings ratio of 38.71. Intel's earnings multiple is 24.51 and Texas Instruments has a P/E of only 11.11. I suggest you wait until Broadcom reports the next few quarters and see if they deliver before buying the stock.

So this is the year for semiconductors to take off. I suggest you buy INTC and TXN now while the stocks are cheap.

Soft drink and snack maker PepsiCo (PEP) said sales were strong internationally. Net revenue increased 2.8%. Fourth quarter profit went up 61% which matched expectations. The company had double digit revenue and operating profit growth internationally. Profit for the full year rose 38% and revenue went up 7.9% in 2006. The Frito Lay business had robust sales and profit growth in the high single digits. A smaller orange crop in Florida is an issue, so PEP hiked prices on Tropicana orange juice to offset the higher costs. Still, non-carbonated drinks had a .5% rise in volume for the North America division. The Gatorade drink was hurt by supply chain issues, but the company is constructing new plants to improve the situation. I think PepsiCo will manage their higher raw material costs and I still see solid profitability in the long term. The company forecast 2007 earnings at $3.30 per share-that's a raised guidance. PEP plans to buy back over $3 billion dollars worth of their own shares. I have a buy rating on PEP, which closed Friday at $63.91 per share. I think PepsiCo is going to $75.

My stock pick of the week is coffee maker Starbucks (SBUX). The company just announced a CD to be released early April containing tunes recorded by Starbucks employees. The release will be called "Off the Clock Vol. 1: New Music from Up & Coming Starbucks Artists". I admire a company brave enough to try new and odd things like that. More importantly, SBUX just delivered solid first quarter results with a 22% increase in revenue. China is going to be a great opportunity for the company. 2,400 new stores are targeted for the fiscal year. They keep growing and growing. SBUX closed at $32.96 per share on Friday. I think the stock is going to $45. Buy SBUX.

There's some important economic news ahead this week. The December international trade deficit comes Tuesday. On Wednesday there's retail sales for January. Friday it's consumer sentiment for February from the University of Michigan. The PPI, Producer Price Index, a measure of wholesale prices is also due Friday. That's a good inflation indicator and may offer clues to the future of interest rates. Speaking of rates, the Fed chairman Ben Bernanke speaks to the U.S. Senate Banking Committee Wednesday and the House Financial Services Committee Thursday. He may say something to indicate the Federal Reserve's view on the future of interest rates. I expect a rate cut by mid year.

That's all for this podcast of Dave On Stocks. I'm Dave Harris. I'll talk to you again soon with another show. Write me with any questions or suggestions about the podcast use the "contact us" link on the web page. My website is www.daveonstocks.com. This is Dave On Stocks.