DAVE HARRIS: And welcome to the show. This is Dave On Stocks podcast #42. I’m Dave Harris. This is for Friday February 23^rd 2007. I’m a long term investor with a diversified portfolio of stocks. First I have some recent earnings news with stock advice, and then I’ll go over the week’s economic data.

Shares of Microsoft (MSFT) are trading down. A California Federal court said Microsoft’s windows media player infringed Alcatel-Lucent’s (ALU) 2 patents for playing digital music MP3s. MSFT was ordered to pay ALU $1.5 billion, but the decision will likely be appealed. The concern on Wall Street is more potential lawsuits against the likes of Cisco (CSCO) and Apple (AAPL). Microsoft claims they paid the appropriate license fees to Fraunhofer, a German institute, for the technology. Currently ALU shares are trading higher by 7 cents at $13.21 per share. I think you should use this opportunity to sell ALU. They recently issued a poor 1^st quarter forecast and a loss in the 4^th quarter. MSFT is down .27 cents to $29.13 per share. Take advantage of the weakness and buy Microsoft here. Also buy Apple (AAPL) if the stock trades down on the news. AAPL is $89.98 per share.

Crocs (CROX), the rubber shoe maker blew away Wall Street expectations with 4^th quarter EPS at .51 cents and sales over $112 million. The company guided above views with 1^st quarter earnings expected between .47-.49 cents per share. Crocs stock is much too expensive with a P/E of 42.76.  I would sell the stock because a better investment is the well established and profitable Nike (NKE). NKE had a nice 8% rise in second quarter profit due to strong sales around the world, especially China. Converse is adding to the company’s growth. Also, Nike’s P/E is 20.40, roughly in line with the industry’s earnings multiple of 19.93.  Currently NKE trades at $107.44 per share. I think it’s going to $115.

I liked the earnings from Hewlett-Packard (HPQ). The fiscal 1^st quarter had a 26% rise in profit and revenue climbed 11%. Overall the results beat expectations on sales of printers and personal computers. The personal systems group had a 17% sales rise and that was much better than expected. The CEO Mark Hurd is doing a great job generating solid profit and sales. I especially like the results from imaging and printing. Revenue went up 7% with $1.1 billion in operating earnings. For the 2^nd quarter, HPQ forecast earnings in line between .63-.64 cents per share excluding one-time items on sales of $24.5 billion, slightly above Wall Street expectations. Still, many investors were disappointed with the current quarter forecast which is slightly lower then the previous quarter. The stock has declined since the report. I think the sellers are wrong. HPQ is a buy. Currently the stock is $40.88. I think HPQ is going to $50 per share.

Strong earnings results from retailer Wal-Mart (WMT). The 4^th quarter beat expectations. Profit grew 8.8% and sales climbed 7%. I’m really impressed with the international division which grew 30% in sales from acquisitions. The 1^st quarter guidance looks really good with EPS targeted between .68-.71 cents. That’s above expectations. The fiscal 2008 guidance is also above expectations with a range of $3.15-$3.23 in EPS. Lee Scott, the chief exec said the quarter was wonderful and was encouraged by the record results. The company is in the middle of a strategic revamping that involves successfully cutting costs on electronics and toys and widening the merchandise choices, home décor and apparel. WMT is a company I’ve liked for a long time and I think this stock is a buy. In podcast #29 on Jan 8^th of this year, I suggested you buy WMT when it was selling at $47 per share. Today, the stock is trading at $49.72 per share. I think the stock is going to $60.   

In the midst of the housing slowdown, which I still believe hasn’t bottomed, I wasn’t expecting much from Home Depot’s (HD) earnings. They reported that the 4^th quarter profit dropped 28%. Sales rose 4%. Overall results missed expectations. Chief exec Frank Blake was discouraging in his view that the housing market would not turn around significantly this year. I see little growth for HD in the near term and don’t think the stock is worth owning at this time. I suggest you sell HD.

Economic news is suggesting the Fed is less likely to cut interest rates as quickly as most have hoped. The CPI (consumer price index) rose higher than expected at .2% in January. Medical care and food costs showed increases that outweighed lower energy prices. The core figure (core inflation) that excludes food and energy also rose above views by .3% last month. So there are some inflation concerns in play. The Federal Reserve looks at CPI (and PPI) closely to decide on interest rates. I’m not really discouraged by the numbers because I was not expecting the Fed to cut rates until the middle of the year. Also, consumer prices rose by only 2.5% (the smallest amount in 3 years) for the full year due to lower energy costs. I think that’s encouraging. Last week, Fed chairmen Ben Bernanke said we expect moderate economic growth with inflation pressures declining. Supporting Bernanke’s testimony, leading economic indicators rose .1% which suggests modest growth.

The amount of people applying for jobless claims fell last week to 332,000. This represents a decrease of 27,000 from a week earlier. The 4 week moving average, a more accurate representation, went up to 328,000 from 326,700. Because the week by week average is so volatile, the 4 week moving average is used for a better snapshot of jobless claims. I believe unemployment should slowly rise into mid year as the economy slows, as the Fed desires for combating inflation.  

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.