DAVE HARRIS: Welcome to Dave On Stocks Podcast # 48. I'm Dave Harris. This podcast is for Monday March 19, 2007. I'm a long term investor managing a diversified portfolio of stocks.

In the midst of what I believe is still a normal and healthy correction, the market is overreacting to problems in the subprime area. These are companies that lend to people with low credit ratings who don't qualify for the prime rate loans. Not only will the housing market suffer, thinks Wall Street, but of further concern is the spread of these problems into the broader economy. Subprime lenders such as Accredited Home Lenders (LEND), Fremont General Corporation (FMT) and Novastar Financial Inc. (NFI) are having some major problems. Since their tremendous decline, these stocks have picked up a bit, including Accredited Home Lenders on the planned sale of loans at a discount. The company needs cash to meet margin calls. It closed up Friday $1.47 to $10.90 per share. I would take that opportunity to sell. According to the Mortgage Bankers Association, last year's fourth quarter saw a record high in new foreclosures. I've been saying for a long time that the housing market will decline further this year, but I'm not convinced that the housing problems or mortgage company issues will have a huge impact on the broader economy. That's more or less what Former Fed Chairman Alan Greenspan said last week. Although he we warned we may face deeper problems if home prices decline further. I think our economy is holding up well as housing has suffered. After all, the employment situation looks very good, even in our slower economy. The labor department just reported the amount of people seeking unemployment benefits fell to 318,000 last week. That's lower by 12,000 and better than expected. So in my view, the market is worried too much about subprime.

So when will this correction end? I think we should expect 1 full month of volatility as investors absorb more economic data and realize housing has further to fall. Meanwhile, I feel the Fed has inflation under control as we achieve a soft landing. The consumer is healthy and I see steady, slow economic growth that can be sustained.

I continue to recommend strong, large cap companies in this environment. I like Proctor & Gamble (PG) here. They guided with a 10-12% sales rise for the full year and last quarter sales rose 11%. PG is a buy. It closed Friday down .30 cents to $61.61 per share. The stock is going to $80. Johnson & Johnson (JNJ) should be bought at this price. Here's a great healthcare investment with real profit growth ahead. JNJ sells at $60.51. That stock is headed to $75. But I'm not saying you should be all defensive. I like the cyclicals given the sustainable economic growth ahead. I have a buy on Eaton (ETN). The stock is cheap and demand for trucks is expected to rise significantly over then next few years. Eaton manufactures the components and internal systems. ETN trades at $82.52 per share. I think Target (TGT) the department store is selling at a great price with a P/E of only 18.63 vs. the industry average of 21.78. Hewlett Packard (HPQ) is a buy at $39.91 per share now. The computer and printer maker just announced an $8 billion stock buyback plan.

Starbucks (SBUX) has plans to keep expanding with over 40,000 stores to open in the medium term. Jim Donald, the chief executive, confirmed the plans recently. I recommend you buy Starbucks. I like the company's solid earnings results and growth potential in China. Starbucks closed up .99 cents Friday at $30.58. The stock is going to $45.

Consumer inflation rose by .4% last month on higher food and gas prices, and that was above expectations of .3%. But core CPI, excluding food and energy, met views with a .2% increase. We also had a greater than expected 1.3% jump in wholesale inflation. The PPI for February reflected higher food costs, energy and gas prices. Core PPI also exceeded views and rose .4%. I wasn't too surprised as energy costs dropped big time in January. So, the latest reading is just a bounce back.

I like the strong industrial production shown for February. According to the Federal Reserve, production went up 1%, that's above expectations of .3%.

Weather can be blamed for the lower than expected February retail sales. It rose a modest .1%, although auto sales were stronger with a .9% increase. Any positive news about autos is great to hear these days. January business inventories rose .2% and in line. I think all this just reflects our slower economic environment and the increase for unsold items is not surprising given the holidays are over.

In other economic news, consumer sentiment fell to 88.8 in the latest survey from the University of Michigan. That's slightly lower than expected and down form February's reading of 91.3.

On Friday, the DOW closed down 49.27 to 12,110.41. The NAZ fell 6.04 at 2372.66. The S&P was 5.33 points lower to 1,386.95.

This week includes data on housing starts and building permits Tuesday. We'll see if there's any positive information there for the struggling housing sector. A look at weekly initial jobless claims is reported on Thursday along with leading economic indicators. The National Association of Realtors will have existing home sales data on Friday.

That's all for today's podcast of Dave On Stocks. I'm Dave Harris. I'll have another show for you soon. Write me with any questions or comments at the "contact us" link on this page. My website is www.daveonstocks.com. This is Dave On Stocks.