DAVE HARRIS: Welcome to Dave On Stocks. This podcast is for Monday March 26^th 2007. Show #49. I'm Dave Harris. I'm a long term investor with a diversified portfolio of stocks.

This week we get a bunch of economic reports. Today brings a report from the commerce department on new home sales, but it's generally not a big market mover like last week's existing home sales. There's more on that coming up. Tuesday it's the consumer's view on current conditions when the conference board releases its report on consumer confidence. A look at manufacturing data is Wednesday when the durable goods orders report is released. Then on Thursday it's initial jobless claims and a final reading of fourth quarter economic growth, the GDP. Friday the Commerce Department will have personal income and construction spending data.

I think the latest economic news supports the idea our economy will slow down enough to control inflation, while avoiding a recession. The employment situation continues to show strength even though the economy is slower. Freshly laid off workers seeking unemployment benefits fell to 316,000 according to the Labor Department. There was a surprise in existing home sales. For February, sales rose 3.9% to 6.69 billion. Expectations were for sales of 6.30 billion. But I'm not overly excited because the median home price fell 1.3% to $212,800. There's still a concern that problems in the subprime market will further impact the struggling industry. So I continue to recommend you avoid stocks in the housing sector. KB Home (KBH) reported an 84% drop in first quarter profit. The company's first quarter EPS of .34 cents beat expectations, but keep in mind that estimates had been lowered. Chief Executive Jeffrey Mezger warned of instability in the housing markets that will continue into the spring. The company seems to have no idea when the market will stabilize. I maintain that housing has further to decline, and a report like this certainly supports my view. Again, I would avoid the homebuilders and recommend you sell KB Home. The shares closed down .39 to $46.86 on Friday.

Motorola (MOT) expects to have a loss in the first quarter at around 7 cents to 9 cents per share. Full year results are also expected significantly lower than expectations at roughly $9.3 billion. Motorola expects a slow recovery in the midst of tough competition overseas, weaker handset sales, and perhaps not enough fancy phones. Although the company's RAZR helped gain significant market share. On a positive note, their current stock buyback plan has been upped to $7.5 billion. They also have a fresh $2 billion share buyback in the works. The current CFO David Devonshire is going to retire. Greg Brown of the enterprise business will be chief operating officer and president. I think the company's issues are short term, and expect long term profitability for Motorola. I'm talking about the end of 2007 or early 2008. This stock is selling so cheap now. Motorola has a price to earnings ratio of only 12.14. Compare that to LM Ericsson's (ERIC) P/E of 15.93 and the Nokia (NOK) earnings multiple of 16.29. I have a buy rating on Motorola. The stock closed Friday up .25 to $17.75. I think it's going to $25 per share.

Coffee maker Starbucks (SBUX) has a new record label called Hear Music, and has signed on former Beatle Paul McCartney as their first artist. The album is slated for release this summer. Starbucks is a company in real growth mode, especially in China. Here's a company with over 13,500 stores around the world. According to Chairman Howard Schultz, Starbucks will double in size in 5 years. Full year guidance calls for net sales rising 20%, and 3-7% growth in same store sales. I highly recommend the stock on their solid earnings results and aggressive growth plan. Starbucks closed on Friday down .22 to $31.42 per share. This stock is headed to $45.

Although FedEx (FDX), the delivery services company, reported a 2% decline in the fiscal 3^rd quarter from strong storms, earnings of $1.35 per share still beat expectations. The company had a 7% increase in revenue. FedEx warned that slower economic growth in the 3^rd quarter hurt profits, but still maintained their yearly outlook of 10-15% EPS growth. Results could fall below that, but the company is still going to have a good year. Fiscal 2007 earnings are expected between $6.70 and $6.85 excluding charges and the 4^th quarter is pegged in the range of $1.93-$2.08 per share. Those forecasts are in line with Wall Street expectations. I suggest you buy the stock. After all, president and chief exec Frederick W. Smith said FedEx is in a great global position right now and that the economy will turn around and pick up some speed. FDX closed up 2.08 on Friday to $112.71 per share. I think it's on the way to $125.

Oracle (ORCL) the computer software maker reported a strong fiscal 3^rd quarter on solid sales of software. Excluding items, profit for the quarter rose 35%, beating Wall Street expectations. Sales went up to $4.41 billion compared to $3.47 billion last year. However, I recommend you buy Microsoft (MSFT) instead. I prefer the larger company and see more growth potential with Microsoft. MSFT is a great long term core portfolio tech holding. Recently, Microsoft's fiscal second quarter revenue and earnings beat expectations. The company's servers and X-box 360 units are very successful. They've also got the new Vista operating system. Hot new hardware products will be out this April, including the Wireless Laser Desktop 4000 and Wireless Laser Mouse 5000, which will truly enhance the computer user's experience. With a year of double digit earnings growth expected, I think Microsoft is a buy. I see the stock going to $40 this year. On Friday, the stock closed .25 lower to $28.02.

The index of leading economic indicators for February fell .5% to 137.3, and that was in line with expectations. This reflects a slowdown in the housing industry and manufacturing. I think this gives us a good perspective on the near term future condition of the economy.

Last Wednesday, the Fed kept rates at 5.25% as widely expected. But the surprise to the upside was the removal of language from earlier statements suggesting a rate hike in the near future. I think we have a rate cut coming in the second half of this year. Our economy will maintain moderate growth, even in the midst of a poor housing market and subprime issues. Inflation is our biggest risk, according to the Fed. But the slower economy will keep inflation under control. I think the Fed is doing a good job and we will achieve a soft landing.

On Friday, the DOW closed up 19.87 to 12,481.01. The NASDAQ ended lower by 2.81 to 2,448.93. The S&P 500 index closed up 1.57 to finish at 1,436.11.

That's all for today's podcast of Dave On Stocks. I'm Dave Harris. I'll have another show for you soon. Thank you for listening. 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.