A RESTAURANT TO BUY, RETAILERS TO SELL AND BIG WEEK AHEAD FOR BLUE CHIPS AS IBM, INTEL, CATERPILLAR AND 3M REPORT EARNINGS

10/13/2007

By Dave Harris

Last week ended with gains in the Dow (up .19 percent), the broader S&P 500 (gaining a half percent) and the NASDAQ (almost 1 percent higher), which should hit 3,000 in the near term. We had good earnings from General Electric (GE) Friday, and better than expected economic data suggesting consumer spending is strong. September retail sales rose .6 percent. That's going to keep economic growth intact over the next quarter, in my view. When you mix that with low core inflation (up only .1 percent), you have a great economic environment that will drive the blue chips higher. Stick with the big caps, because they have international exposure.

That's why I give McDonalds (MCD) a strong buy recommendation here. McDonalds gave a great 3^rd quarter guidance and some hot same-store sales numbers last week. The restaurant said worldwide sales in September were up nearly 6 percent. Their exposure in Asia is a big bonus. The stock closed Friday up .77 to 57.02 per share. It should be at $65.

Google (GOOG) isn't finished going up. The stock pulled back on Thursday, since then back to $637.39 on Friday. It's on the way to $700.

Some of the specialty retailers had disappointing September sales results last week. Most notably, sales at the Gap (GAP) fell 7 percent in September. Their Old Navy and Banana Republic divisions had poor numbers as well. I see no upside in the Gap's future so selling the stock is my recommendation. I also dislike Limited Brands (LTD), which had a 4 percent same-store sales decline and guided lower for the 3^rd quarter.

A bulk of Dow components will report this week. Special companies of note include bank Citigroup (C) and industrial equipment maker Eaton (ETN) on Monday. Tuesday is chip maker Intel (INTC), International Business Machines (IBM) and the bank Wells-Fargo (WFC). Thursday we get earnings from drug maker Eli Lilly (LLY). A big day is on tap for Thursday with the likes of Caterpillar (CAT), 3M (MMM) the maker of post-it notes and scotch tape and printer maker Xerox (XRX) opening their books.

In economic news, a reading on September consumer inflation from the labor department is due Wednesday. Also that day, further news (if you want to call it that these days) on the struggling housing industry comes out in the form of housing starts and building permits. Thursday, initial jobless claims will be reported.