Stock Smarts: No Peace, No Bull?
Violence in the Middle East is helping to keep investors on the sidelines. Here’s how stocks have done since Israel launched its offensive on March 29:
S&P 500: -3.2%
Since March 29, 2002
Do we need to see a peace agreement before the bulls get back in the driver’s seat?
Wayne Rogers, founder and CEO of Wayne Rogers & Co. thinks that a big problem lies with what is going to happen with the price of oil. Continued conflict in the Middle East is going to drive oil prices up which is going to hurt the economy, which in turn will hurt stocks.
Dagen McDowell of Fox Business News thinks the weakness in the market has less to do with the Middle East, and more to do with how companies are performing. The market is still focused on profits and earnings, and that’s what the market wants to see more than anything else. Asset allocation is also key to survival - keeping at least 10%-20% in cash.
Jonathan Hoenig from Capitalistpig Asset Management isn’t thinking about oil or the Middle East - he’s thinking about the markets! He continues to focus on the small cap stocks, and they are outperforming the well-known, large cap issues. While the major indices are doing nothing, investments like gold stocks and REITS are doing well.
Hilary Kramer of Montgomery Asset Management does not believe that the Mideast turmoil will create an oil crisis in the U.S. and she feels that earnings news like General Electric’s disappointing revenues last week are already priced into the market.
Jonas Max Ferris points out that emerging markets are doing well, which would suggest that investors really aren’t too concerned about the Middle East. He is part of the camp that is looking towards earnings to lead the market forward.
Bargain$ or Busted?
Three big names, IBM (IBM), Bristol-Myers (BMY) and Tyco (TYC) have all been hit hard recently, for a variety of reasons. Have these stocks now become bargains, or are they just plain busted?
IBM - Hilary thinks Big Blue created a price war that is hurting its bottom line. Jonathan does not like IBM - he sees nothing redeeming in the stock. Wayne thinks that IBM has been using a lot of legal gymnastics to make earnings look more attractive than they really are and he isn’t too keen on the price right now. (Wayne does own shares in IBM, but he bought them at a very low price).
Bristol-Myers - Jonathan thinks drug stocks are over owned and doesn’t think the pharmaceuticals are where you want to be invested right now. Hilary says BMY is a great place to have your money. She calls it a profitable company and cites its 3.6% dividend yield as a plus for shareholders. She says its got a lot of new drugs on the horizon in 2004 and 2005. Wayne agrees with Jonathan. He doesn’t like BMY. He says they have an inventory problem right now that could force them into a “write down” this year.
Tyco - Wayne kind of likes Tyco, but not right here. He would “nibble” at lower prices. Hilary thinks Tyco is a good opportunity with upside potential. Jonathan says no way.
Mutual Fund Face-Off: The Best IRA Funds
Many taxpayers are still eligible for a write-off on their 2001 taxes if they invest in an Individual Retirement Account before the deadline Monday. What’s the best fund to buy for your IRA account?
Dagen: Jensen Fund (JENSX)
Minimum Investment: $1,000
Expenses: $9.50 for every $1,000 invested
Jonas: Northeast Investors Trust Fund (NTHEX)
Minimum Investment: $1,000
Expenses: $6.50 for every $1,000 invested
Dagen and Jonathan wrapped up the show by answering some email questions from viewers:
Question: "I ‘play’ with $1,000 looking for active stocks to ‘day trade’ but can’t find any. Any suggestions?"
Jonathan: Put that $1,000 in the bank for a rainy day. But there are a couple of cheap stocks that you could look at. Many are below the $500 million market cap that we set for stocks talked about on this show. One I like that is big enough is Gruma (GMK), which makes tortillas.
Dagen: Don’t play with money!
Question:"Office Max (OMX) seems to fit your ‘buy’ criteria on both a technical and a fundamental basis. What are your thoughts on the stock?"
Dagen: Sales have been falling at all the office supplies stores. Office Max doesn’t look too good to me.
Jonathan: This is a case where the fundamentals and the technicals are in opposition. The charts look good. I think the stock’s worth looking into.
Question: "I am 14 months old. Each year my grandma buys me the stock of my choice. Last year I chose Disney. Any advice on what to buy this year?"
Jonathan: Ava should look at the REIT’s. Two worth looking at are the DJ U.S. Real Estate iShares (IYR) and Equity Residential Properties (EYR).
Dagen: Little Ava should consider a mutual fund. One that I like for her age would be the Excelsior Value & Restructuring Fund (UMBIX).
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