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Bulls & Bears
Brenda was joined by: Gary B. Smith, RealMoney.com columnist; Tobin Smith, founder and chairman of ChangeWave Research; Scott Bleier, president of HybridInvestors.com; Gary Kaltbaum, president of Kaltbaum & Associates; Adam Lashinsky, senior writer at Fortune Magazine; and Chris Russo, "Apprentice" contestant and senior vice president of Investments for GunnAllen Financial.
Trading Pit: Second Term, Second Chance?
The president's second term has just gotten started. In his first four years, he certainly faced a lot: the bursting of the market bubble, then 9/11, and two wars.
Yet amazingly, stocks lost little ground in that time. When Bush took office for his first term, the Dow was at 10,587. At the start of his second, it was at 10,539.
So will Bush's new term be a second chance for stocks to make major gains?
Gary B.: Absolutely. President Bush wants to do a lot of things. Tax simplification. Revamping Social Security. More tax cuts. All of these things will help the market. Stocks have been beaten with an ugly stick and it looks like there will be more downside to come.
Adam: If Bush is successful getting Social Security savings invested in the stock market, it will be a huge boom for Wall Street. Brokerages will be big beneficiaries. But this past week, earnings went up and the price of stocks went down. That’s a scary proposition four years out.
Chris: In this term, the president doesn’t have to appease everyone and wants his legacy to end with a positive note. The market has done quite well, especially considering a lot of people were predicting Dow 5,000 after 9/11. After Bush was re-elected, tons of money flowed into stocks, pushing them higher during November and December. But keep in mind, institutions and fund managers make their bonuses predicated on the year’s performance. So higher stock prices mean bigger bonuses. We are currently seeing a New Year’s hangover and stocks should regain momentum. I think there’s a good opportunity for stocks to go a lot higher.
Scott: The market may see big swings over the next four years, but I think that the major indices will be virtually at the same place. We had a wild ride during the past four years, but investors had tremendous trading opportunities. I think it will be tough, but if you keep trading and stay active, you can make a lot of money.
Tobin: This bull market is getting stale. 2005 is your best chance to own stocks — don’t’ miss it. I’m worried that in 2006 the stimulation will start to run out. I think we’re running out of gas. Actually, I dislike more industries than I like. But what I do like are energy, high dividend, and high income plays.
Gary K.: The bear market started in 2000. But that was after 18 big years. I am amazed that so many people say that the S&P 500 is cheap trading at 18-20 times earnings. Cheap is 12 times earnings. We are going to have mini bull and mini bear markets and will be stuck running in place. You just won’t be able to buy the indexes and make a ton of cash. You’ll have to be sector specific. I think gaming and steel stocks will continue to do well.
A president’s first hundred days in a new term are very important. Gary K, Tobin, Scott and Adam each picked the stock that will benefit the most in these first few months.
Gary K: I’m betting on ConAgra Foods (CAG). Right now is a good time to buy into food and beverage stocks. High-growth stocks like the ones in the technology sector have been getting blasted. It’s a good time to be in stocks that are growing at a slower pace. (ConAgra Foods closed on Friday at $30.00.)
Scott: This is a good company, but it’s already at historically high valuations.
Adam: I disagree. When oil goes down, food stocks like this will go up.
Tobin: My pick is Pioneer Natural Resources (PXD). This is going to benefit because it doesn’t have to spend a lot of money to find gas and get it out of the ground. I also think this stock will turn into a royalty trust since the company has such huge reserves. This will make its skyrocket. (Pioneer Natural Resources closed on Friday at $35.75.)