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Bulls & Bears
Brenda was joined by: Gary B. Smith, columnist for RealMoney.com; Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, founder and chairman of ChangeWave Research; Scott Bleier, president of HybridInvestors.com; Charles Payne, CEO of Wall Street Strategies; and Mike Norman, founder of the Economic Contrarian Update.
Americans are buying second homes at a record pace, many for investment purposes only. That is a lot of money that’s not going into the stock market. If home prices collapse, will stocks soar?
Charles Payne: I would bet on it, but there’s not going to be a direct correlation. A lot of would-be investors are on the sidelines and already feel snake-bit by the market. I don’t think there will be an immediate move out of housing into stocks at the first sign of weakness.
Tobin Smith: In this case, people will invest in the stock market if they stop seeing the returns in housing. I’m betting that the housing market as an investment, has started to peak and investors won’t see the return on it. If the housing market tanks, interest rates will go crazy. And you don’t want to own extra homes or stocks when interest rates are high.
Mike Norman: The returns in housing investments are not there anymore. There’s negative cash flow and the appreciation has slowed down or stopped. If these housing investors are smart, they’ll take money out and put it in the stock market where there are great dividends.
Gary B. Smith: It’s all about confidence. If housing prices collapse, it’s a bad thing for the market. People will feel less wealthy and they’ll want to keep their money hidden under a mattress. The whole housing sector is hurting right now. Taking a look at a chart of the Housing Index (HGX), it has been broken and is stuck in resistance. Avoid it until it shows new strength.
Pat Dorsey: Housing is overheated in areas like Las Vegas, San Diego and Boston. It’s a silly idea to think that if housing collapses, that money will flow into stocks. The big risk right now is that wealthy individuals are not the ones buying these second homes. They are being bought by less wealthy individuals with zero down and interest-only mortgages. When the bubble does burst in these overheated markets, it’s going to be very ugly.
Scott Bleier: The wealthy are the ones buying second homes. These are the same people who do the most investment in the stock market. If the wealthy stop buying homes, they will also stop buying stocks.
Stocks so good, you could bet your house on them!
Charles: I like Zimmer Holdings (ZMH). It’s the number one company in reconstructive surgery for hips, knees, etc. This is a long-term and short-term investment. About two weeks ago, the company was served a subpoena from the government about its agreement with doctors, but it’s business as usual at the company. I think Zimmer has tremendous upside and is going to $100 in the short-term and $150 in the long-term. I recommend it. (Zimmer Holdings closed on Friday at $76.62.)
Pat: This is a great business and has wonderful economics, but I think it is too pricey here. Wait until it gets to the low $60s to pick up shares.
Tobin: My pick is Suncor Energy (SU). Every two years, the company is going to double production out of Canadian oil sands. Canada is the only country in the world where production is going up. This is one that I would own for the next 10 years and I do own it. (Suncor Energy closed on Friday at $39.47.)
Mike: I don’t like this stock. Sooner or later, Toby’s luck is going to run out.
Pat: I’m betting on gaming company International Game Technology (IGT). It’s very profitable in the slot machine market and has good cash flow. The growth is slowing a little, but the price has come down a lot. It’s a great buy here. (International Game Technology closed on Friday at $26.92.)
Scott: The slot business is slowing a lot. Plus, there was just a huge upgrade cycle of slot machines, so not a lot of slots will be bought in the coming years. Wait and buy this stock two years from now when it is under $20.