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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, editor ChangeWave Investing; and Scott Bleier, president of HybridInvestors.com.
Trading Pit: The Next Big Boom!
Stocks have been all over the place. Up triple digits one day, down big the next. Are we heading for a big boom…or big bust?
Gary B. Smith: We will have a big boom if the Nasdaq can close above 2100. We’re inching towards it. If we definitively close above 2100, I think tech mania will really take off and greed will take over. However, if we fail at 2100, I think we’re in for a long, miserable summer.
Pat Dorsey: I think we have more risk to the downside because there’s more potential for bad news than good news. The market’s been pretty positive lately, but there’s a lot of geopolitical risk. Iran is building nuclear weapons. And North Korea threatens to launch a nuclear weapon every week
Tobin Smith: When the Federal Reserve is done raising rates, stocks will boom. In June they’ll signal rises in interest rates are coming to an end. August will be the end. The market will anticipate this, and we’ll be up from here. Also, where are you going to find companies that grow their earnings 300-400 percent more than the inflation and interest rates? The answer is the United States. There’s no growth in Europe. Japan has no growth. And in China, there are no profits.
Scott Bleier: The market senses that the Fed will finish raising interest rates soon. I used to think there would be 4 more rate hikes, but now I believe we will have 2 more hikes. The market’s worst enemies are higher interest rates and a Fed that wants to squash the economy. The boom is coming. Stocks have been stuck in a trading range for 18 months, but break out is coming, and it will be to the upside.
Each of the "Bulls & Bears" then picked where they think the next big boom will be.
Tobin Smith: Alternative Energy. Clean coal. Hybrid energy. Affordable solar power. This is where the capital and investment will be made — energy sources that will replace hydrocarbons. Before oil prices were going down and supply was growing more than demand. Now we have more demand than supply.
Gary B. Smith: Health Care. Aging baby boomers will want — and need — medications. Specifically, companies like Johnson & Johnson (JNJ) and Amgen (AMGN) will do well. But the NYSE Health Care Index has been performing very well. It’s paused, but is about to take off, and is where you want to be for the long term.
Scott Bleier: Biotechnology. This is similar to Gary’s pick, and is a play off of baby boomers getting older, but there’s more risk and more reward. We want to cure diseases and are spending a ton of money to get cures. Fifteen years ago this was in its infancy. Now these drugs are coming out. I don’t know which specific companies will do the best, but the way to play it is to buy, iShares Nasdaq Biotechnology (IBB).
Pat Dorsey: Dividend stocks. Tax rates on dividends are low, but dividend-paying stocks have not lead the market. People aren’t paying attention to them. However, over the past 50 years, dividend-paying stocks have accounted for two-thirds of the market’s total return. Stocks that pay out more of their income as dividends tend to have higher future earnings growth because their managers must be more disciplined.
Ask the Chartman
You’ve got questions and Gary B’s got the answers.
Michael in Chicago writes, “I’ve been checking out Google’s (GOOG) chart. Is it a buy or a sell?”
Gary: I was bullish on Google, but now I’m scared about it going parabolic. It’s been going straight up and will run into trouble once it hits $300. (Google closed on Friday at $280.26.)
Bill from Austin, Texas, bought Telik (TELK) about a year ago and wants to know if will make any money soon.