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Bulls & Bears
This week’s Bulls & Bears: 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; Charles Payne, CEO of Wall Street Strategies; and Kendra Todd, “Apprentice 3” Winner and president of MyHouseRE.com
Trading Pit: Home$ or $tocks?
Homes or Stocks? There’s no question that housing’s been through the roof the last few years. But historically stocks still beat real estate pretty handily.
The bulls may be charging back to Wall Street. Stocks delivering big gains with the Dow up 370 points since July 6th. Could this be the end for the housing boom?
Gary B: If this rally continues, it could mark the beginning of the end of the housing boom. If we get the kind of gains we got in the late ‘90s, people are going to get greedy. The money made from all the buying and flipping of homes will be put it right back in the market. Before all this happens, the rally we’ve seen in the last few days has to continue. A chart of the Dow shows that we will. The Dow just broke through a long downtrend and it looks like the negative momentum seems to be out of the market. If it’s move up continues, money will flow back into stocks.
Tobin: When a person buys a house, it’s bought with a mortgage. For example, if 80 percent is borrowed and your house appreciates 20 percent, you made 100 percent on the money you have invested. Never compare real estate and the stock market. That being said, I do think that people investing in housing will fall flat and lose money. Eventually, the money will go back in stocks.
Kendra: I beg to differ. I don’t think the condo market in Miami is going to fall flat. Miami is an international market, driven by those from South America and Europe. Many investors from the Northeast and the Midwest also buy here. $50,000 will get you $50,000 with stocks, but with the 10 percent rule in real estate, that $50,000 can get you a half million-dollar home. I don’t see anything slowing down in the South Florida market. Existing home sales are up and had a record-breaking year last year. In the long run, real estate is more conservative and a much better play because it’s slow and steady. You can predict the market nine months out and strategize. It’s tangible and insurable. Plus, I like the fact that it’s tax-deferred.
Pat: I’m betting on stocks. If you get a half million-dollar condo for $50,000 down and then it goes down 10 percent, your equity is gone. There’s a lot more risk in buying a condo for investment than there is for buying stocks for investment. It’s different when you purchase a house to use as a home and plan to stay there for a long time. I wouldn’t touch any of the hot real estate markets.
Charles: Pat brought up something interesting: the liquidity factor. People are buying these homes because so much supply is coming on the market. The stock market is on a multi-year run up. If you thought the last few weeks were great, this market is going to really take off. There’s no doubt that will help to contribute to the plateau of the housing market.
Scott: Stocks are riskier, but will also give you a much bigger reward. There is the liquidity factor. You can sell a stock and get your money in three days. How long does it take you to liquidate your house and get your return? It’s a longer process. Yes, there is less volatility and fluctuation in the housing market, but stocks give you a much better reward.
Hurricane season could be bad this year, but which stocks will go up when hurricanes hit?
Tobin: I like Superior Energy (SPN), which sells and rents oil and gas well drilling equipment. The company also fixes broken wells, which is important after a hurricane comes through. I own and recommend it. (Superior Energy closed on Friday at $18.61.)
Scott: I used to like it at $12, but am now short this stock.
Charles: Home improvement store Lowe’s (LOW) will help people rebuild after a hurricane hits. It’s a great company and the underlying theme is you want a stock that is going to do well without hurricanes, but also with them. My clients own this stock. (Lowe’s closed on Friday at $63.65.)
Pat: Charles is right. This is a great company, but I don’t think there’s a ton of upside at the price it is at right now. If you want to bet on home improvement, Home Depot (HD) is better.
Gary B: I fully agree. I’m betting on the other home improvement retailer, Home Depot. The stock finally broke through a downtrend. It has a ton of upside and is going all the way to $70! (Home Depot closed on Friday at $41.61.)
Charles: Lowe’s is at a high for a reason. It’s outperforming Home Depot. If you want to know which stock to buy, take your wife to both stores and let her pick. I guarantee you; she’ll pick Lowe’s.