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Bulls & Bears
This week’s "Bulls & Bears:" Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, editor ChangeWave Investing; Scott Bleier, president of HybridInvestors.com; Gary Kaltbaum, president of Kaltbaum & Associates; and Mike Norman, founder of the Economic Contrarian Update
Could a “Cold War” in Washington heat up your stocks on Wall Street?
President Bush essentially declared war on Democrats taking his first opportunity once they were out of town to make a big time appointment that had been blocked by his enemies in Congress. Democrats weren’t too pleased. If this gets ugly, is this good or bad for stocks?
Tobin: This is great for stocks. The appointment of John Bolton as U.S. ambassador to the United Nations is a small thing. There’s a whole litany of things that are blocked, like asbestos reform and tort reform. It would be good for business to push these things through. This fight between President Bush and the Democrats means that corporate America wins, which will be good for stocks.
Gary K: It’s not just the Democrats forcing the President to abandon his agenda, like Social Security reform, it’s also the Republicans. It doesn’t matter to Democrats what the President says or does because it all will be bad. The good news is that the market could care less. There are so many other things to look at. My biggest concern for the market is the Fed raising interest rates. In the last few days, a lot of interest rate sensitive stocks got torn apart. One of my biggest indicators is how the financial stocks do.
Pat: It’s generally a good thing when there’s a stalemate in Congress because it means they spend less. Spending will be going on no matter what and hopefully they’ll spend a little bit less. I agree with Gary K that this is so far down on the radar screen there’s no need to worry about it. Interest rates are a far bigger worry than the economy. We’re going to get decent growth through the end of the year. If rates really do spike, and the financials get blown apart, that could wreak havoc on the market.
Mike: Let’s put this in perspective. President Bush is seven months into his second term and he’s already had enormous amounts of achievement. He got the Central American Free Trade Agreement (CAFTA) passed. He got the energy bill passed. He got the highway bill passed. Social Security will probably come next year. It’s wrong to say that all the fighting in Congress will be good for the market. In 2001, 2002 and 2003, there were tax cuts and a lot of government spending, which proved to be an enormous stimulus for the market. If we had that kind of agreement and initiative from Congress, we would see the Dow go to 12,000 and then 15,000.
Scott: Bush is being treated like a ‘lame duck’ and I think that’s part of the reason the market has rallied recently, because nothing is getting done – no tax or Social Security reform. When the market does not have to worry about Washington, it’s terrific.
Senate Majority leader Bill Frist said we should increase funding for stem cell research. What stocks could benefit?
Scott: Geron (GERN) is a pure play in embryonic stem cell research, which is where the controversy lies. The company has many patents and proprietary knowledge for stem cell research. Plus, it has a drug that is ready to go into phase one to help spinal chord injuries. (Geron closed on Friday at $9.93.)
Mike: I like this company because it is a pure play. The only trouble is that it is a long way from making any money.
Gary K: There’s too much speculation for me. I don’t like it.
Mike: My pick is Celgene (CELG), which is a company that has been around a long time. It’s a biopharmaceuticals company that helps treat cancers by working at the cellular and genome level. It pioneered the extraction of stem cells from placental tissue. (Celgene closed on Friday at $47.51.)
Scott: This is a good company and derives a lot of revenue from its thalidomide drug and Ritalin, which are active drugs out there.
Gary K: I do like that it has great earnings and revenue growth.
Brenda did counteract with the argument that Celgene does sell a form of a thalidomide drug, which is highly regulated because of its historical link to birth defects, and tight regulation puts a cap on profits and sales.
Gary K: I like Genzyme (GENZ), a company with a lot of substance. It focuses on rare genetic disorders, renal disease, kidney disease and more. It has great earnings and great revenue growth. The stock has been acting very well with a good run up. It is in a great spot for stem cell discovery going forward. (Genzyme closed on Friday at $71.75.)
Scott: This is a great company, but it’s very large with an $18 billion market cap. It’s out the door for a pure play on stem cells.