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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; and Bob Froehlich, chairman of investor strategy at Scudder Investments.
Trading Pit: $4 Gas!
Worried about $3/gallon gas? What if the next stop is 4 bucks! Could the stock market stand the pain?
Bob Froehlich: Paying $4 a gallon gas will have a short-term psychological impact on consumers, but I don't think it will hurt as much as some think. It all depends how much consumers overreact to the sticker shock! Stocks will not tank just due to $4/gallon gas. At the end of the day, it will be as much of a non-event as Y2K—all hype and no real impact!
Tobin Smith: People in Norway and Denmark pay $6/gallon for gas, and their economies are doing okay. However, Bob’s right, psychologically $4/gallon will scare the heck out of people. The economy will slow down, but it is not going to stop. But if prices surprise people and go downward, it’s a buying opportunity. Eventually, if prices go too high, demand will decrease, and prices will go down.
Pat Dorsey: We’re starting to see high gas prices show its impact. Sales of gas-guzzlers and SUVs are slowing and hybrid cars are doing well. But middle-class Americans will be hurt the most. A good way to look at the impact of these prices is to look at Wal-Mart’s (WMT) sales. For about the last 10 years, when gas prices rise, its numbers go down. When gas prices come down, Wal-Mart’s numbers go up.
Gary B. Smith: During the last big spike in oil prices in the 1970s, the stock market did not go down, it flat-lined. That’s what I think will happen right now. I think the market will do the same thing and flat-line again if gas gets up to $4/gallon.
Scott Bleier: At some point consumers will pull back. This will lower corporate profits and make analysts lower expectations. The stock market will suffer and the growth of economy will slow down.
What’s the best way to pay for record high gas prices? Scott, Toby, and Pat say buy these stocks!
Scott: I like VeriSign (VRSN). This company is the gateway to the internet. But in the last couple of months, it has lost 1/3 of its market value due to missing its earnings by $20 million in the last quarter. Part of VeriSign’s business is ring tones for cell phones, so the stock is very volatile and trendy. It has gotten hammered. I own it and think it’s going to $30.
(VeriSign closed on Friday at $21.34.)
Tobin: The “secret” part of their business is RFID (radio frequency ID devices) because it will be huge over the next few years and VeriSign is going provide the connection. I’d love to buy the stock under $20. But be careful, because if it has another piece of bad news, and it could go to $12-$15.
Pat: I think VeriSign has a great business and agree with Scott that it should go to $30.
Tobin: Energy Conversion Devices (ENER) is my pick. The company makes solar cells for batteries that are used in hybrid cars. I own the stock and think it could go to $45 because its batteries are going into the all of hybrids in the U.S. It also has developed a Hydrogen motor that works very well. (Energy Conversion Devices closed at $31.21 on Friday.)
Scott: This is overvalued, hasn’t made any money, but it will go higher because it has all the businesses that investors go crazy for with the high price of oil.
Pat: I wouldn’t go near this stock. Its track record has been pretty ugly for a long time.
Pat: My choice is Avid Technology (AVID). It’s the dominant player for high end video editing. A lot of large broadcaster use it and will have to upgrade to HDTV in the next few years. This is going to create an enormous demand. The stock got whacked a couple weeks ago because customers postponed orders, but they will have to buy this stuff! I own it and think Avid is going to $55 in a couple of years. (Avid Technology closed at $36.52 on Friday.)
Tobin: Pat is right, it did get hammered, and might fall another 10 percent, but it’s a good stock to buy now.
Scott: The chart looks awful, but if you’ve got time and willing to wait, it’s a good buy.