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Bulls & Bears
This past week's Bulls & Bears: Tobin Smith, editor of ChangeWave Research; Scott Bleier, president of HybridInvestors.com; Pat Dorsey, director of stock research of Morningstar.com; Gary Kaltbaum, president of Kaltbaum & Associates, and John "Bradshaw" Layfield, WWE superstar and nationally syndicated radio show host.
Trading Pit: Huge Win for Merck and the Stock Market?
A stunning victory for Merck! A federal jury cleared the drug giant and its Vioxx drug of any responsibility in the death of a 53-year old Florida man. Is this a win for the stock market?
John "Bradshaw" Layfield: This is absolutely a big win for Merck. These personal injury ambulance-chasing lawyers are crippling big business. There has to be personal responsibility. If you have 18 cheeseburgers a day and die of a heart attack, you can't sue McDonald's. This product had a warning label on the accompanying pamphlet stating that if you take this, you might die of a heart attack. I'm sorry that this man is dead, but Merck is not culpable.
Pat Dorsey: Federal juries do tend to be a little more rational than state juries, but this was a pretty weak case. The plaintiff had only taken the drug for about a month, whereas most studies have shown that the heart attack risk increases over a long period of time. According to the news, a son-in-law, who may not have even consulted him, prescribed the drug. It's a weak case and it's good for Merck, but I don't want to read too much into it.
Tobin Smith: Merck took a hit from all these impeding cases. There are 9,600 cases against Merck out there. Investors have calculated its stock price as though it will lose every one. Merck is a big part of the Dow and S&P 500. Pharmaceuticals have held us down. If we can just get past this bump, it's big for the market.
Gary Kaltbaum: This is great for the drug sector, which has been acting much better recently. But before you start popping the champagne corks, there are still thousands of lawsuits out there. This will improve the perception for corporate America because the price for litigation is in the billions and billions of dollars. This money comes out of the economy and goes into the hands of attorneys. I have nothing against them, but it has gotten out of hand. This is a good thing all around.
Scott Bleier: The Merck situation has become a circus. This is a federal case, and as a federal case it sets federal precedent. It's going to be much harder for individuals to be successful, especially in a federal court. Pat mentioned that this case was wishy-washy, so this one doesn't carry the kind of weight it would have if it were more definitive. But drug stocks are going to do better because of it.
What stocks will help America kick our oil habit and also make you some green?
Pat: Ethanol will help replace oil. I like Monsanto (MON), the largest seed producer in the world. Most of the company's seeds are genetically engineered, so they are patent protected. The economics of this business are much like software or pharmaceuticals and are extremely high profitability. This stock should head up 20 percent in the next few years. Monsanto is not cheap, but it's growing nicely and it's a wonderful business. (Monsanto closed on Friday at $83.47.)
Gary K: I agree that it is not cheap, but it is a great company. I would wait for a 10-15 percent pullback and then I'd take a look at it.
Scott: I liked it a lot better in October when it was cheaper. I think it will hit $100 in the next year.
Scott: My pick is Energy Conversion Devices (ENER), which is involved in advanced technologies for alternative fuels such as solar energy, batteries for hybrid vehicles, and hydrogen. It's a controversial stock, but I think it's going to $100 in a year or two as the company's technologies get better and it begins to make more money. (Energy Conversion Devices closed on Friday at $45.02.)
Pat: Scott should have recommended it six months ago. It's risky.
Gary K: I cannot buy companies that lose money and this one loses a lot of money.
Gary K: I like Peabody Energy (BTU), which is the world's largest private-sector coal producer. It just dropped 20 percent, but the company's earnings and revenues are great. It's products account for 10 percent of U.S. electricity. (Peabody Energy closed at $92.25.)
Scott: I like it, but it has doubled in the last year. It's the number one coal producer, so it's worthwhile.
Pat: Wait until coal prices soften. It's pretty pricey right now.
Toby vs. Bradshaw