Brenda Buttner was joined by: Gary B. Smith, TheStreet.com columnist; Pat Dorsey, Morningstar.com columnist; Scott Bleier, chief investment strategist at Prime Charter; Tobin Smith, portfolio manager of the ChangeWave Fund, and Brian Finnerty, head of trading at C.E. Unterberg Towbin.
Trading Pit
Tobin, Gary B, Pat, Scott, and Brian entered the "Trading Pit" with host Brenda Buttner to discuss if the Dow is out of its free fall and is moving up. Since the Dow's intraday low on Thursday, March 22, it has risen over 9.2 percent.
Pat is not impressed with the Dow's recent gains. "When you crunch the numbers," he said "five stocks Merck (MRK), United Technologies(UTX), American Express (AXP), Exxon Mobil (XOM), and Philip Morris (MO), … accounted for half the rise in the Dow over the past 6 trading sessions. Big deal!"
A couple of weeks ago, Gary B. thought that Small Caps were a safe place for investors to hide, but no more. He said, "I can remember myself [saying] the Small Caps were great, the chart looked great, and sure enough, a bear market comes along and destroys everything." He continued that he has been a bear for a while-which he said he doesn't like-but he is going to have to continue being a bear until things get better, and he doesn't see things getting better right now.
Scott believes that right now, there is more reward than risk in the market. He advised, "You can start to look at some of those stocks that were $200 and are now $6. Some of them will survive."
Tobin thinks that energy, water, and power businesses are the way to go. He said that since they bottomed in the year 2000, they have been moving up. He cited that earnings have been rising 75 percent and 80 percent in water and coal, with good fundamental reasons. As for tech stocks, Tobin is not so optimistic. He said, "The torpedoes from tech have just started. You can't imagine how bad the news is going to be in the next 30 days!"
Brian then chimed in and said, "Every rally we've gotten in tech gets a little bit of traction. The sellers come in, the shorts pile in on top of them, and it goes down. But guess what, that's been working very nicely for the shorts for a long time. And any stock with a multiple higher than the growth rate, [people] sell them and sell them short, and it's been working. There's going to come a day, just like when [the belief was] buy anything that's video streaming [and it will go up]. It's going to stop. And I think it's going to stop soon."
Stock X-Change
Is the economy really in trouble? Well, with recession talk everywhere, companies are blaming their bad earnings on a weak economy. So, which companies have the CEO's with the right stuff to keep shareholders happy? Tobin, Scott, and Brian all had their own opinions and stock picks.
Tobin started things off with his selection of Maximus (MMS)which privatizes the welfare businesses of counties and states. Tobin stated that a CEO proves himself when things are rough and times are bad, he is able to come in and clean things up. Tobin likes this company because it had some auditing problems a few years ago, and instead of sweeping it under the rug, they went in and fixed it.
Scott then picked Starbucks (SBUX) for its ability to yearly gain a minimum of 20 percent in revenue and earnings per share growth. He also likes its ability to defy the odds. He said that nobody thought that this company could get big, and it now has $8 billion in market value.
Brian finished up the segment with his pick of global power company, AES Corp (AES). He likes the fact that the CEO and chairman own 15 percent of the company's stock. He also is impressed with the company's acquisition ability.
Chartman
Gary B. and Pat came back to look at a couple of stocks that could catch investors in a bear trap. These stocks made a move up last week, but were those moves for real? First up, pharmaceutical giant, Pfizer (PFE). Gary B. continued his bearish ways, and thinks it's absurd to think that stocks' charts can have a massive breakdown from long term support, and then bounce right back. He believes that the stock is destined to drop back to at least its previous lows. Pat disagreed and is bullish on the stock. He reasons that Pfizer should have strong growth, has a good pipeline of new drugs, and is not outrageously priced.
Next up, semiconductor equipment maker, Applied Materials (AMAT). Pat thinks that this stock's recent move is a head fake because it could take a hit soon due to the slowdown in chip business and its high price. Also, he advises to wait for the price of the stock to drop near $30, and then buy. Gary B. disagrees with Pat's bearish outlook of the stock, and actually was bullish. The Chartman looked at its chart, and thinks that if tech recovers, Applied Materials will break above its current resistance, and it will be time to buy.
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