Stock Smarts: the Dow treadmill — how much longer?

Since first breaking above the 10,000 barrier over two years ago, the Dow has essentially stayed the same:

March 29, 1999: 10,006.80
August 24, 2001: 10,423.17

Will this holding pattern continue? Or is the market ready to break out?

Wayne Rogers, founder of Wayne Rogers & Co. (and formerly "Trapper John McIntyre" on the classic television program M*A*S*H), sees a bit of hope looking ahead, siting the seven rate cuts from the Fed.   However, until he sees some real earnings, he thinks the Dow will continue to stay on the treadmill.

Jonathan Hoenig of Capitalist Pig Asset Management points out that the Dow is an index that is price weighted, meaning that the higher-priced stocks on the Dow will have the most affect on the market. He mentioned that two of the largest companies, IBM (IBM) and Minnesota Mining and Manufacturing (MMM) have the most control over the index, and those could drag the market down a bit in the short term.

Jonas Max Ferris, founder of Maxfunds.com says the Dow was created to mirror the U.S. economy, and since we are in a period of flat economic growth, he sees the market staying flat.

Rich Rosen, portfolio manager at Mainstay Value Funds, thinks that the treadmill could last another quarter or two, and says that the best time to buy stocks in often times during a recession. So there is a possibility for some outperformance in the near future.

The panel then moved on to talk about some specific stocks within the Dow treadmill. The following stocks have all traded up since the Dow retreated from its all-time high of 11,722.98 on January 14, 2000.  Is there more upside for these or is it time to sell?

Philip Morris (MO) up 114%
Boeing (BA) up 24%
Johnson & Johnson (JNJ) up 19%
Dow down 11%

Jonathan bought Philip Morris ahead of its huge run-up and still thinks the stock is a buy. Rich also see a bit more upside (although he says we did miss the big move) siting double-digit earnings growth and huge cash flow to help continue to drive the stock higher.

Wayne is not a huge fan of Boeing and the defense sector as a whole. But he did stray for a moment and say the he does like retailing and financial stocks. Jonas is also not too high on Boeing, as he sees it as a sensitive stock in terms of reacting poorly to negative economic news.

Rich Rosen likes Johnson and Johnson.  He thinks prospects for the drug giant are good based on new products coming out that could help the stock. He does concede that the stock is expensive, but he sees steady earnings continuing for the company and thinks it's a good long-term play. Jonathan likes Johnson & Johnson as well, but says that his favorite Dow stock is McDonald's (MCD), because the Euro is in its favor, and he also gave a nod to the fast-food chain's "great" French fries.

Mutual Fund Face-Off

Topic: The best index fund.

Panel: Dagen McDowell of SmartMoney; Jonas Max Ferris of Maxfunds.com

Picks:  

Dagen  Vanguard Total Stock Market Fund (VTSMX)

Jonas  Fidelity Four-in-One Fund (FFNOX)

Power Plan

Wayne Rogers made his mark on popular culture trading jokes and insights with the likes of "Hawkeye" and "Radar" on the show M*A*S*H.  But after his run ended he turned his attention to the world of business, where he transformed himself into a successful business manager, merchant banker and market investor.

So what is his stock-picking philosophy, and does he like anything in the current market?

Wayne sees himself as a "classic contrarian," meaning that he buys stocks when the market is depressed and no one has much confidence in stocks. He avoids stocks during periods of euphoria in the market, which is how he dodged the Dot.com bomb in 2000.

And he does see some buying opportunities.  He likes Optimal Robotics (OPMR). This company makes the scanners that you see at super markets, used to scan the prices of items. Rich thinks that although the stock is a little expensive, it is a real growth company with a great management team, and worth a look. Jonathan also likes the stock.

Another of Wayne's favorites is General Electric (GE), a stock he has owned for 30 years and says he would buy today.  He loves the management team and even though Jack Welch will be leaving, Wayne thinks that his departure is already priced into the stock.  He also likes the fact that a lot of GE's earnings come from financing other operations, making GE an "unregulated bank." Jonathan thinks that GE is a very dangerous stock, and is currently shorting it. Rich does like the consistent earnings and growth of GE, but notes that if the company misses just one number, the stock could get hurt.

Money Mail

Dagen and Jonathan wrapped up the show by answering some email question from  viewers.

If you want to have your question answered during the "Money Mail" segment, email us at cash@foxnews.com.

Transcripts

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