Brenda Buttner was joined by: Gary B. Smith, RealMoney.com columnist; Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, CEO of ChangeWave Capital Partners; Scott Bleier, Fox Business News contributor; and Adam Lashinsky, contributing writer for Fortune.
 
Trading Pit

The War on Terror was a shot in the arm for stocks.    As the U.S. gained ground in Afghanistan, so did the market here at home.  But Usama's fate is still uncertain and the head of the Taliban is still at large.

And tragic news last Friday: a Special Forces soldier was killed in eastern Afghanistan from enemy fire.

Despite all this, the stock market had a strong start to the year.  The Dow tacked on 238 points and the Nasdaq added an impressive 109 points in the first few trading days of 2002.
 
Tobin said he thinks that the "war card" is over and that investors must start looking at company's earnings.

Scott thinks that however we perform in the war, the market is going up in the next 6 months.

Adam said that the threat is on the downside, because the market has shown that it can go up despite uncertainty in the war.

Pat believes that it's not about bin Laden, but about the economy.

Gary B. charted the NYSE Advance/Decline (which is a ratio of what's going up versus what is going down) to see if the market had the fuel to keep its gains going.  He showed that the past few years haven't been banner, so if it can break through, 2002 could be a good year. 

Stock X-Change

Tobin, Scott, and Adam all stayed put and picked the one Dow stock that will go up the most this year.

Adam picked United Technologies (UTX) because among other things, it makes jet engines and has been hit hard from people not flying.  He said if things turn around like they are supposed to, this stock will get a big lift.  Tobin and Scott disagreed.

Tobin selected American Express (AXP) due the hard times it went through last year.  He said it lost a billion dollars in bond trading, another billion in lost travel business, and yet another billion in September 11th issues.  Based on those three things, Toby thinks that the company will bounce back and be the biggest Dow winner in 2002.  Adam disagreed, and Scott said the only way it will be number one in the Dow next year is if it gets taken over.

Scott likes McDonald's (MCD) because expectations are so low for the company.  He thinks that McDonald's will make itself more efficient and reap big gains when the economy rebounds.  Tobin agreed; but Adam did not.

Chartman

Gary B. and Pat returned to look at the two worst performing stocks in the Dow last year:  Boeing (BA) and Merck (MRK). 

Up first, Boeing, which was down 40% in 2002.  The Chartman isn't sold on this chart yet, because it is stuck in no man's land.  BUT something will happen soon.  It closed just above $40 on Friday.  He said if it can hold that he'll be bullish, but he warned to sell if it closes below $36.  Pat was surer of his position.  He likes the company because the bad news is already in the stock price, it should benefit from defense spending, and it is trimming cost and growing profit margins.

Up next, Merck, down 36% last year.  The Chartman looked at this chart, and did not like what he saw.  He noticed that it is in a downtrend and is showing no signs of strength, so there's no hurry to buy it.  The only glimmer of hope he sees is that it is near its long-term support.  Pat agreed because he thinks that its growth will be flat in 2002, its pipeline is relatively weak, and its profit margins are shrinking fast.

Predictions

Gary B: Nasdaq won't see 2,500 until April 2003

Scott: Dow 10,700; Nasdaq 2,400 by St. Patrick's Day

Tobin: Gas utilities explode; up 20% by spring 

Pat: Drug Stocks underperform the market in 2002