Brenda Buttner was joined by: Gary B. Smith, RealMoney.com columnist; Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, founder and chairman of ChangeWave Research; Scott Bleier, president of HybridInvestors.com; and Gretchen Morgenson, New York Times business editor.
You remember one of the slogans of the big bull market: "Irrational Exuberance." But the last three weeks is best summed up by the phrase, "Irrational Gloom".
The market had its best week of the year in the middle of May, and since then it's been nothing but ugly. In just three weeks since the close on May 17th, the Dow is down over 7 percent and Nasdaq is lower by almost 12 percent. But does all this selling make sense, or are we overreacting on the sell side as we overreacted on the buy side in the bull market?
Gretchen doesn't think that there's anything irrational about the way investors are behaving because there has been 2 ½ years of negative returns in the stock market and now we have all sorts of corporate deception.
Tobin said it's not irrational behavior because the Nasdaq had a bubble and that bubble burst. But he said what is irrational is to think that Cisco (CSCO) and other former high flyers are going back to their previous highs.
Gary B. charted the Nasdaq, which is his "mood ring" for the market. When looking at the chart, he said that the May bottoms didn't hold and rational or irrational, the next logical move for the Nasdaq is to the September lows of 1,400.
Scott said tech stocks have to be as hated as they were loved, and have to become as cheap as they were expensive. He thinks Friday's close will be a near term low for tech stocks, and that these stocks will stabilize from here.
Pat emphasized that tech is not the market, and investors should have learned that in the past 2 ½ years. He said there are plenty of cheap stocks out there, especially bank and drug stocks.
Tobin said investors must face that this is a bear market and sell the stocks that are in the bear market, and buy the stocks that are not affected by it. Gretchen has observed that people are going to cash, because they don't know who to trust. Scott added that until Microsoft (MSFT) cracks, the Nasdaq will not see a "real" bottom.
Gretchen, Scott, and Tobin all stayed on to discuss widely held stocks that have been slammed in the sell-off since mid May. But are they now bargains or continue to be a bust?
First the trio looked at Tyco (TYC). This stock has been through the wringer on many issues this year. And last week, the news just continued to get worse because the CEO announced he would resign due to tax evasion and then the Feds said they would launch a wider investigation to see if that misconduct spread within the company. Since May 17th, Tyco is down 54 percent. Toby was bullish on the stock and then turned bearish, which is the opinion he still holds on the stock. He is concerned that the company has no equity. Also he said when a CEO resigns, there is almost always 6 to 12 months of issues that were buried under the mattress. Scott believes that the company is going to be busted up, and to sell it on a rally. Gretchen said the company has a real problem with its debt rating, and quite simply, there are too many unanswered questions about the company right now.
Next up, Applied Materials. The world's largest semiconductor equipment maker has had a tough three weeks and is down 25 percent. Scott thinks that the stock is going to bounce, because it is a favorite and money managers like to hide in it. But he advised to sell the stock on any rally because it has no forward growing growth, and is only worth $15. Tobin likes this stock for the long term (3 to 5 years) but agreed with Scott that in the next coming year, growth will be hard to come by. Gretchen is very negative on the stock because it is way too expensive and there has been no pick up in PC sales.
Lastly, the three looked at AOL (AOL). The media giant is trading near a 52-week low, and is down 17 percent since the middle of May. Back in December, Gretchen said AOL was heading lower over the next 6 months. It was trading in the low $30s then, and closed Friday just shy around $16, which amounted to a decrease of 50 percent. She said at best, it is dead money, and that's if it doesn't head lower. She wouldn't want to own it because she said it is ridiculously overpriced. Tobin is short AOL, and advises to stay away from it. Scott would not hold AOL as a long-term investment, but does think that once it hits $15, it will bounce to $20.
Due to the market's downturn, Pat says some stocks have been senselessly sold off and now's the time to buy them. As a matter of fact he found two stocks, Amgen (AMGN) and Argosy (AGY), that he says should not be as low as they are.
First Pat explained why he liked biotech company, Amgen. He sees a buying opportunity here because it is more like a drug company than a biotech and has one of the strongest drug pipelines around.
But Gary B. did not like Amgen. He did say it was a bit oversold and due for a bounce. But because Amgen faces multiple downtrend lines, any gains will be hard to come by.
Pat also likes casino operator, Argosy. He recommended this stock on a previous show, and it did well. But recently, it took a tumble due to a new tax in Illinois that will cut into the company's profits. However, Pat thinks that sell-off was overdone, and that Argosy is flat out the best riverboat casino operator and because of limited competition, it has a built in edge. Though he did warn that there is a risk of more tax hikes from states.
Gary B. is also a bear on this stock. He showed that Argosy has fallen below its multi-year uptrend line, and explained that this means the momentum has shifted to the downside.