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 Bob Olstein, president of the Olstein Funds.
Trading Pit
Is Wall Street turning into "Fall Street?" It's sure looking like it even though President Bush cracked down on corporate crooks. But not even his speech could stop stocks from sliding.
What a down week we had! The Nasdaq and S&P 500 both hit five-year lows, and the Dow dropped well below 9,000 again.
Tobin said the market was not beyond repair, but the Nasdaq will continue to fall. But... he continued, if President Bush had come down harder on Wall Street's crooks, the market would've rallied instead of fallen.
Scott thinks that because this is an election year, there will be more regulations coming to Wall Street. The market hates these regulations, and when you combine that with the lack of confidence, the major averages will continue to fall.
Bob said that there have always been crooks on Wall Street, and that they'll get caught and put in jail for five years. But in the meantime, stocks are becoming cheap and you should be buying them now!
Gary B. charted the Dow's performance since 1995 and pointed out that the Dow has been drifting down for years. If investors buy stocks now, he thinks they'll be able to make money by selling into a summer rally. Nimble investors can play for the next bounce, which he believes will happen around 8500-8600. But he also feels that it is okay to wait until the Dow clears the downtrend line it's been making since 2000.
Pat warned investors that they are making a huge mistake if they are pulling their money out of the market right now. He said stocks are currently very cheap, and as a matter of fact there are more stock values now than in years. He noted in particular, Northern Trust (NTRS) which hasn't been cheap enough for him to buy in 5-6 years, but now is.
Stock X-Change
Call it collateral damage. "Clean" companies punished for the sins of others. Toby, Scott, and Bob gave their opinions on whether General Electric (GE), Johnson & Johnson (JNJ), and Verizon (VZ) are now bargains or bad bets.
First up, General Electric. At one time this year, it was up over $40, but no more. As of Friday's close, the stock was trading at $28.60. GE is still "scandal-free," but keeps heading lower. Bob revealed he has been short the company the last 3-4 months and is getting ready to cover his short. He said the problem with GE is that the company used creative accounting but nothing scandalous and should be valued in the $23-$27 range. Bob added that there will be a good buying opportunity, for long-term investors, in next 2-3 months. Tobin thinks GE needs to improve the way it discloses its earnings. Scott believes the stock is dead money and will face a lot of resistance around $30.
Next, Johnson & Johnson. Too bad the Tylenol maker can't cure its own headaches brought on largely by others' misdeeds. Up over $65 in late March, it's been pummeled down to $50.50 as of Friday's close. Toby said J & J has 191 companies and is the second largest biotech firm in the country. It is getting close to being priced as a good value, which he placed at $45. But investors need a very long-term perspective with J & J because to get earnings power, it needs big new products. Scott thinks the stock is a great buy because it has been brought down with other drug companies, but J & J has a huge consumer business. Bob values J & J at $55, and thinks it can grow 8-10%, but he'd like to buy the stock at a cheaper price.
Lastly, the trio looked at Verizon. Its crime? Being a telecom company! Its punishment? A bruising 30% fall from its high this year. Scott also thinks this stock is a buy, but he warned it could go lower. Unlike other telecom companies, he said this one is not going out of business. He added that you will not be hurt investing (not trading) in this company. Bob would like to see Verizon have positive cash flow. Toby said Verizon has been regulated, which means its books are clean, and he'd be a buyer if it got a little cheaper.
Chartman
Gary B. and Pat came back to examine two stocks that had managed to survive scandals. But does this mean those stocks are buys now?
First up, Waste Management (WMI). It was nearly scrapped by accounting fraud and insider trading back in 1999. The company paid its dues, the stock climbed out of the dumpster, and those who bought into the mess actually made money! That said, Gary B. still says to beware, because the chart is not good. He advised to buy the stock between $10-$20, because that was an area where others were buying. However, the stock should be sold if it drops out of that area. Pat disagreed due to Waste Management's great turnaround story and its super competitive advantage. The stock closed at $24.65, but he values it at $35.
Next up the duo took a look at Rite Aid (RAD). Also back in 1999, Rite Aid — now the nation's third largest drugstore — got caught cooking its books, and that drama's still playing out in the headlines. Gary said Rite Aid's chart is in need of aid and should not be bought because it dropped below its support level at $7. (The stock closed at $2.35 on Friday.) Pat agreed with the Chartman on this one. He said this company just has too much debt, and investors should not own the number three player in such a fiercely competitive industry.
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