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 Gary Kaltbaum, senior market technician for TradingMarkets.com.
Trading Pit
The Dow tacked another week onto its winning streak. That makes five weeks of gains in a row. The Blue Chips are up more than 1,100 points since July 23, closing Friday at 8,873. What about the next 1,000 point move? Will it take us up to Dow 10,000 or back down to Dow 8,000?
Gary Kaltbaum says the next big move is lower. He says this latest bear market rally is over and he doesn’t see the Dow reaching 10,000 anytime soon. He compares the Dow’s latest move to its bounce off September 23 lows and would recommend selling Dow stocks right now.
Tobin points out that Gary’s a technician, but the fundamentals agree with his bearish position. A slowing economy, no employment and no growth add up to a lower Dow next, not a higher one. He says the Dow will retest lows before it moves higher – Dow 8,000 before 10,000.
Pat Dorsey agrees that this latest move up for the market has put a lot of stock prices above the point where he would buy, and he says you have to be careful – the next big move could be lower.
Gary B. also says he sees Dow 8,000 before 10,000, but he would view the move as a buying opportunity for those who have missed the recent run up. He says he believes that the Dow will reach 10,000 after it retests the lows.
Scott says the Dow has reached resistance levels but he doesn’t see it falling to 8,000, nor does he see it rising to 10,000. He says the Dow is in a new trading range between 8,500 and 9,500 and you should buy at 8,500 and sell at 9,500 if you want to make money in this market.
Bulls & Bears Bachelor Party
Yup! One of our own is getting married. Pat Dorsey is coming off the market so Gary, Tobin and Scott threw him a bachelor party with all the essentials: Booze, gambling and a little sex. Of course this was all related to stocks and whether or not you can profit from them.
Booze: A look at Anheuser-Busch (BUD)
Pat likes the beer better than the stock, which he says is too pricey right now. He says Anheuser-Busch is a great company, but he would only buy the stock in the low $40’s. It closed Friday at $52.09
Gary likes BUD’s chart. He says it’s trading above its downtrend line and he thinks it will keep getting stronger. He sees it going to the high $50’s but would sell if it drops below $50.
Tobin says BUD is a good company but he agrees with Pat that the stock is pricey. He would buy on a dip to $45.
Scott says it is pricey but as long as the company shows the kind of double digit growth it has shown in the past, institutions will continue to buy.
Gambling: A look at MGM Mirage (MGG)
Pat doesn’t like MGM Mirage. He says the company does have one of the newest portfolios of hotels on the strip, and it has done a lot of cost cutting but he says the stock is pricey and he wouldn’t buy it until it dropped into the high $20’s. It closed Friday at $36.30.
Tobin says he would only buy a casino stock if the sector dipped down, and then he would buy Harrah’s (HET).
Scott says MGM Mirage is the leader in the group but the casino stocks scare him right now because they are susceptible to the economy and he would stay away from them at this point.
Gary says the MGG is a strong chart but it’s not getting any stronger. He’s not a buyer.
Sex: A look at Limited Brands (LTD)
Pat doesn’t like this stock. He points out that the owner of Victoria’s Secret also owns several other stores including The Limited and Express. Pat says that when one of these stores is doing well the others can lag, creating an inconsistency in the company’s performance. He wouldn’t buy the stock unless it was really cheap – around $10 or $11. It closed Friday at $16.23.
Gary B. says the limited chart is just like the MGG chart, "strong but not getting stronger" and he would not be a buyer.
Tobin doesn’t like the stock.
Scott says he wouldn’t touch Limited Brands.
Stock Wedding Gifts for Pat
The party continues as Gary, Tobin and Scott offer Pat their stock wedding gifts. Will he accept or reject their offerings?
Gary B. gives Pat ServiceMaster (SVM)
He says he picked a stock gift he hopes Pat will keep. Gary B. also owns it. Gary says ServiceMaster is cheap -- the way Pat likes stocks -- and it’s trading at the support line on the chart the way Gary likes stocks. But Gary recommends that Pat return the gift (sell the stock) if it falls into single digits. ServiceMaster closed Friday at $11.00.
Tobin says he can’t think of any reason to buy this stock.
Scott doesn’t like ServiceMaster either.
Pat accepts the gift. He says ServiceMaster is a great company with good cash flow and recognizable brands that is growing at about 15% and the stock has a yield of about 4%.
Scott gives Pat Gillette (G)
He says it’s a Warren Buffett favorite with low volatility and a great product line and is a really solid company "just like Pat."
Gary doesn’t think now is the time to buy Gillette. It’s moving sideways on the chart and could break out either way up or down.
Tobin likes Gillette. He calls it a "safe" stock.
Pat does not accept Scott’s gift. He says that Gillette management has done a great job turning around Duracell but that Warren Buffett bought the stock a lot cheaper than it is now. It’s just too pricey for Pat. Gillette closed Friday at $31.37.
Tobin gives Pat Qwest (Q)
He says every marriage needs a little humility and this troubled telecom will certainly provide that. Ultimately, Tobin believes that Qwest will survive and grow and eventually help pay for Pat’s children’s educations.
Scott says the stock has had a great run off its low but he’s not sure its worth anything here. Qwest closed Friday at $2.69.
Gary says Tobin must not like Pat very much if he wants to give him Qwest. Gary points out that while the company may be 90% off its high, it’s up about 170% from its recent lows. He’d only buy on a pullback to $1 or lower.
Pat accepts Tobin’s gift. He thinks Qwest will avoid a liquidity crunch with the sale of its directory business, and he says it looks like the company will be able to expand business in some states to long distance. And while Pat believes it’s a risky stock right now, he says he’s happy to take that gamble.
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