Stock Smarts: The Price Is Right?

Nothing but pain – that’s what you are feeling right now if you bet on this market five years ago and followed the “buy and hold” mantra:

S&P 500 Index

$10,000 invested 5 years ago = $9,250 today (as of 10-11-02)

Fortunes have been made and lost, but now that the market is back to where in once was, some say the price is right to buy – again. So is it?

Joe Battipaglia of Ryan, Beck & Co. says that now is absolutely the time to buy. We are on the “eve of war,” the economy is still a bit sluggish and stocks are “off 50%.” With the bond market not looking all that attractive right now, the stock market is the most dynamic place to invest. Expectations are so low right now that we really have no expectations.

Jonathan Hoenig of Capitalistpig Asset Management says that some of the rallies we saw at the end of the week (Thursday, up 248 points, and Friday, up 316 points) caused people to think about getting back into the market so they won’t miss the next big move up.  But he’s not buying stocks right now, and doesn’t think risk is worth it for investors.

Dagen McDowell of Fox Business News thinks that the risk is in treasury bonds. But investors should have money in both stocks and bonds for balance.

Jonas Max Ferris of Maxfunds.com thinks that stocks are really the investment to look at right now, as there has been such a run-up in real estate and bonds.

Hilary Kramer of Montgomery Asset Management says that we are at a point where everybody has thrown in the towel, everyone has bought bonds, and now is the time to be selective and look at individual stocks. She says we are still going to have an economic recovery and consumers are still spending money.

Bargain Buys?

The only good thing to come out of a bear market is a good bargain. But just because a stock is cheaper doesn’t mean it’s a good buy.  A few panel members look at current prices on some popular stocks to say if they think they are a buy right now.

Merck (MRK)
52-week high: $70.60
52-week low: $38.50
Friday’s close (10-11-02): $47.30

Even at this price, Hilary’s doesn’t like Merck.  She says she prefers other options within the pharmaceutical sector with companies that are making more “cutting-edge” drugs. Jonathan is not interested in Merck right now – and he affirms that just because a stock is cheap doesn’t make it a buy. Joe thinks Merck is attractive within the sector.

Home Depot (HD)
52-week high: $52.60
52-week low: $23.60
Friday’s close (10-11-02): $26.25
Jonathan loves the company, but doesn’t like the stock. Joe thinks they are under siege from a high valuation and from competitor, Lowes. Hilary isn’t a fan of Home Depot.

IBM (IBM)
52-week high: $126.39
52-week low: $54.80
Friday’s close (10-11-02): $63.91

Joe says “woe be the IBM investor.” He just doesn’t see any growth in the company. Jonathan thinks it could rally short-term, but it isn’t worth the risk. Hilary says stay away.

Mutual Fund Face-Off: Best “Little” Fund

Lots of big, well-known mutual funds have suffered gigantic losses. If you want to make money in this market, you may need to think small and undiscovered. What’s the best little fund you’ve never heard of? Dagen and Jonas faced off over a couple potential winners.
 
Dagen – Artisan International Small Cap Fund (ARTJX)
Year-to-date (as of 10-11-02): DOWN 12.7%
Minimum Investment: $1,000
Expenses: $23.90 a year

Jonas – FMC Strategic Value Fund (no ticker symbol)
Year-to-date (as of 10-11-02): DOWN 11.0%
Minimum Investment: $10,000
Expenses: $13.00 for every $1,000 invested

Money Mail

Joe, Dagen and Jonathan capped off the show by answering some of your questions.

Question: “How many points does the market have to fall in one day in order to constitute a crash?”

Jonathan: You know it when you see it. But in 1987, the Dow fell over 20% during the day of the crash.

Joe: Losses over the summer constitute a crash, even though it didn’t happen over a single day.
 
Question: “I work for Xerox (XRX), and I own the stock in my 401(k) and in my brokerage account. What’s your outlook?”

Dagen: This person needs to dump a lot of the Xerox – a big company in a lot of trouble.

Jonathan: The chart doesn’t look great here.

Question: “Will Sprint PCS (PCS) come back soon?”

Joe: Great product, not a great stock. But they do have the financial strength to possibly make it through with a consolidation.

Jonathan: I am looking for opportunity in telecom, but not here.

Transcripts

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