Stock Smarts: $tocktober!

A tricky start to the month of October for sure. But since the market hit a five-year low on October 9, the month has been a real treat for stocks:

Dow -- Up 16%
Nasdaq -- Up 19%
S&P 500 -- Up 16%

(Since October 9, 2002)

So is it time to buy?

Jonathan Hoenig of Capitalistpig Asset Management says he’s still a bear on the big stocks in the major indexes, but he is selectively buying some smaller stocks. He thinks we are in the midst of a bear market rally, and not in a new bull market.

Hilary Kramer of Montgomery Asset Management is still bullish on the market and she thinks there are a lot of buying opportunities here, especially in the financial sector.  She’s looking at brokerages and investment banks like Morgan Stanley (MWD) and Goldman Sachs (GS) which she says will benefit from an increase in mergers and acquisitions as the market recovers.

Jonas Max Ferris of Maxfunds.com thinks the October run-up in stocks was due primarily to the oversold condition of the market, but now that we’ve seen this move he says fundamentals will have to improve to keep it going. He thinks that the market may be driven for awhile by sidelined investors jumping back in out of fear they may be missing the recovery so he’s still positive in the short run.
 
Wayne Rogers of Wayne Rogers & Co. says it’s going to continue to be a choppy market and you will have plenty of opportunities to buy good stocks later on, but he’s still skeptical of the broad market right now, though he is buying selective stocks.

Gary Kaltbaum of Tradingpartners.com is bearish on the market. He says we are in a long-term secular bear market and while he would buy stocks like AutoZone (AZN) or Loews on a pullback, he is also skeptical of the overall market. He says we are experiencing a bear market rally right now and you have to be careful. 

Buy Now or Beware?

The panel named some of the selective stocks they like right now:

Hilary Says: "BUY..."
SPX Corporation (SPW) *

52-week high: $151.45
52-week low: $86.55
Friday's close (10-25-02): $87.84

* Split Friday; pre-split values

Wayne says the stock dropped last week on big volume and he’s not a buyer.   Gary agrees and says never buy a stock that gaps down like this one did; he says their revenues are going south. Jonathan says he’s bearish on this stock.  Hilary owns shares in SPX Corp.

Gary Says: "BUY..."
The Southern Company (SO)
         
52-week high: $30.61
52-week low: $22.30
Friday's close (10-25-02): $30.42

Jonathan says this has been a very strong stock and he likes the electric utilities and is shopping in the sector.  Hilary loves the utilities but she says she prefers Teco (TE) and Duke (DUK) to Southern though she says Southern is a good company.  Wayne likes the stock. He says Gary’s picked a good company with a good stock.  Gary owns shares in The Southern Company.

Jonathan Says: "BUY..."
Telecom Corp. of New Zealand (NZT
)        
52-week high: $20.84
52-week low: $13.86
Friday's close (10-25-02): $20.04

Hilary likes the stock - she says it’s solid.  She also likes an Indonesian telecom Jonathan picked months ago that she says is also a great stock but is down because of recent political strife and terrorist activity.  Wayne says that’s also a risk you have with a stock anywhere now.  Jonathan owns shares in Telecom Corp of New Zealand.

Wayne Says: "BUY..."
Johnson & Johnson (JNJ)
52-week high: $65.89
52-week low: $41.40
Friday's close (10-25-02): $57.76

Jonathan doesn’t love it.  He says he thinks as far as Dow stocks go he thinks 3M (MMM), Procter & Gamble (PG) or Wal-Mart (WMT) look stronger in the charts.  Gary says JNJ is a consistent earnings grower and if the market ever gets some legs it will do well.  He also agrees with Jonathan that 3m, P&G and Wal-Mart have held up even better than JNJ and they will lead in a bull market. Hilary like JNJ.  Wayne owns shares in Johnson & Johnson.

Mutual Fund Face-Off: Best 401(k) Fund

The one fund you must have in your retirement plan – what is it? Dagen and Jonas picked a couple of potential winners.
 
Dagen – LKCM Equity Fund (LKEQX)
Year-to-date (as of 10-25-02): DOWN 14.7%
Minimum Investment: $10,000
Expenses: $8.00 a year

Jonas – American Century International Bond Fund (BEGBX)
Year-to-date (as of 10-25-02): UP 12.8 %
Minimum Investment: $2,500
Expenses: $8.60 for every $1,000 invested

Money Mail

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

Question: “Two weeks ago three of your guests said IBM (IBM) was not a buy. It’s up 13% since them. What gives?”

Jonathan says people have to get used to the fact that a stock they used to own could rally and may even go higher than the price that they sold it at but that doesn’t mean that it was a good stock to own.  It’s more of an emotional thing.   He still doesn’t like IBM long term and he says once you decide to sell a stock because you no longer have faith in its prospects you should take it off your screen and not stay involved with it unless you are an active trader.  Dagen says in the long run IBM is not a stock you want to own.   Wayne says if you like IBM you are going to have a chance to buy it much lower.

Question: “What happens when a stock falls below $1? And if it goes to zero, does the business always close?”

Wayne says the business could be fine and go on for years with a low stock price, but the stock may be de-listed because of stock exchange rules.  Dagen says because stocks can be de-listed and pension funds very often can’t buy them when they trade below a dollar some companies will do reverse stock splits to boost stock price but it’s all cosmetic to get that share price up. 

Question: “What do you think of Palm’s (PALMD) 1-for-20 reverse stock split? Is it good for shareholders?”

Wayne says historically stocks that do these reverse stock splits do not do well and you should not own them.   Dagen agrees.

Transcripts

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