Brenda Buttner and 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 Mike Norman, publisher of The Economic Contrarian Update.
The market is trading on terror and war worries once again. Saddam Hussein and Usama bin Laden are the biggest enemies of stocks. Saddam says he'll comply with the UN resolution-though few believe him. Usama is alive-a revelation that rattled the market to say the least. And now there is a new threat from Al Qaeda warning of a "spectacular attack" against America.
Mike said it’s not Saddam or Usama, but the economic fundamentals that rule the market. He thinks the improving economy and an increase in business spending is responsible for the market’s gains. However he did admit that if we get rid of Saddam, there will be a tremendous rally.
Tobin believes that we will invade Iraq and this will create a great buying opportunity because the economy is improving.
Gary B. charted the Dow’s performance since September 11, 2001. He said the Dow is now staying below the post Sept. 11 open, but above the panic low of September 21, 2001. He disagreed with Mike and thinks that Saddam and bin Laden are heavily weighing on market and that there will be more sideways movement until some resolution is reached.
Scott said if bin Laden is taken out, the market will soar. But right now he thinks the market is consolidating its big October gains.
Pat agreed with Toby’s point that if stocks sell-off, there will be a super opportunity to buy stocks at a great price. What concerns Pat is that everyone is ignoring the lack of leadership in the SEC. He said that the worries over corporate fraud and accounting won’t be resolved until there are credible people at the SEC.
President Bush has been clear: if Saddam Hussein does not live up to his promise to allow UN inspectors in, war will be the response. But what stocks bounce when the first bombs fall?
Mike said if Saddam's lying, he’s buying Norsk Hydro (NHY) because there is an upturn in economic growth and he’s bullish on commodities and industrial companies. He said Norsk Hydro is a commodity-based company, is undervalued, and will go to $50. (The stock closed Friday at $39.19.) Tobin thinks the stock is too expensive. Scott said there are better stocks in this group to own.
Toby is buying Engineered Support Systems (EASI) if we attack Iraq. He believes it will bounce because it sells the things that enable tanks, bombs and buildings to be built in a very quick time frame. Toby recommends buying this stock under $30-it closed Friday at $33.45. But be prepared to sell it quickly if bombs drop on Iraq, because the stock will spike. Scott thinks Engineered Support Systems is a good company, but it won’t have that much of a pop because Wall Street already has the scenario of war built into its price. Mike warned to be careful of defense related stocks because everyone is looking at them waiting for them to pop.
Scott thinks Fluor (FLR) will benefit the most at the onset of a conflict with Iraq. He said if we bomb Iraq, we will need to revitalize their oil fields and Fluor, one of the world's largest engineering and construction companies, will do the rebuilding. Scott said the company does have an asbestos liability, but it is a very well run company and will overcome this liability. Toby thinks once its asbestos liability is removed, the stock will soar. Mike does not like the stock and thinks it is overvalued.
It looks like Usama bin Laden is alive and is holding many of your investments hostage. When the market tanked after September 11th, some stocks bounced back, but others never recovered. Gary B. and Pat came back to look at some stocks that were taken down after Sept. 11 and kept heading lower.
Goodyear (GT) has had anything but a good year. But Gary B. thinks that now is the time to buy the stock since it is trading near its all-time low. He did warn though that if Goodyear closes below $6.50, sell quickly. (Goodyear closed on Friday at $6.95.)
Pat disagreed and does not like the stock at all. He pointed out that the tire industry has horrible economics and the company has a shaky balance sheet. Pat thinks, at best, the stock is a long shot.
Next up the duo examined The AES Corporation (AES). This power company has also been in trouble since September 2001. But unlike Goodyear, Gary B. does not think this stock has a good chart as it has continued to go down. However, the Chartman did say if AES could close above $2, he’d buy it. (The AES Corporation closed on Friday at $1.52.)
Pat’s fundamentals agreed with Gary B. on this stock. He said AES could be part of a pricing scandal, its industry is in bad shape, and the company has a huge amount of debt.
Mike: Saddam games trigger war; oil soars but market OK!
Tobin: Israeli stocks sell-off on war; buy Teva (TEVA) on dip
Gary B: Saddam stalls, so does the market; but war is averted!
Pat: Let Eaton Vance (EV) manage your money 20 percent higher!