Stock Smarts: Losing the Little Guy?

A new year, but will we see a new direction for the stock market?

In 2002 the market lost around $5 trillion in value – but small investors only sold about 1 percent of their mutual funds. Could more “red” in this year finally have them throwing in the towel?

Jason Trennert of ISI Group says he thinks small investors have already thrown in the towel and he points to five consecutive months of equity fund redemptions from July through November to support his belief.  His concern is now not individuals throwing in the towel, but the fact that they seem to be chasing performance in bonds and throwing money at those funds, which he says is the wrong approach right now.  He thinks now is the right time to buy stocks.

Hilary Kramer of Montgomery Asset Management says most individuals are in the market for the long term and she’s not concerned they will abandon stocks now.

Wayne Rogers of Wayne Rogers & Co. says the little guy is still in mutual funds for the most part despite an average 20 percent decline and he doesn’t expect them to abandon the market this year.

Jonathan Hoenig of Capitalistpig Asset Management does not see wholesale capitulation by small investors no matter what the new year brings.

Jonas Max Ferris of Maxfunds.com says he thinks individual investors are not only skeptical of the bad stock market but are tired of corporate scandals and more scandals could cause them to get out of the market this year.

Double Digit Winners!

After a year of double-digit losses, how about some double-digit returns? Some members of the panel offered up some potential winners.
 
Jason's Double-Digit Pick: Best Buy (BBY)
52-week high: $53.75
52-week low: $16.99
Friday's close (1-3-03): $28.36

Jonathan’s not a buyer.  Wayne says he doesn’t see any retailer’s stock returning that quickly, Best Buy included. Hilary says Best Buy is the “best buy” in the sector.

Wayne's Double-Digit Pick: Nortel Networks (NT)
52-week high: $8.77
52-week low: $0.43
Friday's close (1-3-03): $1.85

Jason says Nortel’s probably not a bad bet for extremely speculative investors looking for a spike because it’s been so beaten down, but he says you have to be careful because the company could have a tough time.  Hilary says Nortel’s a good choice because it doesn’t take much of a spike to get a double digit return on a stock that trades under $2. Jonathan is playing the telecom sector but not here.

Hilary's Double-Digit Pick: JP Morgan Chase (JPM)
52-week high: $39.68
52-week low: $15.26
Friday's close (1-3-03): $25.94

Jonathan says he’s worried about the regulatory risk in the big banks.  Wayne says he thinks the stock could do very well but he doesn’t see double digit return for it.  Jason likes the pick. 

Jon's Double-Digit Pick: STET Hellas (STHLY)
52-week high: $7.50
52-week low: $4.25
Friday's close (1-3-03): $7.02

Wayne says he can’t read the annual report on this Greek company so he wouldn’t buy it.  Jason agrees with Wayne; he’s not a  buyer either. Hilary’s with Jonathan on this one.  She says it’s a good bet right now.

Power Plan

She’s talented, funny and has a few bucks to spare. But Janeane Garofalo has no clue how to play the stock market. She asked our crew for some help:

"My question is: how come the markets fluctuate so wildly, and when they dip, they dip extremely low, and then they go up, and then when they dip down again, they go even lower then the last time. So every time you think you are at the bottom of the barrel, you just lift the barrel, and there's another lower bottom of the barrel if you will. Does that make sense? That's my question."

Jonathan says Janeane can take some of the sting off the fluctuating market by focusing on income oriented investing rather than on capital gains investing.  She should look for stocks and/or funds that offer a monthly income through dividends, especially since she is in the entertainment field and her own income probably fluctuates.

Jon's Power Pick: Templeton Global Income (GIM)
52-week high: $7.75
52-week low: $6.31
Friday's close (1-3-03): $7.52

Jonas says the market is bi-polar and it overreacts to both positive and negative news which is why you get those dramatic swings but the reality of investing – earnings and the economy – are relatively stable so an individual investor can overlook the day-to-day swings and just buy companies with relatively stable earnings that are relatively cheap.

Jonas' Power Pick: Pfizer (PFE)
52-week high: $42.24
52-week low: $25.13
Friday's close (1-3-03): $31.78

Money Mail

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

Question: “I have stock in Grey Wolf (GW). With the possibility of war in the Gulf, is this a hold, or should I sell?”

Jonathan says it’s not first on his list.  He says he’s been looking for an energy play and right now the energy partnerships seem to be where the action is.  He doesn’t own any yet, but is looking at Buckeye Partners (BPL), Enbridge Energy Partners (EEP) and Valero L.P. (VLI).  He says if he was long Grey Wolf he’d be looking to trade out of it, and would not put any new money in it right now. Jonas says this company’s stock didn’t rally the last time we went to war in the Gulf and there is no reason to think it will now.

Question: “Is Kimberly-Clark (KMB) a good buy at $47?”

Wayne says institutions own about 70 percent of this stock, so it is very well supported.  He say’s it’s trading at about 14 times next year’s estimated earnings and that’s good, but he’s not sure at $47 that you couldn’t see some downside, maybe as far as $39 or $40. But if you’re in it for the long term, it’s a solid hold. It does have some competition from Procter & Gamble (PG).  Jonas says it’s cheap at this price. 

Question: “What happens to all the people who have WorldCom stock in their 401(k) plans? Will the shares ever be worth anything again?”

Jonas says 50 thousand WorldCom employees lost about half the value in their 401(k) plans and they won’t get it back.  He says the lesson here is: “Don’t buy your own company’s stock in your 401(k) plan, choose from the mutual fund options instead. You already work there.  That’s your investment!” 

Question: “Jonathan - you are my trading Guru. What do you think of the ING Group (ING)?”

Jonathan says always look at the best of the bunch when choosing a stock.  He says right now  the financial services sector he would look at the really small savings and loans, and at the regional banks, not at the ING’s and Citigroup’s and JP Morgan’s of the bunch.  In this group, Wayne says he likes American International Group (AIG) and Citigroup (C) better than ING.

Transcripts

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