Stock Smarts: Victory Rally?

America is digging in for war with Iraq. Any doubts about that were surely erased this past week when Colin Powell spoke to the United Nations. On Friday, Feb. 7 more tensions came about as the terror threat level was raised to “High”.

But could a quick war and a big American victory actually be exactly what this stock market needs to make a big turn-around?

Hilary Kramer of FOX Business News says a quick victory will give the market the shot in the arm it needs to turn positive. She says oil prices will come down and that will help to boost companies’ profitability and bring investors back into the market.

Jonathan Hoenig of Capitalistpig Asset Management does not agree.  He says he sees the charts of a lot of big stocks in the major indices breaking down like McDonald’s (MCD), Home Depot (HD), and  AIG (AIG) and he’s very skeptical that a quick war could help turn those around. He’s still betting against the Dow.  He says the only thing he sees going up right now is the cost of energy which is not good for these stocks.

Wayne Rogers of Wayne Rogers & Co. agrees with Jonathan.  He thinks that there are spots in the market where you can still make money, but he says the outlook for the broader market right now is very negative, and he doesn’t think a quick war will turn it around. He says a quick war may bring a bump up in stocks, but it will be short lived unless the profit picture starts looking more positive than if does right now.

Dagen McDowell of FOX Business News says she thinks a quick victory in Iraq will turn  confidence around.  She believes businesses will start spending more money and investors will come back to the market and stocks will move higher.  She says now is the right time to buy stocks while most people are negative and stocks are cheap.

Gary Kaltbaum of Investor’s Edge Partners says, “The market will pop if we win the war; it’s a fact!”  BUT he says investors should sell when it does pop because the underlying fundamentals will eventually cause the market to continue lower.  He says earnings are “horrible” and stocks are still priced too high and the market’s message over the last couple of weeks is SELL!

Best Bets: Victory Winners!

Which stocks will be the biggest winners if we see a big American victory in Iraq? The panel offered their best bets.

Gary's Victory Stock: Golden West Financial (GDW)
52-week high: $76.40
52-week low: $56.20
Friday's close (2-7-03): $73.19

Gary says he doesn’t think anything will change after the war, and he says you should bet on what’s working now to continue to work when the war is over.  He likes GDW because the stock has acted well all along and has “refused” to go down in a bear market.  Jonathan says there’s no question that savings and loans are about the only stocks behaving well right now.  He says GDW is a strong stock.  He prefers the smaller, microcap stocks in this sector -- those with a market cap of under $100 million.  He says these companies are really performing the best right now.

Wayne's Victory Stock: Plains All American (PAA)
52-week high: $27.30
52-week low: $19.50
Friday's close (2-7-03): $24.78

Wayne has picked this stock before.  He owns shares.  He says he doesn’t think we are going to get a big run up in any stocks despite the war outcome, and he likes PAA because the dividend helps preserve capital.  Hilary likes the stock.  Jonathan also likes the stock.

Hilary's Victory Stock: Royal Dutch Petroleum (RD)
52-week high: $57.30
52-week low: $38.60
Friday's close (2-7-03): $39.89

Hilary says it’s an undervalued play on big oil. Gary says he’s concerned that the market has not liked this stock even though oil prices are high.  Jonathan doesn’t like large cap stocks like RD right now.  Wayne has owned it for some time, but he’s not a buyer right now because he says the company has a big bet in Nigeria which he thinks is overextended, and he says he’s also concerned that the company is not replacing its reserves as rapidly as it should be.

Jon's Victory Stock: San Juan Royalty Trust (SJT)
52-week high: $14.21
52-week low: $9.27
Friday's close (2-7-03): $14.12

Jonathan likes this stock because the dividend yield is good and the stock has seen good price appreciation as well. He owns it and has recommended it before.  He believes it will benefit from higher oil prices.  Gary likes the stock but he’d rather buy it on a pullback since he thinks it’s a bit pricey here.

Mutual Fund Face-Off: “Fresh-Start” Funds

If you’re feeling the same pain in 2003 that you’ve felt in the market for the past three years – it’s time to get a fresh start. What the best fund to do that? Dagen and Jonas came up with two.

Jonas: Bridgeway Ultra-Large 35    
52-week return: DOWN 19.4 percent 
Minimum Investment:  $2,000   
Expenses: $1.50 for every $1,000 invested 


Dagen: Dodge & Cox Balanced
52-week DOWN 3.8 percent
Minimum Investment: $2,500
Expenses: $5.30 for every $1,000 invested

Money Mail

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

Question: “I think the IRS should add a line to tax forms that asks if we wish to contribute to
the space program.  What do you think?”

Jonas says almost 1 percent of your current income taxes already goes to NASA. He says it’s not a great idea because if NASA got this treatment everybody would ask for it, and tax forms should be shorter not longer. Jonathan agrees.

Question: “How low would the Dow have to go before Jonathan would bet on it?”

Jonathan’s been shorting the Dow since it was last at 8,800, and he says while that has been a good bet, the hardest thing about trading is staying in the position.  There have been intermittent rises that have tempted him to cover his short, and he’s getting a little nervous about it at this level, but he says right now the only thing that would make him cover his position is a sudden major drop in the market so dramatic that it gets lots of media attention. That would signal a short-term bottom to him.

Question: “Should I sell my gold stocks and buy something else if war with Iraq breaks out?”

Wayne says he’s taking some profits off the table right now based on the charts alone.  He’s sold some of his AngloGold (AU) and Goldcorp (GG).  He says the stocks are still strong and should remain strong until it appears that America is winning its bid to disarm Saddam.  But it’s a good idea not to be too greedy and take some profits now.  He says sell more when the tide turns in America’s favor. Jonas says sell “all” your gold mining stocks.  He calls the gold sector and “epic bubble” right now, and says the companies are valued beyond the price of their reserves in the ground. Jonathan says he still likes the metal more than the stocks.

Question: “I'm thinking about buying eBay (EBAY). Is it a good idea?”

Jonas says, “Sell eBay, don’t buy!”  He says, “The CEO has been selling the stock, and you should do what she does and sell too.”  Wayne likes the company, but thinks the stock is overpriced.  Jonathan likes the company, but not the stock right now.

Transcripts

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