Brenda Buttner was joined by: Gary B. Smith, RealMoney.com columnist; Tobin Smith, founder and chairman of ChangeWave Research; Scott Bleier, president of HybridInvestors.com; Adam Lashinsky, senior writer for Fortune magazine; and Randy Jones, editor-in-chief of Worth magazine.

Trading Pit

Usama on tape calling for more terror against the U.S.  Hans Blix at the U. N. talking about the weapons of mass destruction and America getting closer to pulling the trigger against Saddam Hussein.

And it appeared all that was translating into another rough week for stocks.  But in the final hours of trading Friday, the Dow charged ahead for a gain of 159 points.  To finish the week higher for the first time in over a month.

Even with Friday’s action there’s so much negativity out there.  But is the smart money actually starting to buy stocks now, before the bombs start dropping in Iraq?

Randy said that now is the time to sit on the sidelines and take a breather.  If you’ve got money burning a hole in your pocket, there are some opportunities out there, such as healthcare stocks and maybe some financial stocks.  Randy does not think that we will have a war boom in the short term.  He believes we’ll get a war boom after we know that Saddam is ousted.  He thinks this war boom will be pretty significant and is not sure how long it will stay.

Adam said that you can be in the market for the long term and taking a breather.  He also thinks that people should have a portion of their savings set aside if things go wrong. 

Gary B. says that he is not as worried about the war as he is about the terrorism alert being raised.  He says if the Dow drops below the October low of 7,286, we could be in for a really tough stretch.  He agrees with Randy that we may have a better buying opportunity ahead and says you have to be willing to be a trader in this environment. 

Scott says there are two things to do.  First, says that you should be investing in yield oriented stocks because he thinks the President is going to get his dividend package through.  Secondly, he thinks the Nasdaq should only be used as a short-term trading vehicle.
 
Tobin says that we are clearly selling off into the war.  He thinks you can buy some stocks into March, but you’ve got to be ready to sell them later on. 

Stock X-Change

Are the Dow stocks that are suffering the most this year, the ones to buy now before a war with Iraq begins?

One of the worst performing blue chips is AT&T (T).  Scott says investors should stay away, because the company’s sales are still shrinking and they will not rebound even if global uncertainty clears up.  Tobin added that AT&T’s dividend is also shrinking.  Randy also dislikes AT&T’s stock.

Randy stated that McDonald’s (MCD) is not healthy food and it’s not a healthy stock.  He does not see much of a future in the golden arches.  Tobin said that what they should do is take their real estate and make it into a real estate investment insurance and pay stockholders 12 percent.  He says, then he’d buy it.  Scott said that their business is shrinking and that what they should do is pay out a big percentage of their earnings and make it a big dividend value stock.

Tobin says Eastman Kodak (EK) is still not looking good because most photographers’ prefer Fugi film and they think Kodak is overpriced.  Lastly, people aren’t buying film because they are using digital cameras instead.  Seventy-five percent of Kodak’s revenue comes from film and paper.  Randy added that Kodak is so dependent on the travel industry and if people aren’t traveling, then they aren’t snapping photos.  Scott says that this stock does belong in a segment of your portfolio because of its 6 percent safe yield.  He also thinks this stock will be booted out of the Dow in the next year or so.

Chartman

Gary B. and Adam are back to chart and look at several stocks that are higher in this new year. 

First up is Disney (DIS).  Gary B. says, don’t “dis” Disney.   He would buy it now, but bail if it drops below $15.  He thinks there is a high reward and low risk with this stock. 

Adam says that Disney has got something going for it, like all these Oscars Miramax is nominated for, although film entertainment is only 10 percent of income.  The stock is historically cheap and it is at about 24 times this year’s earnings.  That’s low, compared to where it’s been in the past. He also added that the Disney money losers are turning around like the theme parks and the ABC unit.

Gary. B.’s chart of International Paper (IP) showed that it is on a slight up trend. He thinks it is really poised to move higher and that’s what you want in a stock like IP.  He would buy it now, but sell if it drops below $34.50.  (Friday’s close:  $35.52)

Adam pointed out that people don’t like what’s going on with IP.  He says the paper industry is in an up cycle.  When paper prices are going up, IP’s stock is going up.  They have also cut costs by about $700 million dollars over the last year. He also explained that the company has a weak balance sheet and a declining book value, so that’s why there is a mixture of opinions here.

Gary B. says that 3M is one of the strongest Dow stocks this year and for the past few year.  You can buy now, as it’s above the uptrend line, or wait until it breaks to a new high.  He says it tends to always move sideways or up.  It never really gets crushed.  3M is something long term people should have in their portfolios.

Adam says that for once, Gary’s chart is explaining what’s really happening with a company.  He says that it’s a big time defensive play.  It has low debt, it is cutting its costs and it’s helped by a weaker dollar. He says there’s also a surprise here, it gets about 28 percent of it’s operating earnings from it’s healthcare products.   

Predictions

Adam:  Key Iraqi defection sends Dow up 300 points.

Gary B.:  War jitters send gold 30 percent higher; buy gold stocks.

Scott:  We go into Iraq & win; gold down 20 percent. Sell gold stocks.

Tobin:  Go long stocks in March; sell stocks in June.

Randy:  Junk bonds have high yields; grab them now!