Stock Smarts: Last Chance To Buy?

“War talk” more than “war” itself could be hurting this market.  That’s how it was in the last Gulf War.  From August 2, 1990 -- when Iraq invaded and occupied Kuwait -- until the start of Operation Desert Storm on January 16, 1991 the market fell 13.5 percent.  But then, stocks came roaring back, up 15.2 percent by the time the U.S. kicked Iraq out of Kuwait.

So is Saddam’s last chance to disarm your last chance to buy stocks at these prices?

Price Headley, Investment Strategist at BIGTrends.com says there is a lot of money on the sidelines and he believes we will see a short-term pop to the upside for the market when war breaks out, but he doesn’t think it will be your last chance to buy at these prices because he expects any pop up to be a short-lived bear market bounce, not a new bull market.  He thinks the market will come right back down again because too many people are expecting a rally and will likely sell into it.  That is the opposite of 1991 when no one expected a rally and the market just continued to build on strength.

Hilary Kramer of FOX Business News says she thinks we have some good news ahead.  She calls the market “a dam that’s ready to break open.”  She points to the recent upward revision in the GDP and to positive sales growth out of Starbucks (SBUX) as evidence that there is strength to the economy.  She thinks that war is priced into stocks, and there will be a spike in prices if a war does break out.   She says now may be the last chance you will have to buy stocks at these levels.

Jonas Max Ferris, founder of MAXfunds.com, says Wall Street is having a bankruptcy sale and these prices won’t last.  He points out that whenever the Dow starts trading below 8,000 it tends to bounce back making this range a good opportunity for long-term investors to hop into the market.  He says the real risk, and the big difference between now and the 1991Gulf War, is if the United States ends up having to foot the whole bill.  Back in 1991, other countries paid for the bulk of the war.  A huge U.S. war debt could be negative for the market for some time to come.

Wayne Rogers, founder of Wayne Rogers & Company does not think the market will rebound soon. He says he does not see earnings and companies’ fundamentals supporting any kind of a quick turnaround for this market, so he does not believe this is your last chance to buy at these prices.

Jonathan Hoenig, portfolio manager at Capitalist Pig Asset Management says he thinks now is still a better time to be putting new money to work in bonds rather than in stocks, no matter what happens with the war.  He says corporate, high yield, international, and short term bonds are all in a bull market.

Be$t Bets: Last Chance Stocks!

Stock prices are down on the buildup to war. The only good news is that it could make for some great buying opportunities.  Our group named their favorites right now.

Hilary's "Last Chance" Buy: American Express (AXP)
52-week high: $44.91
52-week low: $26.55
Friday's close: $33.58

Jonathan doesn’t like this stock.  He prefers tiny banks not, big ones.  Wayne says he thinks American Express is priced where it should be and won’t bounce on any war rally. 

Price's "Last Chance" Buy: Hotels.com (ROOM)
52-week high: $75.00
52-week low: $32.83
Friday's close: $44.97

Price owns the stock.  Hilary is concerned about competition in the industry.  Wayne worries about the precipitous drop in price this stock has seen.

Jon's "Last Chance" Buy: Templeton Emerging Markets Income (TEI)
52-week high: $12.45
52-week low: $9.61
Friday's close: $12.10

Jonathan owns the fund.  Wayne says he loves the fund for its great yield, but he admits that it’s slightly scary because of the countries it invests in like Mexico and Russia.  Price says TEI is a respectable play, especially in this environment where stocks are not performing well, and it’s a risk worth taking.

Wayne's "Last Chance" Buy: Nortel Networks (NT)
52-week high: $6.25
52-week low: $0.43
Friday's close: $2.15

Wayne owns it.  Price says there may be opportunity here as a trader if you get in and get out quickly, and sell into a rally but he doesn’t recommend it as a long term buy.  Jonathan says he’d use stop losses to manage a purchase of this stock so he could try to catch a bounce but not lose too much in a trade.

Mutual Fund Face-Off

The market moves on breaking news. And if it’s headed down and all of your cash is in mutual funds, you can’t do a thing until the trading day is over. But there is an alternative with exchange traded funds – or ETF’s.

What are the best ones for you? Dagen and Jonas faced-off:

Dagen - iShares Lehman 1-3 Year Treasury Bonds (SHY)
Year-to-date (as of 2-28-03): UP 0.01 percent
Minimum investment (as of 2-28-03): $82.41
Expenses: $1.50 for every $1,000 invested

Jonas - Technology Select Sector SPDR (XLK)  
Year-to-date (as of 2-28-03): DOWN 0.3 percent
Minimum investment (as of 2-28-03): $14.30
Expenses: $2.80 for every $1,000 invested

Money Mail

Wayne, Jonathan and Dagen answered some of your investment questions.

Question: “A friend told me to buy Rite Aid (RAD) because he says the stock will drop to $2.00 when the war starts and then go to $25. Thoughts?”

Wayne says, “Get a new friend!”  He says he’ll be long dead before Rite Aid ever sees $25 and so will you. He says Rite Aid is trading right where it should be right now, and it’s not going to move off that for a long time.  Jonathan says trading is always about  what’s “possible” and what is “probable.”  You have to ask yourself, “Is it possible that Rite Aid could move up that much after a war?” And the answer may be,  “Yes.”  But when you ask if it is “probable” the answer is,  “No!” And you should stay away from it.  Dagen says the company is still recovering  from an accounting scandal in the late 90’s and is mired in debt, stay away!

Question: “If Turkey is going to benefit financially from a war. What do you think about buying the Turkish Investment Fund (TKF)?

Jonathan recommended the fund in late 2001, and he says he lost money in that trade and he doesn’t think now is a good time to get into this fund.  He says if you want to invest in Turkish stocks you should take a look at Turkcell (TKC).  Wayne says he doesn’t like the fund.  Dagen doesn’t recommend it either.

Question: "With $1,500 to invest, I want to get into the stock market. What do you think of L-3 (LLL) and Lockheed Martin (LMT)."

Dagen says Lockheed is the “King Daddy” of defense and is a better bet than L-3.   L-3 is buying up smaller companies trying to grow and she says that’s a bad strategy.  Wayne doesn’t like either of them.  Jonathan doesn’t’ like them either.  He says defense is one of the weakest groups out there now.