Stock Smarts: Good News: No War Rally?

Saddam is out – and stocks are up. But they didn’t spike on the victory. Is that a bullish sign?

Gary Kaltbaum of Kaltbaum & Associates says yes. He points out that for the last three years we have had spikes off the lows that were not sustained, and he wants to see more “backing and filling” to create a base, and he believes we are starting to see that now.  He says, “For the first time in 2-and-a-half years, I am planning to buy stocks on the next normal pullback.”  The stocks he says he’s looking at right now are those that “acted well upon their earnings reports -- the ones that beat Wall Street expectations and are growing earnings.”  He adds that even though a lot of people think stocks like eBay (EBAY) and Amgen (AMGN) are overvalued, he says the market loves them because they are growing earnings faster than everything else, and he’s looking to buy both on a pullback.

Wayne Rogers of Wayne Rogers & Co. agrees with Gary.  He says, “a bottom is a process, not an isolated event,” and he believes we are in that process.  He is cautiously optimistic on the market right now, but he’d like to see a breakout on greater volume before he’s convinced all’s well.

Hilary Kramer of A&G Capital says she’s bullish because earnings are coming out stronger than expected and the market is building a base as Gary points out.   She says she owns Cedar Fair (FUN) and that’s been doing well.  “Also doing well --  American Express (AXP), Merck (MRK) and even Bristol Myers (BMY) is finally get back up there.”

Jonathan Hoenig of Capitalistpig Asset Management says he agrees with Gary that the stock market is building a base and looking more attractive, but he isn’t shopping in U.S. stocks yet.  He is bullish on Latin America right now, and he’s putting money to work in stocks there.

Dagen McDowell of Fox Business News says you have to own U.S. stocks now because the overseas economies, particularly Europe and Japan, “stink.”  She agrees with Hilary that earnings are looking up. She says the first quarter looked great, but she’s concerned about earnings in the second half of the year, and she thinks that since the market has rallied off lows, investors will be taking a breather over the next few months.

Be$t Bets: Post-War Buys

The crew thinks that there are some real post-war “buy” signs out there. So what stocks are on their radar?

Hilary's Post-War Buy: McDonald's (MCD)
52-week high: $30.72
52-week low: $12.12
Friday's close (4-25-03): $15.81

Hilary calls this a great turnaround story.  Gary says the only good thing going for McDonald’s is that the stock is trading at a low multiple.  He says the company has not grown sales and earnings, and there are too many companies taking away market share.

Jonathan says he views the restaurant business more as a real estate business, and he’d rather buy a solid Real Estate Investment Trust that owns restaurant properties than an actual food service stock right now.

Jon's Post-War Buy: Banco De Chile (BCH)
52-week high: $19.62
52-week low: $14.39
Friday's close (4-25-03): $19.36

Jonathan says Chile’s stock market is extraordinarily strong right now, and he says this is a strong stock in a strong market. Gary agrees this is a strong stock, but he thinks it might be a little overextended at these levels, and he would probably only buy on a pullback, but he is also a little concerned about liquidity in this thinly traded stock.  Hilary loves the pick. She says Chile is a great place to buy now.

Gary's Post-War Buy: Nextel (NXTL)
52-week high: $14.67
52-week low: $2.50
Friday's close (4-25-03): $13.92

Gary says Nextel is improving business, and insiders are buying near the highs, and he thinks it could go to the high teens. Jonathan’s not interested in the sector or this stock right now.  Hilary says the company can keep on growing on the strength of its walkie-talkie business. She likes the pick.

Mutual Fund Face-Off: Bet On Iraq!

Billions of dollars are set to flow into Iraq for the rebuilding of the country. What’s the best fund to take advantage of the new opportunities there?

Dagen – LKCM Equity Fund (LKEQX)
Year-to-date (as of 4-25-03): UP 2.2 percent
Minimum investment: $10,000
Expenses: $10.50 for every $1,000 invested

Jonas – Vanguard European Stock Index Fund (VEURX
Year-to-date (as of 4-25-03): UP 1.3 percent
Minimum investment: $3,000
Expenses: $3.30 for every $1,000 invested

Money Mail

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

“Should I sell my stocks in May and go away until November this year? Last year it was good advice”

Wayne says you can’t argue that on a statistical basis this makes sense. Jonas says he doesn’t think the individual investor can benefit from well-known trends like this. Jonathan says he doesn’t like seasonal strategies: “The market doesn’t know what month it is.”  He says he loses money whenever he tries these types of strategies.

“My UAL stock has taken a dive in recent weeks. Should I dump it, or can the company turn around?”

Jonas points out that stockholders are the last to get paid in a bankruptcy.  He says, the stock is up recently because people tend to gamble on it when it falls below a dollar.  He believes you should use the recent spike to get out.   Jonathan says the question you should be asking is: “How did I let myself get into this position?”  Stocks like this don’t become penny stocks overnight. The lesson here is to figure out why you held it as long as you did and not do this again.  Wayne says the best you can hope for if you continue to hold onto a bankrupt stock is that the certificate becomes a collector’s item and you can make some money selling it on eBay.

“Are Jonathan and Wayne still holding any gold stocks?”

Jonathan still owns ASA (ASA), Wayne is still holding Goldcorp (GG).

“Is it safe to get back into AOL Time Warner (AOL)?”

Jonas says he bought AOL for his dad at $10 a few weeks ago, but he’s thinking of selling it now.  He doesn’t think it is worth much more than $14 or $15 a share.  He says the company has great assets, but he thinks there are a lot of problems with management.  He thinks AOL’s getting rid of the wrong people.  He says, “The entrepreneurs are leaving the company; the old overpaid Time Warner execs are taking over.”  Since he wouldn’t own AOL above $15, he wouldn’t get in now.   Wayne has said in the past that you can buy AOL at $10 and sell it for $17.  He calls it a trading stock, but not a good long-term investment.  Jonathan agrees with Wayne. He points out that stocks go up and down all the time, and you really have to focus on the best probabilities. He says, “AOL to me is a stock like NOKIA (NOK) which traded in a range for years.”