Brenda Buttner and was joined by: Gary B. Smith, RealMoney.com columnist; Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, founder and chairman of ChangeWave Research; Scott Bleier, president of HybridInvestors.com; and Gretchen Morgenson, New York Times business editor.

Trading Pit

President Bush vows "American justice" for those behind the terrorist bombing last week in Saudi Arabia (search). Almost everyone agrees it has the fingerprints of Usama bin Laden and Al Qaeda all over it.

At the same time, America is working to protect the homeland with mock terrorist attacks using weapons of mass destruction staged in Chicago and Seattle.

Gretchen said that unfortunately since September 11th terrorism is now a fact of life and threats of a terror attack must be considered when making any investment decision. However, she emphasized that this does not mean you shouldn’t still buy and sell stocks.

Tobin said that Israel’s market was making its best gains when Israel was facing its worst terror attacks. This means that investors must and will learn to work through the fear of terror attacks. But right now, some investors are afraid and it is causing them to make bad investment decisions

Gary B. charted the Dow’s movement since September 11, 2001. He said the market has been through a lot since that time but it has basically returned back to its post September 11 levels.

Scott said the market seems to minimize terror attacks that occur outside of the U.S. He added that an attack in this country would have a greater impact than one overseas. But right now, he believes there are a lot of good investments to make. Scott concluded that investors are trying to put the threat of an attack on the side, but they always seem to have one eye on the situation.

Pat had the last word in the segment and reminded investors that fear creates buying opportunities. So if there is another terrorist attack, God forbid, buy stocks.

Stock X-Change

Scott, Tobin, and Gretchen stayed on to pick stocks that will stand up and be strong if America is attacked.

Scott chose Harmony Gold (HMY), because the one thing that will stand up is gold. Harmony is the largest gold producer in South Africa. Scott thinks the stock will go to $20. (Harmony closed on Friday at $12.75.) Tobin agreed with Scott’s pick and added that if there is another terrorist attack, the dollar will go down which would make gold go up. Gretchen added that gold is a safe play for investors.

Tobin chose Royal Dutch Petroleum (RD) because it has a 4 percent yield and he thinks oil will not go below $25 a barrel. (Royal Dutch closed on Friday at $45.50.) Scott agrees and thinks it is the best oil company to own. Gretchen questioned what would happen to the company when Iraq started pumping oil again.

Gretchen picked American Pharmaceutical Partners (APPX), a generic drug producer. She said generic drugs are one thing that we need now and are going to continue to need in the future. (American Pharmaceutical closed on Friday at $27.70.) Both Tobin and Scott like the stock.

Chartman

Gary B. and Pat came back to look at three of the biggest defense companies that helped America defeat Saddam Hussein.

First the duo examined Lockheed Martin (LMT). Gary B. said it has been getting shellacked for about a year but its chart is set up nicely now. However, investors should wait until Lockheed closes above $50, which would break through the downtrend it has been in. (Friday’s close: $49.00) Pat said Lockheed’s cash flow is improving and its debt is down. But the company is not controlling costs and he thinks there are better defense stocks to buy.

Next the pair looked at Raytheon (RTN). Gary B. said the chart recently gapped up, which means that there is still a lot of interest in Raytheon. And now that the stock has closed over $32, he thinks it’s a buy. (Friday’s close: $32.25) Pat thinks that Raytheon looks better than Lockheed Martin. But his concern is that the company’s pension plan is underfunded, which will hurt its profits. On the plus side, Raytheon’s missile technology is the best and its main client is the U.S. military. He believes buying the stock now is risky, but it could go up 30 percent.

The third stock Gary and Pat looked at was General Dynamics (GD). Gary B’s chart showed that the stock made a run up in April, and then worked off those gains by moving sideways. He said look for it to make another run taking to the low $70s. (Friday’s close: $64.80) Pat said General Dynamics is a tremendously well-run business and has lucrative contracts. Also, defense spending should increase and its Gulfstream business will turnaround. In a few years, he thinks General Dynamics could hit $100.

Predictions

Gretchen's Prediction
Tech mania ends with a thud; Nasdaq tumbles 10 percent

Tobin's Prediction
Nasdaq 2000 by 2004

Gary B's Prediction
It's time to move out! Toll Bros. (TOLL) falls 20 percent by Oct.

Pat's Prediction
You can print it: Donnelley (DNY) heading up 20 percent within a year

Scott's Prediction
Capital One (COF) run is over; stock dropping 20 percent soon