Recap of Sat., May 31: Terror Relief Rally

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 Price Headley, investment strategist for BigTrends.com.

Trading Pit

The threat of terrorism remains and tensions ran particularly high last weekend due to fears that Al Qaeda (search) would strike around the Memorial Day holiday.

Thankfully no attack occurred and the market took off at the beginning of the week. A huge rally on Tuesday and then another big day on Friday made a pretty significant gain.

Price said the terror relief rally is a short-term rally. Even though there is strength in the Nasdaq and small cap stocks, he thinks the current rally will last for another month. Once the earnings reports come out in mid July, Price predicted the market will head much lower.

Tobin’s very bullish right now because people want to own stocks and are getting better tax benefits from buying stocks right now. Even though he’d like to see the market pullback a little, he thinks we’re heading higher.

Gary B. charted the Nasdaq’s performance since 2000. He showed that it has been in a downtrend since that time. However, it just broke through that downtrend and he thinks this points to higher stock prices.

Scott said Friday’s rally was due to the surprise capital gains tax and dividend tax cuts. He added that this has given investors incentive to buy stocks and there is no reason why not to buy stocks now.

Pat said any short-term rally has nothing to do with the threat of a terror attack. He also thinks the market has gotten ahead of itself. He agreed with Price that July’s earnings won’t be good, but for the long-term he agreed with Toby and is bullish.

Stock X-Change

Scott, Tobin and Price stayed on to determine if some of this year’s double digit Dow winners will keep going higher for the rest of the year.

The group first looked at Intel (INTC). Scott said it’s going to $26 by January 1st. He thinks the semiconductor cycle will restart late in the year and people will be buying PC’s again. He also thinks Intel has limited downside. Tobin said everyone should own Intel and it will go to $25 by the beginning of next year. Price is bearish on Intel. He does think it will go higher, but will then dip back down to the teens and be around $20 by January. (Intel closed on Friday at $20.82.)

Next, the three looked at General Electric (GE). Tobin said GE is the definitive cyclical stock. He said it has a nice dividend and will most likely raise that dividend. Tobin thinks by January 1st it can reach $35. Price doesn’t like GE because it is a big cap, blue chip stock. He thinks it will be at $24 by January. Scott said GE is widely diversified and agreed with Toby that it will raise its dividend. He thinks at some point big cap stocks are going to try and catch up with the smaller caps. Scott said it will hit $32 by the beginning of next year. (General Electric closed on Friday at $28.70.)

Lastly, the group looked at American Express (AXP). Price said it’s benefiting from the low interest rates. He thinks it will hit $45 by the beginning of 2004. Scott agrees that it will hit $45 by January 1st. He admitted that’s only a 10 percent increase from its current price, but the stock has had a good run. Scott said most financial stocks have made a great run and now other areas of the market will take over. Tobin said American Express will continue to do better and will hit $50 by next January. (American Express closed on Friday at $41.66.)

Chartman

Last week Pat said there were only 15 stocks he'd buy right now. But truth be told, there are actually only 13! Pat and Gary B. looked at three of them: Markel (MKL), an insurance company, textbook publisher, McGraw-Hill (MHP), and financial services company Eaton Vance (EV). (For the complete list of all 13 of Pat’s stocks, go to Morningstar.com.)

First up, Markel. Pat chose this niche insurance company because it has a fantastic track record. He said the company is friendly to shareholders because executives own about 15 percent of the company and there’s incentive for them to take a long-term viewpoint. He admitted the stock is not cheap, but expects it to grow quickly over the next couple of years. Gary B. thinks the chart is in perfect position to buy because it a broke above a downtrend it had been in since March. He thinks it can go to $300. (Markel closed on Friday at $252.25.)

Next up, McGraw-Hill. Pat said the company has several great businesses and most divisions are very profitable. He thinks it could be up 20 percent upside within two years. Gary B. thinks McGraw-Hill is a buy now that it firmly closed above resistance it had been in since January. He believes it will get to $72 or above. (McGraw-Hill closed on Friday at $63.21.)

Last up, Eaton Vance. Pat thinks asset management is the place to be. He likes that Eaton Vance is very diversified and that its assets grew in a bear market. He thinks it’s a good buy at the current price and could go to $45. (Eaton Vance closed on Friday at $30.10.) Gary B. said this chart hasn’t broken out yet like the other two, so it’s a little risky. He thinks it’s best to wait until the stock breaks above $32 before buying.

Predictions

Tobin's prediction: Bet the house on housing stocks and buy KB Homes (KBH)

Gary B's prediction: I was wrong about home stocks; but wait for (KBH) to drop 10 percent to buy

Pat's prediction: Bet against bonds and buy Rydex Juno Fund (RYJUX)

Scott's prediction: Michael Eisner ousted; Disney (DIS) up 20 percent by year end

Price's prediction: streetTRACKS DJ U.S. Small Cap Value Index Fund (DSV) going up 50 percent