Brenda 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 Joe Battipaglia, chief investment strategist at Ryan, Beck & Company.
It's been called "Rock"-tober and "Shock"-tober. The biggest one day disasters in stock market (search) history have all hit in October-which begins Wednesday.
Gary B. is scared of October because the market has run up so far so fast. He said we're due for a pullback and things are lining up for it. He charted the Dow and showed the uptrend it has been in for most of the year. But last week, the Dow broke below 9350, which was below that uptrend line. Due to this, he thinks we're going to have another ugly October.
Joe thinks we could pullback 3-7 percent, but the fundamentals surrounding the market are positive. Interest rates have backed off towards 4 percent, the economy continues to defy the odds, and analysts are raising expectations. He added that although the first week of October could be weak, he thinks the third quarter will have positive surprises and this will make stocks stronger going into November.
Tobin believes the market is going to pullback. He thinks traders can make money by shorting overvalued stocks, but this is the hardest time for investors because they must wait for stocks to come down before buying them. He advised investors to buy stocks, but don't chase them.
Scott is glad that last week was a weak one for stocks. He explained that the market had been only going up and it needed to cool down. Small cap stocks, which had been leading the rally, were hit especially hard. He advised investors to buy stocks on this pullback.
Pat said the market has had positive news, but it is not enough to sustain the gains we have made. In fact, he thinks it will be much worse than a 5 percent pullback. He said companies in Asia that manufacture semiconductors for other firms, are saying that their clients are way too optimistic. There is not going to be as much growth as is predicted in the chip sector. This will have a negative impact on the Nasdaq and will bleed into the broader market.
Gary B. and Pat each picked a very widely held stock each thinks you should sell Monday morning.
Gary chose Verizon (VZ). He said it had been in an uptrend since last September, but just broke below it. He wouldn't look at the stock until it goes to the mid $20s. But Pat didn't agree. In fact, he said the stock is a keeper just due to its dividend. The company won regulatory approval to offer long-distance services in every state it serves. Its wireless unit is growing nicely. Now Pat did admit the stock has some risk, but it's not enough to make him sell it.
Pat's stock to sell was Intel (INTC). He said the personal computer market is mature, and this will make the company grow slowly. On top of that, Intel's other units are losing cash and its third quarter estimates are too optimistic. Pat expects the stock to drop 30 percent. Gary B. said to short Intel a couple weeks ago, but he's not as negative on the stock now. On its chart, the stock has gone nowhere for the past month. But to be safe, Gary B. advised not to sell the stock unless it breaks the uptrend it has been in since the start of the year.
Joe, Tobin, and Scott all came back to look at three stocks that Joe says are big-time buys!
Joe first picked Intel. He disagreed with Pat's points from the Chartman segment. Joe thinks the stock is a play on the economic recovery. Also, Intel went through a tough time, but survived it, and now should be bought. He thinks it's going to the $40s and could double in 3 years. (Intel closed at $27.27 on Friday.) Toby and Scott both think the stock is too expensive.
Another favorite stock of Joe's is Sovereign Bancorp (SOV). It acquired some assets and is making loans. Also, it is benefiting from a rising economy and the troubles of Fleet (FBF) and Wachovia (WB). Tobin likes the stock because it owns variable rate mortgages, so as interest rates rise, it makes money. Scott would rather own a regional bank that pays a 3 percent dividend yield. (Sovereign Bancorp closed at $17.95 on Friday.)
Joe is also a big bull on pharmaceutical giant, Amgen (AMGN). He said it has made giant gains in revenue and earnings. Also there is a huge demand for pharmaceutical products and it is a leader in the pharmaceutical business. Toby likes the stock, but said Amgen needs to make some acquisitions and get its new arthritis drug approved. Scott said Amgen is a great company and stock, but wait for it to pullback $5 before buying. (Amgen closed at $65.15 on Friday.)
Scott's prediction: Mortgage rates fall again! 30 yr. going back to about 5 percent
Joe's prediction: Still time to buy iShares Dow Jones U.S. Real Estate (IYR)
Pat's prediction: Cash in your chips; semiconductors tank 20 percent by year-end
Tobin's prediction: Nasdaq falls another 100 points next week