DISCLAIMER: THE FOLLOWING "Cost of Freedom Recap" CONTAINS STRONG OPINIONS WHICH ARE NOT A REFLECTION OF THE OPINIONS OF FOX NEWS AND SHOULD NOT BE RELIED UPON AS INVESTMENT ADVICE WHEN MAKING PERSONAL INVESTMENT DECISIONS. IT IS FOX NEWS' POLICY THAT CONTRIBUTORS DISCLOSE POSITIONS THEY HOLD IN STOCKS THEY DISCUSS, THOUGH POSITIONS MAY CHANGE. READERS OF "Cost of Freedom Recap" MUST TAKE RESPONSIBILITY FOR THEIR OWN INVESTMENT DECISIONS.
Bulls & Bears
After three years in hiding, the bulls are back on Wall Street (search).
Stocks had a big finish at the end of the week. This adds to an already impressive run this year for the Dow (up 15 percent) and Nasdaq (up 41 percent).
Meredith thinks there are going to be amazing buying opportunities in October, because it is historically the most volatile month of the year. She predicts that money will flood into the market and make it soar.
Tobin likes what is happening in the stock market. He said profits are the key, and thinks there is going to be a 25 percent profit growth in the 3rd quarter. He explained that profits create capital, and capital invites investments. He believes the pullback that happened in the beginning of last week, will be the last one of the year.
Gary B. charted the Nasdaq. He said that since the spring, it is up almost 40 percent. He thinks this move is too far too fast, but it is so hard to be a bear in this market. However, if the Nasdaq breaks below the uptrend it established in March, he predicts the index will fall 10 percent.
Pat said the economic news is getting better, but things must be kept in perspective. The jobs report on Friday showed the economy added 60,000 jobs, but 150,000 jobs per month are needed just to meet population growth. He said the market is priced as if the jobs’ growth is going great, but Friday’s numbers were really just a glimmer of hope. He thinks the market will be lucky to hang onto these gains and that October is going to be an ugly month for stocks.
Scott thinks the Dow’s triple digit gains on Friday will almost make the bears give up. He added that when people are saying, “It’s so hard to be bearish” like Gary B, investors must be careful. Scott admitted there’s no doubt the economy is getting better, but investors must be cautious.
Scott, Tobin and Meredith each picked the best stocks to buy for the fourth quarter.
Scott selected ICICI Bank (IBN), a bank based in India. He thinks the growth potential for this bank and the Indian economy is huge because the middle and upper middle class is growing. Meredith agreed that investors should look to companies from other countries like India and China for real growth. Tobin likes this stock because credit cards are just starting to be used in India, and ICICI Bank is the leading issuer in the country. (ICICI Bank closed on Friday at $11.21.)
Tobin picked online brokerage firm, AmeriTrade (AMTD). He chose this stock because during a bull market, more people trade stocks and this makes its earnings go up. He said if you’re looking to buy and hold a stock for the next 90 days, you should own stocks that are tied to the economy, the bull market, and the trading of stocks. Toby thinks it will hit $20 next year. (AmeriTrade closed on Friday at $12.34.) Scott thinks AmeriTrade has had a good run, but is too expensive. Meredith really likes this stock. She said now that AmeriTrade acquired fellow online broker, Datek, it has leverage over all other electronic brokers.
Meredith chose Paychex (PAYX). She said 80 percent of businesses in the United States are small to mid-sized businesses and a lot of these companies use Paychex to do their payrolls. Also, she thinks with the good jobs numbers that came out on Friday, this stock will soar through the end of the year. Scott agreed and also thinks the good employment numbers will help this stock head higher. Tobin said it’s a little expensive, but he too believes it will run up if more jobs are created. (Paychex closed on Friday at $35.73.)
Gary B. and Pat returned and each picked the stock pick he is most proud of.
Gary B’s top choice was a stock he liked, but was actually picked by Pat. Gary B. said back in February, he noticed that Berkshire Hathaway Class B (BRK.B) was almost at a multi-year low. It’s up 20 percent since then. Back in February, he said to sell the stock once it hit $2500. It hit his price in August and hasn’t moved much since. He advised to buy the stock if it can close above $2600. (Berkshire Hathaway Class B closed at $2,534.50 on Friday.) Pat still likes the stock, but thinks its shares are worth about $2800. This makes it a decent buy but not a huge bargain.
Pat said the call he is most proud of came in August 2002, when he said to buy Tyco (TYC). It is up 75 percent since then. (Tyco closed on Friday at $21.22.) Back then he said the stock was insanely cheap. That was then, this is now. He doesn’t think Tyco is cheap anymore. He said there are some good signs the company is headed in the right direction, but there are better places to invest right now. However, Gary B. said he would stick with Tyco. He thinks its chart isn’t in bad shape and it has been rising steadily all summer. He advised to hold it if you own it, but don’t buy until it dips to $19.
Meredith: Market drops in October are a buying opportunity!
Scott: An "upper" for your bottom line: Mylan Labs (MYL) gains 40 percent in a year!
Pat: Dodge taxes by buying Eaton Vance (EV); going up 30 percent
Gary B: Schering-Plough (SGP) on the rebound; going up 20 percent by year end
Cavuto on Business
Neil Cavuto was joined by John "Bradshaw" Layfield, WWE Wrestler and author of Have More Money Now; Gregg Hymowitz, founder of Entrust Capital; Jim Rogers, president of JimRogers.com; Ben Stein, economist; Price Headley, investment strategist at BigTrends.com; and Dan Colarusso, deputy business editor at the New York Post.
If Arnold Wins, Will Wall Street?
Neil Cavuto: Despite recent allegations surrounding Arnold Schwarzenegger (search), some of the latest polls show Californians may still be planning to kick out their governor this Tuesday, and vote in Arnold! So, if he does win, will Wall Street win too?
John "Bradshaw" Layfield: Absolutely. Regarding these new allegations that have come out, you're electing a governor not a pope. Gray Davis has shown himself to be absolutely inept as a leader. They have a worse credit rating than Latvia. Something has to change. You've lost about two hundred thousand jobs out of Silicon Valley alone. We're having to import things that should be made here in America. Arnold has said he will make California a business friendly state. And he's got one of the greatest investors, Warren Buffett, on his advisory committee.
Gregg Hymowitz: I don't think it's going to make a bit of difference whether Arnold wins or Gray Davis serves out the rest of his term. There has to be some tough choices made here and one of the things they have to do here is raise taxes. It's not going to be a popular thing but there's going to be some serious issues. I don't think it will have any effect on the market either way.
Ben Stein: I think people are looking forward to a change. Gray Davis has been a complete incompetent. I hate to say this but I agree with Gregg that any change Arnold makes to the business climate will be marginal. It is not really going to effect the semiconductor industry or the high tech industry very much. If we get a rebound, I think it will coincide with Arnold's governorship but I don't think it will be because of Arnold's governorship.
Jim Rogers: I happen to agree. Arnold will make marginal differences. The best he can do is make it a more business friendly state. The State is $38 billion in the hole and no matter what he does it will still be $38 billion in the hole.
Neil Cavuto: The idea is that hopefully he won't have it $38 billion in the hole for very long.
Jim Rogers: If he can cut spending dramatically, and it would have to be very dramatically, it's not going to help the state economy. And it's not going to effect the stock market at all.
Ben Stein: Silicon Valley was booming and it went into a cyclical dip. That's coming back and Arnold doesn't have much to do with that.
Gregg Hymowitz: The problem is also the procedure. It took a million dollars to get enough petitions to get this recall done. What is going to stop another million dollars being spent on another recall by a wealthy Democrat to get Arnold recalled? The process is what bothers people. I don't know Gray Davis that well but he was dealt a very difficult set of cards.
Jim Rogers: Wait a minute. He hasn't been dealt a difficult set of cards. He's been governor for five or six years now. He's the one who played the hand and ruined the state.
Gregg Hymowitz: Jim, I don't think there is a state in the union that is economically sound right now and part of that is because of the national economy. All of these states spent way too much money and none of them put away rainy day funds.
Neil Cavuto: Yes, but California exceeds all of those states put together.
Ben Stein: Gray Davis's contempt for the law was the real problem. During the electricity crisis, he set up structures that would've turned us into a socialist state. Regulating electricity and not even allowing judicial review of his own hand picked regulators. That was arrogance on a huge scale.
Neil Cavuto: Bradshaw, you're arguing that if Arnold gets in he can change this whole dynamic?
John "Bradshaw" Layfield: In three days, we have the chance to change the head guy. That's all you can change at this point. You can't change the gridlock in Congress. You can't change the $10 billion accruing every single year in debt. Gray Davis didn't see the internet bubble coming, and a lot of people didn't. But he hasn't done anything to correct it.
Jim Rogers: If spending went back to where it was three or four years ago before Davis starting raising spending through the roof, the state would be okay. He raised the spending, he spent all the money. He caused the problem.
More for Your Money
Neil Cavuto: This Thursday marks the one year anniversary for what appears to be the stock market bottom after the bubble burst. Since October 9, 2002, the Dow is up 31 percent and the Nasdaq is up 69 percent. Price, where do stocks go from here?
Price Headley: After a volatile October, I think stocks will head higher over the next year. We're in an heading into an election year and that usually fares well for the stock market. There could still be some bumpiness in October, and people worry about that. But I think once you get through the earnings cycle, we can really see some fireworks ahead.
Gregg Hymowitz: So basically you're saying that the Conservatives who don't like big government will spend a lot of money as they approach the election?
Ben Stein: Democratic Presidents also spend money in an election year. So the phenomenon of stocks rising during election years due to more government spending works for both Republicans and Democrats. What's been happening under President Bush is brilliant fiscal and monetary moves that have rescued us from a potentially catastrophic recession, that started by the way in the last year of the Clinton presidency. We're now seeing a recovery. Having said that, the market on the Nasdaq side is insanely over priced.
Price Headley: We've had leadership coming from the Nasdaq so I think that's a good sign for the bull markets, as opposed to when the Dow is leading. I get concerned about that.
Jim Rogers: Ben, it may be a brilliant move politically but it's not a brilliant move for the economy. It's over heating the economy and the move is much too fast. It is not good for us long term. They're debasing the dollar. Yes, there's been a huge rally. But remember, you can have huge rallies in bear markets. I've been selling.
Neil Cavuto: What have you been selling?
Jim Rogers: My most recent selling short has been Citigroup (C), because I think Citigroup has a lot of problems on its balance sheet.
Gregg Hymowitz: I think Jim is a 100 percent wrong on this. I own Citigroup and I have no idea what's he's talking about regarding these balance sheet problems. The company is trading at 13 times earnings while the market is trading at 18 times earnings.
Neil Cavuto: How is everyone else playing this market?
John "Bradshaw" Layfield: I think the market is better than it was a year ago. What you have through this recession are companies that were good companies that are better companies now. Right now I love pharmaceuticals and I'm buying those as well as financials. I own and like Home Depot (HD) because a ton of people have been buying homes and are spending money on remodeling their homes. Home Depot will benefit from that.
Price Headley: I'm recommending clients to buy Express Scripts (ESRX). It's a pharmacy benefits management company with a very steady business. Their earnings are at about 25 percent a year.
Ben Stein: Well, there are two markets out there, the Nasdaq, which is wildly over valued and the Dow which I think is fairly valued. So as usual, I like and own the Dow "Diamonds" (DIA). One caveat though, is that I am worried about two Dow components that could hurt the "diamonds." One is Eastman Kodak (EK), which is under intense competition. The other is General Motors (GM), which makes great cars but has some big financial obligations from all its retirees who are collecting big pensions and costly healthcare benefits.
Head to Head
Neil Cavuto: Does the media actually root against a strong stock market? A recent mild example may be from an USA Today headline: "Uneasy investors wonder if it's time to cash in." What the heck are they looking at?
Dan Colarusso: People are uneasy. We had irrational exuberance. And I think now we have a very rational caution. I think we have a very stealth bear market and you don't read about it the way you read about it the first time around. This time everyone is being a little cautious and I think it's being reflected in the media right now.
Neil Cavuto: I notice that the media is busy looking at the half empty aspect instead of the half full aspect. Every good economic number is portrayed as a big asterisk.
Dan Colarusso: I don't buy that.
Neil Cavuto: Well, I'll use an example. The big consumer confidence numbers. They dropped but they're still up 40 percent from where they were a year ago.
Dan Colarusso: Fair enough, but you may be forgetting how the media the way we rooted the bull market during the late 90s, when things were clearly over-valued, through the first year of the bear market.
Neil Cavuto: So you now feel an obligation to be very careful to categorize anything good?
Dan Colarusso: No, I don't think it's an obligation. I think we're reflecting what we're seeing right now. Money managers are cautious and individual investors haven't jumped back into the market despite what we're seeing in margin numbers.
Neil Cavuto: The same kind of skepticism and worry is the same kind of activity I saw after the 1987 crash. It's the same kind of jaw-boning I saw after the 1997 Asian Market meltdown.
Dan Colarusso: Right, and you can discount it all to misplaced optimism in early 2000.
Neil Cavuto: I'm not saying you should be a willy-nilly parade leader. But I am saying you're raining on this parade.
Dan Colarusso: I think we're spoiled. I think the financial journalists have become embedded.
Neil Cavuto: Will you admit this much. The data that we get is better than it was?
Dan Colarusso: I think we've come to mistrust the data.
Neil Cavuto: Oh, ok. So you now you don't even trust the data. But it is better than it was.
Dan Colarusso: It is.
Neil Cavuto: Jobless claims are picking up.
Dan Colarusso: They are. And personal bankruptcies are at historic levels.
Neil Cavuto: But still at very low levels. My question is, when does the media finally step back and say, all right this isn't that bad.
Dan Colarusso: I don't think it's our job to say it's not that bad. We should never say it's not that bad. And we should never say it's good. After the excess, both in the coverage and in the stock market performance of the late nineties, everyone is just more cautious.
FOX on the Spot
Gregg: U.S. gets stiffed at Iraq donor conference. We will come away with much less than the $26b we are requesting.
Price: Jobs rebound helps Dow hit 11K in 2004!
Ben: Price is right! Dow up 10 percent with in a year.
Bradshaw: Buy Vodafone's (VOD). It's new cell phone technology rings up sales!
Jim: Former tech financier, Frank Quattrone, will do jail time.
Neil Cavuto: Arnold Schwarzenegger wins. And markets will like it, perceiving the world's fifth largest economy will get back on track!
Forbes on Fox
Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:
David Asman: Chana, now these digital cameras (search) are paying off for a couple of companies. Which ones?
Chana Schoenberger, staff writer: Well, Dell (DELL) and Hewlett-Packard (HPQ) are the most obvious candidates here. Dell has announced, and I actually saw Michael Dell say this at a conference last weekend – he is a man that I would not want to bet against – they are coming out with a new line of consumer electronics.
David Asman: Based on all-new technology, new chips, et cetera.
Chana Schoenberger: Well, the idea is just that you’ll be able to buy it cheaper from Dell, just like you can buy everything cheaper from Dell.
Mike Ozanian: I like Dell; I don’t like H.P. The reason is that this is a commodity business, or rapidly turning into one, and that means that the advantage goes to the low-cost producer. That’s why I like Dell, and not H.P.
Chana Schoenberger: Actually, H.P. has interoperability between its PCs and its cameras, which means the camera docks right into the PC. For people who don’t know a lot about computers, that’s very compelling.
David Asman: OK, Mike. Something else that has become very popular, unfortunately, are hip and knee replacements. There’s a company that makes out from that?
Mike Ozanian: Zimmer Holdings (ZMH). They just bought Centerpulse which was Sweden’s company that made the same implants. They were the largest makers of implants in Europe. Zimmer bought them, they now usurped Johnson & Johnson (JNJ) as the largest maker of such products. The stock is probably going to go up to $70 within the next year.
Leigh Gallagher, staff writer: I think it’s a great company. We also recommended a similar company, Stryker (SYK), last July at $46 and it’s now above $70. I think there is truth in what Mike is saying.
David Asman: OK Leigh, let’s stay with you and talk about high oil prices. Is there a way to get rich off of that?
Leigh Gallagher: There is. ExxonMobil (XOM), the world’s largest oil company, is a steady stock for unsteady times.
David Asman: Now this is the perfect stock that we’ve been talking about. Why is it perfect?
Leigh Gallagher: It’s perfect because it’s got steady growth, consistent earnings, this is a company that makes money in a difficult environment, and it pays a dividend of 3 percent.
David Asman: Well Mike, there are a lot of other oil stocks out there, why Exxon and why not one of them?
Mike Ozanian: The reason why I like them is because oil is, what? $30 a barrel right now? The way the balance sheet is structured for Exxon, they can make money whether oil is $20 or $40 a barrel.
Leigh Gallagher: That’s true, and if oil prices rise, they can benefit more, and it trades on 14 times earnings.
Makers & Breakers
Sinclair Broadcast (SBGI)
Eric Green, senior portfolio manager at Penn Capital Management: MAKER
We love Sinclair because it’s a very cheap stock with a lot of catalysts. The stock has been hit by some challenges to media regulation, recently. We think that there are a lot of catalysts going forward, fundamentally. The political spending will pick up, advertising spending is going to pick up as the economy picks up. In addition, the Olympics are coming around the corner. We’re going to have some very positive, year over year comps for Sinclair.
Pete Newcomb, senior editor: MAKER
This is a company which runs with 45 percent operating margins and, you know what? I think the ownership restrictions are going to be lifted, and I think this will be a nice takeover play.
Jim Michaels, editorial vice president: MAKER
As a takeover play or as an earnings play, I can’t quarrel with it. But as an investment, I’d rather buy the Sinclair Preferred (SBGIP). 7 percent tax advantaged dividend and convertible into 2.2 shares of stock. You do that and you get a $3 annual dividend, 7 percent tax advantaged, and it’ll move with the stock.
Eric Green: We do own the Sinclair preferred, as well.
Host Marriott (HMT)
Eric Green: MAKER
The hotel sector is not priced into the recovery fully, it’s one of those sectors that hasn’t. Host Marriott is a very well-run company. It’s trading at a big discount to its net asset value. It paid $1 in dividends, two years ago. They have not paid their dividend since then. Ultimately, they will bring it back. We think that business spending takes off again and the hotel sector should do extremely well.
Jim Michaels: BREAKER
I don’t like it. It may sound yield-happy, but if it doesn’t pay a dividend, I don’t like it. It’s had a spotty record, and, as far as net asset value, you couldn’t realize that net asset value in this hotel market today. I’m a breaker.
Pete Newcomb: MAKER
I like it. I think travel spending is going to increase. I think these kinds of stocks have been really unfairly beaten. I like it.
Eric Green: Jim makes a really good point, that it’s hard to realize the net asset value of the hotel rooms, but that’s in a lousy market. Supply has been really constrained over the past couple of years in a down market. The fundamentals look very good.
Eighty-seven billion dollars for Iraq (search) – that’s what President Bush wants to build schools, hospitals and a new postal service for the Iraqi people. Now there’s a move in Washington to make at least part of that money a loan (not a gift) to be paid back in Iraqi oil.
Would that be welcome news for the stock market and the economy?
Hilary Kramer of A&G Capital says we should make the $20 billion that will be used to rebuild Iraq a loan because the American people are generous and we fought for democracy, but at some point we need to see accountability on the other side. She says there needs to be some end in sight for all the spending America is doing for investors to continue to have faith in the economy and the market.
Dagen McDowell of FOX Business News says making any part of that $87 billion a loan is a bad idea that sends a bad message to other countries that America is now turning to for help in Iraq. She says the amount of money is so miniscule that it won’t have a negative impact on our economy, and making it a loan is not necessary.
Wayne Rogers of Wayne Rogers & Company says there’s no reason in the world why Iraq can’t pay America back. The country can produce $60 million in oil a day, and when it is fully operational it should repay the $20 billion that America plans to spend to rebuild its infrastructure.
Charles Payne of Wall Street Strategies says you have to look at what we’ve done in the past – at the success of the Marshall Plan which cost the U.S. $20 billion back then and was not a loan. He says that money came back into the U.S. through commerce and trade. That said, he believes some part of the $87 billion will be issued as a loan – probably the $20 billion that will be used to rebuild schools, homes, hospitals and a postal service.
Jonathan Hoenig of Capitalistpig Asset Management says he’s worried about a high deficit here in the United States and he’s not investing in the U.S. right now.
Cashin’ In Challenge
We took a look at the standing in the $10,000 Cashin’ In Challenge. To find out who’s ahead, check out the Web site at: www.foxnews.com/challenge
Power Plan: Selleck’s Stocks
Hollywood hunk Tom Selleck has a bad attitude when it comes to Wall Street. He asks why anyone should trust the stock market? Our crew picked the stocks they say will restore Selleck’s faith in the market.
Hilary's Selleck Stocks:
Johnson & Johnson (JNJ)
Friday's close: $50.11
Anheuser Busch (BUD)
Friday's close: $50.40
Hilary says these stocks are perfect for Tom because -- just like him -- they both have brand power, and they keep reinventing themselves. She says he can depend on their dividends. Jonas says Anheuser Busch has too much debt, and Dagen says Johnson & Johnson is fighting off fierce competition. She says that’s something to watch out for.
Jonas' Selleck Stock: Instinet Corp (INET)
Friday's close: $4.74
Jonas says Tom is partially right to be skeptical of the stock market. He says the stock market is the greatest way for Americans to share in the profits companies reap, but it is also similar to a chain letter in that 25 percent of people in the market are trying to manipulate it. He says this company -- which is an electronic exchange that enables people to trade without a middleman -- is a way to tap into both those characteristics. Hilary does not like this stock. Dagen says the company has no earnings and no dividend – she doesn’t like it.
Dagen's Selleck Fund: Olstein Financial Alert (OFALX )
Friday's close: $14.78
Dagen says what Tom needs to have his faith restored in the stock market is to have someone like Bob Olstein looking after him, and he should buy the Olstein Financial Alert fund. She says Olstein watches corporate accounting closely before buying a stock and his performance has been great. Hilary says it’s too much of a sleeper for Tom right now.
Charles, Jonathan and Wayne answered some of your questions.
Question: “Is McDonald’s (MCD) a good buy right now?”
Jonathan says McDonalds’s is a great American company, and a great American stock, largely because it has so much overseas exposure. Charles says this stock is fully valued at this point, and he would be very wary of holding onto it any longer. Wayne agrees with Charles that the stock has done very well, but he says sales are up, and rather than sell, he would put a stop under it and let the market take you out if it falls.
Question: “I’m thinking of buying Disney (DIS) for my nephews for Christmas because it pays a dividend. How does it look for the long term?”
Charles says if you want a dividend-paying stock, you should buy Con Edison (ED). Wayne says you also should look at some of the master limited partnerships – they pay a good dividend. He doesn’t think buying Disney is a good idea until the company gets its ABC Television division into better shape.
Question: “I want to buy a home in six-months. How should I invest my down payment to protect it and help it grow in that time frame?”
Jonathan says if you are looking for a six month investment buy a six-month Certificate of Deposit (CD). Charles says there’s no such thing as a safe haven; put the money in the bank until you buy the house.