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
Dow 10,000? It’s not there yet, but Friday's close puts the index just 326 points below that magic number.
It's been nearly a year and a half since the Dow closed above 10K, a level first reached way back in March of 1999.
Toby thinks the Dow will hit the mark because companies are posting their largest profits since 1999. He also believes the news for stocks is going to be much better than what most people are predicting. Plus, manufacturing (search) is picking up and more jobs are being created.
Mike said the time to buy stocks was last year when the market was down and earnings were bad. He believes the Dow might hit 10K, but he is much more cautious then he’s ever been. Also, with the protectionism in Congress and policy makers possibly repealing tax cuts, we don’t have a policy environment that is conducive for a rally, like we did in the beginning of the year. He advised investors to take some money off the table.
Gary B. charted the Dow’s movements over the past 4 years. He said it’s going to be tough for the Dow to get to 10,000 because it has been in a downtrend during that time, and has already made a big gain this year. However, he does believe it will get there by December, go up to 10,500, and then fall back.
Scott thinks the Dow will get to 10,000, but it is not going to head straight to the mark. Instead, it will pullback and confuse the masses. During this pullback, investors should find the right stocks to buy.
Pat said the Dow stocks are not that representative of the economy anymore. It is very weighted towards industrials as its name, Dow Jones Industrials suggests. This means it is not a great indicator of the market’s overall health. He believes the positive manufacturing news that Toby mentioned, is already baked into the market. He then advised investors to be patient, because they will have a time buy stocks at cheaper prices.
It’s earnings season! So Scott, Tobin, and Mike each picked stocks to buy before they report their earnings.
Mike chose Coventry Health Care (CVH), a managed healthcare company. He said there is a prescription drug bill that will get passed by Congress and will be great for health care companies. These companies will be collecting premiums and not handing out as many claims. Even though it’s at a high price right now, Mike thinks it has potential to move a lot higher. Tobin and Scott agree and both think this is a great stock. (Coventry Health Care closed on Friday at $54.18 and reports its earnings on October 30.)
Scott picked Instinet (INET), an electronic stock-trading system operator. Reuters (RTRSY) owns 65 percent of this company. Even though Scott admitted Instinet has some problems, he believes it has a lot of opportunity. He thinks it is going to have a break-even quarter, and buying the stock is a bet on the bull market. Tobin said it was a stock to buy for a trade. Mike would have liked it a year ago, but now since he’s cautious on the market, he wouldn’t buy it. (Instinet closed on Friday at $5.17 and reports its earnings on October 22.)
Tobin selected Magnum Hunter Resources (MHR), an oil and gas exploration and production company. He thinks its third quarter profits will be good and the stock has a 20 percent upside. Mike doesn’t like this stock, but Scott does, and said it will hit $12 in less than a year. (Magnum Hunter Resources closed on Friday at $8.64 and reports its earnings on November 4.)
Last week Gary and Pat named their all-time best calls. This week, the tables turned, and the pair chose their all-time worst calls.
Gary’s charts most betrayed him in March, when he said homebuilder Toll Brothers (TOL) would lead home stocks lower. But, the stock has nearly doubled! (On March 15 Toll Brothers closed at $18.98 and on Friday it closed at $34.40.) Gary said when he made this call, he should have seen that Toll Brothers had just put in a double-bottom, a bullish sign, on its chart. Now since it is past its old highs, he would buy the stock on any pullback to the low $30s. Pat admitted he also did not see this one coming. He said Toll Brothers is the ‘Tiffany’ of homebuilders and it is not going to get hurt as much as its competitors if mortgage rates rise. It also has very smart business practices and could be a buy if it dips a bit.
The call Pat chose to take back was his call on Concord EFS (CE). In August of last year, he said it would be up 60 percent in a couple of years. Back then, the stock was at $18.53. But the stock dipped below $8, and is still lower than when he liked it. (On Friday it closed at $14.21.) Pat said this was a call he never should have made. The company was forced to cut prices and he should have looked at its books closer. However he does think the stock could go up a couple bucks if it gets bought out. Gary said Pat wasn’t wrong, just a little early. Concord EFS bottomed in March. So if it can close above $16, Pat’s prediction will come true, and the stock will head higher.
Tobin: Unova (UNA) on the cutting edge of tech; stock will double (Scott said he thinks Unitrin-UTR is a better stock to buy.)
Gary B.: Black gold! Exxon Mobil (XOM) up 25 percent to a new high by April
Pat: Gets a lot worse for Computer Associates (CA); down another $10
Scott: Disney's (DIS) DVD sales shoot stock up 20 percent
Cavuto on Business
Neil Cavuto was joined by Jack Welch, CEO of Jack Welch LLC; Gregg Hymowitz, founder of Entrust Capital; Jim Rogers, president of JimRogers.com; Meredith Whitney, Fox Business News contributor; and Tom Dorsey, president of Dorsey, Wright & Associates.
Can Arnold Save the Golden State?
Neil Cavuto: He wanted it, now he's got it. Arnold Schwarzenegger (search) said he'd take on California's problems. Now he'll get his chance. So what should he do first to fix the world's 5th largest economy? Jack Welch, you came into General Electric years ago. A huge company with money problems, similar to what Schwarzenegger is walking into. What should Arnold do?
Jack Welch: He needs to capitalize on the success he had with the election. I hope there are good young stars on his team. I like the diversity on his team. He has to lay out his issues, but he better not go near taxes.
Neil Cavuto: He seems to have put himself in a box by saying he can do this buy cutting through waste and fraud without hiking taxes. Can he?
Meredith Whitney: California mirrors a lot of what happened in corporate America, where the idea was why hire one guy when you can hire one guy and five guys to watch that one guy. Arnold needs to cut costs. The state is spending money like it still has revenues coming in during the height of the bull market back 1999 and 2000.
Neil Cavuto: The governor doesn't have a great deal of power in that state, right Jim?
Jim Rogers: That's right. The democrats control the state congress and they are waiting for him so they can hack him out at the knees. Jack is right. He has to come in strong with his vision, but he has to have more than just vision. If they go back to what they had expended in 1998 or 1999, there would be no problems. The Democrats, under Gray Davis, shot spending through the roof.
Gregg Hymowitz: Arnold's charisma is only going to get him so far. Any budget or tax bills need to be passed by 2/3 of the legislature. As Jim said before the legislature is controlled by the Democrats. He's already said he's not going to cut education and education is 50 percent of the budget. Ultimately, the guy is going to have to raise taxes. And by the way Jack, in 1967 Governor Reagan raised taxes. In 1991, Governor Wilson raised taxes. And in 2003 or 2004 Governor Schwarzenegger will raise taxes.
Jack Welch: That's your answer for everything Gregg.
Jim Rogers: Gregg, you said Arnold said he won't cut back education. I don't want Arnold to cut back on education but if he cuts back the education bureaucracy, we don't need all these bureaucrats.
Gregg Hymowitz: You can't cut that much. The most aggressive analysts say the most you may be able to cut would be about $5 million. You're facing a $10 billion budget deficit. That's as large as the aggregate deficits of the other 49 states.
Neil Cavuto: Let's say that Arnold does do what Jack wants him to do. What do investors buy in that environment?
Meredith Whitney: I think a pure play is California Municipal bonds. I don't own them though.
Jim Rogers: I would also buy California bonds. It's the only thing you can buy. Just because California is getting better doesn't mean you should buy stocks. I would buy municipal bonds, but I wouldn't have them for very long. I would sell them into a rally.
Gregg Hymowitz: In order for California to improve, Silicon Valley will have to improve. And if that happens, I own and like Microsoft (MSFT). Although, I think Microsoft will rally before California improves. Also, I didn't hear Jack comment when I mentioned two very well known Republicans who raised taxes in California. One of which is, I'm sure one of Jack's idols, President Reagan.
Jim Rogers: Gregg, raising taxes has never made an economy get better.
Gregg Hymowitz: Balancing budgets makes economies better. I don't see how you don't agree with that.
More for Your Money
Neil Cavuto: October is best known for Halloween and market crashes, with some of the biggest one day losses for stocks taking place then. But last October kicked off a new bull market and stocks are up so far this month. Tom, is this October different than traditionally feared Octobers?
Tom Dorsey: I think it's a little bit different. Most of the time when you have a bull market in October it started from very oversold levels. Which was the case last October, but now the market is overbought. We're in a very high risk area right now so investors need to be very selective. That said, the economy and market should continue to head higher next year, thanks to Federal Reserve Chairman Alan Greenspan, for printing money which will make its way into the market. Stocks should stay buoyant into the election and then we might end up with a Nixon '72, '73, which were a protracted bear market.
Jack Welch: I agreed the economy is improving. The only thing that is going to derail this is a terrorism issue or as we move further along, the prospects of President Bush being blown out of office.
Gregg Hymowitz: If the economy comes back and jobs continue to grow, Bush may be a shoe-in for 2004.
Neil Cavuto: Have you told your candidate this? Does he know you feel this way?
Gregg Hymowitz: I call them as I see them. The issue though is if the move in jobs will really stick.
Jim Rogers: The economy is definitely better. But Tom made a good point: after the election, the U.S. economy and stock market are probably going to be very different.
Neil Cavuto: Tom, how do you play this right now?
Tom Dorsey: Let's say an investor is still on the sidelines. You've got to look at perhaps buying an index and the play will be the Standard and Poor's equally weighted index, Rydex ETF Trust (RSP). That gives you the ability to have one stock, one vote. Even the small stocks have the same vote as General Electric. I think an investor starts scaling in maybe going in about 40 percent now.
Gregg Hymowitz: One of the names we own and like is Fannie Mae (FNM). We believe it has a great balance sheet. We can't figure out why Jim doesn't like this company. They are one of only two or three companies in the last fifteen years that have grown their earnings double digits.
Jim Rogers: Well I hope you can buy it because it's going to be a disaster before it's over. I would buy and I own Rio Tinto (RTP). It's one of the world's best raw material producers. It's fairly cheap and I've owned it for a while. Commodities are going through the roof. Nickel made a 13-year high. Platinum make a 23-year high. I know because I own them, but no one else has caught on yet.
Tom Dorsey: The Rio Tinto that Jim just mentioned is fantastic technically. I almost think you're a technician Jim.
Jim Rogers: I'm not smart enough.
Neil Cavuto: Do you think this commodity inflation is real?
Jack Welch: I think it is. The demand is clearly there.
Head to Head
Neil Cavuto: In Jack Welch's own words, before the first plane crashed into the World Trade Center, September 11th, 2001 was going to be one of the most exhilarating days in his career. His bestseller book "Jack: Straight from the Gut" was being released that day. And he was scheduled to be on my show, the Today Show and others to promote that book on 9/11. Jack, have we learned anything from that day?
Jack Welch: We started out with that terrorist attack and then we compounded it with corporate scandals. We've had reaction to all that and we've been in recovery mode ever since. We were already sliding into recession when that day came. That day just exacerbated it. Now we're on our way back. We're out of our depressed state. CEOs are starting to do things.
Neil Cavuto: Yes, but they're not hiring many people.
Jack Welch: No, but they're setting up deals. You see new IPOs. You see a sense of optimism. And the hiring is going to begin.
Neil Cavuto: But it's your own company, General Electric, that didn't warn but told Wall Street to expect the low end of profit estimates for the fourth quarter And that's troublesome.
Jack Welch: We had a great run up in power that's now being worked off. And plastics pricing remains in an over capacity situation. Jeff Immelt said this morning ten out of thirteen businesses are up double digits.
Neil Cavuto: To hear the media tell it, you'd think we were going to hell in a hand basket.
Jack Welch: There are so many outlets trying to tell that story, it's incredible. We're always under the threat of terrorism. But let's put it aside for moment. Jobs will begin to come back. It won't be a smooth ride but they'll come back. We're starting to have CEOs take aggressive action. The scandals are over and we're in the trial phase and cleaning it out. We are now at a point where the bubble has been flushed. We're still having compensation battles but nevertheless, optimism is back.
Neil Cavuto: Do you think the fact that we haven't had a terrorist attack in two years is the problem. In other words, people have become sanguine and even cocky about it, thinking it's a one time event.
Jack Welch: I think if you're president of the United States and you're Tom Ridge, there's no question that these people are not forgetting it.
Neil Cavuto: Do you think it's going to happen again?
Jack Welch: Neil, I have no idea. I pray to God no.
Neil Cavuto: If we had the attack of the magnitude of 9-11, what would be the fallout?
Jack Welch: The dislocation would be enormous. The markets would have a terrible hit. Consumer confidence would fall again. Fear would shock us. We can't even think about it because if you do, that's the downside of life. We have this with us forever and we have to deal with it.
FOX on the Spot
Tom Dorsey: Chips are up! Buy Semi Holders (SMH)! Charts show it should outpace market for next two years.
Jack Welch: Jobs growth picks up by end of year and beginning of 2004.
Meredith Whitney: Don't expect big hirings from big companies. Small companies will add more jobs.
Jim Rogers: NYSE trading floor turns into tennis courts! Floor traders are replace with electronic exchange.
Gregg Hymowitz: Arnold terminates promise and raises taxes.
Neil Cavuto: It will be a Cubs-Red Sox World Series but neither team will win, proving true to their curses!
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, Iraqis need phones, and they’re starting from scratch. Who’s going to sell those phones and how do we make money off of it?
Chana Schoenberger, staff writer: Well, there are four big companies poised to make money out of this. It’s about a $200 million plan, and they are Motorola (MOT), Nokia (NOK), Ericsson (ERICY) and Siemens AG (SI). They’re all cell phone equipment makers and makers of the actual phones. What happened is that the Unites States gave concession to Iraq for three Middle Eastern countries. These are all companies that have existing vendor relationships with those Middle Eastern companies.
David Asman: Bruce, it’s a great idea.
Bruce Upbin, senior editor: Yeah, but how come only one of the companies is American? I thought that when we went into the war, it would be “to the victor go the spoils.”
Chana Schoenberger: You know, it’s funny because, actually, the standard that they went with here not CDMA, which is QUALCOMM (QCOM) standard, but actually GSM, which is the other one. So the Americans are ‘behind the eight ball’ on this one, entirely.
David Asman: So, there’s no infrastructure, they’re starting from scratch, they may have a phone service more modern than ours. We’ve got to move on. Bruce, Sun Microsystems (SUNW) used to be one of my favorite stocks. I sold it a while back.
Bruce Upbin: Yeah, so did a lot of people. This stock is around $3.70, or something. It’s the stock that everyone loves to hate, but I’m here to tell you that it’s going to go up. They’re doing all the right things, they’ve stabilized the management, they’ve cut costs enough. A lot of people on Wall Street who used to love this stock at $95, are now yelling at the company, that they’re doing all the wrong things.
David Asman: Wow, Chana, the stock could double? That’s big money.
Chana Schoenberger: I don’t think so. The problem with Sun is that it doesn’t have as big a services division, and services are really going to be the future of technology. IBM (IBM) has a huge services division, on the other hand.
Bruce Upbin: Yeah, but they’re spending so much money on the core technology, which is what we need to do right now, to go forward.
David Asman: OK, SUNW, the contrarian move. Now, Mike, you have the cover story.
Mike Ozanian, senior editor: The 200 best up-and-comers. There’s a company that I like a lot on there called ResMed (RMD).
David Asman: So, these are small companies, with huge potential?
Mike Ozanian: Right. Sales right now, under $600 million, but fast-growing earnings, so they’re going to get big, quickly. ResMed is a company that makes products for people who have trouble breathing when they sleep, like masks to help them breathe. The stock’s around $45. It’s going to $60.
David Asman: Anybody like this, or other small companies?
Bruce Upbin: I like the stock that I wrote about for the cover, Mercury Interactive (MERQ).
David Asman: That’s the guy, the guy who is on the cover of the magazine, is the guy you wrote about?
Bruce Upbin: They do software, and have very smart management.
Makers & Breakers
Clear Channel (CCU)
Richard Steinberg, portfolio manager of the Reserve Large-Cap Growth Fund: MAKER
We like to be G.A.R.P. investors, or “growth at a reasonable price,” and Clear Channel is the largest player in radio, also in the billboard business. Everybody’s sold these things down because advertising hasn’t turned and if the economy actually does start to turn, this is where we’re going to be able to make money.
Jim Michaels, editorial vice president: BREAKER
Good company in a good industry. It’s selling at thirty times next year’s earnings, fifteen times cash flow. It’s a good company, but I’m not buying it at this price.
Pete Newcomb, senior editor: MAKER
I was, kind of, borderline on this stock, but then I realized that it’s a media company. I have to love it. This is more than just a radio company and a billboard company. I really like their concert promotion business, it’s expected to grow by double digits next year. I like it.
Richard Steinberg: I think you’re wrong on the price. I think that the cash flow, the ability of companies that own market share when business gets better, they have the ability to drive margins. And I think you’re going to see this thing trading in the low-fifties and the cash flow’s going to get much better.
Richard Steinberg: MAKER
Everybody has no confidence in Carly Fiorina (Chairman and CEO), maybe she gets fired, and more importantly, this is the Gilette razor blade model. I think that everyone loves to hate this name, but if people start buying more computers, and businesses buy more computers, they need the printers, they give away the printers, to get people to buy the consumables.
Jim Michaels: BREAKER
I don’t share this touching faith in “magazine cover celebrity CEOs.” Besides which, Carly Fiorina is now in politics. I don’t buy the argument that she is going to turn this company around. Secondly, it’s going to be a lot of problems. It’s basically a commodity producer of PCs, it’s copier business produces all the profits, there are people beginning to cut away at other companies’ prices. I want to see some of those new products that their talking about.
Pete Newcomb: MAKER
I’m a maker. I kind of agree with Rich. This stock has been unfairly beaten down. They have all sorts of great new gadgets coming out. I like it.
Richard Steinberg: DVD writer, a new product that’s coming out. You’re going to be able to watch TV, and take a video tape and make a DVD right off of it. It’s an incredibly expensive business right now.
Now he’s Governor Arnold, a man in charge of the fifth largest economy in the world. And the state is in a mess, with a huge deficit and massive job losses. But if Arnold does the job and turns California (search) around, will he also help boost the national economy, the stock market and get President Bush re-elected?
Gary Kaltbaum of Kaltbaum and Associates believes that if Arnold gets the California economy going, then he will help to get America going too. One thing that’s important is perception; right now the perception is that California is not a business friendly state. He needs to change that. He likes Arnold as a businessman – and the only place the state has to go is up. The budget deficit for the nation will be less than expected, so the timing is good for Arnold. Gary has been defensive over the past few weeks with stocks, and he thinks the hottest stocks are the foreign stocks. He is worried that the market has factored in some good news already in terms of earnings and the economy.
Hilary Kramer of A&G Capital says that this is not a movie, and that Arnold can’t fix everything in “two hours”. There aren’t enemies that he can just shoot up and destroy. It will take him a lot of time.
Wayne Rogers of Wayne Rogers & Co doesn’t think Arnold can change the California economy. And he is now facing an economic problem, not a political problem. People are leaving California for other states. He thinks that Arnold is a bright guy, but it just doesn’t happen that quickly, and he has a Democratic house and senate to deal with, which will makes things difficult. Wayne is buying stocks here but he is cautious, and he likes foreign stocks
Jonas Max Ferris of Maxfunds.com disagrees and says California is a place that everyone loves and that people are moving there all the time. It’s the original “boom and bust” state, so they cycles run low and high. Arnold really can’t fix a lot of this stuff. He ignored his one-time advisor Warren Buffett, who wanted to raise taxes, but Arnold can’t just make things happen without new sources of revenue. He also says the hottest stocks are out in California.
Jonathan Hoenig of Capitalistpig Asset Management says that California is a microcosm of the nation. Right now he is focusing on overseas stocks.
Be$t Bets: Wayne’s World of Stocks
If you’ve been following the “Cashin’ In Challenge”, you know that Wayne Rogers is leading the pack by a pretty wide margin. (Check out the latest results at: www.foxnews.com/challenge)
So what are Wayne’s best ideas for your portfolio?
Friday's close (10-10-03): $30.43
Wayne says that the electronics companies are coming back, and Intel is fundamental to that. The stock has a good chart, and he sees and up-trend since $15. He doesn’t think that the stock has huge upside potential (it will still go up), but it has limited downside potential, which he likes. Hilary thinks it’s too expensive. Gary is worried that it had a big run and that people are now starting to like it – but Intel will beat earnings and that will help. Jonathan doesn’t like Intel right now.
Vishay Intertechnology (VSH)
Friday's close (10-10-03): $19.90
Wayne says this company is the largest maker of “passive components”, they are in 35 countries and sales are up this year. He also loves the management. Hilary likes this play; they are big in military contracts. Gary likes the action in the stock, noting big volume to the upside. Jonathan says the momentum is big-time with technology, but it’s still not his play right now.
Friday's close (10-10-03): $20.06
Wayne loves this stock: earnings up over 100 percent and sitting on a lot of oil right now – just a great company. Jonathan, Gary and Hilary also like this stock. And everyone preaches the idea of stop/loss orders.
Mutual Fund Face-Off: Killer Funds
What’s the best investment for a hired assassin? Actress Vivica A. Fox plays one in the new movie “Kill Bill”, and she told us that she’s been burned by stock in the past. She wants to know what to do, so Dagen and Jonas came up with a couple of funds that could make her money without the fear of getting burned!
Jonas: Gateway Fund (GATEX)
Year-to-date (as of 10-10-03): UP 9.0 percent
Minimum Investment: $1,000
Expenses: $9.70 for every $1,000 invested.
Dagen: Fidelity Freedom 2020 Fund (FFFDX)
Year-to-date (as of 10-10-03): UP 17.9 percent
Minimum Investment: $2,500
Expenses: $9.00 for every $1,000 invested
Dagen, Jonathan and Wayne answered some of your questions.
Question: “Since October is so volatile, should I stay out this month expecting stocks to drop, or should I buy?”
Wayne says that October is a terrible month historically, but he isn’t necessarily a believer in these things. He looks at the stocks and how they are doing as opposed to seasonal trends or “superstitions”. He is buying stocks right now but is very cautious. Dagen says following the calendar is not always a good thing. The book says to sell in May and go away, and we had a double digit move this summer. Jonathan doesn’t look to the seasons – you trade the market, not the calendar.
Question: “I inherited $140,000 and would like to know if I should pay off my $100,000, 6 percent mortgage or invest it elsewhere?”
Dagen says you can have it both ways: pay of the $100,000 and take the $40,000 to invest in stocks.
Question: “I bought Phelps Dodge (PD) at $45 after the blackout. It's now over $50 - should I sell?”
Jonathan says to hold on to this stock; copper price are very strong. Jonathan owns Southern Peru Copper (PCU). He would put a stop loss on PD at $44.10 - $44.25. Wayne would stay with this stock, and Dagen also likes this one.
Question: “I'm holding a significant position in Kellogg (K). Is it crunchy or soggy going forward?”
Wayne thinks Kellogg rides with the economy, so if the economy makes a strong move, watch for Kellogg to mirror that move. Jonathan and Dagen don’t like the stock all that much.