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
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; and Scott Bleier, president of HybridInvestors.com; and Tom Dorsey, president of Dorsey, Wright & Associates.
Quite simply, the market has been on fire! A year ago, the Dow was at 8,322 and the Nasdaq was at 1,287. On Friday, the Dow closed at 9,721 and the Nasdaq ended the trading day at 1,912. Those are gains of 17 percent and 49 percent respectively. The bull market has now celebrated its first birthday.
Tom thinks the Dow will keep heading higher and go to 11,000. He said stocks have gone from being oversold to being overbought. Even though he admitted that good things usually don’t happen when this occurs, he believes the current conditions will push stocks higher.
Pat has a similar view, but different outlook on the market. He also believes that stocks are overbought, but he thinks expectations have gotten too high and that stocks will head lower before moving higher.
Tobin is bullish! He said earnings and GDP numbers are going to grow nicely in the 3rd and 4th quarters. This means you don’t want to own bonds, because this growth will make interest rates go up, but you do want to own companies whose earnings start to grow when the economy takes off.
Scott said the market anticipates what is going to happen to the economy six months from now. He believes the market is vulnerable, overextended and like Pat, that expectations are too high across the board. He predicts we will dip until December and then investors should start buying again.
Gary B. charted the S&P 500’s performance over the past several years. He thinks it’s likely to get back to its 2002 highs, which was just over 1170. However, he predicts the market will have an ugly January.
Scott, Tobin and Tom each picked their biggest bargain stock.
Tobin chose ASML Holding (ASML). He said that if the Dow goes to 11,000 and the Nasdaq gets to 2,500, semiconductor equipment stocks will be part of that move. Also, he likes that it is significantly cheaper than its competitors. (ASML Holding closed on Friday at $15.71.) Tom also likes this stock and added that semiconductor stocks in general, look very good. Scott thinks this stock is expensive and investors should wait for it to pullback 20 percent before buying it.
Scott picked Delphi (DPH), the largest automotive parts supplier in the nation. He admitted that Delphi has a troubled balance sheet and has lagged the market, but when it reported a loss for the third quarter, the stock didn’t go down. He thinks all the bad news has been washed out and it can gain 30 percent. (Delphi closed on Friday at $9.04.) Tom and Toby both like this stock.
Tom likes Calpine (CPN), a California power and electricity company. He said it has a great looking chart and now that Arnold Schwarzenegger is the governor of California, things are going to change. Tobin thinks Calpine is too little risky, and prefers its royalty trust, which is listed on Toronto’s stock exchange, Calpine Natural Gas Trust (CXT_u.TO). Scott wouldn’t buy the stock, but said it may head a little higher. (Calpine closed on Friday at $4.97.)
Gary and Pat played in their own “Stock” World Series. Each picked a company that is based in the city of a World Series team.
Gary was the American League guy and he chose New York based, MetLife (MET). Gary said, like the Yankees, MetLife is showing signs of a champion and looks to be headed to its 2002 highs, near $34. (MetLife closed on Friday at $30.98.) Pat said MetLife is the cream of the crop as far as life insurance. Also, the company made a very smart decision to license Snoopy as its mascot. MetLife does big business selling insurance to companies, which is good, but generally, life insurance is a bad business. Additionally, the company has to contend with asbestos lawsuits. Pat said he wouldn’t buy the stock.
Pat went with the National League. He is based in Chicago, and even though his heart was broken over the Cubs’ loss, he went with the Florida Marlins. He chose Florida-based Carnival Cruise Lines (CCL). He thinks the company has made some very smart moves, but a big question is whether the demand will increase enough. He said Carnival is fairly valued right now, but if it pulled back to $25, he’d buy it in a heartbeat. (Carnival closed on Friday at $34.04.) Gary said Carnival has a pretty good chart. He said like the Marlins, this stock might surprise people. Gary said buy now, but bail if it closes below $33.
Tobin's prediction: Big earnings surprise from Microsoft (MSFT); going up 20 percent
Gary B's prediction: Nasdaq drops 5 percent in the next two weeks
Pat's prediction: Buy the "Sysco (SYY) Kid"; stock shoots up 20 percent in a year!
Scott's prediction: I'm high on GlaxoSmithKline (GSK); up 15 percent by year end
(On the show, Scott said one of the reasons he likes the stock is because the FDA just approved the company’s drug, Paxil to treat social anxiety disorder. In fact, the drug the FDA approved on Friday, October 17, 2003 for social anxiety disorder, is Paxil CR. Paxil had already been approved by the FDA for social anxiety disorder. This distinction will also be mentioned on Bulls & Bears next week.)
Tom's prediction: Japan is the place to be! Buy iShares S&P/TOPIX 150 Index (ITF)
Cavuto on Business
Neil Cavuto was joined by Gregg Hymowitz, founder of Entrust Capital; Jim Rogers, president of JimRogers.com; Ben Stein, economist; Meredith Whitney, Fox Business News Contributor, and Charles Payne, CEO of Wall Street Strategies.
New Market Threat?
Neil Cavuto: Talk about a bull in a China shop! On Wednesday, the Chinese joined America and Russia as the only countries to put a man in space and safely return him home. Why should all of us and our stock market stand up and take notice in a big way? Jim, does China pose a threat to America and our market?
Jim Rogers: Neil, they call themselves Communists but they're among the best capitalists in the world right now. They've also been the fastest growing country the last 20 years. They're going to be the largest economy in the world within the next 20 years.
Neil Cavuto: Should we worry about what they've been able to accomplish?
Jim Rogers: No, we should embrace it. We should try and engage with them and try to trade with them. This is not bad. We've replaced England and England is still there.
Gregg Hymowitz: In many ways, China has helped us because they've been the biggest buyer of U.S. treasury securities. They've been able to keep U.S. interest rates very low. So without that, this economy would be in much worse shape. The problem is that China has a lot of cheap labor supply and that creates a real problem for some of our industries here.
Jim Rogers: The Chinese buy from the Japanese and they buy from the Germans. The wage rates in those countries are huge and somehow or another they, the Germans and the Japanese, are able to compete. We brought this upon ourselves.
Ben Stein: I'm worried about China attracting U.S. jobs. Manufacturing jobs are disappearing by the millions in this country. I've never heard an economics professor say that free trade is a bad thing. But I've never heard of an economics professor lose his job because there's a cheaper, less well paid economics professor in Shanghai. Similarly investors say China is a great thing because it's great for consumers, but investors don't lose their jobs over cheap Chinese imports. So there is a real human cost to this.
Meredith Whitney: We still dwarf them in terms of economic output. Ben's point presumes that we're not going to be flexible enough to diversify from manufacturing, which clearly is a threat but competition rises to the occasion.
Gregg Hymowitz: I agree with Ben. You're not going to be able to compete with China when the average Chinese worker gets paid fifty cents an hour.
Jim Rogers: The Japanese can compete with them. The Germans can compete with them. Why can they and we can't? I'll tell you why. Because they don't tax savings and investing in Japan.
Neil Cavuto: How would you play this then Jim? Which stocks would benefit from China's rise?
Jim Rogers: BHP Billiton (BHP) sells a lot of raw materials to China. Buy anything that has to do with commodities, because China buys commodities. I own it.
Ben Stein: I like and own FedEx (FDX). FedEx is greatly expanding its shipping back and forth to China. They are an amazingly efficient supplier. I love this company a lot.
Gregg Hymowitz: I'd try and sell into the huge consumer market in China with a company like Procter & Gamble (PG). I own it.
Meredith Whitney: To benefit from the infrastructure built in China I'd buy any of the base metal companies. Alcoa (AA) is my pick. They're the biggest aluminum producer. I do not own it.
More for Your Money
Neil Cavuto: Polls, Schmolls! Does Wall Street already know who'll win next year's presidential election? The latest polls show President Bush's approval rating is inching back up, though it's still down 19 percent since peaking in April. But during that same time, stocks have jumped 19 percent. So which poll matters more? The political ones or the stock market?
Charles Payne: The stock market matters more. There is a direct correlation between presidential elections and the stock market. And of course, a correlation between Presidential elections and the economy. Typically in an election year, real G.D.P or disposable income goes up 3.5 percent versus 1.5 percent. I think the poll we saw earlier this year had more to do with the Iraqi war. This is the initial start of the election and all we hear is Bush bashing.
Gregg Hymowitz: Charles is right about the correlation. And there has never ever been a president re-elected without producing no net new jobs. We're 3 million down and there's no way this economy is going to produce 3 million jobs.
Jim Rogers: The stock market is a better indicator than the polls. I assure you that if the economy continues to stay strong, Bush will get re-elected.
Gregg Hymowitz: You have to have jobs.
Ben Stein: But the economy is on a rapid upward recovery. The stock market is on a path of wild optimism. Gregg, have you ever known of a president defeated in that kind of environment? And by the way, I think there has been a president re-elected when there was a net loss of jobs and that was Abraham Lincoln.
Neil Cavuto: But Gregg, it is fair to note here that there were some steps here like 9-11 and war on terror that might have disrupted those numbers.
Gregg Hymowitz: No because the job loss started way before that. The recession started when this president was elected.
Neil Cavuto: I don't want to get into a political debate. Assuming Bush wins, Charles how do you play this?
Ben Stein: I think the rates will rise, absence some wild efforts at buying back bonds. If I were a refinancing guy, I'd refinance right away. Rates cannot stay this low for long.
Gregg Hymowitz: I think a Democrat wins and the main part of their platform is healthcare and the healthcare sector. One of the companies in that sector that we like and own is HCA (HCA).
Jim Rogers: I think the election is still up for grabs and I wouldn't be buying any stocks now. The economy is very strong right now, but it may not stay strong.
Head to Head
Neil Cavuto: Gregg Hymowitz says raising taxes to balance the budget would boost investor confidence. Gregg, are you kidding me?
Gregg Hymowitz: No I'm not. We should go back to those tax rates that we lived under the prosperous years of President Clinton. Democrats are not saying that taxes are bad. It's a matter of where you target your tax cuts to. Under the Bush administration they left out 99 percent of the population.
Neil Cavuto: Where are you getting 99 percent?
Gregg Hymowitz: Half of the homes in America got $100. One third of the homes got zero.
Neil Cavuto: The fact of the matter is six out of ten got an average of $1800. You say the rich aren't paying enough in taxes. They are giving more than a third of their income in taxes. That doesn't cut it for you? They haven't done enough.
Gregg Hymowitz: You're $1800 is a ridiculous number. That's like saying me, you and Bill Gates have an average net worth of $20 billion dollars. I'm sorry. That's not the way it works.
Neil Cavuto: Bottom line, why do you want to raise those taxes for the well-to-do? You think that then they'll be able to prove their sacrifice for the rest of the country?
Gregg Hymowitz: It has nothing to do with that. It has to do with protecting your child's future and my child's future.
Neil Cavuto: Then before terrorism, what was the reason for advocating a 40 percent tax rate before? Protecting our child's future or was it just because you wanted to protect programs.
Gregg Hymowitz: We were running a surplus during the Clinton years, which led to the greatest economic recovery ever.
Neil Cavuto: What do you think is a fair amount someone should pay in taxes?
Gregg Hymowitz: That's not the question. The question is about running a sound economy and cutting interest rates.
Neil Cavuto: Here's what I say, 35 percent...that's a lot. Why is the answer hiking taxes and not telling the government to cut spending?
Gregg Hymowitz: That's the beauty. Now at least I'm glad you admit what you really want. What you really want is government to cut spending.
Neil Cavuto: Absolutely. I'm not lying about that. That's exactly what I want.
Gregg Hymowitz: You want them to cut social service programs. You want to cut Medicare, cut Medicaid. And you want to cut education. The only thing you don't want to cut is defense.
Neil Cavuto: You should know with the largesse in Washington that the more money you give it, the more money it will spend. With people at the top bracket paying 35 percent to keep that chicanery going, you should be happy.
Gregg Hymowitz: We need government to take care of the poor.
Neil Cavuto: I think your old friend Barry Goldwater had it right. A government that's big enough to give you everything you want is a government big enough to take everything you had.
Gregg Hymowitz: Your taxes didn't go down. That's a falsehood. Your taxes went up at the state level, the city level. Your real estate taxes went up.
FOX on the Spot
Ben Stein: Refinance now! Interest rates rise soon!
Meredith Whitney: Buy QQQ! Tech stocks & profits rise.
Charles Payne: NYSE scandal leads to better stock prices for investors.
Jim Rogers: Charles is wrong! But e-exchanges will help stock prices.
Gregg Hymowitz: Yankees win! Bombers beat Marlins in 5!
Neil Cavuto: Earnings are looking very good, particularly abroad. And it's not just a dollar phenomenon. Business is genuinely improving in places like Europe and Asia. That's good for U.S. manufacturers, good for the economy, and clearly, good for the markets.
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: Victoria, what about Microsoft (MSFT)? It’s more than just Bill (Gates) and Steve (Ballmer), right?
Victoria Murphy, senior reporter: It is more than just Bill and Steve. The de facto number three at Microsoft is a guy by the name of Jeff Raikes, who I spent a lot of time with for a story that I have in the current issue. Jeff oversees the Office division, which is very important to Microsoft. It accounts for a third of sales and over half of the profits. He’s really turned around the division. They have a new version of (Microsoft) Office, Office 2003, coming out next week.
David Asman: Because a lot of people are still using, what is it? The 1997 version?
Victoria Murphy: Yeah, a third of the users, it turns out, are on the 1997 version of Microsoft Office. So he sees his challenge as convincing those guys to update. And I think he’ll do a good job of it.
David Asman: Bruce, we’ve got great management and great new products. What’s not to like?
Bruce Upbin, senior editor: Well, as this guy’s profile keeps going up and people do stories about him, I wonder whether Steve and Bill Gates might slap him down a bit.
Victoria Murphy: You know, I don’t think there’s any kind of weird dynamic there, and I think Bill and Steve still grab a majority of the headlines, and Jeff’s been there for a long time, and I think he’s figured out his role in the company.
David Asman: All right, Pete, let’s move on to a war stock. Raytheon (RTN). Why do you like Raytheon?
Pete Newcomb, senior editor: Raytheon makes the Patriot Missile Defense System. They use these to shoot down missiles. Apparently they were nine for nine in the skirmish earlier this year, if we believe what the government is telling us. However, there are six countries, now, who are considering purchasing the next system, called PAC-3. With each system sold, that’s $1.5 billion in sales, which translates to about 35 cents in earnings.
Bruce Upbin. senior editor: If you’re a country on a budget, there’s a Russian anti-missile system out now that’s cheaper, right?
Pete Newcomb: The Russians are cheaper, all right, but do you want the Mir or do you want the Mercedes?
David Asman: OK, let’s move on to beer, one of my favorite topics. Which one looks good?
Bruce Upbin, senior editor: Well, there’s a carbohydrate war going on right now, and it looks like Budweiser [Anheuser Busch (BUD)] is the weaker player, Miller Lite [SABMiller (SBMRY)] saying they have half the carbs of Bud Lite, and Bud Lite’s more expensive. Any kind of weakness to the Bud brand is bad news for Anheuser Busch which is a very expensive stock right now. I like Miller, the guys who bought Miller, the South African Brewers.
David Asman: But I always thought that Miller was a US beer. Does it bother you at all that that it’s a South African beer?
Pete Newcomb: That doesn’t bother me. I’m more of a Guinness [Diageo PLC (DEO)] guy anyway. However, I’m more concerned with the fact that they are not alone in doing this. There are other people making these drinks.
Victoria Murphy: You know, I think, really, people aren’t that brand-loyal when it comes to beer, so I think that if Miller’s cheaper, it’s probably going to do well.
Bruce Upbin: I agree, and Bud better watch out with the prices.
Makers & Breakers
Matt Rich, portfolio manager of the Technical Chart Fund: MAKER
Jim Michaels, editorial vice president: BREAKER
Big “mo” is back. This is a momentum stock. In other words, it goes up because it goes up. Stock’s doubled in a year, I’d say it’s due for a rest. You don’t get my money in Emulex.
Pete Newcomb, senior editor: MAKER
I disagree. I don’t think the stock is really that expensive right now, it’s 25 times trailing earnings. I think capital spending is going to improve. I like it.
David Asman: Well, Matt, you actually have a target price, at which you might think about selling?
Matt Rich: I have a target price of $35. The stock has been trading in a pretty tight range for about a year. It’s in the high 20’s, about $28-29. We have a $35 price target.
Matt Rich: MAKER
Sysco is the largest food retailer and wholesaler in North America. It’s a $20 billion food company. The stock hit a new high about a month ago. We have a $40 price target on this stock, margins are growing, food prices went up 6.6 percent last month. That was the largest increase in 13 years.
Pete Newcomb: MAKER
You know, he hit it with margins. This is a company over the last ten years, that has slowly grown margins from 2-3 percent. That’s not a lot, but it’s been slow and steady. I think for the long term, I like it.
Jim Michaels: BREAKER
I get a little indigestion looking at these food stocks. This one is at 25 times earnings, a premium to the market, slow in growth, skinny margins, I’ll pass.
David Asman: Well, very quickly, again, you have a target price for this one. What is it?
Matt Rich: Target price is $40.
David Asman: So once you see Sysco going to $40, that’s the time to think about selling.
Matt Rich: That’s the time we’re going to get out.
The Dow is up 19 percent the Nasdaq up 40 percent and the S&P 500 is up 20 percent since the war in Iraq began on March 19, 2003. Is the market giving a more accurate read on the success of the war than the media?
John “Bradshaw” Layfield, author of Have More Money Now, says “yes” the market is giving a better read on the war than the media. He says stocks are behaving as they should be -- trading on the economic outlook and on individual companies’ fundamentals -- because the uncertainty of terrorism has been taken out of the equation.
Hilary Kramer of A&G Capital says the fact that we have not had any attacks on American soil since 9/11 is helping the market trade higher.
Dagen McDowell of Fox Business News says so far the market has ignored all the post war trouble in Iraq, but that may not last.
Wayne Rogers of Wayne Rogers & Company says if the war were not successful it would show up in the market, but the market is up now because earnings are improving and the economic news has been good.
Jonathan Hoenig of Capitalistpig Asset Management says the stock market may be up, but the currency market is down, and that’s what he’s concerned about. He says he’s not buying U.S. stocks because of the dollar’s downward trend.
Best Bets: Bradshaw’s Buys
Friday's close: $48.63
Bradshaw says this is a pure valuation play. He thinks Merck is a great company with a terrific balance sheet and he says it’s trading at a good value right now. Jonathan says it’s a weak stock. Wayne says Merck is a solid company, but not a great stock. Hilary prefers the generic drug makers to big pharmaceutical companies like Merck right now.
First Data Corp. (FDC)
Friday's close: $36.43
Bradshaw says cash is becoming obsolete, and this company benefits from that trend. Hilary likes the stock. She says it’s a winner, and it’s good value right now. Jonathan says the stock has shown recent weakness, and he wouldn’t buy it. Wayne says, just like Merck, First Data is a good company trading at a discount, but he doesn’t see it moving higher anytime soon, and he thinks buying it will just lock up our money.
Friday's close: $20.94
Bradshaw thinks this company will benefit from the latest cell phone technology. Wayne says it’s a huge company that is an “okay” investment over time, but he doesn’t see any bang for the buck in the near future. Hilary says there are too many players in this market; she’s not a buyer. Jonathan likes the international telecom sector, but he thinks this is a laggard stock in that sector and he would buy others not this one.
Fund Face Off: Best and Worst Call of the Year!
Back on March 1 Jonas and Dagen were asked to name the best exchange traded fund to buy. Jonas picked the Technology Select Sector SPDR; Dagen chose the iShares Lehman 1-3 Year Treasury Index.
Jonas: Technology Select Sector SPDR (XLK)
Since March 1: UP 35.9 percent
Minimum Investment: $19.74 (or current price per share)
Expenses: $2.80 for every $1,000 invested.
Dagen: iShares Lehman 1-3 Year Treasury (SHY)
Since March 1: UP 0.6 percent
Minimum Investment: $82.10 (or current price per share)
Expenses: $1.50 for every $1,000 invested
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
Wayne, Jonathan and Bradshaw answered some of your questions.
Question: “How does AirTran (AAI) look in the short term?”
Question: “I own Wal-Mart (WMT), should I buy more, sell, or just hold on?”
Bradshaw calls Wal-Mart a “hold”. He says it’s the greatest retailer in the discount sector, which is one of the fastest growing sectors in our economy, but they are a little pricey right now. He would only buy more on dips. Wayne agrees Wal-Mart is pricey; he prefers Lowes (LOW) right now. Jonathan also calls Wal-Mart a “hold.” He says if it’s a winning position, put a stop under it and let the market take you out if it falls, but he wouldn’t put new money in it right now.
Question: “Why hasn’t Pfizer (PFE) gone anywhere in the last year?”
Jonathan says a lot of these big cap stocks are dead money. Wayne agrees. Bradshaw says they are both wrong. He loves Pfizer.