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
Dagen McDowell hosted for Brenda 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
Buy in November and sell in May? You bet'cha. Over the past 50 years the Dow’s average return in those six months is up over eight percent. Go the other way, and you're up only half a percent.
But this past six months has turned that notion on its head, with the Dow (search) making a huge 16 percent run in that time.
Price thinks the next six months is going to be even better than the previous six. He added that the market has been strong in a typically weak time for a reason-improving economic news.
Gary B. charted the Dow’s performance for the past several years and agreed that buying in November and selling in May usually works. However, the Dow isn’t usually up 16 percent like it was in the prior six months He thinks it will be lucky to be up 5 percent by May.
Tobin totally disagreed with the Chartman. He said now is the time to buy and own stocks because the tax cuts are working and creating better economic numbers. Now he admitted investors just cannot buy any stock, but there are a lot of companies that are growing and whose earnings are getting better, and those are the ones to buy.
Scott is happy but nervous. He said all the news for stocks has been great. But what concerns him is that everyone is bullish, the market has come so far so fast, and what can be done for an encore after the great economic numbers last week. He still owns stocks, but advised to be cautious.
But Pat’s not bullish and doesn’t see a lot of stocks he likes now. He said the key question concerning the market is always, what is the market expecting. When the huge economic growth numbers were released last week, the market didn’t react positively. Instead, it sold off. He said this means all that great news was expected. Pat thinks that stocks have gotten ahead of themselves and will only head lower.
So which are the best stocks to buy in November and sell in May? Tobin, Scott, and Price all gave their best picks.
Tobin chose Genesis Microchip (GNSS), which is going to power many new flat panel monitors made by Dell (DELL). He said sales of flat panels are going to increase from 2 million to 25 million units in just a couple of years. Price wasn’t as excited about it and thinks Dell will try everything it can to keep Genesis Microchip’s prices down. Scott said there is a tremendous growth potential for this company because everyone is going to have HDTV and LCD screens. (Genesis Microchip closed on Friday at $16.54.)
Scott likes Shaw Group (SGR), which builds and upgrades power grids. The stock has nearly doubled since the East Coast black out. He thinks as the company upgrades power grids, it will head even higher and get to $20. (Shaw Group closed on Friday at $13.65.) Tobin agreed and also thinks Shaw Group will hit $20. Price is worried about its earnings, which have dropped 79 percent, and thinks there are better opportunities elsewhere.
Price picked online broker, AmeriTrade (AMTD). He said it had record earnings for the quarter and the year. Also, he thinks as more investors enter the market, AmeriTrade will start stealing business from the bigger brokers. Scott said if the bull market continues, AmeriTrade will continue to head higher. He thinks it’s too expensive right now and would rather buy Instinet (INGP). Tobin recommended this stock several weeks ago and said as long as the market is going up, own AmeriTrade. (AmeriTrade closed on Friday at $13.71.)
Gary B. and Pat each picked a Dow dog that's about to turnaround and run with the big dogs.
Gary chose Coca-Cola (KO). His chart showed that since its March low, Coke recently consolidated its gains and resumed heading higher. He thinks it will hit $55 in about a year. (Coca-Cola closed on Friday at $46.40.) Pat said Coke has unbelievable brand strength and no one can copy its business, but it is missing out on new trends like fruit juices and sports drinks. He thinks the stock is a bit overvalued.
Pat picked Johnson & Johnson (JNJ). He said the company is very diverse and is like owning a healthcare mutual fund. It is also incredibly profitable and has a strong drug lineup. He admitted that J&J had some problems with its stent (a type of heart device that opens arteries), but these problems are overblown. Gary’s chart showed that Johnson & Johnson has been in a two-year slump and doesn’t look like it is getting any better. He thinks if it breaks through a support line in the upper $40s, it could fall to $30. (Johnson & Johnson closed on Friday at $50.33.)
Price's prediction: Rates stay low and push Dow to 11,000 & Nasdaq to 2,500
Gary B's prediction: California fires ignite Home Depot (HD); up 35 percent in 6 months
Tobin's prediction: Nortel (NT) will be a "treat" and double by next Halloween
Pat's prediction: The best offense is a good defense; Raytheon (RTN) up 20 percent in a year
Scott's prediction: Russia fizzles but China sizzles; buy China Petroleum (SNP)
Cavuto on Business
Neil Cavuto was joined by Lt. Col. Oliver North, host of Fox News' War Stories; Gregg Hymowitz, founder of Entrust Capital; Jim Rogers, president of JimRogers.com; Joe Battipaglia, chief investment officer at Ryan, Beck & Associates; Meredith Whitney, Fox Business News contributor; and Jenny Anderson, NY Post business reporter.
If Iraq Is Out of Control, Why Is the Market Soaring?
Neil Cavuto: Another deadly week in Iraq (search), a flurry of coordinated attacks giving some the impression the situation could be getting out of hand over there. But stocks didn't blink an eye over here. In fact, they continued to add to this year's long bull market (search). Col. North, the market seems to be ignoring this, despite the fact that Iraq is a mess.
Col. North: The market obviously knows more than what some in the media are talking about. The news out of Iraq is actually much better than what's coming out, partly because we no longer have as many embedded correspondents out there. The news we get of course is there's a bomb, they run out there with a camera and they talk about the smoking wreckage behind them. The reality is today we have more people with electricity in Iraq than before the war started. Eighty-six thousand Iraqis have now been trained as policeman and as national guardsmen.
Gregg Hymowitz: I completely disagree. It's almost impossible to spin Iraq as a positive. The market knows as much about Iraq as it did about the NASDAQ two or three years ago. The market is up because earnings are improving and operating earnings are there. You've had these gigantic tax cuts, which has caused fiscal stimulus. So you have a lot of money flowing into the system. But as a vote on what's going on in Iraq? I think it's absolutely ridiculous.
Meredith Whitney: It doesn't help that forty people this week have been killed and over a hundred have been wounded. So I think it's hard to convince anyone, excuse me Col. North, that things are really great over there. The market has been fed with so much stimulus. G.D.P. numbers coming out this past week are so encouraging, inventories are so low that basically you're jumping in front of a bus with all the good news there is.
Jim Rogers: No matter if Iraq is good or bad, it's not important enough right now. Remember, the market went up as the Vietnam war got worse and worse. In Israel, stocks go up a lot when there is bad news all around. Right now, we do have huge fiscal and monetary stimulus, which has been going into the market.
Gregg Hymowitz: The market tends to be a predictor and it might be saying, Iraq can't get any worse than this. But to say the market sees that we're doing well in Iraq and that's why it's up, makes absolutely no sense.
Col. North: That's not what I said. And Meredith I didn't say that there was "great" news coming out of Iraq, I'm just saying that the news is better than what we're seeing on the television and what we're reading in the newspapers, particularly the New York Times. In reality, little investors like me will look at the market and ask, are things going to get better? I conclude that they are.
Meredith Whitney: One good thing did happen and that is we got monetary commitment from the United Nations and the market didn't move. So it's hard to draw a correlation between Iraq and the market.
Neil Cavuto: I would argue the Colonel's point that if it was so bad in Iraq that the market would reflect that calamity. Just as the market was selling off ahead of the Iraq war. Would the market be telling you something different?
Gregg Hymowitz: I don't think the Iraq issue is the controlling issue in the equity markets. Very few investors are trying to figure out what's going on in Iraq and then figure out what to do with their money. I think a little positive for the market is that maybe the market thinks, look things can't get much worse so maybe they'll get better. One thing that could be a real positive, and I thought this was why we went in there, is to find Saddam Hussein. If we'd be able to do that, then maybe we would see a real bounce.
Neil Cavuto: So if we find Saddam Hussein, would you stop criticizing this war?
Gregg Hymowitz: No. Absolutely not.
Jim Rogers: If Iraq gets better and better, it's not going to affect the markets that much. There are other things more important.
Neil Cavuto: That's not what you said going into this war. You said it was a big mistake and we would rue the day doing so.
Jim Rogers: And we do rue the day. Are you happy we're spending $200 billion in Iraq? I'm not happy we're spending $200 billion in Iraq.
Neil Cavuto: I'm in the camp that says we've done a lot more good there than the bad press we're getting out of there.
Jim Rogers: Iraq will effect us if it gets worse. The market will start paying attention if we send more troops there or get hit with more bombs.
Col. North: Jim, we're not going to send anymore troops out there. We're bringing them home. Second of all, we're getting increased international cooperation. I think we're looking at a very positive outcome as a consequence of dealing with terrorism in Iraq and Afghanistan.
More For Your Money
Neil Cavuto: November and December have historically been the two best months for stocks. With each month's average gain more than double the average monthly gain for the S&P 500. So Joe, does this momentum continue?
Joe Battipaglia: September and October are supposed to be the worst months and they turned out to be okay. I think we get another 7 percent as we go into year-end. We cross the magic 10,000 for the Dow, we get through 2000 on the NASDAQ and we set ourselves up for even more next year.
Jim Rogers: I don't think November and December will be the best months of the year. We've already had some spectacular months this year. They may be okay. I suspect the market is going to continue to consolidate. Joe said September and October were against the grain. I suspect November and December will be the same, but on the down side.
Gregg Hymowitz: I think the market's reaction to the G.D.P. numbers (+7.2 percent) is indicative of the idea that a lot of this is already priced in. I think the only other thing that can give us a leg up is if we see improvement in the job market.
Meredith Whitney: The numbers coming out this week really give CEO's confidence to start hiring. So you're going to see Treasury Secretary John Snow be right about a job market pickup. But you also see inventories at historical lows. People are going to have to restock. It's going to get better.
Joe Battipaglia: The killer number was final demand. It was even faster than the growth of G.D.P.
Neil Cavuto: Joe, what would you be buying in this environment?
Joe Battipaglia: I would buy the growth sectors for sure. Technology is still in vogue. Storage Technology (STK) has a big cash position and it makes sense to buy it in an environment like this. I do not currently own it.
Meredith Whitney: I like technology but I also like the commodities. I like, but do not own, Apache (APA) in terms of natural gas and in terms of inventories being low.
Gregg Hymowitz: I like Foot Locker (FL). Our firm owns the stock. It's at 12 times earnings, which is a good price compared to the overall market.
Jim Rogers: In this kind of environment I have been buying and I own Matsushita Electric (MC), which is a Japanese company. Everyone is consuming these days and they make a lot of consumer products.
Neil Cavuto: What do you make of the whole Japanese economy and that this time it does seem to be a little bit more real than in the past?
Jim Rogers: I don't know if it's more real than not. I own Japanese shares that I've talked about on this show. They're printing a lot of money too. They've got an election coming up. Things come together and make stock markets go up. It's not rocket science.
Head to Head
Neil Cavuto: Are big spenders from Wall Street firms showing signs of sobering up or are they still partying like its 1999.
Jenny Anderson: They are absolutely cutting back. The concierge services are gone. The fooz ball tables are gone. The free fresh fruit is gone. The coast to coast business class for 22 year old analysts is gone.
Neil Cavuto: You're actually misrepresenting some things. Some of the elite guys, the partners who used to take private jets back and forth are now having to grunge around in first class. And these guys are saying they're cutting back so now instead of $350 bottles of wine, it's $345 bottles of wine. If this is their idea of cutting back, something is really wrong.
Jenny Anderson: This is Wall Street. Do you want them wining and dining the CEO's of America's strongest companies at McDonald's?
Neil Cavuto: I actually do. I want to see these guys who recommend the company's cutting the fat doing more of the same themselves. And I don't mean downsizing their secretarial staff or their paralegals. I mean downsizing more of themselves.
Jenny Anderson: Bonuses were down 50-75 percent. You're not going to get a bigger perk loss than that.
Neil Cavuto: But some of them are still going to get these $10 million bonuses this year. And some might very well deserve it. But I'm saying they're cutting in all the wrong areas. For example, one of the firms announced in your fine paper said that if you stay late at the firm, we used to reimburse you for take-out for $35. Now it's $25. When I stay late here, I get my own take-out. This is not sacrifice Jenny.
Jenny Anderson: They're not even letting them call information for 4-1-1. They can't get information services. They're definitely cutting back. Wall Street is a culture of excesses.
Neil Cavuto: Until these guys face reality and know that not everyone gets paid for staying late and getting Chinese food delivered to them, they're never going to relate to what's happening.
Jenny Anderson: If you take away those perks, there will be no bankers on Wall Street. That's why people go to Wall Street, to make money.
Neil Cavuto: This is where you're wrong. If you think someone goes to Wall Street because you get free Chinese food, then they're misrepresenting it. Now the superstars who bring in the big cash to the firm and get the big paycheck, my hats off to them. But very few of them do that. And yet they're cutting the people who shouldn't be cut.
Jenny Anderson: You're looking at the wrong part of the firm. You need the guys on the top who are making the $10 million bonuses because they bring in the business.
Neil Cavuto: And you wouldn't argue that there are too many at the top?
Jenny Anderson: No, I wouldn't. The guys who are left are the guys who bring in business. You keep the rainmakers and you get rid of the guys at the bottom. It's a simple contract on Wall Street: In good times we hire. We pay you very well. In bad times we fire you. We can't afford you. Everybody knows this contract.
FOX on the Spot
Col. North: President Bush's policies help Dow run past 10k by year-end
Jim Rogers: Donald Rumsfeld leaves Defense Department by 2005
Joe Battipaglia: Interest rates go higher! Buy DJ REIT iShares (IYR)
Meredith Whitney: Economy grows more than expected in fourth quarter
Gregg Hymowitz: Jobs growth still a problem for stocks & President Bush
Neil Cavuto: The economy is increasingly no longer an issue for the Democrats. So, I predict fewer will mention it and keep the focus instead on Iraq, hoping to make that the big issue to bang Bush on
Forbes on Fox
David Asman: Some big name mutual funds (search) are under investigation for fraud! That means the "safe" funds that you thought you bought, could actually be stealing your money! Are there any funds out there that you can trust with your cash?
Mike Ozanian, senior editor: I don't think this is a widespread problem we have here. I think its pretty narrowly focused, the cheats are on the run. And the fund I like is the Vanguard Index 500 fund (VFINX), which basically mimics the stocks in the S&P 500. You won't get incredibly wealthy from it, but you won't get burned, either. No Load, you go in for free and the expense is just pennies on the dollar.
Matt Schifrin, senior editor: I agree that this investigation is a little overblown. I will give you two funds that are actually under investigation! They're excellent funds, I like Janus Special Equities Fund (JSVAX) and I like Strong Opportunity Fund (SOPFX), both of them are up 35 percent in the last year.
Chana Schoenberger, staff writer: I don't see why you should have to pay a fund manager to manage your money. You can get an exchange-traded fund called the "Spider" (SPY). It's the S&P 500 Index, but its traded on the exchange. It has an expense-rate ratio of .2 percent, which is super cheap. You can trade in and out of it whenever you want, no active manager to pay.
Jim Michaels, editorial vice president: I've got a cheaper one than Mike's Vanguard. It's called Berkshire Hathaway - the "b" shares (BRK.B). It's not technically a mutual fund, but its a managed group of investments, and what I really like about it is, in this day and age, when managements pay themselves hundreds of millions of bucks, Warren Buffett ran this with a staff of 16 people last time I looked. From a little office in Omaha, and Warren pays himself $100,000 a year. So you get cheap management, for $2500 a share, you get a mutual fund, diversification, superb management, and you're paying very little for it.
David Asman: Berkshire's $2500 a share.. Mike, is it worth it?
Mike Ozanian: It's a little too rich for my blood, but Jim may be able to afford it.
Chana Schoenberger: The other thing is, what happens if something happens to Warren Buffett? This is a bet on the second richest man in the world, but if Warren were no longer running that company, I'd be a little worried about it.
Makers & Breakers
This week our guest stock picker is Larry Williams, he manages the "Darlings of the Dow" fund.
• Altria (MO)
Larry Williams: MAKER
Its low priced to sales. That's one of the best fundamental values in the Dow. I'm really concerned about fundamental values. Ultimately value's rewarded. That stock will be rewarded. Its trading at $46 now, it can go between 25-30 percent higher in next 9 months or so. (Price Target: $63)
Jim Michaels: BREAKER
Altria, Schmaltria! It's Philip Morris in dark glasses! It makes cigarettes, it kills people. It makes money too, but its going to be endlessly under attack by regulators. I'm sorry, this is a moral judgment on my part, but its also a practical judgment, this company is trouble.
Elizabeth MacDonald: BREAKER
I'm making a financial judgment. Yes, the stock price is cheap, relative to earnings. But its still got $21 billion dollars in debt. And its still got those "tort rich" products like meat and cheese (obesity) and beer (drunk driving) and tobacco (cancer)
Larry Williams: The market is based on value, and value ultimately gets rewarded. Its one of the best value stocks of the Dow. We'll come back 9 months from now and see where the morality table lines up.
• Kodak (EK)
Larry Williams: MAKER
Kodak is just horrible right now. That's why its cheap relative to earnings. Its undervalued, and it has tremendous growth potential.
Elizabeth MacDonald: BREAKER
I think the stock is still way overpriced. They've fallen way behind in the digital revolution in film. Also they've handcuffed themselves, and they've overpaid for this deal in China to sell film products there.
Jim Michaels: BREAKER
Larry, I've got a lot of respect for you and your wisdom, and your system for picking stocks, but you've brought us a couple of stinkers this week. Kodak is not even a dividend stock anymore.. they had to get rid of that. They've fallen behind in every business they're in. Just to catch up, its going to take every penny they earn.
Larry Williams: When you look at the history of stocks in the Dow that are at these low value levels, they simply outperform the stocks regardless of morality or what you think is going on with the company. We'll come back in 6-9 months and see how those two stocks did. Kodak's trading at $24 a share, we think it can go another 25-30 percent (target price: 34)
Former Tyco chief Dennis Kozlowski (search) has become the poster boy for greed as lawyers try to prove he robbed Tyco of some $600 million to bankroll his lavish lifestyle.
But some say greed is good – it’s the juice that drives a healthy economy and the stock market.
Jonathan Hoenig of Capitalistpig Asset Management says greed is getting a bad reputation, and we should not confuse greed with theft, which is what Kozlowski stands accused of. He says greed is the engine that drives the economy because it stimulates Man’s desire to create and produce wealth. Jonathan says we should not shy away from the idea of greed; that greed should be celebrated as a vital economic stimulus.
Jonas Max Ferris of Maxfunds.com says Jonathan is confusing greed with ambition. He says greed is “taking what is not yours”. Jonathan says that’s theft, not greed!
Hilary Kramer of A&G Capital says Jonas is right.
Wayne Rogers of Wayne Rogers & Co agrees that Jonathan is confusing “greed” with “ambition”. He says Webster’s Dictionary defines greed as an “excessive and rapacious desire for money and possessions”. Jonathan says that definition does not disagree with his point that greed is a desire for money and that desire is a necessary ingredient to a healthy economy.
John “Bradshaw” Layfield, author of “Have More Money Now” says Jonathan’s premise for greed is correct, but it shouldn’t be confused with “passion” which is what he says drives a man like Bill Gates to create better computer software, or Tiger Woods to play better golf.
Be$t Bets: Get Greedy With These Stocks!
Our crew offered up the stocks that they just can’t get enough of.
• Bradshaw can't get enough...
FleetBoston Financial (FBF)
Friday's close (10-31-03): $40.39
Bradshaw says FleetBoston stock will benefit from the planned takeover by Bank of America (BAC). Jonathan says Bradshaw’s “sniffing” in the right area by picking a big money-center bank, but he says the premium has been taken out of this stock, and he’s not a buyer. Wayne thinks the regional banks are a better bet.
• Jonathan can't get enough...
Banco Santander Central Hispano S.A. (STD)
Friday's close (10-31-03): $9.53
Jonathan says this is an unknown name in a very hot sector (Latin American banks). Wayne says this is a good company, but he doesn’t’ agree that Latin American banks are as hot as Jonathan thinks they are right now. Bradshaw says there is too much instability in Latin American companies for him. He’d stick with an American bank like Citigroup (C)
• Wayne can't get enough of…
Pengrowth Energy (PGH)
Friday's close (10-31-03): $13.12
Wayne says this oil and gas royalty trust is a great company with a 14 percent yield. Jonathan says commodities are doing well, and are a good place to bet right now, but he’s playing the base metals more. Bradshaw says Pengrowth is a great bet.
Mutual Fund Face-Off: Dow: Higher or Lower by 2004?
Will it be Dow 10,000 by the end of 2004, or will stocks be heading lower?
• Bradshaw says Dow 10,000 by 2004! Buy:
Vanguard 500 Index (VFINX)
Friday's close (10-3103): $97.19
• Jonas says the Dow’s headed lower! Buy:
Schwab Hedged Equity (SWHEX)
Friday's close (10-31-03): $11.53
Hilary, Jonathan and Wayne answered some of your questions.
We took a quick look at the standing in the $10,000 “Cashin’ In Challenge”. To find out who’s ahead, check out: www.foxnews.com/challenge
Question: “What happened to make JetBlue (JLBU) drop over $11 in two days last week?
I sold it. Did I do the right thing?”
Wayne says smaller regional airlines like JetBlue and AirTran (AAI), which he owns, have all been knocked down over concerns that they will need to increase capacity in the future, which often slows profit growth, so the stocks are getting hurt. But, he says, right now these companies are experiencing record profits, and he would buy JetBlue on a dip. Jonathan says airlines are a good sector bet right now, but he prefers foreign companies like Ryanair (RYAAY) and LanChile (LFL). He owns both. Hilary says JetBlue took that steep one-week hit because it was chased out of Atlanta, Georgia by Delta (DAL) and AirTran.
Question: “I bought Amgen (AMGN) around $63 and saw it go to $68. Now it's below where I bought it. Please HELP - what should I do?”
Hilary says analysts’ targets for Amgen run anywhere from $80 to $100, so she would hold the stock, but not put new money in right now because it’s a little pricey. Jonathan says the fact that this is a losing trade makes him a bit nervous, so he recommends you put a stop in around $57, but he says biotech is a solid sector, and he wouldn’t sell at this point. Wayne agrees with Jonathan.
Question: “What do you think of Celgene Corp (CELG)?”
Jonathan says he doesn’t play biotech himself, but he wouldn’t bet against it right now. Hilary says the smart money is out of this stock and recommends you get out too.
Question: “I just started investing, and I recently bought Sirius Satellite (SIRI) Radio. What is your outlook for the next five months?”
Wayne likes the stock. He thinks there will be a lot of growth in the future. Hilary does not agree. She does not think there is room for growth in this area, and she doesn’t recommend the stock. Jonathan says the group looks good, but he prefers to play the sector with Panamsat (SPOT) and Asia Satellite Telecommunications (SAT), two stocks he owns.