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 Brenda was joined by: Gary B. Smith, RealMoney.com columnist; Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, founder and chairman of ChangeWave Research; Scott Bleier, president of HybridInvestors.com; and Meredith Whitney, Fox business news contributor.
Trading Pit: Mad Dow
Historically, this is supposed to be the most wonderful time of the year for stocks.
But fear of terror threats from Usama bin Laden and a Mad Cow scare have stalled the traditional year end rally, known as the Santa Claus rally.
Toby said he doesn’t know if Usama and Mad Cow add up to a “Mad Dow”. However, he pointed out that the U.S. has an $11 trillion economy and there is a $30 trillion economy worldwide. He explained that terrorists can’t make a dent in either of these numbers, because they are so large, but the market is just starting to figure this out.
Meredith just returned from Iraq. She has never felt safer or more at ease and that our guys are right on the heels of bin Laden. But what concerns her is the consumer. She said the Mad Cow scare is specific to a small part of economy. However, it can affect many industries like the grain, and shipping industries.
Gary B. charted the “Mad Dow” and said it has gone almost straight up since March. But the Dow is now coming up against a long-term downtrend that was started near the beginning of 2000. He doesn’t think it will move higher much longer.
Pat thinks the market has come too far too fast. He admitted that profits are better and the economy is great, but not that great. He expects the market to take a rest and for earnings to catch up to stock prices. Pat also warned investors not to expect gains in ’04 like there were in ’03.
Scott said that the Dow hasn’t had a real pullback yet. However, the Nasdaq has had one, and he thinks now is the time to buy some of the leading tech stocks. The Dow worries him because it has gained over 750 points since the start of Thanksgiving. Scott said this gain was the Santa rally and investors should be wary of a scary pull back at the start of ’04.
Scott, Pat and Meredith each picked a stock that is immune to the Mad Cow scare.
Pat picked C.H. Robinson Worldwide (CHRW), a company that arranges freight transportation for other companies. Ten percent of its revenue comes from the transportation of produce. The company has been growing at 23 percent annually over the past 5 years. (C.H. Robinson Worldwide closed on Friday at $37.22.) Scott agreed that this is a very good company to own. However, he likes it better below $35. Meredith didn’t like the stock.
Scott chose IDEXX Laboratories (IDXX), which makes lab tests for veterinarians. Scott likes IDEXX because it’s the leader in its field and has a Mad Cow test working its way through the FDA. He admitted that the Mad Cow scare is not going to add to its bottom line right now, but this company will be a primary benefactor from all the testing that will be done with American food. (IDEXX Laboratories closed on Friday at $46.52.) Pat said this is an interesting choice and a profitable biotech company. But he warned that if the market changes, good biotech companies can get thrown out with the bad, so be careful.
Meredith picked Darden Restaurants (DRI), which owns Red Lobster and Olive Garden. She said it’s not an expensive stock. Also, she thinks that when people go out to eat, they will choose restaurants like these two, that don’t focus on beef. (Darden Restaurants closed on Friday at $20.50.) Scott said it could benefit from the Mad Cow scare, but its free cash flow is not good and that generally means the stock will have a hard time going up. Pat also doesn’t like this pick.
This week Gary B. took on Tobin. Toby selected two stocks that investors probably own—but like some bad Christmas gifts—they should be “returned” immediately!
First, Toby picked Time Warner (TWX). He thinks there is a little room for growth, and once it gets to $20, it will be fully valued. He advised investors to sell it and buy stocks that aren’t as fully valued. (Time Warner closed on Friday at $17.84.) Gary B. said the number one rule of trading is to never sell a strong stock. He charted Time Warner and said it is strong and getting stronger. He thinks it could go to $25.
Next, Toby chose Yahoo! (YHOO). He thinks investors should take their profits from Yahoo! and invest in stocks that are going to grow faster. Gary B. said Yahoo! has been heading up since October of last year. He thinks if the stock can break through some recent congestion, it can easily hit $50. (Yahoo closed on Friday at $44.29.)
Scott's prediction: Dow falls below 10,000 in late January
Pat's prediction: I STILL hate tech! Nasdaq falls 20 percent from here
Gary B's prediction: Continued terrorism alert kills airlines; AMR (AMR) falls 30 percent
Tobin's prediction: Iraq rebuilt quicker than expected! Halliburton (HAL) up $40 by summer
Cavuto on Business
Neil Neil Cavuto was off. Dagen McDowell hosted and was joined by Ben Stein, author of Yes, You Can Time the Market!; Mike Norman, founder of the Contrarian Update; Charles Payne, CEO of Wall Street Strategies; John Byrne, editor-in-chief of Fast Company magazine; Harvey Kushner, author of Encyclopedia of Terrorism; and James Carafano, terrorism expert at the Heritage Foundation.
Bigger Market Threat: Terrorists or Mad Cows?
Dagen: America and the markets getting a double threat this week. First, our Homeland Security Department, raised the nation's terror alert to the second highest level. Then we found out our nation was struck with its first case of mad cow disease. So, which one is a bigger threat to our market?
Harvey Kushner: Terror is always a big threat. But we are winning that war. Proof is that we just survived another holiday season and another year without an incident. The president is aggressively fighting terrorists overseas and, while nothing is 100 percent, his Homeland Security team is successfully keeping terrorists from attacking us at home.
Mike Norman: Harvey is right. We are winning the war on terror. And I don't think they will hit us again on our soil and attack our economy. But mad cow could hurt the economy. This is a $175 billion dollar industry. A number bigger than all the government spending stimulus over the last two years. If we experience a significant breakout of mad cow, it could have a major impact on our economy and stock market.
Ben Stein: Mad cow could have a devastating affect on the beef and agriculture business, but that $175 billion is just a small fraction of our nation's $10 trillion economy. So, I don't think it will have a broad impact. And Americans and investors have adjusted their attitude to live with the threat of terrorism. The President is prosecuting the war against terror brilliantly. I don't think terror or mad cow will hurt us. The real threat to the economy is new signs that it is slowing down. Consumer confidence is falling, orders for durable goods is not as good as expected, and home sales are falling.
Charles Payne: Neither mad cow or terror is keeping me up at night. But let's face it, if we were attacked on our shores, it would definitely slowdown our economy and cause the market to drop short-term. But until we are attacked the market will ignore the threat and focus on earnings and other fundamentals. And I disagree with Ben that the economy is getting weak. The past three months of economic numbers show an uptrend. Plus, new home sales have to ease sometime. You can't have record numbers every month.
More for Your Money: Best Investment for 2004
Dagen: Will a new tech explosion give you more for your money in 2004? John, what technology are you betting on next year?
John Byrne: Smart machines! Those automated kiosks, like e-ticket machines at airports, will start popping up in places like fast food chains and movie theaters. Just look at Northwest Airlines, where 68 percent of passenger check-ins are now processed by e-ticket machines. Growth potential is enormous as more companies replace workers with these efficient, cost-saving machines. One privately-held firm called Kinetics has two-thirds of the business, but big companies like IBM (IBM), NCR (NCR) and Seimens (SI) also could benefit from a boom in sales of smart machines.
Charles Payne: I actually invested in this industry a few years ago. It's a very selective industry. I'm not sure you can buy a whole slew of stocks based on the technology and make money on it. One other stock I like in this field is Diebold (DBD), which also makes voting machines. They should benefit as our nation upgrades its voting machines.
Ben Stein: I think this is a good business with strong growth potential, but the companies John named only have a small portion of their sales based on this technology. I don't think it would influence there profits very much.
Mike Norman: How can I get my Whopper my way from a kiosk? I can't imagine these machines replacing the human employee. You always need human contact in some of these service industries.
John Byrne: They won't replace all human workers. But there is a growing market for smart machines. And you see it in the rising productivity numbers which are helped by these machines processing information faster and more efficiently.
Dagen: John, you like the Internet too. Another boom here?
John Byrne: I wouldn't go as far as to say another boom. But the Internet is here to stay. It just never caught up to the over-hype of the late 90s. Some very good companies have evolved out of the boom and will continue to grow. Companies like Yahoo (YHOO) which will benefit from a rebound in Internet advertising. Or Digital River (DRIV) which has a new way to deliver software over the Web. And Interactive Data (IDC) is another good company with good growth potential. It's also Warren Buffet's play on the new economy.
Ben Stein: I like Yahoo and Amazon (AMZN) in this area. Both are well run companies with great business plans. But their price to earnings ratios are way to high for me. I'd stay away from most of these overpriced stocks.
Mike Norman: The new internet boom already happened last year. Most of these stocks are up 50 percent or way more. I agree with Ben that they are widly overpriced.
John Byrne: These stocks are expensive compared to others. But the growth potential is worth the higher price. And these P/Es are not nearly as high as they were back during the craze of the Internet bubble. Back then they were 1000 times higher. And there's no reason you can't have two years or more of big returns for these stocks. I also think upcoming IPOs, Google and SalesForce.com, will create more interest in these stocks.
Charles Payne: I think these IPOs will be the top of this new Internet boom. They will also dry up some of the demand for Internet stocks which will hurt the sector, not help it.
Head to Head: Is Homeland Security Wasting Your Taxes?
Dagen: Our country is spending tens of millions of dollars on homeland security each year. Are we getting our money's worth? We asked James Carafano, homeland security expert with the Heritage Foundation, and Harvey Kushner, author of the Encyclopedia of Terrorism.
James: The fact that there hasn't been a terrorist attack since 9/11 doesn't tell us much about how our security. We know from intelligence that it took seven years to plan the 9/11 attacks. Right now, planning could be going on for an attack that could come to fruition in the year 2010 or 2015. We need to be planning our homeland security for the long term.
Harvey: Everything James has said has been very positive. We do have a homeland security program in place and nothing major has happened here on American soil since 9/11. I think our program is working. It's the first time in modern history when we have a President and an administration who is committed to fighting terrorism.
James: That's no reason to be complacent. I agree with you that we did start homeland security at ground zero with 9/11. There's an enormous amount of work to be done and in many areas we're falling short. For example, we are pouring a lot of money into a lot of things and we're not sure if this is providing real security. For state and local responders there are no national standards and no agreement in Congress on how we should structure national standards. Millions of dollars in grants have also gone out, including one program to provide fire grants to smaller towns in the middle of the country but does nothing to better us for providing for homeland security. There's an enormous amount of work to be done in this area.
Harvey: It's only been two years since 9/11 and we for many years before that we had a culture in the United States where there was separation of every law enforcement agency, every intelligence agency and every division of the armed services. We've come a long way since 9/11 in trying to develop a better culture which integrates these agencies. The FBI and the CIA are much better today than they were before 9/11. We have to give Tom Ridge, head of Homeland Security, a chance. It's the greatest task of reorganization since WWII.
James: That's all irrelevant. Intelligence is a good example. We need fundamental intelligence reform in this country and we've been talking about it for years, but we haven't really had any.
Harvey: What's fundamental intelligence reform?
James: An example of fundamental intelligence reform is who is in charge of central intelligence. Is it the CIA director or the director of the DCI? You really can't have it both ways.
FOX on the Spot
Charles: Monster stock! Buy Monster Worldwide (MNST). Stock benefits from rebound in jobs market.
John: More white collar pink slips sends up the red flag during election year. Loss of jobs will be big political football next year and could cause white collar workers to unionize which would be bad for corporate America.
Ben: Bump in the road for economic recovery. Buy short-term bonds!
Mike: Another bump in recovery will be a White House plan to cut budget deficit. That will eliminate much needed stimulus spending.
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: These stocks sat on the sidelines while everyone else was making money! But are the "Dogs of the Dow" about to have their day?
Dennis Kneale, managing editor: Out of the 30 Dow stocks, two of them Wal-Mart (WMT) and Microsoft (MSFT) are my favorites. Both of these companies are killers, they’re both big bullies that want to rule the world, and while the Dow went up 20 percent in 2003, Microsoft went up about 2 percent Wal-Mart went up about 5 percent. Tech is turning around, the American economy is going to roar. Wal-Mart is the American economy and Microsoft is tech. Buy them.
Mike Ozanian, senior editor: I like his theory, it’s a proven winner, but I’m going to put his theory on steroids. I’m going to take the worst Dow performer, Eastman Kodak (EK). The stock is down 75 percent in the last five years, but there’s a lot of shareholder unrest, and I hear that they’re going to shake up the board and maybe even get a new CEO. This stock’s at $26 (Friday’s close: $24.85). It’s going to double by the end of the year.
David Asman: Victoria, what do you think of Kodak?
Victoria Murphy, staff writer: Buying Kodak is like buying a stereo turntable company when CDs are getting hot. Are you kidding? Everything is digital now. Even your phone can take pictures. This isn’t a company that you want to be invested in.
Mike Ozanian: She’s right. The company has squandered money in the wrong technology.
Victoria Murphy: Squandered money? They’re in the wrong business. It’s not about squandering money.
Mike Ozanian: This is what they’re going to do: they’re going to stop wasting money and they’re going to increase the dividend. That’s why the price is going to go up.
Victoria Murphy: I say go for the Dogs of the Dow that are in thriving industries. Look at DuPont (DD), which is a chemical company that is going to get a boost along with the economy, and the stock has been a lagger for the past year. Look at Johnson & Johnson (JNJ). This is a company with a great drug pipeline and it hasn’t been appreciated yet.
Mike Ozanian: I actually like both of those companies because they generate a ton of cash.
David Asman: Ok. Bill, you have a stock, it’s not a member of the Dow, but it could be. It’s a favorite of yours. Tell us about it.
Bill Baldwin, editor: I don’t want to beat up on anybody too much, but maybe Black and Decker (BDK) is one of those incompetently managed companies that maybe new management could do some really good things there. I’d buy them. It’s not a Dow stock, but it’s got a good shot at a comeback.
Dennis Kneale: Sure. I’ll go for that. Absolutely.
Mike Ozanian: It’s only 14 times earnings, so it’s a very cheap stock.
Dennis Kneale: Now, if you want to get really wild, truly wild, you’ve got two other possibilities. AT&T (T), the long distance company. It has been left for dead by everyone, and I also think they’re an acquisition waiting to happen. Like SBC Communications (SBC) or Verizon (VZ) could buy them. And also Merck (MRK), the drug stock’s been very much beaten down. And yet the drug market’s going to benefit from Medicare reform that pays for drugs.
Victoria Murphy: I like the Merck idea, but AT&T? I don’t think that long distance telephony is an industry that I want to be in, but Merck I like.
Makers and Breakers
David Asman: Should you sell your stock losers before we ring in a new year?
Dennis Kneale, managing editor: I really think they should. I think that viewers should think about going in and doing it Monday, and doing it before the year ends. Let’s say you made a $10,000 profit on stocks this year’s sale. You’re going to have to pay taxes on that, but if you bought Lucent (LU) at $60, and it’s down to $4 or $3 (Friday’s close: $2.84,) and you’ve been hoping that it’s coming back, it’s just not coming back. Sell it and you’ll wipe out that $10,000 profit with a $10,000 loss and you won’t have to pay the taxes at all.
David Asman: So Bill, you should just give it up now?
Bill Baldwin, editor: Well, good idea, bad timing. I never sell stocks during months with an “R” in them. In December, everyone’s selling Lucent. You’ll get a crummy price. Sell your losers, maybe, in the summertime, when everybody else is buying stuff. So his idea’s right, his timing is wrong. Also, let’s not forget that although you can use your losses against any amount of gains, you can only use them to wipe out $3,000 of your regular income, which means that if you have a $1 million loss, it only takes 333 years for the IRS to get you even.
David Asman: Well, Mike, you’re crazy about these new tax changes, do they mean that it is better to sell your losers before the end?
Mike Ozanian, senior editor: I think the Dow’s going to 12,000. I’m not selling anything. If these guys want to sell these stocks at low prices, I’m buying. Besides, 15 years ago, when Bill was my editor, he shoved me into a room and made me do some crazy study for him as to which stocks did best, and the ones that did the best were the ones that did the lousiest in years past. So I’m going to buy the losers and hold them.
David Asman: Steve, you’ve studied this, is it a good idea based on these new tax changes?
Steve Forbes, editor-in-chief: No. Only losers sell in December. The Capital Gains Tax, by the way, is low so you don’t worry about that. It’s cheaper to pay it, but people sell in December, then those stocks do better early next year. I’m surprised Dennis mentioned Lucent. He recommended it to our readers a couple of years ago.
Dennis Kneale: I sure did. Because every now and then you finally have to wake up and you have to lose faith on some certain stocks. In fact, that’s probably a strong buy signal. Now that I’ve said give up on Lucent, it’s going to roar back and triple.
Steve Forbes: It has. It’s gone from $0.72 to $3.
David Asman: Let me be very personal. I have Disney (DIS), should I sell Disney now?
Dennis Kneale: No. I don’t think you should. I think the underlying assets of that company are terrific and I think that Bill is thinking that there could be a big shake-up in the coming year ahead, and I would not sell Disney.
David Asman: So, Dennis, even though you are advocating selling the losers, you should look at each one very carefully to make sure that they may not pop in 2004.
Dennis Kneale: Disney’s trading in the $20-25 range, (Friday’s close: $23.21) it’s been there for two years. It’s not like a Lucent or a Cisco Systems (CSCO) that was at $80 and went down to $10. Although now Cisco has come right back up to over $20 (CSCO’s Friday’s close: $23.75)
David Asman: Mike, even though you are a bull on this market, both NASDAQ and Dow, there must be some losers out there that you would sell.
Mike Ozanian: Well, look. I would sell a loser if there was no way that an entrenched management was going to be removed. Like if there was two classes of shares and the management owned the voting shares, then I would be a little skeptical.
Steve Forbes: The bottom line is: if you have a loser, wait to early next year, perhaps in the spring, and that way you’ll get a better price. Don’t sell with the crowd.
Stock Smarts: Iraq Rally in 2004?
It was our biggest worry in 2003, but will Iraq be the best thing to happen to stocks and the economy in 2004?
John “Bradshaw” Layfield author of Have More Money Now has just returned from a second trip to Iraq (he was there in July), and he says there has been a tremendous amount of progress in stemming the tide of attacks against coalition troops and towards building up the infrastructure in Iraq. He says we are winning the war there, and the fear and uncertainty that weighed on the stock market last winter is gone, and that has allowed the market to steamroll. He believes success in Iraq is a big reason the market has done so well this year, and he says that will continue into the new year as we establish a stable government in a very unstable Middle East. He also believes that oil prices will come down next year as a result of increases production in Iraq, and that will also help the stock market.
Wayne Rogers of Wayne Rogers and Company disagrees that Iraq will have any impact on the market next year. He says the market turned around last year because the economy started to turn around, not because of U.S. success in Iraq. He says right now Mad Cow disease has a greater impact on the stock market than Iraq. He believes the fear of a widespread Mad Cow outbreak could have devastating effects on the market.
Dave Nelson of DC Nelson Asset Management says that toppling Saddam Hussein’s regime helped to take terrorism out of the equation and helped boost the market last year. He believes the market will continue to be supported by success in Iraq in 2004. He says the Arab world is watching what is happening in Iraq, and that capitalism there will spread to other nations, which will be a huge positive for the U.S. economy and the stock market. He points to Libya’s retreat on its weapons program as one of the positive developments to come out of the war in Iraq. He believes we will see more of the same in the year to come and that will strengthen the U.S. economy and market.
Jonas Max Ferris of MAXfunds.com says that while toppling Saddam Hussein’s rule may have been the right thing to do, from a purely business standpoint, it cost a tremendous amount of money and he’s not sure the U.S. will get enough of a return on its investment. This could have a negative effect on our economy and would hurt the stock market. He says the countries that are benefiting the most are the ones that didn’t have to pay for the war.
Jonathan Hoenig of Capitalistpig Asset Management agrees with Jonas. He says the “Axis of Weasel” countries that did not help with the war effort in Iraq, like France and Germany, are getting the most financial benefit now, and he thinks stocks in those countries are a better investment right now.
Best Bet$: Top Stocks to Buy Now for 2004?
Bradshaw’s Top Stock in 2004: McDonald’s (MCD)
Friday's close: $24.09
Bradshaw says the Mad Cow sell-off of McDonald’s stock was an emotional reaction, and he does not believe the disease will be as big an issue here as it was in the United Kingdom. He thinks the sell-off is a buying opportunity. Jonathan Hoenig says he doesn’t like to buy on dips because you never know if the dip will turn into a downturn. Wayne says it’s a great company, terrific chart, and has been a good turnaround play, but he wouldn’t buy it right now because there’s too much risk in it. He says even if the reality of Mad Cow disease is not devastating, the fear of it can do a lot of damage to this company’s bottom line.
Jonathan’s Top Stock in 2004: National Grid Transco (NGG)
Friday's close: $35.95
Jonathan says he tends to invest on a theme, and his theme right now is international utilities, and he likes National Grid in Britain. Bradshaw thinks the stock is fully valued and not a buy here. Wayne likes the company; he points out that earnings are up, but he doesn’t see the stock making a big move up from here.
Wayne’s Top Stock in 2004: Red Hat (RHAT)
Friday's close: $18.88
Wayne says Red Hat has turned around, and it is the platform for Linux technology, which he thinks gives it an advantage in 2004. Bradshaw says buying Red Hat is betting against Microsoft (MSFT) and he wouldn’t do it. Jonathan says SAP (SAP) is an even better bet than Microsoft or Red Hat.
Stock of the Week
Dave Nelson says Kodak (EK) is the stock to own this week. He thinks it’s bottomed out and will get a short-term bounce in here. Wayne doesn’t like to buy stocks in a downtrend. He doesn’t see Kodak going up this week. Bradshaw agrees with Wayne.
We’ll post the week’s return here next Saturday.
Last Week’s Stock of the Week
Mike Norman picked Rite-Aid (RAD) -- down 1.8 percent last week
To find out who’s ahead in the $10,000 Cashin’ In Challenge, check out the Web site at: www.foxnews.com/challenge
Question: “Which stocks will benefit from Mad Cow?”
Wayne says he’s morally opposed to capitalizing on somebody else’s disaster, but if he had to pick a stock, he would take a look at organic foods retailer, Whole Foods (WFMI). Jonas says he would check out the feed producers like Bunge Limited (BG), or Corn Products International (CPO) that make safe feed for cows. Jonathan says he’d be careful trading on the headlines, but he’d take a look at Dannon (DA).
Jonas says he’s negative on these stocks now. They have had a spectacular run, and he thinks there will be problems down the road that could bring them back down. Of the three, he prefers DaimlerChrysler because of its international exposure, which makes it less interest rate sensitive. Jonathan agrees DCX is the strongest of the three; he also like Volvo (VOLVY).
Question: “Is International Game Technology (IGT) a good stock to buy now?”
Jonathan likes the stock. He says gaming is very strong right now and he wouldn’t sell it if he owned the stock. Wayne agrees.
Question: “What do you think of Aztar Corporation (AZR)?”
Wayne says gaming is a good area to be in, but he would place his long-term bet on Wynn Resorts (WYNN) rather than Aztar because Wynn has a license in China, and he thinks that could be a big winner. Jonathan agrees that this is a strong group, and that Wynn is a stronger stock.