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; Scott Bleier, president of HybridInvestors.com; and Tom Adkins, real estate agent with RE/MAX Services.
Trading Pit: Who Is the Stock Market Endorsing for President?
People running for president love getting endorsements from politicians, newspapers—even celebrities.
But the biggest endorsement may be the one the stock market is giving right now. Since the beginning of last year, the stock market and economy have been firing on all cylinders. So who is the stock market endorsing for president?
Tom said there is no doubt in his mind that the stock market is endorsing President Bush. He also pointed out that during the last two tough economies, Federal Reserve Chairman, Alan Greenspan, increased interest rates. Tom thinks this was a mistake and that Greenspan learned a lesson that wealth creation does not equal inflation
Pat countered that the market is a fickle thing and may not be this strong come election time. He added that job creation hasn’t been great, and although stimulus is great for the economy in the short term, deficits are not great in the long run.
Tobin disagreed with Pat and said that the labor market will not take Wall Street’s “endorsement” away from President Bush. Toby explained that there are 2 ways to count jobs. First are the jobs going to corporations and the other is the household survey. He said that according to this survey, 1.5 million jobs have been created. Also, he asked, how could 3 million jobs (which Toby thinks is a “bogus” number) been lost, when personal income has grown 3 percent annually the past three years?
Gary B. charted the Dow since 1999. He showed a downtrend that began late 1999/early 2000, that the index still has not broken through. However, he thinks it may break though this resistance, and if it does, it will be a huge endorsement for President Bush. He is a little concerned that so many people are bullish and advised investors to wait for some type of pullback before buying.
Scott said every Democratic candidate wants to roll back the president’s tax cuts. If this happens, he thinks the market is going to fall 10 percent. But he strongly believes this not going to happen because voters are going to vote for who is putting money in their wallets. Due to this, President Bush will win the election because his tax plan stimulates the economy, while the Democrat’s spending plans do not.
Gary B. took on the new guy’s (Tom), top two stocks.
Tom first picked Caterpillar (CAT), a leading worldwide construction company. Tom thinks construction is going to increase due to a worldwide economic recovery. Also, he said rising government revenue will increase the amount of its construction projects. And on top of that, he believes Caterpillar is going to be part of the Mars expedition. Gary B. said Caterpillar is up almost 100 percent in the past year and now faces resistance at $85. He thinks investors should wait for it to show strength before buying the stock. (Caterpillar closed on Friday at $84.17.)
Next, Tom chose Motorola (MOT). He said it has great earnings and revenue and the company just signed a deal with the number one mobile phone operator in China. Gary B. thinks all this good news is already factored into the stock price and it’s already up 100 percent over the past year. His chart showed that Motorola fell from the $17 range and its recent move was just a bounce back to that area. He thinks it is unlikely to close over $20 anytime soon. (Motorola closed on Friday at $16.77.)
Tobin, Scott and Pat (our own Simon Cowell) all judged stocks in the American “Stock” Idol.
First up: Disney (DIS). Board members resigning, sagging ratings for its TV unit, ABC, but the stock keeps heading higher. Pat said, “You need Disney stock like I need a hole in my head.” He added that the company is horrible at distributing its capital and just can’t do anything right. Tobin said if this stock was a singer, it would be Al Jolson, meaning it’s an ugly stock, but there’s a strong economy behind it. Scott likes this stock and has recommended it since it was at $18-19. He thinks it is going to $30. (Disney closed on Friday at $24.05.)
Next, the three looked at Home Depot (HD), which has gone through some hard times, but is now halfway to its all-time high. Scott thinks this stock is okay and investors probably won’t make a lot of money with it. Tobin thinks this stock needs a stronger economy in order for it to do better. He said it could do better if home construction picks up again, but thinks the stock is too expensive right now. Pat said Home Depot is fairly valued and even though it finally has its customer service problems under control, he’s not thrilled about it. (Home Depot closed on Friday at $35.92.)
The final “contestant”: Wal-Mart (WMT), the world’s largest retailer. The company’s prices can’t be beat, but does its stock stack up against the competition? Tobin said Wal-Mart is like Frank Sinatra — an old standard. He thinks investors should buy newer stocks. Scott would be interested if it ever closed above $60, because that would mean its productivity would be improving. Pat does like the stock. He said the grocery business is giving Wal-Mart a new lease on life because it is crushing every other grocery company. He also likes that it soon will be getting more into apparel, which will be its new growth engine. (Wal-Mart closed on Friday at $54.21.)
Tom's prediction: Year of the Bull! Dow 13,000 by end of '04
Tobin's prediction: Microsoft (MSFT ) announces $1/share “special” dividend this summer; gains 20 percent
Scott's prediction: Global Crossing (GLBC ) up 50 percent by next year
Pat's prediction: DTE Energy (DTE ) powers up 20 percent by 2005
Cavuto on Business
Neil Cavuto was joined by Jim Rogers, president of JimRogers.com; Gregg Hymowitz, founder of Entrust Capital; Ben Stein, author of "Yes, You Can Time The Market!"; John "Bradshaw" Layfield, author of "Have More Money Now"; Adam Lashinsky, senior writer at Fortune Magazine; Alexandra Lebenthal, CEO of Lebenthal & Company; and Jonna Spilbor, criminal defense attorney.
Dean’s Drop = Stocks Drop?
Neil Cavuto: Is bad news for Howard Dean, bad news for your stocks? Some on Wall Street were banking on a Howard Dean - President Bush match up this November, believing Dean is not electable and hoping Mr. Bush, and his pro-business policies, would stick around for four more years. So, if Dean becomes a non-factor should Wall Street start worrying about election day?
John Layfield: I don't think it affects the markets at all. Howard Dean right now could not win a one man rock fight. And the other contenders are not looking too good.
Gregg Hymowitz: I think any of the leading Democrats running would be better than what we've had with Bush for the last three years.
Ben Stein: I fear that a Democrat could win. And the real problem of that is if they repeal the dividend tax. Because the dividend tax cut is enormously important to stock holders.
Jim Rogers: Likewise for the capital gains tax. If the capital gains tax is raised that would be bad for stocks.
Neil Cavuto: Would you argue that at least at the margin a Bush re-election would be friendlier to Wall Street?
Jim Rogers: Yes, the people in the market like Bush better.
Alexandra Lebenthal: This is Bush's to lose at this point. You have to give people a reason to walk away and believe me, as a Democrat, that is very hard for me to say. I think it's way to early to predict front runners in this race.
Neil Cavuto: Did any of you buy the White House argument that Howard Dean was at least the lay-up opponent and if it was going to be Howard Dean, they were confident that he was the one they could smash like a bug.
John Layfield: Absolutely. I think it'll be much tougher against someone like Kerry or Edwards. You have to look at what's happened in the last nine months. The economy has gotten much better. The war in Iraq has gotten much better. Time is on Bush's side on this.
Gregg Hymowitz: Jim and Ben both talked about tax cuts, dividend and cap gains. And I think what you're seeing now is Bush being attacked by the conservatives, the Republicans, for over-spending and the deficit.
Neil Cavuto: They've attacked the spending, not the tax cuts.
Gregg Hymowitz: They're attacking the deficit. You get a deficit either two ways. You either cut the revenues, i.e. cut taxes. Or you increase the spending.
Jim Rogers: Cutting taxes is good for the economy. The problem is they're spending so much more. These guys have gone nuts spending money.
Ben Stein: Bush is not going to lose a single Republican vote because of the deficit. He is getting criticism about it, but there's not going to an exodus because of it.
Gregg Hymowitz: I agree with you. I'm not talking about the vote. I'm talking about the health of the economy and the health of the stock market.
Neil Cavuto: But will you argue that the tax cuts gave this economy a boost?
Gregg Hymowitz: Sure. I agree 100 percent. The tax cuts gave this economy a short-term boost. It's the long-term I'm talking about.
Alexandra Lebenthal: It may have given the economy a boost, but it didn't make people go out and hire people. A thousand jobs last month isn't a big increase.
Neil Cavuto: But 350,000 in the last four months is the start of something isn't it?
Alexandra Lebenthal: Yes it is. But last month was a real pause in the trend. Giving people a tax refund isn't going to make a company go out and hire more people. The deficit is the big "what if" here that could screw up the economy.
Ben Stein: There has never been a documented case of an election being lost over a deficit.
Jim Rogers: You're right. The market is not going to hinge on the deficit, but in 2005 and 2006, the market is going to be in serious trouble.
More for Your Money: Is Bigger Better?
Neil Cavuto: Does size matter when it comes to getting more for your money? The small cap Russell 2000 index is up more than 50 percent this past year, more than double the blue chip Dow's performance. But is that all about to change?
Adam Lashinsky: Yes bigger is better. We're at the beginning of an economic recovery. In a stock market recovery, the small stocks which were given up for dead are the first to make a strong comeback. If you're looking for a new trend, it's big stocks.
John Layfield: I think size does matter. Big cap stocks are where you see the value now.
Jim Rogers: I disagree, size doesn't matter. A lot of big cap stocks went through the roof last year, as did small cap stocks. Some stocks are going to do wonderfully and some are not. You have to pick it individually, not based on small or big.
Ben Stein: I think big is better almost always over the long term. I think the small cap stocks have out run their earnings by quite a considerable amount. I own and love Boeing (BA) and love but don't own General Motors (GM ). GM is selling for 7.5 percent times earnings. That's pretty darn good in today's world. I like big cap stocks.
Gregg Hymowitz: I don't think it should surprise anyone that in a low interest rate environment, that growth stocks do better. That's sort of standard and makes a lot of sense. One of the big stocks we've owned for a long time is MBNA (KRB ). It's one of the largest credit card companies in America. It has great earnings and solid numbers.
Jim Rogers: I have doubts about all financial stocks. The financial area is now the biggest part of the stock market. That's the place you should avoid.
John Layfield: I don't think interest rates are going to rise anytime soon. I like, but do not own, Washington Mutual (WM ). It's got a 4 percent dividend. It's got a P.E. of about 10 and its growth rate exceeds its P.E.
Adam Lashinsky: Washington Mutual (WM ) is a bit of a hand grenade. It has a lot of mortgage debt on its books that could blow up.
I like Time Warner (TWX), a stock I own and a company I am an employee of. This is a boring stock. It's not speculative. It's going to do better on the cable industry. There's going to be a pickup in the ad environment and at sometime AOL will turn around and start adding value to the company.
Jim Rogers: I thought the ad revenues had already picked up?
Adam Lashinsky: The economy is improving. Everybody agrees on that, but there's far more to go on this.
Jim Rogers: I would buy El Paso Electric (EE ). It went bankrupt a few years ago and it is now being turned around. This is a turn around play and an electric play. I own it.
Head to Head: Judging Martha?
Neil Cavuto: Is Martha Stewart's best chance to beat the rap by filling the jury box with "diva's" like herself? Or filling it with average Joes and Joannes? Criminal defense attorney Jonna Spilbor says wealthy white collar jurors are Martha's best bet to walk. I'm not so sure. I know a lot of upwardly mobile professional women who don't feel that way.
Jonna Spilbor: If I am picking that jury I want people who are not going to identify with potential victims. In this case, the blue collar community is being portrayed as the victim for all sorts of corporate shenanigans.
Neil Cavuto: But the blue collar types are the ones going to Kmart, loving her stuff, relating to her and the ones who admire her.
Jonna Spilbor: The people who were victimized in Enron are those same people too.
Neil Cavuto: But that's like night and day, isn't it?
Jonna Spilbor: It is, but the jurors are not. They're going to be confused into thinking it's the same thing. That's what the prosecution wants in this case. To confuse the jurors.
Neil Cavuto: To lump her in with the Ken Lays and the Jeff Skillings?
Jonna Spilbor: That's right.
Neil Cavuto: Are you saying a blue collar worker would be more inclined to buy that instead of an upwardly professional?
Jonna Spilbor: Absolutely, because an upwardly professional who has a relationship with his or her stock broker and has a substantial amount invested has to say to themselves that they get info from their broker all the time to buy, sell, or hold. That doesn't make them a criminal does it?
Neil Cavuto: Not everyone in the blue collar world buys stocks but we do know that half of Americans do. They have a great work ethic and I think by extension they would admire Martha Stewart.
Jonna Spilbor: The blue collar people that are in that jury box right now have already said that they don't think powerful people are trustworthy. I'd like to have people like Donald Trump, Bill Gates and you Neil on that jury.
Neil Cavuto: Do you think she'll get jail time?
Jonna Spilbor: I don't think she deserves to, but here's what's going to happen. The securities fraud charges will most likely get dismissed before they get to the jury. On the obstruction charge, I think a jury could be confused enough to think that she did lie to prosecutors and that will get her prison time because it is a federal case. Judges have no lee way in terms of sentencing.
FOX on the Spot
Adam Lashinsky: Bye-bye January effect. Sell tech stocks now! Nadsaq drops 10 percent over next few months.
Jim Rogers: Baghdad stock exchange re-opens within 2 months, but don't buy yet.
Ben Stein: Buy Berkshire (BRK.B ) if Dems win & re-hike dividend tax.
Alexandra Lebenthal: Dean is a "has been" Kerry wins New Hampshire and nomination!
Gregg Hymowitz: Dean drops out after losing New Hampshire primary.
Neil Cavuto:Howard Dean is falling like a rock and he's angry. So angry at his treatment by party insiders that he bolts the party and runs as an Independent this November, siphoning votes from Democratic nominees and easily handing the election to the president!
Forbes on Fox
How are politics and global events affecting your wallet? We’ll put the story In Focus and give you the bottom line.
David Asman: Just like the old song says, with stocks, “you’ve got to know when to hold 'em and when to fold 'em.” So when's a good time to sell a stock?
Jim Michaels, editorial vice president: Well, I’m not selling stocks. I’m quite heavily in stocks at the moment, about 80 percent. Here’s the important thing: people trade too much. They’re too quick to take profits, they’re too quick to buy stocks. I would like to suggest that all our viewers do themselves a favor and count how many transactions they made last year. Then, make a New Year’s resolution that they will make half as many this year. You take profits, you’re paying the government a huge amount, and you’re making the stockbroker rich.
Rich Karlgaard, publisher: Let me tell you something. A couple of weeks ago, I was at an investment bank conference and six different money managers who have about $20 billion under money management all told me the same thing. They all think that the rally is going to continue until the election, and that 2005 is going to be a bad year. The problem is that when all the smart people are thinking that way, what they’re really going to do is probably try and get out a little bit earlier. I think this market has another 15 percent or so to go, but I think the rally may end around mid-year. I would get out when the Dow hits 12,000 or May or June. Whichever comes first.
Dennis Kneale, managing editor: Anybody who’s trying to time the market the way Rich is, if you’re not careful you’ll have a fool for a stock advisor, and so a rule of thumb might be nice. It’s like someone once told me, “you can be a bull in this market, you can be a bear, don’t be a pig.” I’d say that if you’re stock doubles in price, why not sell half of it, recover your initial investment, now the other half of the stock you’re holding on to is all upside. If it goes to zero, you haven’t lost.
Quentin Hardy, Silicon Valley bureau chief: Look, I think you’re best single investment is a mirror. You look in a mirror and you decide, “How do I feel about this thing?” What until it goes up, I’d say, 20-30 percent. Do the things you still believe in about the company still exist anymore, or is it exhausted? If you’re not comfortable holding it, you should just get out of it.
Elizabeth MacDonald, senior editor: I wouldn’t necessarily go on just what you feel about a stock, you want to look at their cash flow. That is such a crucial number. You want to see how much cash they’re pulling in, like Automatic Data Processing (ADP), is a great stock for that. Microsoft (MSFT) has been a virtual ATM when it’s come to that. Mark Hulbert, who’s a wonderful financial expert, looked at 72 different market-timing systems that are put out by these newsletters. Over a ten-year period, only five beat the Wilshire 5000, which is a big, broad basket of stocks. Market timing is really dangerous.
Jim Michaels: I think that Dennis has an interesting little formula. You can’t go broke using it. But I just remind everybody that the big profits you make in the market are having a few big winners. That means having stocks that you bought at a low level, and you’ve ridden with, and you’ve gotten four, five, six times your money. You don’t do that if you cut half.
Dennis Kneale: I have a friend who bought Cisco (CSCO) at $13. It went up to $17; he bought a little bit more. It went up to $21; he bought a little bit more. It’s going to hit $30 for sure, so when does he sell? If you were a person who bought Cisco back in the days when it was at $60 going to $80 and you held it, you sure wish you had sold it at $80.
Rich Karlgaard: You know the saying that “a conservative is a liberal who was mugged by reality?” I think there were a lot of bulls who were ‘mugged’ by the bust of 2000-2002. I think that memories go pretty deep here, and that’s why I think something that Dennis said is right on the mark. People remember that they didn’t sell at the top, and I think when the Dow approaches it’s previous high, people are going to get a little nervous and they’re not going to be nearly as likely to think it’s going to bust through.
Jim Michaels: Rich, I know so many people going way back who missed most of the earlier bull markets because they were mesmerized by (the stock market crash of) 1929. When the market passed 1929 and kept going up, they said, “Oh, I don’t believe it. My uncle Harry got wiped out in 1929.” You can’t let the past hypnotize you.
Elizabeth MacDonald: Ibbotson, a great financial consulting company, came out with some data going back to the 1930’s. They found out that neck and neck, big cap and small cap stocks are really outperforming the corporate bonds and government bonds since the ‘80’s. Another interesting stat is where you find the stocks. The top 100 NASDAQ, in terms of market cap, they command two-thirds of the market cap of the entire NASDAQ market. Half of these guys have really poor track records in black ink. You’ve got to do a really good job at looking at the cash flow numbers.
Quentin Hardy: Jumping of what Elizabeth said, she said she loves the cash flow of Microsoft. It’s been a big under performer in the NASDAQ for the past year, so if you feel nervous about the NASDAQ, maybe that’s a good thing to go to now.
Tired of hearing the same investing advice from every side? We’ll give you the contrarian approach to investing in our Flipside segment.
David Asman: Stocks from companies that ship jobs overseas are the best stocks to own in this market. Why should investors care if jobs are outsourced?
Elizabeth Corcoran, contributing editor: It’s really about where the markets are. Look at Intel (INTC) which is a great example. Over the last three years, 25 percent of their revenue growth has come from Asia. Where are they going to send all of their new jobs? They’ve basically said that when they start hiring, which may be sometime this year if the economy keeps going well, it’s all going to be overseas. Same thing for IBM (IBM). They got beat up this week saying that they’re going to be sending jobs overseas, but they’re going to be creating an awful lot of jobs, a few in the US, but a lot overseas – and that’s where the money is.
Victoria Murphy, senior reporter: Let’s look at India and software development. Everyone focuses on this 1:4 ratio, that getting a developer in India costs ¼ the cost of hiring someone here. But that leaves out a lot of the details. India is a very different labor market. For one thing, you can’t fire people in India, so are we fleeing union jobs to a place where you can’t fire someone? Now the rules are being relaxed a little bit for the I-T industry (information technology), but then look at turnover, which is upwards of 50 percent. That’s a huge cost of doing business, and the folks that I’ve talked to recently who are doing business over there say that wages are creeping up, especially if you want to get a good manager. It’s 15 percent higher than it was a year ago.
Mike Ozanian, senior editor: Elizabeth is right. Look at IBM, their profits went up 41 percent. I even want to go further. I want companies that outsource everything. I want big, global, mean, branded companies that are looking to take over everything. I want Coca-Cola (KO), I want Starbucks (SBUX), and I want Exxon Mobil (XOM ). These companies have infrastructure, marketing, they’re outsourcing everything. Those are the guys I want.
Quentin Hardy, Silicon Valley bureau chief: IBM has to do something about their high cost basis from buying Price Waterhouse, last year. They got dinged this week, not about hiring people in India, but because they’re telling managers how to lie about people they’re firing. How to lie to your American employees and say, “Oh never use the word ‘outsourcing.’ That’s bad.” IBM and these other companies are embarking on the most risky social experiment in post-war America. The Bureau of Labor Statistics looked at the jobs lost to foreign trade 1979-1999. 31 percent of those people never recovered full-time employment. Of the people who did recover full-time employment, 55 percent took pay cuts of 15 percent.
Jim Michaels, editorial vice president: Outsourcing is not about profits. In the end, the profits get competed away when everybody out-sources. You know what outsourcing is about? It’s about lower prices. It’s about bringing down the price of clothing, about bringing down the price of computers. That helps the consumer. The consumer can spend on other things, and is creating new jobs. This is not about corporate profits at all. It’s about helping the consumer and helping the economy. It may be a temporary boost to profits, but when everybody does it, they all go for market share, they cut the prices, and the consumer benefits.
Makers and Breakers
• T. Rowe Price (TROW )
Patricia Powell, president of the Powell Group: MAKER
It’s hard to find anything wrong with this company. If you’ve noticed, the markets have been up this year, a year ago we were still in the bear market. Their revenue is driven by markets. They’ve got 116 funds. 80 percent of their funds are equity funds. I put clients into their funds all the time. Market’s up 30-40 percent, earnings have got to follow.
David Asman: Trading at about $53 right now, (Friday’s close: $53.29), you think it will go up to about $68?
Patricia Powell: You bet.
Elizabeth MacDonald: MAKER
I’m a maker on this stock. They’ve stayed above the mutual fund scandal, so they’ve got pretty strong corporate governance controls. They’re moving into Europe in a big way, plus they paid a dividend in 17 straight years, ever since they went public in 1986.
Jim Michaels: BREAKER
Let’s call a spade a spade. It’s a good stock, because whether they make money for you or lose money for you, you have to pay them fees. The fees are the same whether they win or lose, and if the stock market goes up, through no fault of their own, the fees go up. However, the public is getting wise to this. They’re getting wise that they’re paying an awful lot, and I think fees are going to be under pressure. I’m skeptical about this stock.
Patricia Powell: They’ve got the lowest fees in the industry, though. On average, their equity funds are under a point, when you look at 1.46 as an average mutual fund.
• Amgen (AMGN )
Patricia Powell: MAKER
This is THE biotech stock. If you’re going to own biotech, this is the one to own. Two products: clean, neat, already multi-billion dollar markets. Three already right behind them. 30-40 percent grower for the next couple of years.
David Asman: It’s at $62, (Friday’s close: $63.93), your target price is $85. Jim, what do you think?
Jim Michaels: BREAKER
I love the industry. I think it’s the most exciting thing around, but there’s a $70 billion market cap and most of it’s on the calm. It makes me nervous. I can’t evaluate it. I wouldn’t buy it.
Elizabeth MacDonald: MAKER
I am a maker on this stock. I think that this is a fantastic stock. They are the really big gorilla in this sector, plus they still have a lot of the licenses. They own the patents on the big, leading drugs for anemia and leukemia. Fantastic stock.
Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:
David Asman: Which is a better place for your money this year: the housing market or the stock market?
Dennis Kneale, managing editor: I think that this year, stocks are going to go up more than housing, but if you don’t own a home, buy one. 1993, if you bought an apartment in Brooklyn. In 2003 that home appreciates 15 percent a year in 10 years, in terms of the profit I’ve got on the home based on its value today. Stocks, 10 percent a year, and I’ve got a place to live.
Victoria Murphy, senior reporter: I vote for stocks. Last year, through the summer, housing prices rose 12 percent, which was the greatest gain in 23 years. It was phenomenal. But you still would have done a lot better in the market, and I think that this year’s going to be no different.
Jim Michaels, editorial vice president: If you don’t own your house, you’re crazy. Even if the prices look a little bit high, the low mortgage rates are going to bail you out. Buy a house. But if you’re investing spare money, stay out of housing, but stocks.
Elizabeth MacDonald, senior editor: I’m all for the stock market, I’m really bullish on the stock market. There’s still a lot of stocks that I wouldn’t touch with a barge pole, but when it comes to housing stocks, I might be interested in Lennar Corp. (LEN) and Pulte Homes (PHM ). I think they may have decent cash flows.
Mike Ozanian, senior editor: I like Mohawk Industries (MHK), because I think the re-financing boom is over. They’re the number one makers of floor covering in the United States and they’re a huge outsourcer.
Dennis Kneale: I don’t think that buying home industry stocks is a bad thing. Although, homes and housing are old world and tech is new world, or the future. I’d rather put my money into tech.
David Asman: Jim, someone told me I should sell my house, get the capital gains, get it all untaxed, and start renting a place. Put the money in stocks.
Jim Michaels: Right. You pay the moving man, you re-do the living room, you spend $20,000 moving, and the market turns against you anyway. To hell with it.
Elizabeth MacDonald: What are we talking about, market timing your house? That’s crazy. I don’t think that housing prices are going to have a deflation soon, but stocks are the way to go.
StockSmarts: Tax Cuts Forever: Bull Market Forever?
Keep more of your money! That’s what President Bush wants you to do, but his State of the Union call to make his tax cuts permanent got a chilly reception from Democrats. The President says if the tax cuts stay in place, it will add up to more jobs and a better economy.
So how would the market react to permanent tax cuts?
Gretchen Morgenson of The New York Times says the economy needs the stimulus that President Bush’s tax cuts provide, and the market would react very favorably to making them permanent. She says there is no doubt that tax cuts are very good for the market.
Stuart Varney of Fox Business agrees with Gretchen 100 percent. He says: “The tax cuts in place have clearly helped increase corporate profitability, and that’s the baseline for the stock market.” He believes that the market can handle the kind of growth in the economy that tax cuts stimulate, and that it can even absorb a rise of up to 500 basis points in interest rats before showing any skittishness.
Dagen McDowell of Fox Business News says making tax cuts permanent would be very bad for the market because investors know that this country cannot afford them. She says the current tax cuts were designed to expire by the time masses of “baby boomers” retire and start to drain Social Security.
Price Headley of BigTrends.com says tax cuts are very bullish for the market, especially in the short term, but the issue now for the long run is that the growth rate in the economy can’t be sustained without rising interest rates, and that is not good for stocks.
Jonathan Hoenig of Capitalistpig Asset Management says tax cuts are morally right. It is the people’s money, and it should go to the people. But he’s worried about big government spending and how deficits would impact the market.
Wayne Rogers of Wayne Rogers & Co says that President Bush is correct when he says that the people know how to spend their money better than Washington does. Wayne says, “If you send a buck up to Washington, ninety cents gets drained off in some administrative cost, and only ten cents gets back to doing what it’s supposed to be doing. The people know how to spend their money best.” He believes making the Bush tax cuts permanent is the best thing for the economy and the market, and that any Democrat who tries to take that money back is committing “political suicide.”
Best Bets: Comeback Kid$
Stocks ready to come back bigger than Senator John Kerry. Here’s our group’s Best Bets
Jonathan says: AON Corp (AOC)
Price target: $33
Friday's close: $24.91
AON is one of the few domestic stocks Jonathan owns right now. He says this Chicago company used to be a darling of fund managers, but has fallen somewhat out of favor, and he thinks it’s coming back. Price says he thinks this is a winner for now, but he would be cautious about holding it after the election when he says there is a risk that a hike in interest rates could hurt this interest-rate sensitive stock. Wayne likes the stock, but he says it made its “Kerry-like” comeback four or five months ago.
Price says: Hewlett-Packard (HPQ)
Price target: $40
Friday's close: $25.30
Price says Hewlett-Packard has come back some, but he thinks the comeback will extend another 50 percent or more. Wayne likes the stock. Jonathan says he wouldn’t fight the stock right now.
Wayne says: Johnson & Johnson (JNJ)
Price target: $60
Friday's close: $53.00
Wayne owns Johnson & Johnson, and he thinks it’s on track for a big comeback. He says the stock is still in a downtrend, but is ready to break out. He says the bad news is behind it; cash flow is up, and he thinks it’s a good company in a definite turnaround. Price says he’s staying away from JNJ. He thinks the stock is expensive. Jonathan says big pharmaceuticals are a big trend right now, but Johnson & Johnson has been a laggard, so it’s not his favorite.
Stock of the Week
Last week’s pick was Plum Creek Timber (PCL), made by Jonathan Hoenig (he owns the stock). For the week of January 19-23, it was UP 1.2 percent
This week Price Headley says aQuantive (AQNT) is the stock to own. He plans to buy shares in the online advertising firm before it reports earnings on Thursday. He says the company is doing well, and he believes its earnings report will confirm that and attract more investors.
Jonas says the time to buy this stock was last year when they were cheap, not this week – long after the run-up in this sector. He doesn’t understand how this company’s stock can be valued at five times the multiple of a large traditional advertising firm, and he doesn’t think it’s worth it.
The 2004 Cashin’ In Challenge is getting started. For an update of who’s hot and who’s not so far, check out the Web site at: www.foxnews.com/challenge
Wayne, Jonathan and Gretchen answered some of your questions.
Question: “Hilton (HLT) stock is up more than 60 percent since March. Why is it so strong? Does it have anything to do with Paris Hilton’s antics?”
Wayne doesn’t think the stock has been that strong lately -- he points out that it’s been in a $2 range for the last five months. But he thinks Hilton is a well-run company, and he doesn’t think Paris Hilton’s high profile has anything to do with the stock. Jonathan says all hotel stocks have been strong in the last year. Gretchen says more people are traveling, and the falling dollar will bring more foreigners to our shores, and those are the types of things that are likely to be driving Hilton’s stock price, not Paris’ headline making antics.
Question: “When a company like Enron or a person like Martha Stewart pays a fine, who writes the check and who is the check made payable to?”
Gretchen says it’s a sad fact of life that shareholders almost always end up paying the tab even when executives sign consent decrees saying they neither admit nor deny any wrong doing.
Question: “What will happen to Martha Stewart Omnimedia (MSO)? What happens if she’s convicted? What happens if she walks?”
Jonathan says Martha won’t be found guilty. He thinks the government is railroading her, and he believes investors can see that. Wayne points out that the stock is already up 20 percent in the last month. Gretchen says the government’s case is not that strong, and the stock could move if she gets off.