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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; Dave Nelson, CEO of DC Nelson Asset Management; and Stuart Varney, Fox Business News contributor.
Trading Pit: A “Bad Thing” for Martha: A “Good Thing” for Stocks?
Martha Stewart (search) — guilty on all counts. That means she’s going to jail. But what message does this send to investors?
Tobin said this verdict sends a good message to investors, who are the victims of fraud, because it means they will be able to trust Wall Street. He added this also puts a face in front of the conscience of the CEOs who never heard of anyone going to jail for fraud. He doesn’t think these verdicts will move the market, but it will be beneficial in the long-term because it will make companies’ numbers more believable. This will increase investors' confidence causing them to put more money back into the market.
Dave totally disagreed with Toby because he thinks this is old news. Last year, when there was a “perp walk” the market would rally 200 points, but after Bernie Ebbers (former head of WorldCom charged with overseeing the largest accounting fraud in US history) was taken away in handcuffs last Wednesday, the market did nothing. It also did nothing when the Martha verdict was announced. Dave said the only two things that will make stocks head higher are earnings and a stronger economy.
But Gary B. agreed with his “brother” Toby and added that investors realize they can lose money in the market, they just want a level playing field. He said now that people know if someone even gives the hint of insider trading, they will get put away. However, Martha’s guilty verdict is not a single event. The market as a whole is being cleaned up. All these cases add up and combined will increase the confidence of the average investor.
Stuart said what is happening right now on Wall Street — big fines and people going to prison — is exactly what happened during the insider trading scandals in the late 1980s. The market will sort itself out now like it did then. He agreed with Toby that the market will not go up all of the sudden, but it will head higher over time. Wall Street is in the process of restoring investors’ confidence that it is a legit game going forward.
Scott agreed with Dave that Martha and the crooks on trial today are yesterday's news. The stock market only cares about these trials for entertainment value — like watching gladiators fight and die in ancient Rome. When the market is going up, no one cares about criminals, but when it’s going down, everyone is screaming for heads. It is only lately, since stocks have paused, that we’ve been hearing about the criminals. He concluded by saying that the key for investors is to use the “Cockroach Theory" — at the first hint of something dirty, sell the stock, because there is probably much more.
Pat also believes that this verdict has no impact on the market. It does restore investors’ confidence to a degree, but that confidence would be much more restored if investors see the crooks from Enron and WorldCom go to jail. He does not think that investors are staying out of the market due to fear of fraud.
But, he does believe the big thing to prevent future fraud is that CEOs and CFOs must now sign off on their numbers. This will make corporate big wigs think twice about cooking the numbers because they can no longer say they were unaware their books weren’t clean.
Forget “The Sopranos.” The “Bulls & Bears Family” is where the action is! And this week the crew “made” Sopranos’ stocks.
Tobin “The Quiet Man" Smith said Waste Management (WMI) is a stock that's so good it would be a "made man" by the Sopranos. He said the company has a lot of cash flow, is buying back stock and could increase its dividend. (Waste Management closed at $29.47 on Friday.)
Gary — and the "B" in his name this week didn’t stand for Bull, or Bear, but "Bada Bing"! The stock whose chart he'd want in his family is Altria (MO). He said this is the “Teflon Stock” because it has been able to shrug off lawsuits, health concerns, etc. and keep rising. He thinks it will get to $100 in 3 years. (Altria closed at $58.22 on Friday.)
Next, was Dave "Full" Nelson. He brought ConAgra Foods (CAG) to the table because wise guys love to eat. But seriously, he said everyone is so concentrated on tech and telecom stocks that they are missing stocks like this that are hitting 52-week highs. (ConAgra closed at $27.57 on Friday.)
“Fat” Pat Dorsey “made” Weight Watchers (WTW) his stock because if some of the Sopranos don’t lose some weight, a “hit” may not be their biggest concern. He said it is a high quality company that generates a lot of free cash flow and has perfect economics. Also, it hasn’t been hurt by the Atkins diet, which is only a fad. (Weight Watchers closed at $37.79 on Friday.)
Scott "For Hire" Bleier thinks Exxon Mobil (XOM) will give investors a nice pay off because it makes more money than most countries in the world. Exxon Mobil was the original monopoly when it was known as Standard Oil and as oil prices rise, it just adds to the company’s bottom line. Also, last quarter, the company reported its biggest profits ever. (Exxon Mobil closed at $42.49 on Friday.)
Scott: Interest rates go up; Housing prices come down
Gary B.: Eisner turmoil forces Disney (DIS) down; buy when it hits $24
Pat: All those sky-high China stocks are about to crater!
Dave: Martha’s stock (MSO) opens higher Monday morning
Tobin: Same sex marriage debate helps Bush and the stock market win
Stuart: Same sex marriage won't pass because it will ruin the economy
Cavuto on Business
Neil Cavuto was joined by Jim Rogers, president of JimRogers.com; Ben Stein, economist and author of, "Yes, You Can Time The Market!"; Gregg Hymowitz, founder of Entrust Capital; Charles Payne, founder of Wall Street Strategies; Stanley Bing, author of, "The Big Bing"; Nancy Skinner, radio talk show host; and Bob Beckel, Democratic strategist.
Who Would Create More Jobs: Bush or Kerry?
Neil Cavuto: The race for the White House is on and one big issue is shaping up to be jobs! So who would create more of them: George Bush or John Kerry?
Ben Stein: I don't think either one of them is going to be able to fix the problem of disappearing manufacturing jobs (search). We have foreign competition, which has a much lower cost. There's not going to be any easy way to defeat it except by a large drop in the U.S. currency. And neither candidate is going to advocate that.
Gregg Hymowitz: I think Ben's right. There's not an easy answer. The question is which one has a better plan, or which one has a plan at all quite frankly. John Kerry at least has a plan. He wants to bring manufacturing jobs back. He has a plan to cut taxes for the middle class. In his first 500 days he has a plan to get back all the jobs that have been lost.
Jim Rogers: Kerry has no other plan than protectionism and destroying the American way of life. Bush does have a plan. He's not going to tax savings and investing in this country. He's going to change that completely so that people can invest. He's going to do something about the litigation explosion. He's going to do something about the health care explosion.
Ben Stein: The real problem is wages. The Chinese have just as good machinery and they have much lower cost of wages. How can we defeat that except by going back to a very destructive policy of protectionism.
Nancy Skinner: I think Kerry will go back to the Clinton-Gore model of fiscal discipline. President Clinton created 22 million jobs because, as Alan Greenspan said, he sent a signal to the market that fiscal restraint is good for long term economic growth. And history proves that if you go back to the time of Hoover, every single democratic president has beaten every single republican president in history.
Charles Payne: Clinton benefited from a lot of things that were done before he got into office. By the same token, Bush is suffering: Sept. 11, the stock market implosion, the recession, we can't blame all these things on Bush. He didn't lose all those jobs. I agree with Jim. I think Bush has some things in place that if we tamper with them, we're going to derail what's already in place, particularly with the tax cuts.
Gregg Hymowitz: You can't go out to the people in the Midwest and tell them, you're just going to have to re-train yourselves. That's not a good enough answer. We can't do what Ben wants, which is to just sit and let nature take its course.
Ben Stein: There is no other answer.
Nancy Skinner: There is an answer. We need to re-engineer our trade agreements so that countries are rewarded by their tariff structure based on whether they're actually paying a living wage in their country.
Jim Rogers: That's called protectionism.
Nancy Skinner: No, it's not protectionism.
Ben Stein: You're not going to get the Chinese to agree to the same wage structure we have in America.
Neil Cavuto: Is there a sense that, if you say President Bush will be better for jobs longer term, what's the one thing you base it on that he has an advantage on over Kerry?
Jim Rogers: He's going to eliminate taxes on savings and investing. The Chinese invest and save 35 percent of their income. The Japanese invest 18 percent their income. We invest 2 percent because we tax savings and we tax investing.
Gregg Hymowitz: What tax cut are you talking about?
Jim Rogers: The taxes on capital gains.
Gregg Hymowitz: When the capital gains tax was at 35 percent pre-Bush, we did increase jobs by 22 million jobs. The answer can't be to get rid of it and then you'll get jobs.
Charles Payne: There's been a lot of stimulus put into place right now that should not be tampered with. Everything is in place for better jobs at the end of the year no matter who's president.
More for Your Money: Attacking CEOs Hurts Stocks?
Neil Cavuto: CEOs under attack! Does it have to stop before we all get more for our money?
Stanley Bing: I don't really buy it. We need to keep on the attack.
Jim Rogers: We do need to put bad guys in jail, but that's not going to change corporate America. And it's not going to make the stock market go higher.
Stanley Bing: I don't want to go on a perp walk. The public displays of humiliation effect people. I have dreams about perp walks.
Gregg Hymowitz: Sarbanes Oxley is the only piece of legislation that's come out of this, and one could argue it has really helped the equities market. There's a sense now that when a CEO or a CFO signs his name on the financial reports, he's certifying that the reports are accurate. I think that can ultimately lower the equity premium in the market.
Stanley Bing: That's rational and I like that but really as Americans we want to blame people for things that go wrong. As long as there are still people to blame, I think they should be roasted.
Charles Payne: There is a certain amount of cynicism and skepticism about the market that could hurt investor confidence. Look at the market last year. It was up huge last year and yet the volume was lower than the preceding year. That's because people are still intimidated by these negative stories.
Neil Cavuto: Ben, if you play on this theme that going after these CEOs does more harm than good, what do you do?
Ben Stein: I don't believe it does more harm than good. CEOs have to be obligatory to the law. This market is not being discouraged at all from seeing CEOs prosecuted.
Neil Cavuto: What do you buy in this environment then?
Ben Stein: I like Cohen & Steers Fund (RQI). I've owned it for awhile and I am buying more of it. It's a real estate investment trust fund that pays a superb dividend.
Jim Rogers: Ben's right. People have been getting arrested for a long time in stock market history. People buy stocks because of fundamentals, macro factors and because of company management. Sometimes new management can come in and clean up old mistakes. I own Duke Energy (DUK). There's a new guy there who is going to clean up their old mistakes and hopefully it will go up.
Gregg Hymowitz: If you invest with a company that has good management and who are honest, you can make real money. One of the companies we like is Masonite International (MHM). They have a solid management team. They are door manufacturers and we own a lot of this stock.
Charles Payne: One of the celebrity stocks people should invest with is Warren Buffett's Berkshire Hathaway (BRK.B). This is as pristine as they come. I don't own the stock, but he'll always be a good manager.
Head to Head: Should Bush Stop Using Sept. 11 Images in Ads?
Neil Cavuto: Should President Bush use 9/11 images in his new political ads?
Bob Beckel: It's demeaning, it's crass and it's disgraceful. It is the only time in 32 years that I've seen a president take advantage of a crisis for political purposes. And then to say, well it's good to be reminded of it. Are we ever going to forget?
Neil Cavuto: I don't understand when you say you've never seen something like this before when Bill Clinton appeared in Oklahoma City to commemorate the Oklahoma bombing and then later used that in political ads.
Bob Beckel: That's wrong. That's not right. One of the things I like about you is you're one of the best business analysts I know but stay out of the political analyst side. The campaign ad you're talking about, they wanted to use but they didn't. If someone can show me where that was played, I will be very surprised.
Neil Cavuto: So you would draw no distinction between an event like that or FDR referring to Pearl Harbor in the election in 1944. Or for that matter, LBJ piggy backing off the success JFK had in the Cuban missile crisis. Where do you draw the distinction?
Bob Beckel: If you're right about Clinton, then I think it was wrong. I don't think FDR ever used Pearl Harbor in a political ad. Here's the distinction, you can talk about it. I mean, what else is Bush going to talk about?
Neil Cavuto: It's not okay for the president to talk about his record on the war on terrorism, but it is okay for John Kerry to talk about his war record in Vietnam? I see a double standard here.
Bob Beckel: If Kerry put the Vietnam thing on an ad, there's a big distinction there. He was there and he fought that war. That's legitimate. The fact is Bush's ad is for political gain. Does anybody believe that Bush would be re-elected if it hadn't been for 9/11?
Neil Cavuto: You just made my point. His most defining moment was how he acted that day and since that day. What is so offensive about him saying I was the guy there dealing with our nation's biggest crisis since the end of World War II.
Bob Beckel: He wasn't there. He was in Florida teaching some school kids. The point is there is a big distinction between saying it on the trail and using it in a paid political ad against somebody else. Why is it that they won't allow pictures of bodies coming back from Iraq? Maybe it's because the democrats can use it against him.
Neil Cavuto: I think you have a double standard on patriotism. Your party is all over John Kerry and his commendable hero image. But yet this president, who is fighting the greatest war of our time, he can't talk about that.
Bob Beckel: Neil the double standard is you keep saying Bush can't talk about it and I'm saying he shouldn't be using it in a paid ad. He can't talk about anything else because he hasn't done anything.
FOX on the Spot
Charles Payne: Threat of new Internet attacks cause net gains for Symantec (SYMC). I do not own this stock, but some of my clients do.
Gregg Hymowitz: Jobs and stocks pick up!
Jim Rogers: Bush bounces back from Dems' primary beating.
Ben Stein: Don't count on Social Security. Save more now!
Stanley Bing: Martini lunches return in honor of Kozlowski!
Neil Cavuto: Dick Grasso gives up! The former NYSE chairman will give back a large chunk of his pay package. And it'll start embarrassing a lot of top Wall Street CEOs, many of whom over the years were among those signing off on it.
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: Will it be four more years for President Bush, or four new years for John Kerry. For that answer don't look at the polls, look at the stock market! Quentin, if the market is lower than it is right now at the time of the election, what happens to Bush?
Quentin Hardy, Silicon Valley bureau chief: If the market is lower, the market is telling you something. The markets lead, they don’t follow. It’s telling you that Bush is out and that his predictions about millions of jobs being created, about cutting the deficit in half and about getting out of Iraq elegantly just weren’t true, and that there’s a really high cost to fixing his spendthrift mistakes.
Jim Michaels, editorial vice president: Quentin has been wrong 3,000 points up on the Dow, and the election is not going to bail him out, I’m sorry to say. I’m not sure that the stock market will bail George Bush out, either, because this jobs issue is a very big issue and the Democrats are making a big deal out of it. They’re not saying what they will do about it, but they’re making a big deal out of it. I think the stock market is strong and is going to remain strong, but I wouldn’t necessarily guarantee that that would reelect George Bush.
David Asman: We did have a moderately bad jobs report this week. Are people going to focus on that, or on the stock market?
Steve Forbes, editor-in-chief: The media will force them to focus on the jobs report, the media is going to focus on anything that hurts George Bush. But, I think that as spring and summer come along, and this recovery is for real, jobs will be created. They’re being created already. We’re looking at a bogus number that ignores contractors and the self-employed, so it’s like looking at buggy-whip manufacturers to get a gauge on the auto industry.
David Asman: Is the market a gauge of our mood about the economy?
Victoria Murphy, staff writer: It definitely is. History is the answer here. If you look at elections back to 1901, if the market is flat or down in the year leading up to the election the incumbent party gets the boot. It’s really clear. There are few exceptions, but I don’t think that Bush is going to be one of them. His number one enemy here isn’t John Kerry, it’s what happens to the market in the next couple of months.
Bob Lenzner, national editor: What Bush has to do is change the argument from the jobs to the fact that American households are wealthier than they have ever been before, including at any time during his first administration, if you add the value of their homes to the increase in stocks this year. The problem is going to be, if the stock market is down, it may indicate that Kerry is ahead and that there are going to be legislative changes that will take away some of the goodies that we have gotten over the last couple of years.
Quentin Hardy: If you don’t think Bush is worried about this, look at his behavior. He is totally defensive. First, he tries this gay marriage thing, that doesn’t work out very well for him. Now he’s releasing these campaign ads which are all about 9-11, because he has nothing to recommend himself for anymore. He’s being defensive; guys get reelected on optimism.
Steve Forbes: The man wins the war on terror; he turns the bubble economy around, especially after September 11. Capital spending is up.
Quentin Hardy: He’s won the war on terror? He says the war on terror will go on for as long as he can see. He hasn’t won it.
Steve Forbes: Libya fessed up, Korea’s at the negotiating table, Iraq’s been liberated….
Jim Michaels: What I’m worried about is that the Democrats can so talk the economy down in an effort to deny the facts that it will hurt the mood.
Steve Forbes: Quentin is right that the administration has been acting on the defensive, they’ve got to go on the offensive and get his record out there.
Bob Lenzner: There’s going to be an easy slogan about this election. “It’s the jobs, stupid,” just like Clinton made it “it’s the economy, stupid.” They’re going to pound that in.
Victoria Murphy: What’s revealing here is that the polls now are saying that this is a really tight race. Given everything that Steve just said, what Bush has accomplished here, voters are not backing him like you’d think that they might. That should tell you what the issues here are.
Steve Forbes: The campaign’s just beginning. The Democrats have had the table, the White House has been inept at putting its case forward, I think that’s going to change.
Quentin Hardy: Steve, these guys get reelected on optimism. Bush is showing no optimism at all. He’s got a very negative campaign going, very defensive. This is not going to help him.
David Asman: What if John Kerry comes in with Former Treasury Secretary Robert Rubin, that Wall Street really liked because he was good on a lot of things that they wanted him to be good at. Maybe Wall Street wants a Democratic president with a sensible economic policy, and a republican congress.
Steve Forbes: It would be interesting to see if John Kerry says he is now in favor of open trade and free trade again, as Robert Rubin was. That would be an interesting contrast.
Jim Michaels: The trouble with the stock market is that you have to remember that the first George Bush presided over a 60 percent rise in the stock market. It was kind of flat in the election year, but it had been way up. The economy was recovering nicely, but he didn’t get credit for it. I don’t think he was able to persuade people that the economy really was recovering.
Victoria Murphy: Voters remember what happened in the months leading up to the election, so Bush needs this market to rise, because that’s what people are going to think about when they head to the polls.
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: Sure, lots of CEO's are on trial for committing fraud, but corporate America is still the cleanest game in town!
Jim Michaels: You can’t be complacent here, because complacency is part of the problem. Our system heals itself. Enron wasn’t brought down by the cops, it was brought down by the fact that the banks took a look at their books and said ‘we’re not going to lend these guys money anymore.’ You have short sellers out there right now looking for bad news. You’ve got new institutions coming along, new research boutiques, because the brokerage houses are tainted now, and you’ve got new shareholder activism. There will be more scandals in the future; it’s inevitable.
Mike Ozanian, senior editor: Our system has a big problem: There are too many cops, too many lawyers, too many people worrying about how clean it is. We have too many of these people who went to fancy schools, sitting in ivory towers, making laws, making regulations. These people never had to work a day in their lives. We have stupid laws that have CEOs and CFOs making sure “I’s” are dotted and “T’s” are crossed instead of worrying about how they can make their shareholders richer. We should be focusing on economic growth, we just destroyed millions of dollars of Tyco International (TYC), and the guy was found innocent.
Quentin Hardy: You want to see a perfectly free market, look at a drug gang in Colombia. You need these checks and balances. America is kept clean by the regulators and by the tort lawyers, to some extent, who keep people on their toes. Look, WorldCom fell apart when they couldn’t do Sprint (FON), they fell afoul of the regulators. Enron fell into trouble when they came up against the California Energy Regulations. The regulations are a check and balance, you need them in the system.
Steve Forbes: The founding fathers knew that men are not angels, that’s why they put in checks and balances. We need them in government, and we need them in the corporate world as well. The nice thing about the business world is that if you’re doing wrong, eventually you’re going to get found out, whereas in government you can have programs that can go on for decades, like welfare or a bankrupt Social Security system, the market can’t correct it. In the real world, the market does correct it, and we can see that happening here.
Chana Schoenberger, staff writer: Here’s the thing, though. You shouldn’t feel that your money is safe just because we have a clean system. The problem is that we keep uncovering scandal after scandal. There is always a new loophole for every law and regulation that is passed. There is always some little, unintended consequence that allows scamsters to get rich.
Steve Forbes: But that’s the whole thing. Human nature does not change, but we have a system that has people usually going in the right direction. When we don’t, we flush them out and reform the system.
Mike Ozanian: We need balance, but what are we talking about? Six or seven public companies out of about 12,000? The power has shifted way towards the cops and the trial lawyers. We need to be more like Singapore and Hong Kong.
Jim Michaels: To my knowledge, the trial lawyers didn’t uncover one of these scandals. They all came out for other reasons, as Steve said. In one case the bankers wouldn’t lend them money anymore, that was the end of the line. In other cases, they brushed up against the law.
Steve Forbes: The real danger here is that we make the courts and regulators start to confuse real criminality like Enron, with risk-taking that goes wrong. Don’t outlaw risk-taking.
Quentin Hardy: Look, lawyers might be parasites, but they showed us the evil going on inside the tobacco industry and how much those people were abusing regulations. If you want to see real abuse in the system, the lobbyists who have created this enormous system of corporate welfare, look at out agriculture sector.
Chana Schoenberger: The real problem here is that you have individuals at companies, some of them are blue chips and some of them are small chips, that are gaming the system.
Makers & Breakers
• GlobalSantaFe (GSF)
Susan Breakefield Fulton, managing director of FBB/Wealth Trust: MAKER
They are a deep-water driller, harsh environments, ChevronTexaco (CVX) is drilling off of Angola now, We don’t know what the Saudis have got, the price of oil is going up, it’s a great cyclical stock.
David Asman: It’s selling for about $30 now (Friday’s close: $29.42), what’s your target?
Susan Breakefield Fulton: $37
Mike Ozanian: BREAKER
I would have been a maker six months ago, before it took off. I’m a breaker now, because the amount of money they make on their oil each day is declining and that’s got me a little scared.
Jim Michaels: BREAKER
It looks to me like a very expensive stock, and you’re betting on earnings two to three years out.
Susan Breakefield Fulton: I think the estimates are low. I think there aren’t a lot of product, in terms of what they do, people don’t have a lot of choice if they want to drill offshore, they’ve got to use them. They’ve got pricing power.
• Nortel Networks (NT)
Susan Breakefield Fulton: MAKER
Nortel is a wireless and voiceover Internet technology provider. The baby bells are really down in the pits right now, and the wireless is going to take over for them. So they’ve got to start buying.
David Asman: It’s now at $7 and a half, (Friday’s close: $7.62).
Susan Breakefield Fulton: Seventy-five cents two years ago, $7 and a half now, we like it. Our target price is $10.50
Jim Michaels: BREAKER
Susan, you ought to tell people, though, that this is a very expensive stock. It’s $7, but there are four billion shares outstanding. This is a $30 billion company, and it’s got sales of a fraction of that. I wouldn’t touch it.
Mike Ozanian: BREAKER
I’m a breaker too. I think that telecom spending is only going to grow about 10 percent annually for the next few years in the industry, and this company is priced like it’s going to grow 30 percent a year.
Susan Breakefield Fulton: Wireless is taking off. Nokia (NOK), which was my pick last time, is up 30 percent. Nokia says wireless is going to double, cell phones are going to double in the next 2 years, the baby bells have to buy and have to invest.
Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:
David Asman: Have tech stocks peaked and if so, what's the smart money buying instead? Mike, what do I sell now if it’s peaked.
Mike Ozanian: You sell your tech stocks, particularly your computer stocks. Margins are falling. Even really efficient companies like Dell Inc (DELL) are making less money on each computer they sell. Get out of tech now. You want to sell Dell, you want to sell Hewlett-Packard (HPQ), and probably start thinking about selling Intel (INTC).
Rich Karlgaard, publisher: Well, if Mike has turned bearish, that’s the ultimate buy sign. Great companies like Cisco Systems (CSCO), Intel and Dell are already about 15 percent off their peaks.
Victoria Murphy: I think companies like Dell are going to trend with the general economy, as all industries have become tech driven. Software, which is what I focus on, is a totally different story. I have a story in the next issue of Forbes Magazine which looks at software companies like PeopleSoft (PSFT), Oracle (ORCL) and Siebel Systems (SEBL), and how they are increasingly becoming less profitable service companies, because tech buyers are coming back, but not to software.
Steve Forbes: There are a lot of no-name companies coming along, you see it in nanotechnology, we have a nanotechnology report. Big companies involved in that are IBM (IBM) and Hewlett-Packard. Good companies, they’re all coming along.
Jim Michaels: I’m not sure I’d sell all the tech. Look, history shows that whenever you have a technological revolution, which we’ve had, that once it’s peaked it’s the people who apply the technology that make the money, and the technology itself becomes a commodity. That’s what we’re seeing now. PCs are becoming a commodity, a lot of software is becoming a commodity, I think you look elsewhere for the big gains.
Mike Ozanian: The companies that are going to benefit are the old-line industrial companies like Exxon Mobil (XOM), Eastman Chemical (EMN), simple businesses. Oil, chemical, but they have pricing power which is going to boost profits.
Rich Karlgaard: I want to address Jim’s point. He actually makes a great case for why you should buy a company like Dell. They are the most efficient user of technology on the planet. Cisco is going to get $700,000 per employee revenue, because of their efficient use of technology, so you win both ways.
Mike Ozanian: Dell’s profit per computer is going down, Rich.
Rich Karlgaard: All their growth is in consumer electronics, printers, even services.
Jim Michaels: That’s right to my point. They’re going into consumer electronics, they’re going to be competing with Sony (SNE), those are commodity products. Sure, they’ll get sales volume, but they won’t get extraordinary profits.
StockSmarts: Homes vs. Stocks in 2004?
Should you take last year’s stock market profits and plow them into real estate?
Barbara Corcoran of The Corcoran Group says you should absolutely be in real estate. She knows it takes a very courageous soul to take a lot of money out of the stock market and go into real estate, and that’s because most people are afraid of real estate due to the incredible run up we’ve seen in prices. But she thinks prices are just getting started. We’ve never had less inventory in the U.S. (down between 30-40 percent in any many major cities), there is a lot of competitive bidding with little negotiation -- all the earmarks for more increases in prices. And Barbara knows so many smart consumers who have taken out a second mortgage in order to buy a second home for a retirement investment, and that is so much better than playing the stock market. When interest rates go up, it only helps the housing market at first -- it gets people off the fence.
Joe Battipaglia of Ryan, Beck & Co. completely disagrees with the idea that the residential real estate market is going to continue its boom. It actually makes him very nervous, reminding him of the tech stock boom of five years ago (and we all know what happened after that). He notes that housing prices have been through a great three-year run, and it is time to take money out of housing (housing stocks in particular). He does think that real estate is very cyclical – interest rates will go higher, and the ratio of home prices compared to income is at its worst level historically.
Wayne Rogers of Wayne Rogers & Co. thinks your home is always one of the best investments you can make. There is an emotional attachment, as well as a financial attachment, and over a long period of time, you will make money. But housing is a market-by-market thing (a regional issue). You can’t make a blanket statement about housing for the entire United States. For example, Florida and Southern California are hot markets right now. But there are other areas in the country that are cold. You have to be very careful how you pick it, much like individual stocks. Interest rates are down, and this has caused a huge move from apartments into entry-level housing. This will continue – but how long it will continue depends on rates staying low. And the rates will rise, as the housing market is cyclical like the stock market.
Jonathan Hoenig of Capitalistpig Asset Management says that he “doesn’t know about actual brick and mortar,” but he is still watching REITs (real estate investment trusts), because they are still the strongest asset class on the board. He has been putting a lot of money into the REITs lately. He thinks that correlation does not show causation, which is why he sees the real estate market continuing to show strength.
Jonas Max Ferris of MAXfunds.com says real estate looks great, especially going back over the past 20 years, because real estate prices are a mathematical formula between income and interest rates – that’s how you can create the wealth to buy a home. As interest rates have hit record lows and incomes have increased, a lot of wealth has been generated to put into real estate. That will all change if (when) rates come back up or income levels off. For every one percent increase in interest rates, you will see a 10 percent drop in home prices.
Dagen McDowell of Fox Business News says in terms of plowing more money into real estate, it’s all about diversification. Home ownership is at such a high level, that you do not need to be putting more money into the real estate market. And the problem she sees with buying a second house is the fact that a home just isn’t as liquid as a stock (or stocks).
Best Bets: 1-Year Buys
So what are some stocks that could help you make some money to buy that dream home in one year? The panel came up with some picks.
Jon's 1-Year Buy: iShares Cohen & Steers Realty Majors (ICF)
Price Target: $125
Friday's close (3-5-04): $116.98
Jon loves real estate, and Jon loves REITs. And shares of this exchange-traded fund are basically a play off the entire real estate market. ICF invests in all the major, large-cap REITs, as an index play. Joe agrees 100 percent about the REITs right now. As the economy continues to grow, so will the market for commercial real estate. Wayne thinks this is a good stock, a safe stock – not really a wild pick. (Jon owns shares of this stock)
Joe's 1-Year Buy: Tyson Foods (TSN)
Price Target: $25
Friday's close: $16.99
This is a play off the fears of mad cow and chicken flu. But in one year, with all that is going on with the Atkins diet, this will be a very strong stock. Jonathan says that food stocks are hot. He isn’t participating in the rally, but it is a really good sector right now. Wayne is a little concerned about Tyson. It recently broke it’s 50-day moving average, and he just doesn’t like the chart. He would maybe buy it if it got to $19-$20, but there is too much risk for him right now. (Joe owns shares of this stock)
Wayne's 1-Year Buy: Universal American Financial (UHCO)
Price Target: $13.50
Friday's close: $11.20
This company increased its earnings 43 percent last year – a huge number for an insurance company. It appeals to the senior market, which is a growth market, and it is just a well-run company. Jonathan says that insurance (especially reinsurance) is a very strong sector. Joe also likes the demographics in this business. (Wayne owns shares of this stock)
Stock of the Week
Last week’s pick was Sepracor (SEPR) made by Adam Lashinsky. For the week of February 27 – March 5, it was UP 70 percent
This week’s pick comes from Joe Battipaglia, who says that Oracle (ORCL) will have a big week. He says that the stock has been having trouble breaking that $13 level. But when they report earnings on Thursday (which he thinks will be better than the expectations) the stock will get a nice pop. Jonas thinks this company has a problem, in that it’s core business is dead. It’s no longer a growth business. Jonathan says that we have seen a big rally in tech stocks, but he is not seeing it with this stock.
Cashin’ In Challenge
The 2004 “Cashin’ In” Challenge is starting to take shape. 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 Joe answered some of your questions.
Question: “Who would be better for the stock market, President Bush or John Kerry?”
Joe thinks it’s George Bush. If you look at the bumper stickers for John Kerry, it’s higher taxes, abdicating our foreign policy to the U.N., and backpedaling on trade. That is not q good recipe for stocks. The republicans at least have an economic plan in place to get things moving again. Wayne says it doesn’t matter – the economy will determine the stock market, not the President. Both candidates scare Jonathan. He sees Kerry as a “confirmed socialist”, and sees the Bush administration as becoming “fascist”.
Question: “What does the panel thing about Dollar General (DG), long and short term?”
Returning to a common theme, Wayne says that when you have a stock that has run up like Dollar General over the past 52-weeks, you have to set a stop loss to have the market take you out. Joe doesn’t think it will go under a stop loss right now. In fact, he thinks it could be a great growth company. Jonathan says that retailing is a strong sector.
Question: “Research in Motion (RIMM) is up about 900 percent in a year. Is it too risky to buy right now?”
Jonathan says the big move has already been made in this one. Wayne says this is Russian roulette at these prices. Joe thinks it time to take profits in this one.