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 Meredith Whitney, Fox Business News contributor.
Trading Pit: Off to the Races
Two weeks ago, terror threats gripped America, there were questions about the economy and the market was falling fast.
But investors shook off the terror and turmoil in Iraq, and focused on good economic and earnings news.
In fact, since we hit the lows for the year late in March, the Dow is up 4 percent, the Nasdaq has gained 8 percent, and the S&P 500 is higher by 4 percent.
Tobin thinks stocks are off to the races due to great earnings. He said the economy is strong, getting stronger and any notion that it is ailing is false. He also thinks the creation of jobs benefits stocks, because this will help President Bush get reelected, which the market wants.
Pat said it is no surprise that earnings are good, but the issue is earnings guidance, which is what companies expect to report in the future. In Pat’s opinion, current profit expectations are extremely high and guidance for the full year will not be that good. He explained that stocks are priced on their future earnings, not on the past ones. Companies will report great numbers, but will say 2004 results aren’t going to be so good.
Gary B. charted the Nasdaq since the beginning of the year and showed that its strong rebound since late March has taken it right back to resistance. He expects the “Nas” will have a little pullback and then make a new high for the year once it clears 2100.
Meredith said the bull market could be derailed if Senator John Kerry pulls ahead of President Bush in the polls. She explained that if this happens, among other things, he will repeal the tax cuts, which is bad for stocks. But right now there are a lot of positive factors in the economy, including very low inventories, which manufacturers have to replace. She believes this is not priced into estimates, so estimates will look great for the rest of the year.
Scott agreed with Pat. He also thinks that companies will report good earnings for 2004. However Scott added that this is already built into the market and if investors want to make profits, they have to find stocks outside the major indices that are making the money.
Scott, Tobin and Pat each picked stocks that are heading off to the races.
Scott chose Magna Entertainment (MECA), which owns thoroughbred racetracks, slot machines and off-track betting. Scott likes that the company has a lot of cash on hand and thinks the stock is going to hit $10. (Magna Entertainment closed on Thursday at $6.06.) Toby said he couldn’t figure out why anyone would want to buy this stock. Pat said this stock is a gamble. The big question is whether or not it gets slot machines approved in Michigan, Pennsylvania and Maryland. If it gets these slots, it could mean $80 million in revenue a year, making the stock cheap. However if the slot machines aren’t approved, it’s no so appealing.
Pat picked Sallie Mae (SLM), a student loan company, which is starting to do more private lending. He likes this business because college tuition rates go up a lot faster than inflation. He thinks it is worth $55. (Sallie Mae closed on Thursday at $41.96.) Toby said this stock is already up 11 percent this year, was up 11 percent last year and isn’t going up much more. Scott agreed with Toby that the stock won’t head much higher.
Toby chose Silicon Image (SIMG), which makes digital chips that are used in high-definition televisions. He said HDTV’s are the latest trend and this company has a digital monopoly. He thinks the stock is going to grow 100-200 percent over the next three years. (Silicon Image closed on Thursday at $12.44.) Pat is concerned that it doesn’t generate any cash flow and delayed its third quarter financial filing. He said this is a huge red flag. Scott agrees with Toby that this company does have a digital monopoly on HDTV’s and that it is going higher.
Thursday is tax day. With that in mind, Gary B. and Meredith each picked the best stock to buy with your return.
Gary B. likes Goldman Sachs (GS). He said it’s a strong stock, has been in a steady uptrend for months and has shown no weakness. In fact, he said if this trend continues it’ll go to $200! (Goldman Sachs closed on Thursday at $105.70.) Meredith thinks Goldman Sachs is overpriced and added that Gary B. picked the most expensive broker stock. She said all the broker stocks have done well and benefited from low rates, but she prefers a less expensive stock like Lehman Brothers (LEH).
Meredith picked semiconductor, Integrated Device Technology (IDTI). She said there are tax benefits for manufacturers to invest heavily in technology. This means a lot of money will go into networking and technology semiconductor stocks. She likes IDTI because it’s the cheapest one. (Integrated Device Technology closed on Thursday at $16.48.) Gary B. said the stock had a big sell off and then spiked right back up. That means it’s time to sell, not buy! He thinks investors should wait for the stock to show more strength before buying it.
Tobin's prediction: A spring to remember for stocks; Dow hits 11,000 by Memorial Day
Gary B's prediction: Good economy and people travel; Disney (DIS) up 20 percent by June 1
Meredith's prediction: Alcoa (AA) unfairly beaten down; heads up 20 percent in next 2 months
Scott's prediction: Now's a golden opportunity to buy Goldcorp (GG); up 30 percent by year end
Pat's prediction: Get InterActive (IACI)! Gains 20 percent in 1 year
Cavuto on Business
Neil Cavuto was joined by Jim Rogers, president of JimRogers.com; Gregg Hymowitz, founder of Entrust Capital; Charles Payne, founder of Wall Street Strategies; Gary Kaltbaum, president of Kaltbaum and Associates; Nancy Skinner, radio talk show host; George Schlatter, Hollywood producer.
Neil Cavuto: It could be a "Rice" rally. Condi Rice, that is. Did President Bush's national security adviser just give a big boost to the bull market? Condoleezza Rice hopefully put to rest questions once and for all when she testified before the 9/11 commission on Thursday. Charles, can Americans and investors now put that chapter of 9/11 behind them?
Charles Payne: I think Condoleezza Rice added some credibility that was somewhat lacking after Richard Clarke's testimony. The politics of Sept. 11 are going to be with us forever. I think the greater issue for the stock market is the war in Iraq. I support the war but it looks like an albatross. It looks like Black Hawk Down everyday and that's what wall street is going to become concerned about.
Jim Rogers: Iraq is much more important to wall street than Rice's testimony right now. Why doesn't Bush get rid of Rice? She failed. Most people in business, when they fail, are let go.
Neil Cavuto: Why do you think she failed?
Jim Rogers: Don't you know what happened on 9-11?
Neil Cavuto: Why do you put the line on her of all the people in this administration and in the last administration?
Jim Rogers: She was the national security adviser. I wasn't, you weren't. If you're in a country or a company and things fail, you go. I would've fired her, and Bush would be better off cause he wouldn't have this hassle now.
Gregg Hymowitz: For once I agree with Jim. The key that the Rice/Clarke testimonies are bringing out now is are we safer today in our fight against terrorism. I think Clarke proved or demonstrated to people like me and others is that the war in Iraq is making us less safer. And therefore, that's where the equities markets are at risk. We all believe that if there are other attacks in this country, equity markets will suffer.
Charles Payne: Last week, anything related to terrorism was up. And I'm talking up 20, 30, 40 percent.
Gary Kaltbaum: I agree with Charles. Iraq and images of soldiers in body bags is not good for investor confidence. No matter what Condi Rice did say, Democrats will attack Bush on the economy and on Iraq. It's going to be here till November because they're trying to win an election. And the market will have to deal with it.
Nancy Skinner: The two key issues for the market are credibility and competency. Condi Rice basically said, because President Bush didn't get a memo saying Usama bin Laden is going to attack the Twin Towers on September 11th at 8:45am, he decided that instead of "swatting flies" he would clear brush in Crawford, Texas for a month. It's also an issue that they issued bogus budget numbers and did not include the cost of Iraq in those numbers.
Neil Cavuto: You realize this is a market discussion, right? We're not resurrecting history here.
Nancy Skinner: But the question is credibility and they withheld the true cost of Medicare until after the bill passed.
Neil Cavuto: Nancy, I love you dearly but I am not interested here in pointing fingers. What I'm interested in is, do you think the markets look at these hearings as having any value?
Gregg Hymowitz: What I'm hearing more and more on the street is this: Do these hearings, and the lack of confidence in the administration, cause Bush to possibly lose and therefore does the market trade down once Kerry starts doing better in the polls?
Jim Rogers: The market is very worried about Iraq, about terror, and about whether we're safe or not.
Neil Cavuto: But why would all these attacks, especially the butchery in Fallujah, make the market climb like it has?
Jim Rogers: The market has fluctuated through all of that. In my view it's because I think we're going to be ok. We're going to come out of it.
Neil Cavuto: So the markets are saying we're going to be ok.
Charles Payne: I think how well we do in Fallujah in the next week may be a turning point.
Gary Kaltbaum: I think the key is how the fighting in Iraq lasts now. If we ever get hit, and God forbid we do, that's when the markets will react. The markets will care about what happens on American soil first.
Nancy Skinner: The global economy is tied to global security and right now this globe is not so secure. And it's directly a result of this administration.
Neil Cavuto: Is there anyone you like in this administration, Nancy?
Nancy Skinner: They're all terrific communicators. Condoleeza Rice is a weapon of mass deception. She was brilliant, but the fact is the facts that support what they're saying are just not there anymore. Investors want to know that they can rely on truthfulness in this administration.
Jim Rogers: The last administration was just as bad. If John Kerry is elected, you think it's going to be any better?
Nancy Skinner: The last administration never fiddled with the budget numbers. We know that they're cherry picking when they put out budget protections.
Gary Kaltbaum: Nancy, despite the fact that Bush caused the Chicago fire and the Titanic to sink, the economy is on fire and the stock market is doing great. I don't know what more you want to ask for.
Head to Head
Neil Cavuto: Is making money on the life of Jesus right or wrong? Let's go head to head. In Los Angeles, famed Hollywood producer George Schlatter. He says the life of Jesus Christ should not be a profit center for anyone.
George Schlatter: Mel Gibson spent $25 million of his own money on this film. And you know that when you invest that kind of money, you have to expect to get back some kind of return. I want to know what's he's going to do with that $300-$600 million he's going to make.
Neil Cavuto: What if he does an Old Testament sequel, which has been widely rumored?
George Schlatter: That will bring an even new level of violence.
Neil Cavuto: To be fair, I know you are not a fan of his movie on Jesus.
George Schlatter: I am.
Neil Cavuto: Well no, the violence. I know you don't like that, which seems weird coming from a Hollywood guy. What I'm asking you is what is wrong with some of the related paraphernalia that have been sold related to this movie?
George Schlatter: Neil, you're a Catholic and they've made money for years on artwork and so forth. Nobody has ever made money on this kind of dimension before and it was based on the violence in this movie and so forth. I don't think there's anything wrong with making money on a movie. I want to know what he's going to do with the money.
Neil Cavuto: Can we move beyond Mel Gibson for a moment? There's been a number of highly rated documentaries. Advertisers who have associated themselves with these have done very very well. And here's what I'm saying, I'd rather see people buying things based on product placement in these kinds of movies rather than movies like "Kill Bill" or "Natural Born Killers."
George Schlatter: I think it is a disturbing movie that is sold on violence. I think people go after the violence and see it because of the violence. I don't think it's historically correct.
Neil Cavuto: That's a little unfair. I don't know what religious camp you're going to argue here, but I will say this. The guy (Jesus) did not suffer an easy death. And just because the movie popularizes that, and really shows that for all its brutality, that's not the issue here. The issue here is people or church groups who come to see this movie. And have been tempted to buy things related to the movie. I don't have a problem with that.
George Schlatter: It's merchandise like Disneyland. I know Jesus did a lot for Mel Gibson. What's Mel going to do for Jesus?
Neil Cavuto: But George, if I had holy reminders pegged to this movie, I would much rather that than people buying things pegged to a "Star Wars" movie. Whether you buy the fact that Jesus is a savior or a very worthy prophet, he had and led a good life.
George Schlatter: This movie has nothing to do with the good life that he led. This movie has to do with that episode and the violence of it. My fear is now that we've pushed violence into the front row of merchandise, what's next? How violent can we get?
Neil Cavuto: George, you're one of the most successful guys in Hollywood. It just seems odd that someone from Hollywood is talking about violence.
George Schlatter: Hollywood is not the enemy. News is wall to wall violence.
Neil Cavuto: My stock market coverage isn't violent, I promise you.
George Schlatter: Sometimes it is. If you own my stocks it is. I hope Mel makes a lot of money but I hope he puts some of that money back.
More for Your Money
Neil Cavuto: Can Donald Trump's new catch phrase, "You're fired!" help you get more for your money? Ok Gary, who are you firing?
Gary Kaltbaum: Nokia (NOK) you're fired. Nokia has lost all credibility on wall street. I gave them a chance last quarter. They raised the bar and then had to lower it. The stock gapped down last week on big volume. I think this stock is an absolute sell.
Neil Cavuto: Charles, do you agree with that?
Charles Payne: Absolutely. They're losing market share, innovation, and imagination. Everyone has now caught up with them.
Jim Rogers: I would get rid of Microsoft (MSFT). The Chinese, the Japanese, and the Koreans all trying to find a way of not paying them such high royalties, to come up with a new operating system. It's one thing when the Europeans try to do it. The Asians will do it.
Neil Cavuto: You're not making a sweeping indictment on all technology, right?
Jim Rogers: No, I'm just talking about Microsoft.
Gregg Hymowitz: Wal-Mart (WMT) was fired in California and is under intense pressure by the unions. The unions want to fire Wal-Mart. Fired for valuations, 20 times earnings. Wal-Mart, you're fired.
Charles Payne: Sun Microsystems (SUNW) had a really good week in part because they finally came to terms with Microsoft. They've let their core business slip and I don't think they're going to get it back. They have a ton of cash and they have to go out and redevelop their second act. The key is you really have to fire the CEO.
Neil Cavuto: So now let's talk about hiring stocks. Gary, who or what would you hire?
Gary Kaltbaum: Cigna (CI) just came out and announced numbers that were way ahead of wall street. I believe this stock is good for the high 70's. The stock gapped up and there's big money flows going into it.
Jim Rogers: I would hire the Rydex Juno Fund (RYJCX), which will go up as interest rates go up. In my view, interest rates will go up and I would buy it.
Charles Payne: I would hire Cardinal Health (CAH). It's one of these companies that's stumbled for the last couple of years. They finally have their act together. It's had a good run, but I still see some upside potential.
Gregg Hymowitz: Citigroup (C) is benefiting from the worldwide recovery. It has cheap valuation and a phenomenal management team. I think this is a great company.
FOX on the Spots
Jim Rogers: Iraq uprising hurts war on terror & stocks.
Gary Kaltbaum: Two million new jobs in '04, but stocks end the year flat.
Charles Payne: Hitch a ride on Coach (COH).
Gregg Hymowitz: Rumsfeld, Rice, or Powell will get the boot!
Neil Cavuto: We'll abandon the June 30th deadline to hand over power in Iraq, and we will not make another deadline date for a while, which is a good thing, because as Jack Welch told me, politicians should never set them!
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: The violence in Iraq is almost as bad as it was during the actual war. What is the solution? Not just democracy, but also a good shot of capitalism! Give each law-abiding Iraqi a cut of the oil that's being produced there. A good idea?
Jim Michaels, Editorial Vice President: I’m afraid not right now. The battle’s being fought right now by our marines and soldiers, and until these scumbags are taken out, nothing’s going to help. But once we’ve restored law and order, you have to quickly let the ordinary people know that there’s something in it for them. You’ve got to take that oil money and build schools, build clinics. And what’s wrong with sending a check every year to every Iraqi, from oil revenues, just to let them know it’s theirs?
Joe Queenan, Contributing Editor: Send a check to every American who’s 21 years old and out of college. Sent them around the world, and they’ll find out that a lot of people don’t like Americans out there.
David Asman: What about for the Iraqis, themselves? Is that a solution to get order into the country?
Joe Queenan: This is personal. They don’t like us.
Jim Michaels: It doesn’t matter if they don’t like us. If they behave themselves and become a law-abiding, functioning country, that’s in our interest. They can continue to hate us.
Quentin Hardy, Silicon Valley Bureau Chief: I think that Jim’s got it kind of half right. In Alaska, they give people money and it doesn’t really work very well. They give money out of their oil revenue, up in Alaska. What you get is vouchers against earnings, and create a market against which men and women can trade and borrow. You give them a stake in the property of the country and make them property owners. They will stop buring down the property in their country because they have an interest in it.
Dennis Kneale, Managing Editor: I know that we’re Forbes Magazine and we’re all about heroes of capitalism, but this is almost a parody of ourselves. The notion that we can save Iraq with capitalism is like trying to build a shopping mall on the Titanic to stop it from sinking. We’re talking subsistence, not capitalism. What you are taking about is a big welfare program. Now, if we do welfare, let’s take it one level more. We pay farmers in the U.S. not to grow crops. Let’s pay terrorists in Iraq, not to attack.
Jim Michaels: Schools and clinics are not welfare. They’re what every decent country should provide its citizens. They have got it in the past. If we can show them that that oil money will buy them what they need and get an education for their kids, that’s what I’m talking about.
Bob Lenzner, National Editor: I agree with Dennis completely. It’s too late for this. This is an absurd discussion, because these people who are in the uprising, hate us and hate what we represent. They hate capitalism. They want us out of the country. They’re not going to want our money. They want to kill our troops. This is not a doable notion.
Quentin Hardy: Can we move off “these people?” That is really hateful. The fact of the matter is it’s their oil. They need access to a market. They need a way to build and borrow. They need a way to build up capitalism. It is not “these people,” the whole of Iraq rising up against Americans. It’s a few terrorists, a few rioters. Guess what? The rest of the country will rise up against them if they say “hey, stop destroying the darn property. We need it.”
David Asman: So you divide the oil into equal segments and make every single Iraqi a stock holder and you get a capital market. What’s wrong with that?
Joe Queenan: There is a history of mayhem in this part of the world dating back to 3000 BC, and I don’t think that this is going to end. I think it comes down to they don’t like us, they don’t want us there, and money is not going to make a difference.
Quentin Hardy: The Arabs have been traders. They’ve had markets, they’ve done it before. They can be brought back to it very well.
Jim Michaels: Quentin, don’t give them shares. It was tried in Russia. They sold their shares for a case of vodka, and you ended up with a handful of thugs owning the whole economy. Give them schools and roads and even give them a little check every year at the end of the year. But don’t give shares to people who don’t even know what capitalism is.
Quentin Hardy: The kleptocratic exiles that told Dick Cheney that there were weapons of mass destruction there are now in charge. There already are criminals in charge, and Bush installed them. This is the way of getting rid of those guys. It takes the power away from them.
Dennis Kneale: Here’s the biggest reason it won’t work. I think that 70 percent of capitalism is driven by women spending money. And in Iraq, in Islam, women have no rights. Women have no freedom. And before Iraq can benefit from capitalism, you better unleash women and let them spend.
David Asman: They have more freedom than they used to have. Iraq is not a typical kind of Muslim country that restricts everything that women do.
Quentin Hardy: That’s just pernicious nonsense. Indonesia is the biggest Muslim country in the world and a woman is the president of it. Benazir Bhutto is the president of Pakistan. This is just not true.
David Asman: If every Iraqi had a piece of the oil business, a piece of their own oil after all, what’s wrong with that? What is wrong with giving them what’s theirs?
Bob Lenzner: There’s nothing wrong with it in theory, but it won’t work. The place is in a state of chaos right now, and it’s not a plan that can even be put forward. There is chaos that’s getting worse every day. We have to do something about that before we can even consider this business about giving oil or money to Iraqis.
Jim Michaels: I agree there. This battle has to be won on the battlefield. The thugs have to be shown that they’re not going to take power again. And then we can worry about how to break up the oil wells.
David Asman: You punish the bad guys and you reward the good guys if you’re a good and law-abiding Iraqi citizen, you give them something of their own. Some Iraqi oil.
Joe Queenan: I disagree with the idea of “bad guys” and “good guys.” I don’t like that term because it creates the idea that there is just a small number of really evil guys with masks who are responsible for all this. This is a national uprising.
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: Hello jobs, goodbye housing boom! The value of your home is going to drop with every job we get back! Bruce, how does the housing market go down if we have more jobs?
Bruce Upbin, Senior Editor: It all ties back to interest rates. If job growth comes back, income growth comes back, the economy starts heating up again and the Fed raises interest rates and that raises mortgage rates for everyone. When you have a higher mortgage rate and it costs more to borrow money, housing prices fall.
Rich Karlgaard, Publisher: If adjustable rates went up by 5 percent, Bruce would have a point. But let’s break a real myth here. There is no connection between prosperity and inflation. That’s a fallacy that Bruce is buying into, but he might be right in the sense that Alan Greenspan buys into it too.
David Asman: Let’s explain that inflation would lead to rising interest rates.
Quentin Hardy, Silicon Valley Bureau Chief: There is a connection between inflation, higher oil prices and higher gold prices: the classic signals of inflation coming back in. Interest rates have been cut, cut and cut. We know that nothing stays the same, we know it can’t be going down, so it means it probably goes up, doesn’t it? Don’t worry about your house, but worry about real estate properties, trusts, and things like that. Your house is sacred. Your investments are another matter and I think this could be hurt.
Dennis Kneale, Managing Editor: What you are hearing is so much “Eeyore-economics.” First it was, “Woe is me, we’re not creating enough new jobs,” now it’s, “Well we got 300,000 jobs in the last month. Woe is me, now home prices are going to crash.” Home prices are not going to be hurt by the recovery because companies have never been tighter. They hire only as needed and the more people have jobs, the more people can afford to buy your home and your home price will be fine.
Jim Michaels: The first thing that people do when they get a big raise or get a new job is to try and get a better house. The stronger the economy, the stronger the job market, the stronger the housing market. And it’s simplistic to think, way over-simplistic to think that 100 basis points, 1 percent, is going to sink the housing market.
Bruce Upbin: The problem right now is that unlike times in the past, consumers and homeowners are far more leveraged to interest rates, meaning that their rates are much more adjustable now. 40 percent of all mortgages are adjustable. So those swing up, rather than a fixed rate for 30 years, which is the old way of doing things. And there’s too much housing being built and prices have gotten out of control in major cities.
Rich Karlgaard: I think that Dennis’ “Eeyore-economics” is a great idea. I think that something like 30-40 percent of Americans have adjustable rates. And, if we’re talking a hike, we’re talking 1 percent. It is completely swamped by this freight train economy right now.
Dennis Kneale: Over the long haul, even when interest rates were roaring in the 1970’s or the first part of the ‘80’s, home prices continued to gain in value, and continued to go up. And you cannot go wrong by owning your home instead of renting.
Quentin Hardy: That’s your home. We are talking about real estate investment and interest rates. People were bugging out last week because they were paying an extra $10-20 a week in gasoline. Your mortgage rate goes up on your adjustable mortgage it is not $10-20 a week, it’s a couple hundred dollars a month or more. And that’s hard to swallow when you are highly leveraged. When you’re deeply in debt.
Makers & Breakers
• BHP Billiton (BHP)
Greg Werlinich, President of Werlinich Asset Management: MAKER
I like it because it is the world's largest natural diversified resource company.
David Asman: It does steel.
Greg Werlinich: Copper, oil and gas. It does liquid natural gas, copper, gold, silver, almost all the natural resources. Right now natural resources are in a bull market and I like investing in companies that are in a bull market.
David Asman: (Friday’s close: $18.95) Your target price is $25?
Greg Werlinich: About $25, but it could go higher.
Jim Michaels, Editorial Vice President: BREAKER
Greg, you own this stock, right?
Greg Werlinich: I do own the stock.
Jim Michaels: Are you buying more at this price?
Greg Werlinich: I’ve been buying this week, as a matter of fact.
Jim Michaels: The stock’s up 80 percent in a year. It has been discovered. It’s selling 30 times this year’s earnings, maybe 25 times next year’s. No screaming bargain, unless you believe we’re heading into runaway inflation. I wouldn’t buy it at this price.
Dennis Kneale, Managing Editor: MAKER
I like this stock. It’s a little pricey, at about $19, and in the past 12 months, its high was about $20. So it’s near the high. And yet this company deals in copper, aluminum, and nickel. Copper prices are up 25 percent. Aluminum prices are up 12 percent. Nickel prices are up 40 percent. When you deal with that stuff and refine it and sell it and mine it, you are making a ton of money.
Greg Werlinich : MAKER
It’s a relatively unknown company in the states, only $1.5 billion market cap. It’s in Canada. It’s sitting on approximately five billion barrels of gas equivalent in one of their oil deposits. That’s about 50 years of proven reserves. A play on oil and gas.
David Asman: (Friday’s close: $26.31) Your target’s about $30?
Greg Werlinich: It could go higher if oil and gas prices continue to rise.
Dennis Kneale: MAKER
I’m a wimpy maker. It’s a bit cheaper, pound for pound, than the other one we talked about. Oil is high, so a company that deals in oil does well. One little thing to worry about, if you’re an investor, late 2002 they started this new thing of trading in energy futures. Is it too volatile? Be careful.
Jim Michaels: BREAKER
My hesitation with this stock is if you like momentum stocks, it has a lot of momentum going for it. It has doubled. However, I think that it’s had its run. If I owned it, I would be taking my profits in it.
Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:
David Asman: China’s growing like gangbusters. Their stocks have been red-hot. So is China a sleeping giant or a “paper tiger” that'll never compete with the US economy?
Quentin Hardy, Silicon Valley Bureau Chief: I love the Garfield dolls, and the cheap DVD players, and I feel weird about the $12,000 a year computer programmers, but what the heck? What I hate is the financial system. It will break down. 145 percent GDP is in loans. The state owns two-thirds of the companies. The state itself says one-tenth of the books are cooked. This is a financial house of cards.
Victoria Murphy, Staff Writer: China is a 26-year-old economic experiment. They have come a long way, and there is this perception that somehow this is a zero sum game. China’s gain is our loss. But that’s totally false. Especially now, our economies are very complimentary.
Quentin Hardy: So, if it’s a $1 trillion train wreck, that’s just growing pains?
Jim Michaels, Editorial Vice President: Right now we’re in a honeymoon with China. They are manufacturing our goods for us. That’s making our companies more competitive. And it’s bringing down prices in US. They, in turn, are investing the money in US government bonds. However, it will not last. In 10 years they will move up the food chain, have their own big companies, be like Japan and become a very serious threat to America.
David Asman: In ten years, will they be above us?
Joe Queenan, Contributing Editor: No, and I’ll tell you why. China is not a fun society. And I’m just saying this based on their record, ok? Not a fun place to be, especially if you’re Chinese. When we had the election between Reagan and Carter in 1980, that election was about ‘is this going to be a gloomy society like Jimmy Carter, or a fun society?’ If it’s a fun society, people will work harder, people will figure that they will be able to keep their money and that it will not be taken by the government and not be taken by local bandits. In China, I think they have to solve the fun problem.
Dennis Kneale, Managing Editor: I’m thinking that Joe hasn’t been to China lately. I was in Shanghai in October. That city kicks butt. It’s really fun. Last year we bought $124 billion more in goods than they bought from us. 4.8 million truckloads of stuff came over and we sent three million back empty. In ten years they’re going to be even better at it.
Quentin Hardy: You are missing the point. The banks are going to melt down. The financial system is going to collapse. They will keep making Garfield dolls, but there’s going to be massive turmoil.
Dennis Kneale: I talked to Chinese officials about this. They are betting, and I believe them, that with 10 percent GDP growth, they will outgrow the problems.
Victoria Murphy: I’m not worried. I was shopping this weekend and I went everywhere from Marshall’s to Saks Fifth Avenue. Labels ‘Made in China’ everywhere. Who cares about the banks? This company is cranking out products that we benefit from.
Joe Queenan: I’m not surprised that everybody in this room is always wrong and those guys out there are always right.
StockSmarts: Iraq Pullout: Good or Bad For The Market?
If the United States were to pack up and leave Iraq today, would that be good or bad for the stock market?
Wayne Rogers of Wayne Rogers & Co says the market would respond positively to a U.S. pullout of Iraq. He says democracy is a foreign concept to a Middle Eastern mind and democracy is not what the U.S. should be striving for there. He believes the U.S. should be working toward stability, and he says the balance of power should not be maintained by the United States. He says it should be maintained by Iraq and Iran and Israel -- as a fulcrum -- and he believes Iraq should be turned over to the tribal chiefs as soon as possible.
Stuart Varney of Fox Business News says it would be very bad for the stock market if the United States were to pull out of Iraq right now. He says a U.S. withdrawal would cause chaos there, and chaos in the oil patch would not be good for stocks here.
Jonas Max Ferris of MAXfunds.com agrees with Wayne. He says a U.S. pullout of Iraq would be good for the stock market. He says the United States went in there to get Saddam and his weapons of mass destruction, and now that Saddam is gone, and we have found no WMD, it’s time to get out, and stop throwing good money after bad. He thinks some countries have dictators for a reason, and Iraq has warring tribes that in the absence of a dictator are going to do battle, and he believes the U.S. should get out of the way and let that process take place, and the U.S. stock market would react positively.
John “Bradshaw” Layfield, author of “Have More Money Now” says the market recovered when we went to war with Iraq because the uncertainty over its weapons was removed. He says the market would not react well to leaving Iraq now because the situation there remains unsettled, and the insurgents could take over the country and pose a threat to the United States which would put uncertainty right back into the market.
Adam Lashinsky of Fortune Magazine says there’s no evidence that the situation in Iraq has anything to do with the price of oil right now, and he disagrees with Stuart that pulling out of that country would cause a spike in oil prices that could damage stocks. He believes that if the U.S. pulls out in an orderly basis we would cut down on spending there and the market would react well to that.
Jonathan Hoenig of Capitalistpig Asset Management disagrees with Adam. He says if the United States pulls out of Iraq, it would represent a major policy shift that would create jitters in the market.
Best Bets: Small Stocks, Big Profits
The rally in small stocks continues. The small cap Russell 2000 Index is the strongest U.S. stock index so far this year. Our group picked their favorite small stock bets right now.
Wayne’s $mall Wonder: Nu Skin Enterprises (NUS)
Friday’s close: $23.88
Wayne owns shares in this small company, which is a nutritional supplement and personal care products firm. He says its earnings were up over 40 percent in the last year and the stock has a good chance of going much higher. Jonathan says this is a strong stock. Bradshaw says 89 percent of this company’s revenue comes from outside the United States through a direct selling model that works well overseas and he likes the stock.
Bradshaw’s $mall Wonder: Fred’s (FRED)
Friday’s close: $22.72
Bradshaw says this discount department store has “out WaL-Marted” Wal-Mart by using smaller stores in small towns that Wal-Mart overlooks. Wayne says he wouldn’t buy Fred’s here because the stock has been in a downtrend and is not being accumulated here, and he says Wal-Mart is cropping up in some of the towns that Fred’s is in, which poses a huge competitive threat. Jonathan says this is a weak stock in a weak group, and he wouldn’t buy it.
Jonathan’s $mall Wonder: iShares S&P SmallCap 600/BARRA Value (IJS)
Fridays’s close: $107.73
Jonathan says if you are bullish on small caps, then buy a small cap index like IJS. He says IJS allows you easy access to the asset class. Wayne calls this fund the “chicken’s way” to invest. He says you need to take risks to make money, and while there’s less risk in buying 372 stocks all at once, there’s less upside too, and he wouldn’t bother. Bradshaw says he likes the overall economy, and he says we are in a good inflationary environment, and that makes IJS a good bet.
Stock of the Week
Last week’s pick was Southwest Airlines (LUV) made by John “Bradshaw” Layfield. It rose 0.3 percent in the week ending Thursday, April 8, 2004.
This week Adam Lashinsky predicts Linear Technology (LLTC) will deliver great earnings and the semiconductor company’s stock will pop.
Jonas says he has concerns about the stock’s strength because Janus Funds owns over 10 percent of the company in its retail mutual funds and he says Janus has suffered from investor outflows and is forced to sell many stock shares, and he believes the fund company is likely to use any positive news to unwind huge positions like the one it has in LLTC, so even if the earnings news is good, Jonas doesn’t think the stock will go up: he thinks it could go down.
Dagen McDowell of Fox Business News says she’s wouldn’t bet against Adam here. She says he’s right about this company, which makes semiconductor chips for everything from consumer electronics to automotive systems, and with the economy recovering, she says it’s firing on all cylinders.
Check out who’s ahead in the Cashin’ In Challenge at: www.foxnews.com/challenge
Question: "Please recommend one stock to invest $5,000 in for my school’s own Challenge."
Wayne says if the “Challenge” is short term he recommends Ultra Petroleum (UPL). If it’s a longer-term bet he’d go with Sirius Satellite Radio (SIRI). He owns shares in both. Dagen says there’s nothing wrong with buying a mutual fund. Jonathan says he likes floating rate funds better than stocks right now as a hedge against rising rates. He owns and recommends Floating Rate Income Strategies (FRA), Van Kampen Senior Income Trust (VVR), ING Prime Rate Trust (PPR).
Question: "Do you see any reason to buy Tyco now?"
Dagen says even though this company has a new product coming out that is supposed to put out fires without damaging electronics, she wouldn’t buy the stock because the question of guilt or innocence of the former executives is still open ended and there is no way to asses the damage to the stock or the company until there is resolution in this case. Wayne agrees with Dagen.
Question: "Is now the time to sell eBay (EBAY)?"
Jonathan says no, this is not the time to sell eBAy. The only reason to sell it right now is if it has grown to be too big a position in your portfolio and you need to trim it back. Wayne agrees.
Question: "What formulas do Wayne and Jonathan use to figure out their “stop” points on stocks?"
Wayne says he looks at a support level where investors have accumulated the stock and he uses that as a basis and then places a stop point at about 8 to 10 percent below that accumulation point. Jonathans says the trick to stop points is sticking to them. He says use 5 or 10 percent below where the stock is trading and stick to it! Dagen says be careful stops can limit your upside.