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; Gary Kaltbaum, president of Kaltbaum & Associates; and Jon Elsen, New York Post business editor.
Trading Pit: Summer of Terror
Al Qaeda (search) wants to hit us and hit us hard this summer. That's the word from the government. Officials concerned about the Fourth of July holiday as well as the two political conventions.
But is Wall Street worried? Well, not so far. The Dow had a great week in the face of these warnings.
And last year, similar warnings went out before the start of summer and stocks soared between Memorial Day and Labor Day.
GARY K: The market could care less about these warnings. We’ve literally been getting warnings almost every week. However, if there’s an attack this summer, it could have an effect, depending upon the severity. Right now the market is focused on the fact that oil prices are coming down, the bond market is rallying, and earnings are still coming in strong. I expect the overall market to head a little higher from here. But stocks like Research in Motion (RIMM) and eBay (EBAY) were leaders before and are really kicking into gear.
JON: The market will not trade on terror. The economy and market are both resilient, just like our country. If an attack happens, the markets will be hurt short term, depending on the nature of the attack. September 11th had a big, short-term impact, but the economy recovered. And it will recover again if there’s another attack.
TOBIN: It is a tragedy anytime we lose an American to terrorists. But all I have to say is, “Bring it on!” At the end of the day, all the terrorists are going to do is make us madder, which makes us more resilient. This past week, the market finally figured out that the economic expansion is only 10-15 months old—economic expansion normally lasts 50-60 months! Investors were feeling like the game was over and were irrationally pessimistic. Now they are rationally optimistic.
GARY B: We've been warned so many times, I think folks will ignore the threats. However, if something happens, we could see a sharp decline. I expect the market to be up for the rest of the year. Unless we really start to sell off, the current decline is just a short interruption
PAT: It’s not a good idea to invest on whether you think there’s going to be a terror attack because it’s not something you can predict. No one knows where, when or if, there’s going to be an attack. A much better approach is to rely on earnings, interest rates, and valuations.
SCOTT: The surprise factor of the warnings is over—there is no more surprise to a warning. I agree with Pat that you cannot invest based on the possibility of terror attacks. It will be the X-factor for a long period of time. But the economy is doing well and investors have a great opportunity to buy stocks now.
Accountability! It’s always on Bulls & Bears! Time to get their best and worst calls in the Scoreboard. First we looked at the good calls.
Last December, Pat said the Chicago Mercantile Exchange (CME) would be up 30 percent in 1 year. It’s already up 83 percent since then! And he still thinks investors should still hang on to it because the Merc is still a wonderful stock. (The Merc closed on Friday at $129.20.)
Three months ago, Gary B. said to buy eBay (EBAY), and it has gained 28 percent in that time. Gary looked at the stock’s chart and said eBay is ingrained in our lives and there’s no need to sell unless its yearlong uptrend line is broken. (eBay closed on Friday at $88.80.)
On February 21st, Scott predicted that AU Optronics (AUO) would be up 50 percent in 1 year. It’s three months later and the stock is up 37 percent. Scott thinks this stock is going to continue to go up and could reach $30-40 within 2 years. (AU Optronics closed on Friday at $21.36.)
Tobin said to buy Eon Labs (EON) last December. Since that time, it is up 43 percent. He suggests that investors hold onto it until it pulls back 10 percent. He thinks the stock could hit $85. (Eon Labs closed on Friday at $75.60.)
Last January, Gary K. suggested investors buy Smith International (SII). It’s made a nice move, gaining 17 percent, while the overall market has headed lower. He thinks the whole oil sector is going down and now recommends taking your profits while oil prices are still high. (Smith International closed on Friday at $49.93.)
Now — their not so good calls:
On March 20th Toby predicted that Nortel Networks (NT) would be up 45 percent by the end of the year. But it’s down 31 percent in that time. He admitted he was wrong and didn’t realize it had some accounting problems. He would still hang on to the stock, but wouldn’t buy anymore. (Nortel Networks closed on Friday at $3.83.)
One year ago, Pat said sell to Advanced Micro Devices (AMD). But in the past year, it has more than doubled, up a whopping 112 percent! He still doesn’t think the company’s management is very good and it has a lot of debt. He said if you ignored his advice and bought the stock—sell now! (Advanced Micro Devices closed on Friday at $15.55.)
In the middle of January, Gary K. said to buy Nokia (NOK). Bad call. It’s down 34 percent. He said this was a bad call and looking ahead he doesn’t think Nokia has anywhere to go. (Nokia closed on Friday at $13.74.)
About three months ago, Gary B. predicted that Martha Stewart Living Omnimedia (MSO) would go up 40 percent. But instead it has gone down 30 percent. He admitted he should have stuck to the charts instead of the news, because the stock tanked shortly after his prediction. He recommended not to even touch the stock until it reaches $10.50. (Martha Stewart Living closed on Friday at $9.15.)
On January 3rd, Scott said to buy China Petroleum & Chemical (SNP). And even though the stock has gone down 24 percent, he still likes it. He said the problem was that he was “early” and January was obviously the wrong time to buy. But the right time to buy the stock is right now. (China Petroleum & Chemical closed on Friday at $37.71.)
Scott's prediction: U.S. & France kiss and make up; Dow gains 500 points
Gary K's prediction: Less pain in the gas; down 50 cents/gal by Labor Day!
Tobin's prediction: Google IPO will fail; stock falls 20 percent on first day of trading
Pat's prediction: Gary K. should keep the faith with Nokia (NOK); up 50 percent in 18 months
Gary B's prediction: Nike (NKE) is good as Olympic gold! But buy before the games start
Cavuto on Business
Neil Cavuto was joined by Jim Rogers, president of JimRogers.com; Gregg Hymowitz, founder of Entrust Capital; Ben Stein, author, "How to Ruin Your Financial Life"; Mansoor Ijaz, Fox News foreign affairs analyst; Meredith Whitney, Fox Business News contributor; and Jordan Kimmel, president of Magnet Investment Group.
Iraq and Market Countdown
Neil Cavuto: The Iraq handover now just a month away. What does Wall Street need to see over there and here between now and then? Mansoor, that June 30th date is closing in fast. Will Iraq be ready to take back power?
Mansoor Ijaz: I don't think they'll be ready to take back power in the way we'd like it to be. It's one of those things where you just have to force them into the deep end of the pond and force them to swim on their own. Until the Iraqi people are willing to take responsibility for their own governance and root out the bad people that are amongst them, there's really not much more that we can do to help them. We should leave our business card on their doorstep and tell them we're happy to help if they need it.
Ben Stein: The stock market is not going to rise or fall depending on how the handover goes. The stock market is about discounting future flows of earnings. Iraq is a small part of that process. If earnings are good, it won't matter how the handover goes.
Jim Rogers: But if the handover goes bad, the earnings won't do well. So it does matter to some extent.
Gregg Hymowitz: Ben has some of the pieces of puzzle but not all. Yes it's earnings, but it's also multiples. The fact of the matter is earnings have progressed very nicely but multiples have depressed. The reason why they've shrunk is because of Iraq, because of this terrorism risk, because of oil. If things go well, I think you'll see multiples expand and the stock market do better regardless of earnings.
Ben Stein: Multiples usually move inversely to interest rates. That's the historic pattern and that is what's happening now.
Jim Rogers: If things go well and it looks like we're getting out of Iraq anytime soon, the stock market will go up and multiples will go up.
Neil Cavuto: Do you think the handover will go well?
Jim Rogers: Yes I do. The Italians said they're going to help us get out of there. Everyone wants us out of there.
Meredith Whitney: The market absolutely cares about what's going on in Iraq. The market cares about where oil prices are. If Iraq can get back to 3.5 billion barrels a day worth of production, that is very material for the market.
Ben Stein: If it could get back to 3.5 billion barrels a day, we're in great shape.
Gregg Hymowitz: If we could have a clear plan, then I think the market rallies. The economy is clearly improving but we need to see some confidence in the other events of the world.
Jim Rogers: I might be the most optimistic person here for a change. I think the handover is going to go well.
Neil Cavuto: Mansoor, some say without adequate U.S. support, there could be problems for whatever interim government that is there. So does it require U.S. soldiers to stay there much longer than originally intended?
Mansoor Ijaz: I don't think so because if you look at the primary instigator of the problems, it is the government of Iran. I think what you will find is that Iraq will stabilize very quickly and oil prices will come down.
Neil Cavuto: So you're optimistic?
Mansoor Ijaz: Absolutely.
Gregg Hymowitz: I think the question is, who is taking over?
Meredith Whitney: I think you're right. I don't think any cogent plan has been laid out yet and as a result the market didn't respond favorably.
More for Your Money
Neil Cavuto: When things seem to be at their worst, is that the best time to buy stocks to get more for your money? We'll start with Jordan. It's a constant drumbeat of bad news, from oil and gas prices to terror warnings, to Iraq coverage. When doom and gloom is the order of the day are you buying stocks?
Jordan Kimmel: When there's blood on the street and fear dominates, that's when you're going to get your best prices. Clearly you don't want to be in an auction where everyone is buying. You want to be a buyer when everyone is afraid. That's when you get your valuation.
Jim Rogers: I agree 100 percent. The market is about to go up. I see the price of oil coming down and I'm optimistic.
Neil Cavuto: We've been hovering at $39, $40. Where do you see it going down to?
Jim Rogers: It'll come down more than that. We will have a consolidation.
Gregg Hymowitz: I agree. I think oil prices are coming down and the risk premium will exit. One of the plays we're buying is Vodafone (VOD), it's a global wireless play. I think it's a cheap stock and earnings have come through. I think once the risk of terrorism and the risk of Iraq diminishes, then the market will go higher. We own a lot of Vodafone.
Meredith Whitney: I think Gregg is absolutely right. You see S&P estimates nearing $70 for this year. And I think that's going to continue to go higher. It's hard to find stocks I don't like in this environment. One that I've been waiting to buy and probably will buy in the near-term is General Electric (GE). It's a stock that's gone nowhere in the last couple of years. I think it's going through its transition year in '04 and you've got double digit earnings in the next year. It's one of the cheapest industrials out there.
Ben Stein: I own and I am buying more Dow Diamonds (DIA). That's my usual play. I think they're the most fairly valued since 1996. I think the multiples are going to go down as people realize that interest rates aren't going to go up as much as they thought. This is an ideal buying opportunity for stocks.
Gregg Hymowitz: It's interesting. You have 5 people who are all bullish. Even Jim is buying stocks. There's a sense that things just aren't getting any worse. Therefore, if it doesn't get any worse, the market is going to climb.
Meredith Whitney: The only way it could get worse is if President Bush continues to decline in the polls.
Jim Rogers: What I'm going to buy next week is Lufthansa (DLAKF). It's been battered down because of oil. Oil prices will be coming down. This stock has one of the best balance sheets in the industry.
Jordan Kimmel: The geo-political news might be bad, but the economical news and the earnings news is actually fantastic right now. My value is in the smaller mid-cap stocks. There's a great little company, M Systems Flash (FLSH). They're in the digital storage business. Institutions don't even know this stock yet. I always like to find those kinds of companies and that's what we're buying right here.
Head to Head
Neil Cavuto: New threats against America this summer. How worried should we be? Today we go "inside" the head of our foreign affairs analyst Mansoor Ijaz who is back with us. And Mansoor you are well connected in the Middle East. What is really going on with al Qaeda?
Mansoor Ijaz: I don't think the terror warnings this week and the release of the seven names are the most dangerous things we have to worry about. Al Qaeda has three levels of planning that they're working on. One is on a structural level, the big picture. And on that level, the United States is not on their radar. The second one is, if they make the conclusion that they can affect the outcome of our election in a way that suits them, then they may strike here. But I do not believe they have the infrastructure here to do that.
Neil Cavuto: But the reports this week were that Al Qaeda is 18,000-20,000 strong globally. I don't know how many of those are here. But that does seem to be an organization that has, at the very least, regrouped. Should we be worried about that?
Mansoor Ijaz: The regrouping has taken place in a way that should worry us and, in another way, that shouldn't really hurt us at all. Because they can no longer move money or the core people around much anymore. They have now started recruiting domestically the citizens of countries throughout the world, but it is highly unlikely they've been sucessful in recruiting anyone on the ground here in the United States.
Neil Cavuto: Is it almost a given that we'll see an attack before the election? Are they capable of pulling off a Madrid-like bombing?
Mansoor Ijaz: If the objective was to throw the Bush administration out of office, I think they'd be more than likely to go after one of our key allies like attempting to assassinate President Musareff or getting Tony Blair in big trouble in London.
Neil Cavuto: So they would look at an attack in this country as helping the president?
Mansoor Ijaz: Yes, because it would galvanize and unify the American people. We'd frankly be more angry at another attack and would probably say let's stay the course now even more than ever and that's something they don't need after re-grouping for the last three years.
FOX on the Spot
Gregg Hymowitz: Iwo Jima captain gets a new boss; Rumsfeld out soon!
Jim Rogers: Bush ratings on the rise along with the stock market.
Jordan Kimmel: Gas prices decline; small caps lead summer rally!
Ben Stein: Less violence in Iraq, oil goes lower & market rallies.
Meredith Whitney: Anti-terror stocks like Identix (IDNX) make gains. I do not own it.
Neil Cavuto: Look for a boom in New York retail sales figures. I can't tell you many soldiers and sailors during fleet week are being treated to dinner or sporting events, and rightly so. Proving beyond a doubt we still love our heroes and we still recognize them as heroes.
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 new movie "The Day After Tomorrow" has environmentalists on a new global warming crusade. That means a call for more regulations on big business, among other things. Everyone is for keeping the air clean, but is global warming just a big scam that hurts corporate America and your stocks? American companies spent close to $200 billion in one year to comply with environmental laws. Is that good or bad?
Steve Forbes, editor-in-chief: I think the whole thing on global warming is nonsense. There’s no proof that global warming exists. The weather satellites can't find it. The weather balloons can’t find it. Let's use our resources on something that's real, like indoor air pollution. It is probably greater than anything outside.
David Asman: Neil, so it’s not the end of the world as we know it?
Neil Weinberg, senior editor: No, it’s not the end of the world, but it's a shame this gets so politicized. You have the right saying there is no warming and the left saying we have to spend even more. Nobody knows what the answer is. Some sensible regulation and legislation is fine.
Jim Michaels, editorial vice president: Regulation is fine, but as far as this movie is concerned, it’s pure politics. These extreme environmentalists are using this movie to bash President Bush, because he won't sign the Kyoto Agreement. It's a very thinly disguised Hollywood attack on President Bush, right from the word go. And nothing in the movie could ever happen.
Victoria Murphy, staff writer: Let's put politics and Hollywood aside for a second and use some common sense. If you’re traveling to Beijing right now, you’ll have a tough time breathing, bring an inhaler. Is that what you want in New York? What we miss is that polluting companies have a competitive advantage over nonpolluting companies. I don’t think social responsibility is enough here. Do we over-regulate? We probably do. And we probably need more common sense in how we regulate.
David Asman: So, is it better to side on regulation rather than bad air?
Steve Forbes: When you know you have a real problem. We don't have much air pollution in America. China does. They need to clean it up. I was there recently. However global warming is absolutely unproven.
Quentin Hardy, Silicon Valley bureau chief: In the interest of full disclosure, this movie is produced by Fox, which also does this show. But let's stick with a couple of things we do know are true. In 150 years of following temperatures, all 10 of the hottest years have been in the last 20 years. NASA reported in 2003 that there is less ice on the ocean than there has been in 20 years of watching it. These are facts. Coral reef survived thousands of years, now dying off en masse. Something may be going on, we should probably pay attention to that.
Steve Forbes: The facts are bogus in the sense that weather satellites and weather balloons can’t find any evidence of global warming. Moreover, temperatures were warmer in Europe 900 years ago than they are today. Are you going to explain that?
Victoria Murphy: I have a question for Steve. In comparing China and the US, which is what we were just doing, are you saying that if the US did not have the current regulations that we would be like China? Or are you saying companies would do the best thing and protect our air?
Steve Forbes: That's a whole different subject. We are talking about global warming. In terms of cleaning up the air we've done a very good job in the last 30 years. No lead in the atmosphere, for example.
Victoria Murphy: But polluting causes global warming.
Neil Weinberg: Whether you have evidence of real global warming or not, it's open to debate. The fact of the matter is there are a lot of things that we have a risk of that we spend a lot of money trying to prevent. We spend $300 billion a year on defense for no particular threat.
Jim Michaels: No particular threat? Where have you been? Where were you on September 11?
Neil Weinberg: All the money we're spending on defense is not all going to preventing September 11 from happening again. What I'm saying is there is a potential threat out there. Just like there is a potential threat from global warming.
David Asman: Victoria brought up an interesting point, which is that China and other developing countries are stinky right now but when they make extra money, then they start putting their money into environmental controls. We just have to wait until that happens, right?
Jim Michaels: And the Chinese are beginning to pay more attention. The air is horrible there. But they're aware of it. And doing something about it.
Steve Forbes: That’s the bottom line. Fight what you know is the a real problem. Don't do the myth stuff. We only have finite resources.
Quentin Hardy: Steve, I cited facts. This is happening.
David Asman: The question is whether or not our environmental protection is working, but the problem is in China and India and places that are developing.
Quentin Hardy: Look, all we can deal with is our own society and pressure them as best possible. The fact of the matter is you would like the market to solve these situations. But the market works on a quarterly basis. Climate is decades and centuries. It’s very hard to do. Our market is distorted by so many subsidies. We've known tobacco has been harmful for years and we subsidize tobacco farmers.
Jim Michaels: For us to conform to this Kyoto Agreement would cost $150 billion a year. And we would be spending this on something that we don't know is even happening. And we don't know whether the cure would even work. So it’s a question of being balanced.
Steve Forbes: There’s no proof carbon dioxide leads to global warming. No evidence.
Quentin Hardy: Particulate matter is gathering in the upper atmosphere like never before from man-made causes. This wouldn’t be the first time that man has tinkered with the planet.
David Asman: The bottom line is, who is best to regulate these things. Is it private industry or is it the government?
Steve Forbes: The government can set the goals to help private industry use the ingenuity to do it. That’s the way to do it, instead of a top-down approach.
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: A big executive does the crime. But the company and the stockholders, you pay the fine. And that means Wall Street sheriffs are punishing you more than they are the crooks. Mike, make your case.
Mike Ozanian, senior editor: It's terrible. A big waste of money and all you are doing is forcing companies to spend more money on stupid regulation and forcing them to sign pieces of paper saying that ‘I really know what the books say.’ As we've seen with some of the trials like the Martha Stewart trial, found to be ridiculous. You have juries that didn't know what they were doing. And it’s sending share prices down. The whole thing is ridiculous.
David Asman: So the only person it's hurting is us.
Lea Goldman, staff writer: I disagree entirely. The fines that are levied against these companies are more symbolic than real. Take Merrill Lynch (MER), for example. They had a $400 million fine, a fraction of the billions they have made in profit the last few years. That's first of all. Second, we all know that fair and transparent markets are the very cornerstone of our free market system, and that these corrupt institutions, not just the executives, they work top and bottom down, have compromised our free markets.
Jim Michaels, editorial vice president: You can preach about the virtues of free enterprise. But the fact is that there is a distinction between punishing the wrongdoing executives, and by God they should be punished, and punishing the shareholders. The shareholders get hit twice. They get hit when the stock goes down on the news and get hit again when somebody finds it. Citibank (C) is facing $10 billion in fines and lawsuits as a result of these scandals. That doesn't just punish Sandy Weill (CEO, Citigroup.) It punishes every stockholder.
Quentin Hardy: Jim, once again you seem to think that white collar criminals should get a free ride, and I just don’t get it.
Jim Michaels: I didn't say that.
Quentin Hardy: I'm sorry for the shareholders. The executives should be punished even more because of what they've done to the shareholders.
Jim Michaels: I'll buy that.
Quentin Hardy: The head of Rite Aid (RAD) drew eight years this week, and I think that is so right on, because he cooked the books and deprived everybody of the proper value of their shares.
Jim Michaels: I thought he should have gotten eighty years.
Steve Forbes: Time focuses the mind wonderfully. There is another factor here, and that is what you might call witch trials. Martha Stewart was one. We've seen perjury on the part of the prosecution. The other is going after Dick Grasso, the former head of the stock exchange. Spitzer sues only one director, leaves the other directors off, including one who has a support for Spitzer running for governor. That is purely political.
David Asman: Eliot Spitzer is the attorney general going after some of these guys and running for governor. Prosecutors are politicians. They want scalps to put up in their office so they can show that to the voters.
Quentin Hardy: Yeah, but they do that up and down with a stickup guy or a drug dealer or an embezzler. And you guys don't care. Those are good scalps. But you’re telling me that white collar guys are bad scalps?
Mike Ozanian: If these guys who are going after these companies were after justice, they would leave the public companies alone because the shareholders when they sell the stock punish the companies. What about the towns and public servants that are raping taxpayers of over $350 billion, with phony pensions? Why don't you talk about that?
Lea Goldman: It's never good enough for you. If Spitzer went after those guys, you would be criticizing him for not going after the big fish.
Jim Michaels: We all agree that these crooks should go to jail. I think that Martin Grass (Former Rite Aid CEO,) should have gotten three times what he got, not just eight years. But that doesn’t mean you punish the shareholders, the pension funds and mutual funds which hold the shares. I'm making that distinction. Get the crooks. Throw Bernie Ebbers (Former WorldCom CEO) in jail. That's fine.
Lea Goldman: The reality is that when you investigate a publicly traded company, that stock is going to take a hit.
Steve Forbes: That's why institutional shareholders were derelict. They should have been more on the ball. They have money at stake. They’ve got to do more.
Makers and Breakers
• Apex Silver (SIL)
Stephen Leeb, president of Leeb Capital Management: MAKER
Two names, Warren Buffett and George Soros. They both like Apex. Warren Buffett, because he is betting the world against the US dollar. He has tens of billions of dollars in foreign currencies because he thinks the dollar is going lower. And that means silver is going higher. George Soros has a major position in Apex. Just finished $400 million of financing.
David Asman: And you think it can double in price. (Friday’s close: $18.45)
Jim Michaels: BREAKER
Buffett is not in Apex, by the way. But George Soros, the notorious currency speculator, is in it. And what those guys like Soros do, is get cheap stock. And when it gets public they take their money out and ride on the profits. I don't trust Soros.
John Dobosz, associate editor: BREAKER
I'm a breaker. I don't dispute that the dollar will fall further. It rallied 10 percent but that's over, it’s in a long-term bear market. But gold is a better way to play the falling dollar. Get something like Anglogold (AU), 3.2 percent yield.
Stephen Leeb: At $10 silver the company earns $6 a share. Multiply that by 12 which is conservative for a silver mine and you have $72. My target is a double.
• Devon Energy (DVN)
Stephen Leeb: MAKER
Less than 4 times cash flow. No one on Wall Street believes energy prices are going higher. I think they are out of their minds. Devon should sell at at least the same multiple as Phelps Dodge (PD) which is 10 times cash flow. That’s conservative.
David Asman: They are trading at about $60 (Friday’s close: $59.36,) and you think they can go to $85.
John Dobosz: BREAKER
Oil will pull back to the mid 30's. So will Devon’s share price. Buy it cheaper than it is right now.
Jim Michaels: MAKER
I can't say no to this stock. A pretty cheap stock for what it is. I think I would buy 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: The market has had a rough patch. Up until this week anyway. But even when things look bleak, these stocks have weathered the storm. They're strong, and they're getting stronger. Lea Goldman, what about video games? I didn't know they were a big market.
Lea Goldman: They are hot and make more than movies.
David Asman: What is the company?
Lea Goldman: Activision (ATVI). They are a software maker in California. Basically, their three claims to fame are; they own the Tony Hawk series which is one of the best-selling video game series in history. Two, Spider-Man and Shrek, they own the licensing. And three, because console prices are going down, that opens the market for Activision.
Victoria Murphy: Gaming is hot and the console makers are cutting prices. The market is growing. But why go for number two when you can have number one? Electronic Arts (ERTS) is the number one game maker and has a lot of hot titles. If you pay a premium I wouldn't go for number two.
Lea Goldman: It is overpriced.
John Dobosz: I like the organic food sector, a company called United Natural Foods Incorporated (UNFI). They distribute organic foods and other organic stuff like creams and body stuff. $1.4 billion in sales. Growing 20 percent a year. They're cheap. Buy them.
Mike Ozanian: I don't like distributors and middlemen. They make less than two cents on every dollar of sales. I would rather buy Whole Foods (WFMI). Whole Foods buys it and then marks it up.
David Asman: Let's get back to technology, Victoria. Best Buy (BBY). They sell all sorts of gizmos. Why do you like them?
Victoria Murphy: They are an electronics retailer. And I think the next wave of innovation in technology is on the consumer side. But these gadgets are increasingly complicated. And they are only cool if they work. Best Buy is anticipating this problem. And they're going to make money off of it. They just acquired a small company called Geek Squad, a fleet of geeks that will come to your house for $100 an hour, and install your really complicated Wi-Fi network. A great play.
David Asman: Mike, Nike (NKE), you like it.
Mike Ozanian: They are a real mean company. They outsource all their manufacturing to third world countries and will capitalize on the Olympics. The stock is at $71 (Friday’s close: $71.15) and over 80 by summer.
Lea Goldman: Don’t buy Nike. I think they’re insane. $110 million for endorsement deals. $90 million to LeBron James alone. He’d better be out there hustling sneakers as we speak.
Mike Ozanian: Their returns justify it.
David Asman: So they are still getting a good return?
Lea Goldman: The next three quarters will be pivotal. I'm not sure they can do it.
David Asman: Do you like Best Buy?
Mike Ozanian: I do. The stores open for more than a year are increasing sales at better than 8 percent. I like that company.
StockSmarts: Hollywood vs. Wall Street
Hollywood is rolling out the red carpet for John Kerry, with superstars like Kevin Costner, Meg Ryan, Ben Stiller, Barbara Streisand and Sharon Stone giving out a lot of cash to help get him elected president. But on Wall Street, the likes of Morgan Stanley and Merrill Lynch are backing President Bush. But which candidate will give you the most bang for your buck?
Charles Payne of Wall Street Strategies says President Bush will help the average American make more money with a stronger economy, and he’ll help Americans hold onto more of what they earn with permanent tax cuts. He says the Bush method is to help all Americans, not to penalize certain Americans at the expense of others, and that’s what works best for Wall Street, which is why he says Wall Street backs President Bush. He says the power players in Hollywood have no fiscal responsibility – they let movies go over budget all the time -- and while they may think they represent the best interests of the average American, most of them don’t even know how much money they have in the bank, and they are not in a position to decide which candidate will be best for the average American.
Political comedian Will Durst says if you are a liberal you think that Hollywood is for John Kerry because the people there are educated, but if you’re a conservative you think Hollywood is for John Kerry because the people there do so many drugs. It’s all a matter of perspective. But, he says George Bush gives tax breaks to wealthy people who will save that money, and John Kerry will offer breaks to the poor who will spend it, so the economy would get a better boost from John Kerry’s plan because it will put more money into circulation.
Jonathan Hoenig of Capitalistpig Asset Management says that’s the problems with Hollywood. The people there live in a fantasy world where they can embrace theories like socialism and communism because “they sound” so good,” but they don’t understand the ramifications of these political approaches in practice. He says John Kerry is for big government and wants the federal government to be involved in every element of life from education, to agriculture, to energy, and he calls Kerry “a Carter-style economic meltdown in the making.”
Adam Lashinksy of Fortune Magazine says celebrities and performers have always been more liberal than the average American, and now that they have more economic power than ever before they are attempting to use it, but he doesn’t think anyone is really paying attention to their political views.
Stuart Varney of Fox Business News says Hollywood believes it has a monopoly on brains and creativity and they are contemptuous of President Bush. But he says President Bush’s tax cuts helped get the U.S. economy going, and he is the best choice for the average American’s bottom line.
Dagen McDowell of Fox Business says Hollywood has always favored the Democrats because they are very liberal on certain social issues. She says if President Bush makes his tax cuts permanent, he will create a budget deficit that will put a damper on the economy, and ultimately, she says John Kerry may be the best man for the average American’s bottom line.
Best Bets – Bigger is Better!
History tells us that bigger is better for stocks when interest rates are on the rise. Our crew named their favorites.
Adam’s Big Bet: General Electric (GE)
Friday's close: $31.12
Adam says General Electric is going to benefit across the board from a strengthening economy and has a pristine balance sheet, which means it can borrow money easily even in a rising interest rate environment. Charles agrees with Adam. He says smaller companies will have a tougher time borrowing money and will likely have to pay more, and since GE is a macro play on the economy, it should do better as the economy does better. Jonas Max Ferris thinks there is some interest rate risk in GE because so much of its business depends on consumer financing which could slow in a rising interest rate environment.
Jonas’ Big Bet: Microsoft (MSFT)
Friday's close: $26.23
Jonas says Microsoft is still a monopoly and its cheap now. Charles likes other technology stocks more – even Intel (INTC). He says Microsoft has under performed and he’s not interested in buying the stock now. Adam says Microsoft does have the pristine balance sheet necessary to thrive in a rising interest rate environment, but it is not a growth company anymore and he wouldn’t bet on it now.
Charles’ Big Bet: Clorox (CLX)
Friday's close: $52.36
Charles says Clorox is firing on all cylinders and since it gets a lot of its business from America, its profits are not sensitive to currency fluctuations. Jonas calls Clorox “one of the world’s safest stocks.” He says he doesn’t see huge upside to this stock, but he agrees it won’t be hurt by rising rates. Adam says he’s not impressed with the company’s growth; he thinks a Gillette (G) or Procter & Gamble (PG) might be a better bet. He points out that Clorox relies heavily on plastic, and the cost of plastic rises along with the cost of oil.
Check out who’s ahead in the Cashin’ In Challenge at www.foxnews.com/challenge
Question: “The Ave Maria Catholic Values Fund (AVEMX) is beating the market this year. Is it safe to invest in a faith-based fund?”
Jonas says it’s safe enough to invest in faith-based funds, but they often mislead and this one is no exception. He points out that the fund says it invests only in companies that adhere to the teachings of the Catholic Church, but it has in its portfolio companies that make tanks and products used in stem cell research. Adam points out that the Catholic Values fund also invests in companies that offer benefits to the same sex domestic partners of their employees like Eli Lilly (LLY) – something that the Catholic Church is not likely to endorse. Dagen points out that conflicts like these could prevent a faith -based fund from investing in good companies. She says it may be better to support your faith with a tax-deductible donation, and invest in an index fund.
Stock of the Week
Charles Payne says Hovnanian (HOV) is the stock to own this week.
Charles says everyone knows interest rates will rise and the housing market can’t keep growing at the rapid pace it has been in the past few years, but he believes too much of this negativity is already priced into this homebuilder’s stock, and when Hovnanian reports earnings this week he thinks the stock will get a pop. Adam says rates are still historically low, so Charles may be onto something as far as a short-term trade is concerned because people are still trying to buy before rates rise too far, but he says this stock will feel the pain as rates continue to rise, so its not a good long-term play. Jonathan says the whole homebuilding sector is weak and he wouldn’t touch it.
Last week’s Stock of the Week: Mike Norman’s Novell (NOVL) fell 10.2 percent.