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 Herb Greenberg, senior columnist at MarketWatch.com.
Last week John Kerry picked John Edwards as his running mate, but this news didn’t have a great effect on Wall Street.
Why does it seem like Wall Street does not want Kerry in the White House?
Herb Greenberg: Wall Street hasn’t ever found a Democrat or trial lawyer that it liked. Tuesday the market was reacting more to potential economic issues regarding earnings rather than the Kerry news.
Gary B. Smith: The sell-off we had this week could have been because of Kerry and Edwards, but I wouldn’t worry about it. Once the market realizes the Democrats have no chance, it should rocket up. I will agree with Herb that Wall Street isn’t very fond of trial lawyers. The summer isn’t shaping up too well. Once we get closer to the election there will be a rise. It’s all perception right now about who is going to be better for the market.
Tobin Smith: Kerry is fighting a populist war, and it’s not working. Having John Edwards as his running mate could be good for Wall Street because there is no way a man who had a career bringing down big companies as a trial lawyer is now going to be an asset to our country. Those that are undecided are going to have a hard time swallowing that John Kerry and John Edwards are going to make them better off.
Scott Bleier: Wall Street doesn’t hate John Edwards, but it hates what he stands for. A Robin Hood mentality is anti-business and the market is not going to like it. The market will remain weak while these guys look good.
Pat Dorsey: I agree that it wasn’t the Kerry news that affected the market. Last Monday there was a big spike in oil prices, major earnings points, and nasty payroll numbers. All of this is what moved the market. Wall Street wasn’t surprised that he picked Edwards.
Scott, Tobin and Pat didn’t get a chance to run with the bulls in Pamplona, so they picked stocks they say are ready for a bullish run on Wall Street.
Tobin says Knightsbridge Tankers (VLCCF) is ready for a strong run. This company ships oil from the Middle East in double hull tankers to other parts of the world. Single hull tankers are being destroyed because more money can be made from the scrap metal. He says this stock has been on a run and will reach $40. (Knightsbridge Tankers closed Friday at $32.66.) Scott said this does not have a consistent dividend and it’s not guaranteed. He says this stock has already had a huge run up and when it falls, it’s going to fall hard and fast. Sell it now. Pat agreed.
Scott likes Lone Star Technologies (LSS), which makes metal tubing for oil drilling, pipelines and refineries. It is a cyclical business. He believes that high oil prices will drive money toward exploration and production and this stock will benefit. Tobin also likes the stock. He says it should do well with natural gas dominating the market right now. Pat doesn’t like the pick. (Lone Star Technologies closed on Friday at $27.18.)
Pat’s pick is Sysco (SYY), a large food distributor of private label products sold to restaurants. He says the company has consistent 18 percent growth every year and has lots of cash. He believes companies will continue to buy food from this company. Scott says it’s a slow mover, while Tobin says he would buy it if it pulled back a bit. (Sysco closed on Friday at $35.84.)
Herb is hard to win over with stocks, but Gary tried to make Herb love his two favorite charts.
First, Gary chose Krispy Kreme (KKD). He says it’s hard to resist great doughnuts and a great chart. He pointed out that Krispy Kreme had a great run up, and has pulled back to a support line. He says it is finally at a place to buy. (Krispy Kreme closed on Friday at $17.71.) Herb says Gary’s on a sugar high. He says the company just reported its first loss ever, and he blames the shortfall on the low-carb craze. He thinks Krispy Kreme has problems, and the downward trend is going to continue.
Gary also likes Callaway Golf (ELY). He says Herb may be able to live without doughnuts, but he won’t be able to live without golf. “This is another stock that is back at a level we haven’t seen since the ‘90s.” He says the company has made some mistakes, but it’s a smart company, and it will turn around. Now is the time to go for the green! (Callaway Golf closed on Friday at $11.04.) Herb says the company’s management does not have a grasp on the business – it is facing pricing competition, as well as competition in the club business from Nike (NKE).
Scott's prediction: Edwards nomination makes CEOs rally against Kerry; stocks weak in July.
Gary B's prediction: Market slides until Labor Day, but late rally pushes it up for the year.
Tobin's prediction: Ken Lay gets 20 years! Buy natural gas like Patina (POG).
Herb’s prediction: Mortgage REITs are a trap! Watch out for a 20 percent fall.
Pat's prediction: Siebel Systems (SEBL) sell-off is overdone! The stock gains 40 percent within a year.
Cavuto on Business
Neil Cavuto was joined by Evan Kohlmann, Terrorism Expert; Leigh Gallagher, Senior Editor at Smart Money Magazine; Gregg Hymowitz, Founder of Entrust Capital; Charles Payne, CEO of Wall Street Strategies; Stuart Varney, Fox Business News Contributor; Meredith Whitney, Fox Business News Contributor; Lis Wiehl, former prosecutor and author of “Winning Everytime.”
The Bottom Line: Danger Season?
Neil Cavuto: Evan, are there real threats this summer?
Evan Kohlmann: It does seem like there are real threats. Terrorism is a difficult business to predict, but if we follow what we’re hearing right now there is chatter revolving around the extermination of the United States, about imminent deathblows on U.S. soil. Simply put, the message is that America has run out of time, and that attacks similar to what we saw in Madrid will be replicated and the target list is astounding. Everything from Children’s playgrounds, to government buildings is included on the list. I think Americans need to be on edge this summer and realize that these threats are not fake; they are real. We are lucky if we escape this summer without a successful terrorist attack occurring.
Gregg Hymowitz: I think, unfortunately, the terrorist threat is going to be with us forever, and frankly it has been. As it relates to the market, I think the markets will have to adjust to this and we’re seeing the adjustment now. We may never see the multiples we’ve seen in the past because there is an extra expense, a risk premium. I think we have to get used to this. I don’t think the market is planning on anything in the near term. Ultimately in the long term you have to get used to it. The market has become somewhat complacent of these warnings. Every time there has been a new alert, there’s been no action seen in the market.
Stuart Varney: From a market point of view, what worries me more than an attack on America during the political season is an attack on the supply of oil in the Middle East. The market does not like $40 barrels of oil; it would hate $45 barrels of oil. And if the terrorists go after economic targets successfully, as the IRA did in Britain, there would be a turn for the worse in the market.
Charles Payne: I kind of disagree with Gregg. Terrorism has played a role in the market by causing apprehension in most investors. You really sensed it before July 4th weekend and you’re going to sense it this summer. Investors are saying, “Why hold stocks going into the Olympics or Fourth of July, when these are potential terrorist targets?” So, it is having an impact, but at the end of the day it does not change the fundamentals. I believe a lot of investors understand that, and if you are intimidated by terrorism that’s one things, but don’t let it shake your investments in the stock market.
Neil Cavuto: It is a feeling right now that people are holding back because of these events. Why risk it?
Leigh Gallagher: That’s exactly what’s happening. I think this fear is what’s holding back this market. You talk to people that sell stocks, they are not buying.
Gregg Hymowitz: First of all, I disagree that this doesn’t affect the fundamentals. There are increased friction costs that we live everyday. I think that in the long term the market Is going to have to get used to terrorism. Yes, maybe short term there is trading friction, but in the long term we’re going to have to deal with this.
Stuart Varney: Because terrorism will always be there, you cannot walk away from the stock market completely.
Charles Payne: But there is a lot of fear, not just terrorist fear. There was fear of interest rates, fear of lower earnings, and fear over the election.
Neil Cavuto: Evan, when you talk about an event, what kind of terrorist events are you talking about? I know you mentioned the conventions, but what about “soft” targets?
Evan Kohlmann: Many analysts are wondering why targets such as shopping malls, and movie theaters have not been attacked, targets that directly effect that U.S. economy. There are also terrorist attacks abroad, directed at the oil market. These terrorists have a stated goal right now of pushing oil prices above normal levels.
Neil Cavuto: Ever since 9/11 we’ve been waiting for another attack to come and it hasn’t come. Are you saying that terrorists are piling up for a bigger attack?
Evan Kohlmann: Complacency is a bit of the problem. The intelligence I’ve seen is coming directly from the sources that warned of a terrorist attack before 9/11.
Neil Cavuto: Evan, if that is true, why hasn’t the government raised the terror alert?
Evan Kohlmann: That is an excellent question! I think it has to do with the fact, that the warning period is so long that it does not want to scare people enough to affect the market adversely, but the threat is very real.
Gregg Hymowitz: I think the complacency issue is a big issue in terms of the market. I think the further away we get from 9/11, and there is another terrorist attack, the market may take a bigger hit. To a certain extent the market is now waiting for another terrorist attack, and if they do strike an area that is economically sound, then maybe the markets do suffer significantly.
Neil Cavuto: What would be the effect if there was an attack on a shopping mall?
Gregg Hymowitz: I think it’d be very scary. I think retailers would be hit the hardest, to bring it down to the “real” market level.
Neil Cavuto: If these terrorists attacks continue is there ever a chance of us getting used to it, like in Israel?
Stuart Varney: I don’t think we will ever get to the level the Israeli’s are at. I simply cannot see that level of terrorist attack in the U.S.
Charles Payne: I do not think that the terrorists would win if they started attacking soft targets. I do not believe the market would take a sustained hit.
Neil Cavuto: Evan, before you go, do you think there will be another terrorist attack in the U.S., similar to the one in Spain before the elections? Do you think the reaction will be the same?
Evan Kohlmann: That is the strong likelihood. Right after Madrid, al Qaeda agreed that this was the kind of strategy that would work and help promote their agenda. By trying to affect the elections of western countries, al Qaeda can change these countries’ Middle Eastern policies.
Leigh Gallagher: I do not think that the market is complacent, but rather alarmist. I think that this has a lot to do with the media.
More for Your Money: Buy Nanotech stocks?
Neil Cavuto: We’re talking about something called nanotechnology. The stuff that makes everything from cell phones to computers smaller. Meredith, this looks like it’s becoming the next big thing.
Meredith Whitney: Well it is certainly priced like it’s the next thing. I think where the market is right now, that you want to buy this when there aren’t any cheap alternatives. I wouldn’t play a group like this because these are companies without earnings. I think you want to buy this when the market is at the bottom. Instead, I like sure things like Applied Materials (AMAT). This is too speculative a bet.
Gregg Hymowitz: The problem with this is that it is a very new technology. There are a number of names to buy, but the valuations are so rich that unless it works out perfectly there will be a lot of losers. You have to spread out your bets and buy a basket of these stocks. As of now, I’ve found no mutual funds that will help you do that.
Leigh Gallagher: I would argue that the way to go is to invest in big name stocks — big companies that are shifting some of their resources into nanotechnology, like Hewlett-Packard (HPQ). The big companies are as much on top of this technology as smaller companies. They also have other products that are commercially viable which makes them a more secure pick.
Gregg Hymowitz: Nanotech will be viable one day, but you have to do a lot of research to make this a successful buy. For example, I like Flamel (FLML), which is a nano stock that focuses on medical drug delivery coupled with nanotechnology. This company has seen recent earnings in the past couple months, so it won’t go out of business overnight. But the bottom line is that this is a speculative play, but a lot of money has been made already in this market, and there is certainly more. If you are going to buy a pure planned area.
Leigh Gallagher: These stocks are already very high and the money’s been made. These stocks are already trading 300 times their earnings. That is way too expensive.
Meredith Whitney: I think a similar market is biotechnology. If you really feel that a company has the next greatest thing and it is in phase three, then you would buy the stock.
Gregg Hymowitz: You have to be very careful, you hear nanotechnology and you think technology, but it is really just making things smaller. Everyone is moving towards this “nano” name.
Head to Head: No Jail Time!
Neil Cavuto: Ken Lay indicted for his alleged role in the Enron collapse. That trial could be more than a year away, and Martha Stewart awaiting a pending sentence for obstruction of justice. But I wonder if investors have already gotten what they are looking for, and whether these people are so disgraced, what purpose jail would serve? I think stocks will go up when we see an end to the famous “perp” walks.
Lis Wiehl: Neil, I love you but you are being way too soft here. The law is the law. The judge has to look at the sentencing guidelines, which for Martha is between 10-16 months. And unless there's a reason for what we call a downward departure from that, that's what she's going to get.
Neil Cavuto: To say nothing of the chicanery of that trial. My point is not looking at the right or wrong of doing jail time. I know they're not going to retry her. I say enough with the embarrassing shots of Ken Lay in cuffs going into the Houston courthouse.
Lis Wiehl: You know, embarrassment is one thing, but if I'm an investor, and I want to see that he or see is going to get the same punishment that I would. If I lie to the government, and lie blatantly about it, and don't apologize for it, and I'm convicted, I'm going to do that time.
Neil Cavuto: We know that Martha Stewart is a pretty savvy business lady. Why can't we use that same skill set in helping women get a sense of how to take care of themselves.
Lis Wiehl: Sure she can do that if the judge goes for a low-end sentence, which would be 10 months. And then she goes to a mid-term sentence of 13 months. I would say spend those 10 months in jail and then spend those other 3 months in a halfway house helping other women.
Neil Cavuto: See, I would give her 10 months and maybe even more of her just helping out folks who can't help themselves. But Ken Lay, I'm going to wait for a jury to decide if he's done something wrong.
Lis Wiehl: I didn't say that.
Neil Cavuto: Well you all but indicted him. Well, he has been indicted.
Lis Wiehl: He has been indicted.
Neil Cavuto: Yes, well all right. The legal terminology is confusing. But here's the deal. I'm just talking in terms of the markets. Is it enough to see these people humiliated or do we have to see them in prison?
Lis Wiehl: Humiliated in public and then I'm going to go home to my mansion, my six cars, my airplane. Whatever it is I have. I don't think that's too much of humiliation. If I were an investor I might think, if that's all, I could do it too.
Neil Cavuto: This guy who used to be an insider is now an outsider. He's a pariah everywhere he goes. He may have a couple of friends left in Texas, but that's about it. I'm saying, for the purpose of investors, he is cut out.
Lis Wiehl: Investors like everybody else want to see that there's fair treatment for everyone Neil. You can't let people like Ken Lay or a celebrity, who makes a lot of money, get off easier than you or I would.
Neil Cavuto: You're arguing that if they don't see jail time there's going to be hell to pay in the markets. I argue no.
Lis Wiehl: I don' t think so. I think investors want to see the thing followed all the way through.
FOX on the Spot
Meredith Whitney: I think the market bottoms at the end of the month. And after that, the market is up 15 percent for the rest of the year. Stocks rally 15 percent after DNC convention!
Gregg Hymowitz: Edwards adds 5-10 pts to Kerry. I think Meredith is right. The market does exactly what Meredith says. It's so strong and it doesn't shed a tear knowing that Kerry and Edwards are going to win in November.
Stuart Varney: I was wrong on Bill Richardson. He was not the VP pick for Kerry. But I'm right that with Edwards on the ticket, he will help put America's judicial mess front and center. I think Americans don't like the way lawyers are treating doctors. This is going to put judicial reform right up there front and center. Edwards helps Bush pass tort reform.
Charles Payne: I say buy Procter & Gamble (PG). We've seen a lot of economic data out there that suggests the economy isn't booming. We don't need anymore 50 basis points rate hikes. We don't even need 25 basis points rate hikes. I think that keeps the dollar lower.
Neil Cavuto: My Fox on the Spot, for what it's worth, is ugly people. They had a very hard time last week with the Kerry/Edwards ticket, seeing that, do you notice, they're never called, 'charismatic ugly people.' We'll be reminded of that next week and the weeks ahead. But ugly people will avenge themselves. Beauty is in the eye of the beholder!
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, host: Everyone is feeling the pinch from high oil prices, but is the real problem a housing market that's about to collapse? Elizabeth, you have been worried about this for a while?
Elizabeth MacDonald, senior editor: I am worried about it cause I am seeing data that more and more millions of first home buyers are being pushed out of this market and that means housing is overvalued in a lot of markets. Consumers have been cashing out of their house, spending like crazy and that's fuelling the economy and that's worse than oil.
Jim Michaels, editorial vice president: The fact is that is growing at a very rapid rate. You are never going to have crashes when it is going at a rapid rate. Household income rising, employment rising. Interest rates have not gone up. They are back at 6 percent. And housing prices are basically a function of interest.
Quentin Hardy, Silicon Valley bureau chief: My neighbor is in the real estate business. He has a thousand-yard stare. Why? Because in three weeks the number of properties listed in the Los Angeles housing area has tripled. He has never seen it move up this fast. Its only an anecdote but still this thing could be coming to an end.
Dennis Kneale, managing editor: Well what if housing prices collapse? Housing prices are up 180 percent since 1980. Since 1998 housing prices are up 40 percent. If housing prices suddenly drop 20 percent, which has never happened in the history of the United States, you are still in profit, you are still in profit, so stop worrying about it.
Steve Forbes, editor-in-chief: There is no question that pieces of the country have seen rapid rises specifically New York and Los Angeles, but in other parts of the country housing is relatively affordable. Fundamentally this economic is stronger. The fact of the matter the real threat of this economy is the John-John tickets. Higher taxes…
Elizabeth MacDonald: But people don't go into debt over oil they go into debt over housing. We have seen a rapid rise in debt and if interest rates go up and people have to pay more money for their housing, that is going to be a problem.
Steve Forbes: Interest rates and mortgage rates may go up a little bit but they are still far higher than 2 or 3 years ago and the key is how much people are paying each month. And that is why people have bought more because they can afford more.
Quentin Hardy: Well along with mortgage payments which are a huge problem for people if interest rates go up, there is credit card debts which has risen over the past couple of years in a consumer led recovery. Just look at the consumer figures from June.
Jim Michaels: Quentin, I have been in this business for 50 years and for that long people have been worrying about consumer debts sinking the economy. After 50 years of rising consumer debt the economy is doing better than ever.
David Asman: Well Dennis what about people who borrowed against their house?
Dennis Kneale: When you pump gas with higher prices, you feel it straight away. When your house looses 20 percent of its value and you are still living in it, you don't feel it. The minority of all the mortgages out there are very low rate. People have locked in 20-30 year mortgages at the lowest rates ever, and the fed raising the interest rates now — that's not going to affect them at all.
Elizabeth MacDonald: There is an economic truth that bubbles do exist. There is a housing bubble. In other words housing prices cannot go up to the sky. They have to stop at one point — you have to have the homebuyers there to buy them.
Steve Forbes: The bottom line is the households today are worth more than they were 4 years ago. Some parts of the country no, but overall we are in good shape.
David Asman: Lets just take say the bubble bursts, what then?
Quentin Hardy: Well if people stop refinancing and getting this extra money, where do they usually put extra money? They put it into the stock market. So this extra money would not be put into the stock market.
Dennis Kneale: Nobody borrows a home equity lone to put it into the stock market. They borrow to buy stuff, to buy a new car, to buy a great vacation.
Quentin Hardy: To buy stuff? They put it in the stock market.
Jim Michaels: Wait — where is the bubble? I haven't seen any evidence of a bubble. There was a bubble in stock prices in the year 2000. You guys are generalizing in Manhattan.
Elizabeth MacDonald: No we are not. We are talking about California and from Chicago and Boston.
Jim Michaels: And New York.
David Asman: Elizabeth, you say people aren't buying because the prices are too high but there are hundreds of thousands still buying.
Elizabeth MacDonald: Yes but this is because they are borrowing whatever they can do get into this housing market.
Steve Forbes: People feel that houses are too high in the west coast and east coast but in other parts of the country there is very affordable housing.
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: Its not John Edwards who is going to help Kerry take votes away from Bush - Michael Moore is the real wild card and he could have a huge impact on election and the stock market. That's what Elizabeth MacDonald is saying. Elizabeth, I finally saw the movie. I think it is so childish. Do you really think he is going to convince people who have already made their minds up?
Elizabeth MacDonald: I do agree that he traffics in juvenilia and that he lies — this election is a referendum on two things - the war on Iraq and the war on Terrorism. Whne you see footage of Bush on camera saying "Saddam tried to kill my dad" or saying "I don't care much about what Bin Laden does anymore, he is not on my mind", that confuses voters and they don't like it that men and women are going into war for reasons that they don't understand.
David Asman: Confused voters may not go see this movie anyway, but if they do - what happens?
Steve Forbes: It may convince a few — but when it comes down to it, Michael Moore is Michael less and all its done is energized the Republican base — they realize that we are going against the big lie — and in that sense he has helped the Republicans.
Jim Michaels: The truth is that it's a lousy, boring movie. Its not going to convince anybody and anybody who believes this is a serious paranoid and needs a shrink, not a movie.
Bob Lenzner, national editor: I have not seen the film but I believe that there are a lot of Bush haters out there but I don't think that Michael Moore is going to convince anyone against Bush. On the other hand he is on the cover of Time Magazine and I think that there are more people hostile at Bush than I remember people being angry at Richard Nixon.
David Asman: What about the undecided? Is this film going to have any influence on them?
Quentin Hardy: Well I don't know if you guys are looking at the numbers but this film is playing very well in states that went to Bush. It's making money in states that went to Bush. The first hour is all about his sarcastic, over large ego but the second hour asks a very good question — can our soldiers trust our leaders?
David Asman: There wasn't a word about Saddam and what his prisons have done and his executions.
Elizabeth MacDonald: It's in the first part of the movie that Michael Moore shows Iraq as an idyllic place.
Quentin Hardy: The thing in the second hour does show things like Bush saying it's a slam dunk, they have got weapons of mass destruction and look what happened this week - the 9/11 commission said there is a trail of bad intel and we went in with bad stuff.
Mike Ozanian: People may believe this stuff, but people who weren't going to vote for Kerry – no one is taking this seriously, its all pure fiction and as a journalist you can take anything out of context, which is exactly what the movie does. I personally wouldn't see it.
Elizabeth MacDonald: It does though add to the voter confusion. I think people are tired of feeling like they are getting fast balls by the administrations not being given the facts over low balling Medicare costs, the Halliburton scandal, over the prison torture scandal. The military is doing a fantastic job and this is a referendum on Bush. This is not about Kerry, it is about Bush.
Mike Ozanian: Do you know one person who went out and saw the movie and said "I was going to vote for Bush, but now I'll vote for Kerry?" I don't know anybody.
David Asman: Bob, will minds be changed by this film?
Bob Lenzner: I think some minds will be changed, but I think Kerry shot himself in the foot last night when said he didn't have time to get his security briefings on terrorism. Here is a guy who is running for president and he didn't have time. And the second thing is the celebrity-hood on the Kerry-Edward ticket. Some terrible things happened last night.
Jim Michaels: The public doesn't like it. It just turns people off.
Makers and Breakers
• Gilead Sciences (GILD)
Chris Casey, Boston Private Bank: MAKER
Gilead Sciences is a biotechnology company that has a large franchise fighting HIV. They have two drugs, Varead and Emtriva that they have formulated into one drug. You take it once daily and very low side effects. I think it’s going to go up by 35 percent. (Friday's close: 65.70)
Mike Ozanian: MAKER
The stock hasn't gone anywhere in about a year — its research and development has yielded great R & D, its last quarter earnings beat expectations by 35 percent and stocks shot up — I think good times are ahead.
Jim Michaels: BREAKER
I agree, except stocks that move nosebleed levels selling at 12 times revenue is too rich for me.
• Burlington Northern Sante Fe (BNI)
Chris Casy: MAKER
This is the largest public railroad company in the country. They have done great things which technology, to reduce their cost, to improve their logistics. I think they are going to benefit from coal and energy prices as well as the economy boom. I think it will have a 20 percent rise. (Friday's close: 34.87)
Jim Michaels: MAKER
I like this stock. I think there is a lot of leverage in the railroad industry — that is when you get extra money its comes right down to the bottom line. The economy is growing and also the cheap dollar helps.
Mike Ozanian: BREAKER
I am a breaker, I think that if you did buy this stock a year ago I think you missed the train. I think its revenues are growing slower than its expenses.
Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:
David Asman: Some software companies are perfect targets for takeover and you can profit big time if you know which ones are about to be taken over. Quentin, tell us about Sun Microsystems (SUNW).
Quentin Hardy: Well it's not thought of as a software stock, but a hardware stock, very different organizational structure. There are 17 billion devices going to be on the Internet by the end of this year — most of them use the java software system that Sun developed. Small problem — Sun doesn't make any money off it. But they are pushing that so if they can get their organization together, somebody else might be able to step in and allow them to make some money off it.
Dennis Kneale: I got to disagree with Quentin on this. I like this stock at 30, 20 and 10. And it's been a 3 to 5 dollar stock for a couple of weeks. I don't know that they are ever going to come back.
David Asman: Lea, what do you have for us?
Lea Goldman, staff writer: I have Midway Games (MWY), they are a software maker. They haven't had a hit since Mortal Combat. I think they are prime takeover company for multimedia Time Warner or Viacom In fact someone like Red Stone has been buying a lot of their shares.
David Asman: But Elizabeth, would you want to buy into Mortal Combat?
Elizabeth MacDonald: I don't think so, I don't think Time Warner is really interested in these kinds, I have been hearing they are more interested in things like vindicated MGM.
Dennis Kneale: I have Siebel Systems (SEBL). Tom Siebel is the man everyone loves to hate in Silicon Valley. But companies like Oracle (ORCL) or Microsoft (MSFT) might buy it, the stock is cheap, its 8 or 9 dollars, its gone down 50 percent in a year. Here's the thing though, its got 2 billion dollars in cash so when you buy an 8 dollar share, its got half of that in cash.
Quentin Hardy: I think IBM might take it I can't see who else would want it out here.
Elizabeth MacDonald: I have Sap Aktiengesellschaft (SAP). There is a rumor that Microsoft wants to buy this company. They are a software company that sells software that knits the backrooms of operations and they have 21 thousand customers in 120 countries. I think that they have a great distribution channel. It might be too pricey though.
Lea Goldman: Pricey? It has a huge market cap. Outside of Microsoft, no one can afford it and Microsoft has already said no thanks.
Elizabeth MacDonald: It is richly overpriced but that doesn't mean it cant come down in its offering.
Quentin Hardy: Microsoft can't afford the anti-trust considerations and this week they said they had to cut costs, they can’t pay that much for a stock.
Stock Smarts: Market On Trial?
To the Democrats, he’s a modern-day Robin Hood — taking from rich corporations and giving to the poor with his many victories in the courtroom. To Wall Street, he’s a monster – someone who lines a faulty legal system to line his own pockets at the expense of shareholders.
So what happens to stocks if John Edwards becomes vice president?
Gretchen Morgenson of The New York Times says that Wall Street would hate Edwards as V.P., and stocks wouldn’t perform well (saying “he’s not appositive for the stock market”), but there really isn’t a risk in terms of this being a major issue; tort reform isn’t going anywhere. She thinks the Kerry health care plan would be a disaster, as well as his minimum wage proposal and capital gains tax increase. The trial layer thing doesn’t resonate with the average voter. But the battle between the small, individual investor and corporate America is something to watch.
Wayne Rogers of Wayne Rogers & Company says the real question is whether or not you want a trial lawyer in the White House, and that’s nuts. Edwards is very bight, articulate and charming, and Wayne thinks he would “carve up” Dick Cheney in a debate. But you really don’t want him in the White House. Trial lawyers have cost victims more than they have made, and they are sucking blood out of the public. If you put the cap on the layers and their fees, then it would be a better system.
Jonathan Hoenig of Capitalistpig Asset Management said that trial lawyers are “frustrated actors”, and John Edwards is a bit of a “b.s. artist”. Edwards is more sizzle than steak – better used car salesman.
Jonas Max Ferris of MAXfunds.com says that half the Presidents have been lawyers, so what’s the big deal. We all like to trash the lawyers, but how is this any different than mutual fund managers or hedge fund managers who lost their shareholders millions when the market was going down? Why does everybody want the federal government to take over the legal system and limit what layers can get for clients? It’s a bit like socialism – which is what they have in France. Trail layer system is part of the free market system – why should the government put a cap on that?
Price Headley of BigTrends.com the bigger issue is Kerry, as opposed to Edwards; his impact is much less. The Democrats have no economic policy, which is their problem. But the “law” issue doesn’t really have an effect on Wall Street.
Dagen McDowell of FOX Business News says the Republicans want to paint Kerry/Edwards camp as being anti-business, but you can’t just say that. Some major business executives are behind the Democrats. Tort reform is going nowhere – if you have Edwards in there, maybe he could talk to his people (trial lawyers) and help reform the system.
Best Bets: All-Star Stocks
Hit a home run with these stocks the panel thinks should be on your team.
Wayne's All-Star Pick: Tsakos Energy (TNP)
Friday's close: $34.72
This is a play on both global growth and energy — this is a Greek ship building company, primarily making tankers. Earnings are up double from last year, and revenue is up as well. Jonathan agrees that this is a good business and the momentum is with these stocks. Price says that the capacity is very constrained with these tankers, which plays into this company’s success. It has gone up a lot recently, so it is a momentum play. (Wayne owns this stock.)
Price's All-Star Pick: DHB Industries (DHB)
Friday's close: $14.51
In a shaky market, you need a “bullet-proof” stock, and DHB makes bulletproof vests. Just got a $240 million contract from the government, which is more than the company’s entire sales from 2003. Defense, for the next few years, is going to be a hot growth sector, and this company does a lot of business with the Department of Defense. Jonathan says defense stocks look really good. Wayne thinks it is risky, but it s a risk worth taking. (Price owns this stock.)
Jon's All-Star Pick: American Financial Realty Trust (AFR)
Friday's close: $14.49
This is a steady play – a REIT (real estate investment trust) that owns banks. Wayne doesn’t see this pick – he would rather own an actual bank as opposed to a company that owns banks. Price likes the idea behind the pick, but doesn’t love the actual pick.
The wheels of justice started spinning last week, as former Enron chief Ken Lay was indicted on charges linked to the collapse of his company in 2001. A wave of scandals followed Enron’s colossal failure. Could a new wave be on the horizon?
Gretchen says the scandal horizon is expanding to include 40K plans. Every American knows about them (or has one), but none of the investors in these plans understand that there are hidden fees and arrangements. It is going to be very disturbing when this is found out. She also says that today people expect that companies are operating in a clean, upstanding fashion but unfortunately people cannot make that assumption anymore and investors have to be extremely careful. In the third quarter there are going to be tremendously high watermark numbers to reach from last quarter when there was an 8 percent GDP in 2003. Unfortunately some companies are going to be tempted to change the numbers to make the Wall Street estimates. Ultimately, this is not a witch-hunt.
Jonathan says newspaper reporters and regulators want more scandals. The reporters love it because it’s “corporate big wigs gone wrong”, and the regulators want it because it gets them on the front page. But if you are trading, then you have got to watch the market and not the front page of the New York Times. Enron fell for days before anyone knew what the story was. He says that there was no inquiry going on when the market was going up but now there are people like New York Attorney General Eliot Spitzer and other politicians vying for public office on their own who have caused a witch-hunt for those people. What worries him is that there is a presumption of guilt amongst capitalism across the board, which needs to be investigated and regulated.
Cashin’ In Challenge
Check out the ups and downs of the hottest investment contest on TV: www.foxnews.com/challenge
Question: “What’s a good investment plan to have in case Bush stumbles and John Kerry wins the election?”
Wayne says that energy stocks will do well, no matter who is in the White House. One’s that he particularly likes are:
(Wayne owns these stocks)
Question: “I bought HealthSouth (HLSH.PK) around $2 and sold it at $5. It’s now trading around $6. Time to buy again?”
Gretchen says the company hasn’t filed financials since 2003 and wont until 2005. How could you access the company’s prospects without knowing what they do? Wayne says it has very good management and is going to be a very solid company. He would buy it somewhere around $4-$5 a share. Jonathan says you “have to let winners run” but he would not buy the stock again.
Dagen says Intel is the best pick. It has a history of innovation, it has a well-protected business model and a lot of people know the name. Jonathan says so much can happen in 10 years — he doesn’t have a pick from these three.
Question: “We always hear advice on when to buy a stock. How about something on when to see a stock?”
Jonathan says it’s simple: sell losers and let the winners run. Gretchen says sell when every analyst on Wall Street says buy.