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 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; Charles Payne, founder & CEO Wall Street Strategies; and Tom Adkins, publisher of CommonConservative.com.
Trading Pit: Convention Bounce
The Dow’s been down for five consecutive weeks — racking up big minus signs and closing below 10,000 the first time since May. Can the conventions turn things around?
John Kerry (search) expects to get a bounce in the polls from the Democratic Convention this week in Boston. And many on Wall Street are hoping for a convention bounce for stocks as well.
Charles: There will not be an immediate bounce, but the conventions will be very welcomed on Wall Street because the election is one of the biggest clouds over the market. The conventions signal that the election is almost here. As far as John Kerry is concerned, he will have to put out a message and won’t be able to hide behind the “I’m not Bush” strategy.
Tobin: I’m a BEAR! There is more pain to come. Last week Microsoft (MSFT) basically told the world that it can make more money buying back its stock than investing in its business. Its business is growing 6-8 percent. Why pay 25-30 times a dollar of earnings when the company is saying it is not going to make near what it used to. This means big tech is mature and the Nasdaq is vulnerable.
Tom: The convention will not give Kerry a bounce. Americans will see him for what he is — an arrogant jerk. Since the advent of television, the guy who wins the presidential election is the guy who people like the most.
Pat: The conventions will have no effect on the market. Toby brought up good point that tech companies are maturing. Also, there have been major warnings from chip companies and Coca-Cola’s (KO) disappointing numbers. These things are going to weigh a lot more on the market than anything that’s said at a convention. Wall Street is expecting companies to blow things away, but the expectations are too high.
Gary B.: The market has been beaten with an ugly stick. But I think soon all will be well and that the Dow won’t fall below the 2004 lows around 9,800. Most investors are very negative right now, so I can’t be totally bullish, but I’d rather be a buyer than a seller.
Scott: Kerry & Edwards are putting themselves out there as the “good time guys” — the guys that are going to bring back all the good times. But times are tough and people will see through this and not go for it. As for the market, I expect it to head a little bit lower, then have a sustainable rally. The reason I know we’re getting close to a low because Toby is bearish!
Fair and balanced means you get the "Bulls & Bears" best… and worst calls. First, the good calls.
Last September, Charles said that “Lucent (LU) the loser” was coming back. And come back it has! Since that time Lucent is up 46 percent. Charles pointed out that it went up 200 percent after that show and everyone on the panel disagreed with him. He bought more on a pullback and thinks it will keep going up. (Lucent closed on Friday at $3.25.)
On November 29th, Gary B. said an “Apple (AAPL) a day would keep the bears away.” Since then, it is up 47 percent. He said its chart is showing no sign of weakness and it’s going to keep heading higher. (Apple closed on Friday at $30.70.)
A year ago, Scott said to buy risk consultant, Kroll (KROL). He thought it was worth the risk, even though the company had reported disappointing numbers. It is up 63 percent since then, in part because of a merger with Marsh & McLennan (MMC). Scott took profits from Kroll and also bought Marsh & McLennan because the merger allows it to manage risk better than anyone else. (On July 8th, when Kroll and Marsh & McLennan merged, Kroll closed at $36.97. Marsh & McLennan closed on Friday at $43.44.)
Last year when gas prices were dropping, Tobin said to buy EOG Resources (EOG). At the time, everyone said he was full of hot gas, but the stock is up 54 percent since his recommendation on July 19th. Tobin put in a stop loss (an “insurance” policy that will automatically sell a stock if it falls to a predetermined price) in at about $2 below where it is now. However for the long term, he likes this one along with other energy stocks. (EOG Resources closed on Friday at $60.81.)
Last November, Pat predicted that defense company, Raytheon (RTN), would be up 20 percent in a year. It hit that and more, up 25 percent since then. He thinks it’s a turnaround story that still has room to grow and is worth about $40. He admitted it is an ugly company, but is big in defense technology and electronics, which are getting a lot of cash flow. (Raytheon closed on Friday at $32.38.)
Next, the wrong calls.
On last week’s show, Tobin said that Taser (TASR) was going up 20 percent in the next 20 days. But before the opening bell on Monday morning, negative press came out about the safety of stun guns. The stock had a horrible week and was down 27 percent. Toby admitted this was a wrong call and he had a stop order on it, so all his shares were sold. But he said the news turned out to be false, and the business is going to come back. (Taser closed on Friday $29.52.)
Just a few weeks ago, on July 3rd, Gary said the Nasdaq would gain 7 percent and make a new high by October. But instead the Nasdaq is down 8 percent. He said when he made this call, the “Nas” was right at an uptrend line. But one day later it broke down. Now he still thinks the Nasdaq will finish up for the year, but to make a new yearly high by October will now be a lot harder. (Nasdaq closed on Friday at 1,849.09.)
Three months ago, Pat said CarMax (KMX) would be up 40 percent in a year. Unfortunately, it looks like it has been sent to the junkyard, down 33 percent. He admitted this was a bad call and what went wrong was that carmakers, like Ford (F) and Toyota (TM), continued to pump out great incentives, hurting CarMax’s sales. But he recently bought more of this stock and still thinks it’s a great buy. (CarMax closed on Friday at $19.43.)
On February 21st, Charles said Lexar Media (LEXR) and Silicon Storage (SSTI) would boost investors’ bottom line. Both did just the opposite. Lexar Media is down 62 percent and Silicon Storage has been cut in half. Charles thought all the stocks in the area of “flash memory” would do well, but now thinks only SanDisk (SNDK) is the only one to own. (Lexar Media closed on Friday at $5.39, and actually fell below $500 million in market cap, a level not normally mentioned on Bulls & Bears. Silicon Storage closed on Friday at $6.16.)
Scott’s winner from the last Scoreboard in May turned out to be his loser this time around. At the end of May (the last time we did Scoreboard) he said AU Optronics (AUO) would keep going up and could hit $40 in the next 2-3 years. From that time, it’s down 46 percent. He initially sold his shares at $25, but bought more as prices dipped. He said that in the first quarter it turned out that there was a shortage of LCD panels that AU Optronics makes, but now many people are afraid this market is over saturated. Scott does not think this is the case and even though the stock has gotten hammered, he thinks it will turn around. He recommended to buy the stock now because it’s dirt-cheap. (AU Optronics closed on Friday at $11.43.)
Tobin's prediction: It hurts to say this, but Dow 8500 & Nasdaq 1750 by end of September
Charles' prediction: Microsoft's (MSFT) dividend signals more problems for the stock
Gary B's prediction: Microsoft dividend means company is stronger than ever; up 40 percent by 2005
Tom's prediction: Auto industry will benefit BIG TIME from the market recovery (Tom recommended Toyota-TM & Ford-F.)
Scott's prediction: Buy DaimlerChrysler (DCX) to get dividends before tax law changes
Pat's prediction: Ross Stores (ROST) is stylin'! Up 30 percent in one year
Cavuto on Business
Neil Cavuto was joined by Jim Rogers, president of JimRogers.com; Gregg Hymowitz, founder of Entrust Capital; Ben Stein, author of, "How To Ruin Your Financial Life; Meredith Whitney, Fox Business News Contributor; Jack Welch, Jack Welch LLC and former CEO of General Electric; Joe Battipaglia, Chief Investment Officer at Ryan Beck & Co.; Bill Rafferty, political satirist and comedian.
The Bottom Line
Neil Cavuto: The economy is strong. Earnings are good. So why aren't stocks going up? To put it bluntly it's been a cruddy market this month. Jack Welch, it's been pretty automatic, when times are good stocks go up. What gives here?
Jack Welch: You have enough uncertainty in this market that the market is pretty reasonably priced.
Neil Cavuto: But you say 'reasonably priced.' There are some people who say rich. Why not you?
Jack Welch: I'm not smart enough to know the difference between a 17 P.E. or a 24 going forward. For those who want a big rally, I find it tough to see why.
Jim Rogers: I don't want to rain on your parade Neil but the market has been up eight out of the last nine weeks, if you don't look at the Dow. Most stocks are going up. It's hidden by the Dow and the S&P. In the next weeks, I think you will see a rally in the other stocks as well.
Gregg Hymowitz: Ultimately the fiscal and monetary stimulus that we've seen recently is going to run out of steam. And that's what you're seeing. That's why you're seeing a lot of retailers disappoint. The biggest problem in this entire recovery of 31 months is we've seen 0.2 percent increase in jobs. Typical recoveries average 7.5 percent. There's no job growth in this economy.
Ben Stein: The market is not buying or selling based on job growth. They're buying or selling based on profits and earnings growth. Profits are at a record high for the economy as a whole. There is tremendous political uncertainty. The real question is: “Are we subject to another series of terrorist strikes?”
Neil Cavuto: But the market has been ignoring good news.
Joe Battipaglia: It was kind of a magic deck though. Let's put it in perspective. It was like, let me tell the good news first and get everyone excited, but then let me tell you about the bad news in my operating results. A year ago when everyone had lower expectations about the economy and profits, the economy could run. Why? Because we beat estimates. Now in the new year, suddenly we have to have 30 percent earnings growth or otherwise it's unacceptable.
Neil Cavuto: I think this estimate game is the problem. Jack Welch, you've argued that too.
Jack Welch: It's just silly. The thing that matters is how well a company did against the prior year. How well it did against its competition. And that really is the ballgame, and not these silly estimates.
Jim Rogers: Jack is exactly right. This whole game of waiting for estimates and worrying if they're a penny off. That is lunacy.
Gregg Hymowitz: It's about the markets pricing in expectations. And when companies disappoint based upon what the market is already pricing in, that's when you see stocks start to come down.
Ben Stein: I think the point is that earnings are incredibly good. The market is a bargain compared with the REIT's last 20-year averages. The market is not expensive. It's not a bad time to buy.
Joe Battipaglia: If you were talking about 20 percent growth in corporate profits, you'd be excited about stocks. But that's today's environment. One other thing, Homeland Security went on record and said as we get closer to the convention, terror attacks are likely. A buyer of stocks will hesitate on that news. And a seller will decide to sell certainly.
Gregg Hymowitz: Jim was the first one to say, “Beware of 2005!” And I think it's happening a lot quicker. The economy is slowing down a lot quicker than people think, and that's what the market is telegraphing.
Jack Welch: I think it's all an uncertainty and a fear. I think if you're going to invest, it's a tough time to do it.
Jim Rogers: But Ben makes a good point. When there's fear, that's when you should buy.
Ben Stein: And Mr. Greenspan, who is privy to the best economic research in the whole world, says there is no recovery that doesn't hit some soft patches. We're definitely hitting a soft patch.
More for Your Money
Neil Cavuto: Does corporate America need to get a better sense of humor for all of us to get more for our money? There's a new trend in corporate America of hiring comedy groups like Chicago based "Second City" to help train executives and managers to essentially learn how to laugh. Sounds bizarre, but it's true. Bill Rafferty, you've done a number of gigs for corporate groups. What do you think of this? Bill Rafferty: There's no humor in the big office. Make no mistake about that. This is the story that's done every year before the UFO stories in August when everyone's on vacation. But you look at the company a year later and they're out of business. Do you want to sit in a room and tell Larry Ellison jokes?
Neil Cavuto: So how can humor help them?
Bill Rafferty: It can help them, but the problem is it has to be safe. And humor is never safe. I did a job once for Hewlett-Packard. And the guy who was in charge came up to me, put his hands gently on my shoulder and said, 'Now remember. Absolutely no humor.'
Neil Cavuto: Did this guy work at CNBC?
Bill Rafferty: I think he was the guy who made the final approach for John McEnroe.
Neil Cavuto: Okay pipe down everybody. Ben Stein, you have a good dead-pan sense of humor. What do you make of that?
Ben Stein: I make my living at being funny at corporate gatherings. And it's a damn good living. But it has nothing to do with the investor's bottom line or earnings. But it's always good to laugh. And we laugh at Gregg every week, so it's great.
Neil Cavuto: That was a cheap shot. I will say that. Jack Welch, I used to work for you. And you were a very funny guy. You were very engaging and you knew how to tell a few jokes. How important is that?
Jack Welch: Informality in a company is a huge deal. It leads to candor and candor leads to a more competitive company. But I don't think you're going to bring some guy in and make jokes. If you have a bureaucrat, you have a bureaucrat. You're not going to fix it.
Neil Cavuto: Jack, you never liked my jokes at CNBC and I sensed that.
Jack Welch: Because you were too expensive.
Gregg Hymowitz: It's important to be funny, but I don't know if you can teach someone to be funny. I think you either have it or you don't have it.
Jim Rogers: You do need morale in a company. If you can get the morale up in a company, that helps. But a temporary laugh, it takes more than that to get morale up.
Meredith Whitney: A lot of things can inspire people. But it's not funny how much money has been lost over the past couple of years. Nothing is funny about corporate excess.
Bill Rafferty: I'm in the green room with these guys and have you ever heard the conversations these guys have? It's like two cell phones in each ear. And they're like, 'Send me the fax. No, I want the fax. Send the fax. You didn't send me the fax? Send me an email about sending me the fax.'
Neil Cavuto: I think there is something to be said about executives that make you feel good. Am I missing something Jack?
Jack Welch: No question.
Ben Stein: Yes you're missing something. The perfect follow up question for this show is what stock do you buy based on the comedians appearing in the annual meeting?
Head to Head
Neil Cavuto: Will the political conventions help us pick the right person to be America's next CEO? Time to go inside Jack's head. Jack you're in Boston where it all starts Monday. Do these things really help Americans decide who is best to essentially be the country's chief executive officer?
Jack Welch: There are probably two things you look for. The first is the atmospherics, and the other is the candidate’s final speech. In terms of the atmospherics, they're basically all the same with the partisans all screaming. And on the outside, I think the edge goes to Kerry. He's in his hometown and everyone there is a liberal. So it's going to be a quiet place for him. Whereas, New York will just be a mess. And the images around the protesting will have some impact on this 10 percent swing vote.
Neil Cavuto: We know that every nominee's speech is very important. What do we need to hear from either Democrat or Republican to convince us that this guy should be president?
Jack Welch: In Kerry's case it's clear that he has to show decisiveness. He has to show that he's a decisive leader who will reject radical ideas. And he will have a course for America that is better than the one we have right now. As far as Bush is concerned, he has to get the last four years in the context of the future. He has to be able to show America that he can keep it safe. And he has to show that he has a future for the economy. He has to put the difficulty in the economy that he inherited from Clinton in context without dwelling on it.
FOX on the Spot
Joe Battipaglia: No convention terror; Markets hit new yearly high!
Gregg Hymowitz: Edwards wows investors at convention.
Jim Rogers: President Bush pushes for more tax relief.
Meredith Whitney: Listen up Jim! Buy Scudder Japan Fund (FJEAX).
Ben Stein: iShares Dividend Index (DVY) pays off.
Jack Welch: Fed keeps rates below 2 percent for rest of year.
Neil Cavuto: Pizza sales will soar in Boston next week as I make my way there for the Democratic Convention. Vendors, be ready!
Forbes on Fox
How are politics and global events affecting your wallet? We’ll put the story In Focus and give you the bottom line.
David Asman: Just like that no-good brother-in-law who is sleeping on your couch, probably right now, the stock market has done absolutely nothing with itself in the last five years. But a big move is coming, even bigger than last week's action. The question is, in which direction? On March 29, 1999, the DOW closed above 10,000 for the very first time. Now, five years later, the market is still just about at that 10,000 mark. Bottom line, folks, we have not been doing much of anything. So Mike, we had a pretty interesting week. There was a lot of volatility. What is the market going to do?
Mike Ozanian, senior editor: The market is going to go way up and be at 12,000 by the end of the year. That's the prediction I set. Before you laugh me off the air, that's the prediction I made at the beginning of the year. But the reason is that companies have a record amount of cash; real, green money that they can spend. We saw Microsoft (MSFT) when it announced what it would do with its cash hoard. The stock price went up. This is the most amount of money that companies have had since 1963. 1964 was a great year for stocks.
David Asman: Victoria, Microsoft isn’t putting that money in R&D, is it? It's giving it back.
Victoria Murphy, staff writer: That’s right. And if you look at Microsoft, the stock is where it was before they announced the $32 billion dividend to shareholders, and announced a great sales year and great earnings. So I think this market is really unrewarding, investors are really skittish. And these companies, the cash pile that Mike is talking about, it's not like it came out of nowhere. It's been gathering over the past couple of years. So I don't see that as an argument for a sudden boost in the stock market.
David Asman: And, talk about skittishness, the market was scared to death this week.
Steve Forbes, editor-in-chief: That's right because the 9/11 Commission came out and people thought it would hurt the Bush administration. Do you want to know where the market is going? The polls show a Bush victory, the market will go up, if it's a Kerry victory, it will go down. With Kerry in the White House, taxes are going to go up. He has to do nothing, just let the tax cuts that were passed last year expire. Boom; capital gains dividends, bad news.
David Asman: Is it that simple?
Neil Weinberg, senior editor: No, it’s not that simple. And I think the fact that companies have a lot of cash shows they don't know what to do with it. If you look at the fundamentals of the market, earnings are slowing down. Inflation is going up.
Mike Ozanian: Earnings are accelerating.
Neil Weinberg: And seven times since the 1960's, we’ve had inflation rise and every time the market has either been flat or down. The price-earnings ratios on an historic basis are very high. The market is expensive and doing what it should do which is very little of anything.
David Asman: Elizabeth, the five weeks down for this market, it doesn't look good right now.
Elizabeth MacDonald, senior editor: I can’t get as het up about going negative on the market, I think we need a broader perspective, and that is we may be in a trading zone. We were in a trading zone from 1962 to 1982. The market only grew 2.4 percent a year. We could be in the front of a trading zone, and I think there will be a lot of chop in the market. I'm really bullish on the market. I'm about 70 percent or 80 percent in.
David Asman: Watch out for the chop but bullish on the market. What about earnings? You were disagreeing about earnings.
Mike Ozanian: Earnings growth is accelerating.
David Asman: So companies are making more money.
Mike Oznaian: That's right. The fact of the matter is, if you looked at price-earnings ratios in the stock market and used Neil's logic you would have missed the last three bull markets and living in your apartment instead of your house. The primary purpose of companies is to make shareholders rich and by giving that cash back, instead of reinvesting it, they don't have the opportunity, that’s going to go back into the economy.
Victoria Murphy: Companies have cut costs to the bone. So, it’s hard to see where you will get earnings and margin growth. I think the market right now is like this dinner date you can't impress. Let's look at two companies. Electronic Arts (ERTS) had a great quarter. They announced 32 percent profit growth, 22 percent revenue growth. The stock goes down 6 percent. McDonald's (MCD), 10 percent sales growth, earnings growth, the stock goes down 1 percent. There is no bull to this market.
Steve Forbes: Get to the point. If Kerry wins, the market goes into the john because he will be bad for the economy. The economy anticipates the future. But long-term investors should ignore the short term because take that 10,000 in 1999. If you had invested monthly, you would have had money today, because the market's volatility. Dollar cost averaging: you would have made money with that in dividends. With disciplined investing, you make money.
David Asman: You talk about all this cash that the companies have. Almost $1 trillion. A lot of cash. Why didn't Microsoft put that money, as Victoria said, maybe they should have, into R&D instead of just giving it back?
Mike Ozanian: Because the market share, they have saturated it. So it’s doing the right thing and giving it back to the shareholders.
Victoria Murphy: That's not true.
Mike Ozanian: If they go into other businesses, they're just going to be sued by somebody else.
Elizabeth MacDonald: I can't get as excited about being negative for the market. Trading zones have been with us since airplanes were invented. The economy is growing at a great 4 percent. And what did you say, Mike? Growing faster than during the Clinton years and the world economy is growing at 4 percent or 5 percent. I think it's great for the market.
Neil Weinberg: The market, over time, has a reversion to the mean and it is still expensive. Last year we had a great run and justified by an economy that, this year, has improved.
Steve Forbes: Over time, P.E.’s go up because the economy and markets get more efficient. And right now, the economy is doing well. But it's sloppy because it doesn't know what the future holds. That rides on the election.
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 victory for John Kerry would be a victory for Wall Street. How would President Kerry make the stock market rise, Bruce?
Bruce Upbin, senior editor: The conventional wisdom is that Bush is the business president, he’s the GOP. What business and Wall Street likes better than the Republicans is stasis, is Washington doing nothing and staying out of their hair.
David Asman: A split government.
Bruce Upbin: A split government would be great for business and stocks. It always has been.
Elizabeth MacDonald, senior editor: You have to look at Kerry's economic plan when you look at the details of it you will see that it was minted straight out of North Korea. This is not a plan that will create more jobs, it’s a plan that will create more government jobs. It is a nightmare plan and it's going to wreck the stock market.
Lea Goldman, staff writer: You haven't elaborated one concrete point as to what is wrong with the plan. The point is that his economic policies are geared toward the middle class. A better, more improved economy for middle class means a better market. He is going to reduce the deficit, which is better for the markets in the long run.
Elizabeth MacDonald: Reduce the deficit?
Steve Forbes: The program of higher taxes will hurt capital creation and the growth of the economy. He has a big health care program coming along. So the bottom line is ‘push Bush, bury Kerry,’ if you want a good stock market.
Elizabeth MacDonald: The health care plan that Kerry wants is going to bust the deficit. It's upward of $1 trillion a year. And as for the details of his plan, what he wants to do is stop the deferral of foreign income to create, he says, 10 million jobs. And what he is going to do is allow the treasury; the commerce and the labor department to decide who gets a payroll tax credit because they lost jobs to outsourcing.
David Asman: Hold on. How does he go about balancing the budget, John Kerry?
Bruce Upbin: Kerry?
Lea Goldman: Reduce spending. You reduce spending. Which Bush has not done.
Bruce Upbin: And bring taxes up on the rich. Dare I say it.
Steve Forbes: Jimmy Carter gave us higher taxes in the latest 1970's and nearly balanced the budget and we got wild inflation and a horrific stock market. We had big deficits in the 1980's because we were burying the Soviet Union and cut taxes and the economy blossomed.
David Asman: And some people say that we balanced the budget in the ‘90’s because Clinton had the peace dividend and we don't have that anymore.
Lea Goldman: I know, and one issue that we need to talk about is the pull out of Iraq. We, for the last six months we have talked about how Iraq is a big drag on this market. Look what happened in Vietnam. The only issue now is the size of our humiliation.
Steve Forbes: We need Ronald Reagan again.
Bruce Upbin: Let Kerry come in and propose these taxes and let the republicans in Congress vote them down.
Steve Forbes: Those tax cuts expire during his term. They have to be renewed. That's why the market is worried.
David Asman: Steve, one point that is a very valid point, and you've addressed it yourself, republicans have been spending money like crazy. You have a republican president, republicans in the house and senate. Isn't it better to have a divided house? Doesn't that keep spending down a little?
Steve Forbes: You may keep some spending down. But the fact of the matter is if you don't have those lower tax rates, which is all about incentive and capital creation and risk taking, if you punish risk taking, the economy is going to suffer.
Elizabeth MacDonald: Kerry is doing just what Clinton did to get into office in 1992. Promised a middle class tax cut and all we got was a childcare credit. Big deal. When you look at Kerry's economic plan, he has nothing to address the $45 trillion in unfunded liabilities for social security and Medicare. And one good thing about him is he will allow cheap drugs to come in from Canada. But I don't see anything in addressing those severe problems.
David Asman: All of the benefits in terms of raising taxes, in terms of money coming into the treasury, will be wiped out by the spending program, as Elizabeth said, on health care.
Bruce Upbin: Well, you can’t have anything worse than four more years of what you have now. It’s the most spending that any administration has ever done since the 1960's. Stop right there.
Lea Goldman: I agree. And I defy you to go to the voters and say -- and refer to Clinton. They're going to say to themselves, ‘which economy did I do better in, the Clinton administration or this one?’ Go ahead. Do it. Please.
Steve Forbes: The recession started in the Clinton administration. And the bubble bursting on phony economics. If you don't make systemic reforms on health care and social security, you are going to have a poor economy, big budget deficits.
Makers & Breakers
• Sallie Mae (SLM)
Marilyn Holt-Smith, Managing Director at Holt-Smith & Yates: MAKER
We like them because they are a play on the whole industry expansion. We see tuition growing at double-digits between 12 and 13 compounding. And we are seeing more people going to college and more have to finance their college education.
David Asman: And Sallie Mae is the one that does it. Trading at $37, (Friday’s close: $36.99). How high could it go?
Marilyn Holt-Smith: $50 A share.
David Asman: That's quite a jump.
Mike Ozanian, senior editor: MAKER
I'm a maker on it and not just because my mother's name is Marilyn, too. They have a great CEO, and do an efficient job of weeding out the students that will not pay back the loans. But the only consideration that I would have would be that if Kerry wins, I would be a little cautious. He wants to take away some of the profits from this company.
Elizabeth MacDonald, senior editor: MAKER
I'm a maker on this. It’s a great stock. The revenues and earnings have been coming in strong. Plus they have decent partnerships with JP Morgan Chase (JPM). They are being really smart about their business.
• Teva Pharmaceuticals (TEVA)
Marilyn Holt-Smith: MAKER
One of the world's leading suppliers of generic drugs. And we think that's a whole play, of course, on the aging population. And the use of more generics within controlling costs in the whole health care area and more branded drugs coming off of patent and a broader supply.
David Asman: They develop it, market it, distribute it. They do about everything. And it is at $30 (Friday’s close: $30.66) and how high could it go?
Marilyn Holt-Smith: About $38.
Elizabeth MacDonald: MAKER
I agree. I'm a maker. They’ve got about 150 different generic versions of branded drugs and they just got approved for a diabetes drug from the FDA. A good stock.
Mike Ozanian: BREAKER
A breaker. It’s a great company but the stock has more than doubled in the past two years. It’s a little more expensive than its rivals and I'm a little bit of a cheapskate.
Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:
David Asman: Rival stores, Costco (COST) and Wal-Mart (WMT) are backing rival presidential candidates. Costco says Kerry would boost its business and Wal-Mart says Bush is their man. Both are backing up their picks with donations. Will the winner in November decide the fate of these two stocks? Why do these companies care who wins the election?
Victoria Murphy, staff writer: The big issue is minimum wage. Kerry has pledged at this point to increase minimum wage. And for Wal-Mart, that's potentially bad news. Wal-Mart employs, I don't know what percentage, but certainly a lot of its staff on minimum wage. And Costco has none of its employees on minimum wage. Costco is very generous in wages, in benefits, whereas Wal-Mart certainly has a reputation for not being so generous. So there is a lot at stake here for these two companies. Politics really matter.
David Asman: And even though Costco is only 6 percent unionized, Wal-Mart is viewed as anti-union. And Costco, pro union, right?
Chana Schoenberger, staff writer: That's partially deserved. Wal-Mart does not like unions. They take active steps to discourage unions from getting to their workers and unions don't like Wal-Mart, whereas Costco has.
David Asman: And, we should mention for folks that don’t know it, most unions back democrats.
Chana Schoenberger: That's correct. They're all endorsing Kerry.
David Asman: There is a political connection to these companies.
Bruce Upbin, senior editor: Well, I think that Wal-Mart does transcend the parties. It has so many customers and stores it doesn't matter. But that said, the fact that the executives are backing Bush is smart because if Bush’s economic performance, which is good but not that great on the job front, continues, more people will have to shop at Wal-Mart because they will be out of work.
David Asman: This doesn't necessarily mean if Kerry wins Wal-Mart dies.
Lea Goldman, staff writer: No, but the key to Wal-Mart's success is that it has squeezed every penny it could out of wages and by hiring people of dubious citizenship. And under a Kerry administration, that's definitely.
David Asman: Hard-working immigrants.
Lea Goldman: But Costco, on the other hand, has paid its employees well and has generous benefit packages. Under a Kerry administration, they will benefit because they will qualify for a new health plan that he is developing whereby the Kerry administration would pay for two thirds of catastrophic health insurance.
David Asman: So Victoria, if in fact Kerry is elected president, and there is a new minimum wage law, minimum wage goes up, how will that affect Wal-Mart?
Victoria Murphy: Wal-Mart will take a hit. What's interesting about a company as large as Wal-Mart, is that they can get all these efficiencies because of their size, in terms of negotiating with vendors, efficiencies in their supply chain, but labor is a different category. Because I think as a company gets larger and more profitable, its employees want to take part in that and want a greater share of that prosperity. And Wal-Mart is grappling with that right now..
Chana Schoenberger: You also have to look at the way the economy is going. I think the economy is doing very well. And as it does better and people have more money to spend and wages go up, Costco will benefit from that.
Bruce Upbin: And on a business, competition standpoint, Wal-Mart has that Sam's Club, which has been underperforming Costco and getting beaten by Costco. That's changing and Sam's Club is catching up on Costco, and they have their sights set on Costco.
Lea Goldman: Barely. Costco outperforms Sam's Club handily.
Bruce Upbin: That's in the past.
Lea Goldman: Currently.
Victoria Murphy: The interesting thing about Costco is that they have something like half of American households signed up for memberships. That’s what I have read, and it makes you think ‘where is the growth going to come from?’
Bruce Upbin: Overseas. And only Wal-Mart has the overseas.
Victoria Murphy: Wal-Mart gets to grow overseas and in California they don't have a great presence.
Stock Smarts: Are We Safer Now?
A chilling reminder of the horrors of 9/11 was released along with the 9/11 Commission’s report last week – a videotape of the hijackers who crashed a jetliner into the Pentagon being passed through security at Dulles airport. And according to that report, America needs to prepare for an even bigger terrorist attack than on that deadly day.
But are our lives and our investments any safer now than we were before September 11, 2001?
Wayne Rogers of Wayne Rogers & Co says we are safer now. He says 9/11 was a wake-up call for America, and he thinks that the country is far better prepared for an attack now than it was then. Since that time we have established a department of Homeland Security and there is heightened security at our borders and ports. But he says unless you build a wall around the United States you cannot stop an attack from ever happening again, and he believes we will see more of them, and he says it’s important we learn to live with that fact the way they do in Israel.
Jonas Max Ferris of MAXfunds.com thinks we are less safe now than we were before 9/11 because we have gotten in the face of a bully and ignited more anti-American sentiment in the Arab world.
Democratic strategist Bob Beckel says Jonas is right, the war in Iraq has increased the number of terrorists. He says we have spent $85 billion to set up a department of Homeland Security and people are still are getting into airports.
Herb Greenberg of Marketwatch.com says he doesn’t feel safer because everybody’s telling him he shouldn’t feel safer. He says he believes zealots have been stirred up by the war in Iraq. But he says as far as the market is concerned, he does not think you should invest or not invest based on your fear of terrorism. He says the market’s dive after 9/11 was short lived and he expects the same would happen again. But he says there are other reasons why your money may not be safe in the market that have nothing to do with terrorism.
Jonathan Hoenig of Capitalistpig Asset Management says before 9/11 the market was in a downtrend and that was not a great time to invest. He says that while he does not believe the market is currently in a downtrend, it has been very choppy, and this is a very tough environment to make money in. It’s the kind of market that chews you up. As far as our personal safety is concerned Jonathan points out that Saddam’s been captured, Usama bin Laden has been marginalized, Libya has disclosed its nuclear weapons program, Afghanistan has been tamed and Arafat’s been marginalized. He believes we are safer.
Stuart Varney of FOX Business News says he believes we are now safer than we were before 9-11 because of what we have done in Afghanistan and what the Patriot Act has done to aid law enforcers in America. But he says there is a short-term chill among investors that is hurting the market. He points out that the 9/11 Commission’s warning that America should prepare for and attack of even greater magnitude than on 9/11 does not inspire confidence in investors.
Be$t Bets: $tock Convention!
The Democrats are in Boston for their national convention this week. But we have our own stock convention. Our gang nominates the stocks they think can make you the most money right now! And the nominees are…
Gary Kaltbaum’s Nominee: Johnson & Johnson (JNJ)
Friday's close: $55.70
Gary says he’s bearish on the market right now and so he’s relying on bigger cap plays like JNJ, which has already reported earnings, and he says the stock is acting well, and it has been holding up in a tough environment. Gary owns shares in JNJ. Jonathan says the whole sector is weak, so he’d avoid this stock. Jonas says healthcare, energy and financing are the only areas of the market that are going to make money. He thinks JNJ will deliver.
Jonas' Nominee: Flowers Foods (FLO)
Friday's close: $25.90
Jonas says Flower Foods is the kind of dull stock no one expects too much from so there’s little chance it will disappoint and he thinks this is the kind of slow grower that investors flock to in tough times. Gary says he likes the stock. Jonathan prefers Hershey (HSY) as a play in this sector.
Jonathan’s Nominee: Laudus Rosenberg Value Long/Short Equity Fund (BRMIX)
Friday's close: $9.91
Jonathan says the SEC and other regulatory groups are making it as difficult as possible to invest in hedge fund – like the one he runs – so he recommends this mutual fund which has the flexibility to bet on both a rising and on a falling market. He thinks you need that flexibility to make money in this choppy market. Jonas says these long/short mutual funds can rarely make enough money to justify their high expense ratios and this one is no exception. Gary says the fund is doing fine in a bad market. He likes it.
Stock of the Week
This week, Wayne says the stock to watch is PetroChina (PTR). It’s starting a good move of off its base, and production and earnings are up. He also like that it pays a 4 percent dividend. Has done well with energy stocks, and China is still a good place to invest. Herb says oil prices are an important factor to this story, which you have to keep in mind. He also says that Merrill Lynch, which is a financier of this stock, has a “neutral” rating on this stock because it thinks that oil prices are going down. And to Herb, that means, “sell”. Gary says if Merrill says sell, he says buy. And Gary doesn’t like to go against Wayne; he likes the stock and thinks it could move another 10 percent from its current price. (Wayne owns shares of PTR)
Wayne, Jonathan, Herb and Gary answered some of your questions.
Question: “Is it too late to buy Microsoft (MSFT)?”
Herb thinks that the market as a whole is pretty much yawning at Microsoft (after its $75 billion dollar stock buyback/dividend announcement). In terms of the stock itself, buy the stock if you want this one-time dividend, but realize that after it is paid out, the stock will probably go down a bit. And after that, you will be left with a safe, boring stock. Wayne owns Microsoft, and he thinks it’s a very solid stock. It’s basically like a bond – it’s boring, but it’s not going to lose you money. Gary would go elsewhere with new money, as the real news was the company’s disappointing earnings report and its guidance that points to pretty slow growth. Jonathan says that it just doesn’t make sense to get this stock for the dividend.
Question: “What’s going on with Red Hat (RHAT)?”
Wayne still loves the company long term. He thinks that confidence has been a little shaken in this stock. Gary sees no reason to touch this stock right now.
Question: “ I own Texas Instruments (TNX) and have lost 24 percent. DO I dump it or hold on for a comeback?”
Jonathan says the point is that every 24 percent loss started as a 12 percent loss and an owner of a stock “who had to be right.” You’ve got to set stop-loss limits and stick to them. Herb agrees with Jonathan, and thinks that the semiconductors are headed for more rough times.
Question: “Could you advise me on some good biotech companies to buy?”
Gary thinks this sector is in the middle of a bear market, but if he were to own one, it would be Genzyne (GENZ). They delivered a good earning report, and the stock is acting well. Herb would buy a biotech mutual fund. Jonathan owns a biotech company called Novo Nordisk (NVO), but he would stay away from the sector with new money.