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 Rob Stein, managing partner of Astor Asset Management.
Trading Pit: Is The Worst Over?
The Democratic convention came and went last week. John Kerry formally became the party’s nominee for president. And the convention, which was mostly positive, went without incident as many had worried.
As for stocks, it was an up week with the Dow breaking its five-week losing streak, posting a triple digit gain. So is the worst finally over for the stock market?
Scott: YES! The worst is over and we have started our summertime rally. Expect at least a 100-point Nasdaq rally and a 400-point rally on the Dow in the next 4 to 6 weeks.
Tobin: The worst is NOT over! Stocks need to be cheaper so investors will “own” them and not “rent” them. In the short-term it is better if the market goes down, increasing investors’ fear, and making stocks cheap. Once this happens, stocks will head higher.
Rob: The worst is over, but the best might be over too. I don't expect the market to move too much one way or the other for the rest of the year. However, I’m still bullish on the market for the next 12-18 months.
Gary B.: It’s a tough call, but we do seem to be bottoming. The Nasdaq is right at support and is oversold, so I think it’s time for the “big bounce”.
Pat: Stocks are cheaper, but are not cheap. We have not seen fear yet. Fear was the big bottoms the market suffered last year and a few years ago. Valuations are improving, as is the economy, but there will be no sustained move higher until after the election, when a lot of big issues are cleared up for Wall Street.
The "Bulls & Bears" cast their votes on stocks owned by Democratic Presidential candidate, John Kerry.
First up, Heinz (HNZ). This shouldn’t be a surprise because his wife, Teresa Heinz Kerry, is a heiress to the ketchup fortune. (Heinz closed on Friday at $36.89.)
Tobin: Bull. I like that it has lots of cash.
Scott: Bull. “John Kerry better hold this stock.”
Gary B: Bull. I like that the stock is at a support line. “This campaign is the greatest single marketing effort for Heinz.”
Rob: Bull. It has great cash flow and pays a great dividend.
Pat: Bear. This is a one trick pony because the Heinz brand is only 30 percent of sales. The rest of the company is made up of second-rate brands that aren’t very profitable.
Next, drug company Bristol-Myers Squibb (BMY), which is best known for Excedrin and any Presidential candidate could use that in a close race, especially if Howard Dean is around. (Bristol-Myers closed on Friday at $22.90.)
Rob: Bear. I think it is heading lower. Additionally, it just settled a lawsuit for $300 million and there are more lawsuits in the works.
Gary B: Bull. The chart shows that it is right at support and is going up. “Drugs rule, no matter who wins the election.”
Scott: Bear. The company’s management is awful.
Tobin: Bear. “It is the poster child for the worst-run drug company out there.” I suggest you sell it and buy a better one.
Kerry also owns Anheuser-Busch (BUD). And who doesn’t love a cold Bud, even though Kerry’s probably more of a Dom Perignon type of guy. (Anheuser-Busch closed on Friday at $51.90.)
Pat: Bull. This is a world-class company that sells beer better than anyone else. There really is no competitor.
Tobin: Bear. It’s expensive and fully valued right now.
Scott: Bull. It has been trading in a relatively narrow range and the stock is fairly valued. It is going to head higher and trade in the low $60s.
Gary B: Bull. I like it. It’s pulled back and is trading in a range that will keep it moving up.
Rob: Bear. Competition in this area is too fierce.
Next the gang looked at tech company, IBM (IBM). Hopefully the company will make a computer that will resolve the “hanging Chad” issue. (IBM closed on Friday at $87.07.)
Gary B: Bear. I don’t like it because it appears to be in the midst of a downtrend.
Rob: Bear. Tech is not performing so well and will only get a bounce from tech rallies.
Tobin: Bear. IBM has no growth.
Pat: Bear. This stock isn’t very exciting right here. I only want to buy when it is cheap.
Scott: Bull. It’s going to $100 and is a stable tech company.
Last up, Boeing (BA). Kerry is actually using a Boeing 757 while on the campaign trail. (Boeing closed on Friday at $50.75.)
Scott: Bear. Boeing has had a great run, but it is overpriced. Sell.
Tobin: Bull. It is entering a cycle in which it will sell more airplanes and there’s more spending on defense. Plus, the company’s accounting issues have been cleared up.
Pat: Bear. It’s too expensive and its satellite business is losing money fast. Don’t go near it.
Rob: Bull. Air Force One is a Boeing. I like it. The stock has been beaten down, but will rally coming into the end of the year.
Gary B: Bull. This is another Dow stock investors should have bought when everyone hated it. It is making a move up and is ready to head even higher.
Gary B. has a found a foolproof method to know if a stock is going up or down. It’s called the “Smith Indicator.” If he or a member of his family uses a product, the company’s stock “invariably” goes up.
First, Gary picked Coca-Cola (KO). He thinks its new soda, C2, is going to make it a winner. Plus, its chart is right at support and at a price where it should be bought. Rob loves the product, but not the stock. He remembers well the debacle the last time when Coke introduced new cola called, “New Coke.” (Coca-Cola closed on Friday at $43.86.)
Next, Gary looked at Abercrombie & Fitch (ANF). It’s time for back-to-school shopping and this store is a destination for every teen in every mall in America. Gary looked at his chart, and showed that it broke above a resistance line (near $30), paused, and broke out again. He said this is a good sign and the stock should reach $45 by the end of the year. Rob also liked Abercrombie and added the company has a terrific brand and great management. (Abercrombie & Fitch closed on Friday at $36.88.)
Rob's prediction: Housing market has peaked and is set to drop 30 percent
Gary B's prediction: It's a wireless world & Verizon (VZ) rules! Stock doubles in 2 years
Pat's prediction: Allied Waste (AW) is no piece of garbage; gains 50 percent in 2 years
Tobin's prediction: Hybrid cars make Honda (HMC) a hot stock; gains 25 percent by spring
Scott's prediction: Any stem cell research helps Celera Genomics (CRA); up 50 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 "Can America Survive?"; Meredith Whitney, FOX Business News contributor; Tom Dorsey, author of "Point and Figure Charting"; Nancy Skinner, radio talk show host; Mike Norman, founder of the Economic Contrarian Update.
The Bottom Line: Did Kerry Win Over Wall Street?
Neil Cavuto: He had his night, but did he make his case? Did John Kerry win over America and Wall Street?
Ben Stein: No. He proposed a million new spending programs. And didn't give any realistic way of paying for them. I think he's a sincere guy and a likeable guy, but I just don't think he made the case that he's going to be able to turn this economy into a full employment economy.
Jim Rogers: I couldn't agree more. He certainly didn't convert me. Raising taxes on savings and investment is madness. He's got an ambulance chaser (VP candidate John Edwards) with him who's against free trade.
Gregg Hymowitz: I couldn't disagree more. Wall street should be very happy here. First of all, he's talking about corporate tax cuts designed to create new jobs in America. Secondly, he's telling you that he's going to cut taxes on the middle class. And how's he going to pay for this? Okay he's going to roll back the taxes on the top 1 percent. And give tax incentives for middle America.
Neil Cavuto: Gregg, do you think someone who earns $200,000 in your neck of the woods is rich?
Gregg Hymowitz: I think someone who earns more than $200, 000 can afford to roll back taxes to where they were 2 years ago.
Tom Dorsey: Gregg, one thing you said was true. Wall Street should've liked it but Wall Street didn't like it. We're not in wealth preservation mode now instead of wealth accumulation mode. Our indicators show investors are very bearish right now and that shows they may be worried about a potential Pres. Kerry.
Nancy Skinner: We knew under the Clinton Gore administration that Wall Street was much happier than they were under a Republican administration. What John Kerry said Thursday was that we're going to go back to fiscal responsibility. Do you know what President Bush's people said on Friday? Unhappy workers should take Prozac. Now contrast that with what John Kerry said last night.
Neil Cavuto: That was one low ranking campaign official and it was taken out of context.
Meredith Whitney: I put myself in the swing category, undecided category. And I would've loved to have seen a tour de force from John Kerry. But instead I saw a death by a thousand cuts. I voted for Clinton because he was such a great speech maker. But John Kerry was very sparse on details. He sounded even more Bush than Bush sometimes. I don't think anyone on Wall Street wants more government intervention, which is clearly what John Kerry's campaign wants.
Nancy Skinner: Jim, you cannot say that because Bill Clinton raised taxes on the top 1 percent. And we had the greatest period of economic growth in our history.
Jim Rogers: Bill Clinton didn't have anything to do with that. The Bank of Japan did and we had a huge bubble under Clinton.
Tom Dorsey: Kerry said he was going to lower taxes for small business. Small business are sub chapter S. The way you reduce my taxes and people who are sub chapter S is to reduce my individual tax rate. That's it. There's no other way. And that's for most of us in America.
Ben Stein: We are now more prosperous than we were for 6 of the 8 years of the Clinton Gore regime. We had a bubble in the last few years and we paid very dearly for it. We just don't want another bubble. We want responsible economic growth.
Neil Cavuto: Many of your friends Gregg are leery of the fact that we're going to see capital gains and dividend tax relief out the window. You're saying the market can absorb all that?
Gregg Hymowitz: Yes Neil. I am saying that. I think the street is much more concerned about the deficit. Everyone you talk to on Wall Street is talking about the deficit and the concerns we have going into 2005. John Kerry talked about tax cuts for the middle class. The vast majority of Americans are going to get tax cuts. Corporate America is going to get tax cuts to bring jobs back to the U.S. And we're not talking about protectionism. What we're talking about is leveling the playing field.
Ben Stein: Gregg, the Chinese are not going to raise wages to please you. The Chinese are trying to lift a billion and a half people out of poverty. They're going to keep working for low wages for as long as they possibly can.
Nancy Skinner: Ben, you don't have a problem with outsourcing, because your job can't be shipped out to China.
Meredith Whitney: I think that's the biggest misnomer. You send jobs overseas and your create new markets. That's capitalism.
More for Your Money: “Shove It” Stocks!
Neil Cavuto: "Shove it!" A new catch phrase for Teresa Heinz Kerry these days. But is she on to something? Could saying "shove it" to some big name stocks help you get more for your money? We're talking about stocks to sell and which ones to buy in their place.
Mike Norman: I'm "shoving out" Ford (F). These auto companies have built up all this inventory. We saw last week how General Motors was downgraded by all the brokerage firms. But car sales are plunging now and Ford is going to get hit. The only part of the economy that I'm bullish about are the prescription drugs. I would replace Ford with CVS (CVS) pharmacy. Over the next 10 years the federal government is going to spend half a trillion dollars on prescription drugs. I do not have a position in either stock.
Tom Dorsey: I'm going to "shove out" H.J. Heinz (HNZ). H.J. Heinz has done extremely well since the bottom of 2003. It's at resistance now. I think the stock has a good chance to pull back. I would swap that stock with Dominion Resources (D). I own Dominion and have no position in Heinz.
Gregg Hymowitz: Hey Tom, is shoving Heinz a political statement you're making there?
Tom Dorsey: It's always about the charts.
Gregg Hymowitz: All right. I'd "shove out" Yahoo! (YHOO). It's at 125 times earnings. These stocks are selling at ridiculous multiples. I'd be buying Vodafone (VOD). The company continues to generate tremendous amounts of cash. It has come down a little bit and is trading at roughly 11 times earnings. It continues to take market share. I own Vodafone. I do not own nor am I short Yahoo!.
Jim Rogers: I would sell and I am short Fannie Mae (FNM). I expect the market to rally into the fall. So I would buy and I own the S&P 500 Spyders (SPY). Next year is going to be bad but we have some more ups in the market.
Ben Stein: I think the Nasdaq 100 (QQQ) is still over priced. I still like the MSCI EAFE Index (EFA). Buy European stocks and make a play against the dollar. The dollar has no where to go but down. I think you might has well make money on it while you can. I own EFA and do not have a position in QQQ.
Gregg Hymowitz: Ben, what's driving the dollar lower?
Ben Stein: The staggering current account deficit, which I don't think Kerry can do anything about or Bush until the dollar goes down.
Head to Head: Will Bush-Bashing Ban End?
Neil Cavuto: Wall Street's watching the election and the rhetoric closely. But will the Democrat's ban on Bush-bashing be short-lived? Having covered the Democratic convention, by in large the Democrats stuck to that motto that they would not Bush bash. But I think it's like me on a diet, by the sixth day they've lost it. So what's going to happen?
Nancy Skinner: I think that is what we saw there. A number of the speakers, including the keynote speaker who beat me in the U.S. senate race, Mr. Obama had a great speech. John Kerry had to show that he was tough enough. It was more of a Air Force One speech. He attacked President Bush on competency and credibility. But then he came back and said, hey it's not about the red states and the blue states. It's about the red, white, and blues states. And he called for unification of the country.
Neil Cavuto: He might've been saying that, but you guys lost it with Peter, Paul & Mary and with Michael Moore who was sitting next to former President Carter. I think a lot of middle America is looking at that convention and they're scared.
Nancy Skinner: Not at all. They're not looking at who's in the audience. They're looking at John Kerry and can this man do a better job. As people watch these films on his life and him as a war hero, they're going to get very comfortable with the idea that he can do better.
Neil Cavuto: I know they're not doing the Bush-bashing now. But I don't think they're going to stick to that. It's a likeability issue. I've talked to a lot of Democrats who agree with me on this issue. Kerry is not a warm and fuzzy guy. And I think that's what hurt Al Gore in those debates with Bush.
Nancy Skinner: I think he came off as very likeable last night.
Neil Cavuto: That hamster story. I thought that was a good story. That was about all I found really interesting.
Nancy Skinner: This family is out of central casting.
Neil Cavuto: Central casting for what?
Nancy Skinner: For a great presidential family. And more importantly, competent. Because you know what? We've had four years of likeable and it really hasn't done so much for us. We need to put credibility back in the White House.
FOX on the Spots
Gregg Hymowitz: Stocks rally on no terror in Boston. Dow will rise 5 percent in next two weeks.
Ben Stein: Bush wins and so does Boeing (BA). Ben owns Boeing shares.
Meredith Whitney: Bush may lose if CEOs don't start spending money.
Mike Norman: Congress kills economy trying to cut debt and create a surplus.
Jim Rogers: Blackouts in '05 light up ABB (ABB) shares. Jim owns ABB shares.
Tom Dorsey: The chips are up! Buy iShares GS Semi (IGW). Tom does not own IGW, but he may buy them in near future.
Neil Cavuto: The Olympics will supersede everything, even the convention bounce and politics. We're frozen in political time until the Republican convention, then people really think about who to vote for this fall.
Forbes on Fox
In Focus: Flat Tax the Best Plan for America?
President Bush cut taxes. John Kerry wants to repeal those tax cuts. But do both have it wrong? Is a flat tax the fairest way to go? And could it even send your stocks into the stratosphere?
Stuart Varney: Steve Forbes, this has always been you're subject. Why the flat tax, and why now?
Steve Forbes, editor-in-chief: I think we need it now, to make ourselves more competitive in the world. More capital, more investing. Its simple and fair. You pay one rate after generous deductions for adults and children. A family of 4 would pay no taxes on their first $36,000 of income! Companies could write off their investments all at once! And talk about outsourcing, everyone would be "in-sourcing" — they'll want to come to this country — Chinese, Japanese, Germans, French...
Stuart Varney: And you think a flat tax would double the stock market?
Steve Forbes: I think it would send it up 50-100 percent because the market always anticipates the future. If it sees profitable investment, economy growing 5-7 percent a year.. boom!
Neil Weinberg, senior editor: Steve, I think this is a great sound bite for the campaign. But the reality is, it's not going to happen. We have a $200 billion economy of people preparing taxes, accountants, lawyers just to get our taxes done. Those people are not going to roll over. The other problem is, we've got a lot of regressive taxes in this country. Our sales tax is regressive, we have a social securities tax you pay up to $87,000. One of the things that helps balance that is the fact that the people who are paying these taxes - the poor people — are not paying as much in their marginal income taxes.
Steve Forbes: under a flat tax, they'd pay even less.
Neil Weinberg: Well, if you start making the deductions for things like the first $36,000 — if you start making exceptions, then you've got things like the California condor, energy efficiency, before you know it the lobbyists have us back where we were.
Jim Michaels, editorial vice president: You don't need all those gimmicks if you have a flat tax. The flat tax will make the economy more efficient right across the board. It will put the stock market up, it will make the United States a more convenient place to invest, and most important, it will free all of us from being unpaid serfs to the IRS.
Bill Baldwin, editor: We already have a flat tax to a certain extent. It's call the alternative minimum tax (AMT). Now here's the wonderful thing about this flat tax. Right now, everyone has to do their taxes twice: your regular tax and your AMT, and you have to pay the higher of the two. The AMT was supposed to hit just the fat cats, but now its swallowing up all of the middle class. Senator Kerry has a solution to this problem: He's going to raise everyone's regular tax!
Rich Karlgaard, publisher: Neil, you make a profoundly goofy and backward-looking argument. This argument that we're putting accountants out of work is like saying we shouldn't have cured Polio because it might have put wheelchair manufacturers out of business. To Jim's point, in addition to being efficient, the flat tax is profoundly moral, it's mentioned in the Book of Laviticus in the Bible: the double tithe. Also, in this tremendously divisive political climate, the flat tax would bring people together because everybody would be in the same boat.
Jim Michaels: Rich, you know what we could do? We could have a government program to retrain accountants and lawyers to do more useful work!
Stuart Varney: Steve, which politician active today is pushing for the tax plan and looking to get it?
Steve Forbes: Well, that's why you don't have entrepreneurs in politics: they're all in the old box. But assume for a moment President Bush gets reelected. If he doesn't do this in his second term, I think in 2008 the democrat running for office will do what Nixon did in China in 1972 and say 'this is a way to steal the tax issue from Republicans.' and advocate the flat tax.
Stuart Varney: The bedrock of the Democrat party is the progressive tax system. The more you make, the more tax you pay.
Steve Forbes: We saw at this convention even more than principle, they want to win elections. And this would be a way to win the election!
Stuart Varney: Steve, I've got to pursue this! If Hillary Rodham Clinton is the Democratic candidate for president in 2008, and she goes for a flat tax, does Steve Forbes become a Democrat?
Steve Forbes: I would say to the Republicans, 'I told you so. You get what you deserve.'
Neil Weinberg: I think it's going to be politically impossible — its political strychnine. Where else would we have a flat tax? Bill, its not just AMT, its also Social Security! You're going to have to start mucking around with that too!
Rich Karlgaard: Neil, you're right. We should include all forms of income: Social Security, the FICA tax and all of that should be part of this flat scheme. But let me tell you, if the Democrats did this, they would reign for 50 years. Because they would draw into their ranks all of those apathetic people who aren't paying taxes today, and are not voting. It would be a huge win for the Democrats!
Stuart Varney: But this is not part of America's culture. Deeply ingrained in America's culture is the more you earn, the more you pay in taxes.
Jim Michaels: Stuart, this is still a progressive tax! The rich are still going to pay most of the taxes. Companies that invest, and consistently create jobs will pay less in taxes. People who have idol money would pay more in taxes. It will not in any way affect the progressivity of the tax system.
Steve Forbes: If you want a simple, fair, and moral tax code: this is it. All you're going to lose is aggravation if you adopt it.
FlipSide: Would bin Laden Vote for Bush?
It's time to scrap the conventional wisdom and look at the FlipSide. If Usama bin Laden could cast a ballot this November, would he vote for President Bush to get four more years?
Neil Weinberg: UBL was able to build up his terror organization while Bill Clinton dallied around. Now they want one thing: they want to polarize the world. And the way to do that is to bring their Muslim movement against the Christian or Crusaders or whatever they want. And so they need someone who's going to stand up and be their arch-enemy. And the most possible arch-enemy they can have is George W. Bush.
Stuart Varney: So George W. Bush brings on more terrorists for the cause for bin Laden?
Neil Weinberg: Of course.
Steve Forbes: That's preposterous. You fight terrorists by fighting them, not by appeasing them. Neville Chamberlain didn't beat the Nazis, Winston Churchill did. And the idea that Bush will get terrorist recruits.. they've had recruits for 30 years. The only way you get them out is by taking them out. So ask yourself, would bin Laden rather have a Texas cactus, or a Massachusetts squash? I think the answer is self-evident.
Bill Baldwin: I think politicians win and lose not on the basis of substance, but on image and icons. And I think genocidal maniacs get their following from images, not from substance. The substance of Kerry vs. Bush may favor a weak Kerry as an opponent. But the image of Bush is very powerful for those muslim fanatics. I think they'd love to have Bush there to unify themselves.
Jim Michaels: Bill you have it backwards. Yes, he's a powerful image, but I can guarantee you — and I've got $100 if anyone wants to take the bet — that if Bush is defeated, there will be dancing in the streets of every Arab country by the al Qaeda people. Why? Because they brought down the Spanish government by scaring the hell out of the Spanish. They forced the filipino government to pull its troops out just by threatening to behead somebody. They will look at themselves as having brought Bush down, and recruiting camps will be overrun with new candidates, and they will win great prestige in their minds.
Steve Forbes: They'll say it shows the Americans don't have the stomach to fight the war on terror.
Bill Baldwin: Will they follow up with a stream of beheadings, just because Kerry's in the White House?
Steve Forbes: They'll get more recruits because they'd figure now we can take down these Middle East governments now that Bush is out of the way.
Stuart Varney: Jim and Steve, would you not agree that our invasion of Iraq has produced more terrorists?
Steve Forbes: Its actually reduced them because they've gone to Iraq and we've knocked them off. Iraq's become a democratic government. We're going to have to do the same thing eventually, with Iran and Syria. When you remove sources of sanctuaries and havens, then they're on the run. When bin Laden's not in Afghanistan, he's hiding out in a cave.
Stuart Varney: But Mr. Bush did take the war to the enemy on their turf. He took it from our turf to their turf. Do you really think bin Laden likes that?
Neil Weinberg: I think he likes that. You can say they're crazy and they're evil, and they are. But what they want to do is create a world war of some kind. And the way to do that is polarize the world. They don't want some old Europe mushy Democrat in there. They want somebody they can carry on placards and burn in effigy and say 'this is the evil West.' They need someone to rouse their troops.
Jim Michaels: They want Bush brought down, and they will be convinced they brought him down, if Bush is repudiated to polls. They're convinced that their tactics pay.
Steve Forbes: What they did to the Cole, what they did to our people in Saudi Arabia, what they did on September 11th, they started to have second thoughts when we went after them. If they have recruits we take them out.
Neil Weinberg: I don't know about that. They've gone after Saudi Arabia.
Bill Baldwin: But they don't want to bring down another president, they want to bring down another building. That's the risk. And they'll have more suicidal terrorists, if they have an image to fight.
Steve Forbes: No, they want to take over the Middle East, they want to take over Europe.
Jim Michaels: They are still gloating over the Spanish election. They set off a bomb that killed 200 Spaniards, and they love it. It made them proud It pays to bomb people and behead people. We got the filipinos to give in, now look, the Americans are chickening out, they repudiated their president.
Makers & Breakers
David Malmgren, portfolio manager of WealthTrust FBB: MAKER
Amgen is the strongest of the biotechs; it is consistently growing its earnings. It's trading at a discount in the industry right now. It's got a great looking pipline.
Stuart Varney: It's currently trading at around $57 (Friday's close: $56.88), what target price do you have in mind?
David Malmgren: Our target price is $65.
Stuart Varney: So you think you have 10-12 percent on this thing.
Jim Michaels, editorial vice president: MAKER
I can't knock the stock down. They've got real assets, they've got real earnings, they're in an area where every investor should be, and the stock is well down from its old high. I think it's a reasonable buy right now.
Stuart Varney: David, why is it down from its old high? There must be something wrong.
David Malmgren: It sold off a couple of months ago with concerns that the government would cut some of the payments for the doctors that prescribe it. That has been priced into the stock and the earnings look good.
Mike Ozanian, senior editor: MAKER
I think this is a really great time to get in. They've also made an acquisition that will cost them some money in the short term; I think there's been some concern there too. I think it's a great time to get in because it is a great long-term investment.
David Malmgren: MAKER
They are the leader in electronic voting machines. By 2006, all punch card and lever machines will be replaced; that's over a million and a half machines. They also have a strong business line in ATMs with a backlog of orders. And they're expanding in China and India.
Mike Ozanian: MAKER
It doesn't grow exceptionally fast, but it dominates its market. It's the 800-pound gorilla. It's like they have a license to print money. It's a great stock.
Stuart Varney: I would have thought there was a liability in electronic voting machines if something goes wrong with the presidential election in November because it is their machines that are going to be used.
David Malmgren: Right. Diebold has proven its technology in the banking industry. 90 percent of people use ATMs without security problems. We think they can dominate the business.
Stuart Varney: It trades now at about $46 and change (Friday's close: $46.10). The target price from David is $53. Do you think it can make it?
Jim Michaels: MAKER
It's a good company and the voting machines are a kicker. They give them extra future growth. It's a reasonably priced stock. I like it.
Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:
Stuart Varney: The faster they rise; the harder they fall. So is Google's enormous hundred-buck stock going to drop as soon as it goes public? And worse, could the rest of the tech stocks fall too?
Lea Goldman, staff writer: In the beginning of the year, when Google filed its S-1 (a registration statement used in the initial public offering of securities**), we saw a run-up in the other search engine stocks. Just general enthusiasm about the sector with Ask Jeeves (ASKJ), Look Smart (LOOK) and Mamma.com (MAMA), and when Google was priced, those stocks fell because, I think, there was just a general befuddlement. 'What on Earth is Google doing, generating that kind of price?' I think once it hits the open market, we're going to see further falls in that sector of the tech market.
Rich Karlgaard, publisher: I think the world of Google. I think there's a chance Google could become the most valuable company on the face of the Earth, because Internet advertising is growing like gangbusters. It will surpass print, this year or next. And if Google can fend off Microsoft (MSFT), a big 'if,' I grant you, it has a chance at having a $200 billion market cap.
Mike Ozanian, senior editor: I'm optimistic on the NASDAQ. I think tech stocks are going to have a big rebound. I think you're going to see companies, now flushed with cash, spend a lot more on computer equipment. But I wouldn't go with the big companies like Google or Microsoft because all the information is out on them. I'd go with lesser-known companies like QLogic (QLGC) that make networking storage equipment. The stock is off 50 percent, it doesn't have a hoard of analysts following it. That's the type of company I would be looking for.
Stuart Varney: You wouldn't be buying Google at the IPO?
Mike Ozanian: I would not.
Bill Baldwin, editor: What you are seeing here, apart from mass hysteria, is a phenomenon of selective memory. Everybody's thinking 'I want to be on board the next Microsoft.' They're forgetting a few things. They're forgetting that they also wanted to be on board Priceline.com (PCLN) when it came out. What happened to that stock? This could be the next Priceline. They're also forgetting that when Microsoft came out, it was a great stock to own in 1986. It was not trading at 100-200 times earnings the way Google is.
Stuart Varney: If Google comes down in price after the IPO, does it take other tech stocks with it?
Bill Baldwin: Well, first of all, it might come down; it wouldn't necessarily be a bad thing. It would be a great stock to own at $13.
Lea Goldman: That's a dramatic fall from what it's priced at right now.
Rich Karlgaard: Google is only trading at 40 times cash. Google will generate $1 billion or more of free cash flow this year, and the market value of its IPO will be $36 billion. This is not as overpriced as you say it is.
Lea Goldman: I disagree. I think a stock like Yahoo! (YHOO), which is more diversified than Google. Take a look at what happened this past week; Google was sidelined for hours by the MYDOOM virus. I think it's very susceptible to attacks.
Stuart Varney: Does Microsoft take it down?
Lea Goldman: Very conceivable. Microsoft is preparing to unleash a search engine that could very well take it down.
StockSmarts: $tock The Vote!
If you want to win a second term in the White House, you need a winning stock market in that election year. That is what history shows us. In years when the incumbent party retakes the Oval Office the Dow averages a gain of nearly 16 percent. But in the years when the incumbent party is voted out, the Dow has dipped on average according to the Stock Trader’s Almanac. Right now the Dow is down 3 percent on the year.
So, is the market forecasting a Bush loss come November?
Charles Payne of Wall Street Strategies says the stock market is starting to gain traction and that activity is forecasting a Bush win, not a loss. He believes the market will continue to gain momentum through the summer and in the wake of the Republican National Convention.
Jonas Max Ferris of MAXfunds.com says President Bush needs a rally to win reelection because right now the market suggests he’ll lose. Jonas says he crunched some numbers that show if the market trends lower in the 30 days leading up to Election Day the incumbent party loses. He believes strength in the market can sway those all-important swing voters that candidates need to win a race as tight as this one.
Dagen McDowell of FOX Business News says it’s not the stock market that predicts who will win this race it’s the jobs numbers. She says President Bush can win on strong jobs numbers alone, and this week’s report on the July job market will be crucial.
Jonathan Hoenig of Capitalistpig Asset Management says the market is down on fears that John Kerry will take the Oval Office because he is anti-business and plans to raise taxes, which will bring the economy to a grinding halt. He calls John Kerry a “Jimmy Carter” to the stock market.
Adam Lashinsky of Fortune magazine says earnings aren’t what they need to be to support a rally right now. He believes the election will be won or lost, not on the market, but on Iraq, and a rally in stocks won’t make a difference.
Ellis Henican of Newsday says the market is forecasting a Bush loss. He says the President cannot win without a huge rally in stocks because the market is lower now than it was when the President took office and that’s a big problem in a reelection bid.
Be$t Bets!: Election Bets
Adam: Kerry Wins!
Buy Teva Pharmaceuticals (TEVA)
Friday's close: $29.60
Adam says John Kerry will win in a tight race and companies that make generic pharmaceuticals will benefit because Kerry plans to target big drug companies who charge high prices for their branded drugs. He thinks Teva is relatively cheap right now and priced to buy. Jonas says this stock would do better under Bush who just approved a $450 billion drug bill. He says Kerry’s plan is designed to bring down the cost of high-priced branded drugs, which won’t help generic drug companies. Charles agrees and he adds that Teva is having similar problems to some of the big drug companies because its pipeline is drying up, and it’s cheap because no one has faith in the company’s growth prospects.
Jonas: Bush Wins!
Buy Williams-Sonoma (WSM)
Friday's close: $32.49
Jonas believes President Bush will win reelection and high-end retailers like Williams-Sonoma will benefit because his tax cuts will continue to produce disposable income, which will be spent on luxury goods. Charles says Williams-Sonoma is a well-run company, but it’s subject to steep declines on bad news because expectations are so high. He wouldn’t buy now. Adam says he’d only buy WSM if the housing market remained strong.
Charles: Bush Wins!
Buy LifePoint Hospitals (LPNT)
Friday’s close: $33.41
Charles says President Bush will be reelected and this time around he will vigorously pursue tort reform, which will benefit hospitals that spend millions defending themselves and their staffs against medical malpractice. Jonas says, “Right stock, wrong president!” He says this hospital has to set aside money to pay for large numbers of patients that do not pay their bills, and since that cost is far greater than the cost to fight lawsuits this company would benefit more from John Kerry’s plan to make healthcare affordable to all Americans. Adam doesn’t believe that President Bush will make any progress towards tort reform because he hasn’t so far, and if Kerry wins this is a bad bet.
Stock of the Week
Last week’s pick from Wayne Rogers of Wayne Rogers & Co was PetroChina (PTR). It gained 2.2 percent from July 26-30. (Wayne owns shares of PTR)
Memo to Martha: Do the Time!
The majority of American’s believe Martha Stewart received a fair, if not light, punishment for her crime. That according to a recent Fox News poll, which showed 36 percent judged her sentence as fair, and 26 percent as too light. Is she doing herself and her company more harm by pursuing an appeal?
Terry Keenan says yes! Martha should just shut up and serve her time, and get the whole mess behind her as soon as possible. She says that dragging it out will cause Martha to lose the support she needs to keep selling her merchandise, and her remarks since her sentencing have not been well received even by some fans. But Jackson Bain of Jackson Bain and Associates says Martha can’t afford to be viewed as a quitter. She needs to fight this jail term with everything she has so that her fan base will not abandon her.
Question: What will it take to turn the very bearish Capitalist Pig (Jonathan Hoenig) into a bull?
Jonathan says the first thing he would need to see to become bullish on the market again would be the major indices turn positive on the year. Then he would look for some strength in entire sectors of the market which he says he is not seeing right now. And from a psychological standpoint he would like to see more doubt, less hope, in the market before he believes the worst is over.
Question: I’ve made more than $100,000 on my Starbucks (SBUX) investment in the last 10 years. Should I sell half, all, or hold onto it?
Dagen says if this stock is taking up a big part of your portfolio, and you are not well diversified, than it is time to sell at least some of it, but if your investments are already spread out well, then hold on. Jonathan says he’d hold onto it, but put a “stop loss” under it at about $42 to protect your profit.
Question: What do you think of XM Satellite Radio (XMSR)?
Adam says this is a terrific growth company and should be in the part of your portfolio that you can afford to gamble away because right now it is losing money and could come unhinged. He says satellite radio is the future in the same way cable television was a generation ago. Back then cable companies were also losing money, but their stocks grew in anticipation of the industry’s growth. Dagen says it should be a very small part of your portfolio because its future is not clear, especially since it faces competition from digital music players, which are also growing in popularity.
Question: What is the future for Cisco (CSCO)? Will it ever reach $30 again?
Jonathan says Cisco could reach $30 again, but it would take close to a 40 percent move and it is more likely to fall that far before making that gain. He calls Cisco “water-logged” and “soggy” — and places it in a category with Sun Microsystems (SUNW) and Motorola (MOT) — formerly huge growth stocks that have traded in the same range for years. It’s not his kind of stock. Adam agrees with Jonathan.