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 Bob Froehlich, chief investment strategist at Deutsche Asset Management.
Trading Pit: Stocks Terrorized?
The terror alert in New York, Newark, and Washington, DC has been raised to orange due to specific targets and a report of a specific date for an attack just two months before the election.
At first stocks shook off the news and rallied on Monday. But then lost ground fast. The worst came on Friday when stocks dropped to their lowest point this year. A disappointing jobs report on top of the terror worries and sky-high oil prices to blame. Bob: The market shouldn’t be down, but investors are scared of terror alerts. Wall Street used to be afraid of inflation and interest rates, but now has to be afraid of terrorist attacks, and many investors can’t look past the terror alerts. As far as gas, to get to the peak prices in the 1980s gas would be $2.75/gallon (in inflation adjusted terms). As for the energy concerns, in the 1980s consumers paid 9 percent of their disposable income on energy; today it’s less than 5 percent. There’s no comparison.
Gary B.: The market is in the “perfect storm” of all the things that can go bad. Even the good news is perceived badly. People are starting to get really scared, but maybe not enough, because the sell-off on Friday was very orderly. Everything seems to bother this market. The only good news is that we’re near the bottom and due for a bounce. There’s a lot of fear in the market right now and even though there could be more, I’d start buying stocks now.
Scott: It’s never popular or easy to buy stocks when they’re going down, but that’s when you should buy. Now don’t put all your money in at once, but pick your stocks and when they get to the price you want them, buy them. The one caveat is oil prices because oil prices at these levels are an economy killer.
Pat: If there is no terror attack and only more arrests or news coming out of Homeland Security, oil and economy is going to overshadow the terror threats for the market. Fear creates opportunity and bargains and that’s when buy quality stocks at cheap prices. The large part of the oil spike has been caused by the fear in Iraq and Saudi Arabia and the Yukos issue. (A large Russian oil company not being able to pump oil because the company annoyed the Russian government.) These are temporary issues and are not here to stay.
Pat, Scott, and Gary B. each picked a “No Fear” stock. One that will head higher no matter what the terrorists are planning.
Pat picked homebuilder, D.R. Horton (DHI). He said it is very diversified throughout the country and in the fact that it makes all sorts of houses. Its chairman owns 9 percent of its stock, so he has a great incentive to make sure the company does well. He added that the predicted collapse in the housing market isn’t going to happen because of the long-term demand for housing. Scott agreed with Pat that the stock is cheap and is a good one to own. Gary B. said, “It just wouldn’t be Bulls & Bears if I agreed with Pat.” Gary B. thinks the time for homebuilders has passed. (D.R. Horton closed on Friday at $28.16)
Scott selected Sasol (SSL), a company that converts coal into gas and gas products. He said the stock is cheap now and has a 4 percent yield. Pat said the company has good profitable numbers and thinks the stock has more upside than downside. Gary B. said if oil keeps heading higher, the stock will follow. (Sasol closed at $17.30 on Friday.)
Gary B. chose Wal-Mart (WMT) because it’s “inevitable” the stock is going higher. He said the company survives ups and downs of the economy because people always need to buy the stuff the company sells. As for Wal-Mart’s chart, he said, it’s right at a support level and should be bought. (Wal-Mart closed on Friday at $51.33.) Pat likes the stock, but he’d like to buy the stock at a little cheaper price. However Scott does not like the stock because Wal-Mart is way too big and there are a million better retailers to buy.
Dr. Bob took on the Surgeon General of Stocks: The Chartman! And we're not kidding; Bob's got a PhD!
The first stock the Doctor ordered was Johnson & Johnson (JNJ). He said the company is a global leader and if you want to be healthy in life and financially, this is the stock to own. They’re turning themselves into a biotech company. On top of that, it pays a great dividend. Gary B. did not agree. He said J&J has been stuck in the mid $50s for a while. He advised to wait for it to break above that level before he’d buy it. (Johnson & Johnson closed at $54.60 on Friday.)
The next stock to pass Doctor Bob’s exam was Merrill Lynch (MER). He said Wall Street has really punished this stock and held the company accountable for everything that was wrong with in investment banking, like the Enron and ImClone situations. He really likes the company’s CEO. Bob thinks Merrill was punished more than it needed to be and the end result was that it really cut back costs and is now more profitable than it has ever been. But once again, the Doc’s stock didn’t pass the Chartman’s exam. Gary said the stock has been in a downtrend since March and is pausing before heading even lower! (Merrill Lynch closed at $47.53 on Friday.)
Scott's prediction: Don't fall for the dividend deal; Microsoft (MSFT) will fall 30 percent
Gary B's prediction: If you want an "A" buy Staples (SPLS); up 20 percent by 2005
Pat's prediction: Fix your finances with Fairfax Financial (FFH); doubles in 3 years
Cavuto on Business
Neil Cavuto was out this week. Stuart Varney hosted and was joined by Jim Rogers, president of JimRogers.com; Ben Stein, author of "Can America Survive?"; Gregg Hymowitz, founder of Entrust Capital; Mike Norman, founder of Economic Contrarian Update; Meredith Whitney, FOX Business News contributor; Adam Lashinsky, senior writer at Fortune magazine, and Bob Beckel, Democratic strategist.
The Bottom Line: Bigger Threat: Al Qaeda or OPEC?
Stuart Varney: The number one threat to America and our economy: Is it Al Qaeda or OPEC? Mike, new terror threats and new record high oil prices. Which one should investors be more worried about?
Mike Norman: The problem to America is higher oil and energy costs. We saw that clearly in the second quarter GDP. The odd thing is that in this whole fight against terrorism there's been a business spending boom. Companies have been spending money related to security due to terror threats.
Gregg Hymowitz: Oil and terrorism have only very recently been linked. I think oil is the bigger threat to the economy.
Jim Rogers: There's no question oil prices are going to continue to go higher. It wouldn't surprise me to see $50, $60, $70 oil prices. But the main problem that we have in America is the war on terror. If we or Europe gets attacked, the stock market is going to go down.
Stuart Varney: But make the call, is it oil or Al Qaeda?
Jim Rogers: I'm not worried about oil. I own oil. The threat to the market and the economy is terror.
Meredith Whitney: The immediate effect of higher oil prices is a consumption tax on all Americans. Terror fears are riddled all over the market. It's very hard to quantify them. You can quantify higher oil prices in the consumer's wallet.
Ben Stein: Oil threats and terrorist threats are the same thing. Terrorism could be in Saudi Arabia, it could be in Nigeria, or it could be Soviet state terrorism threatening to close down Yukos. In any event, it's a threat to a very basic commodity.
Mike Norman: The oil and the terrorist threat has become the same thing only recently. And it speaks to the point that there's a lot of speculation in the oil markets. OPEC engineered high oil prices when they restricted output over the last two years.
Jim Rogers: OPEC has nothing to do with this. There has been no major oil discovery in over 35 years. Fields are depleting. That's the problem with oil.
Ben Stein: The threat to Yukos is driving the price panic right now.
Gregg Hymowitz: Jim, you cannot argue that it's just demand that has driven up oil prices. Oil prices were almost half of where they are today and not much has changed with demand. It's those speculators. It's the risk of terrorism. It's Yukos. It's not demand.
Mike Norman: I think Jim, you should check out supply figures. We're running inventories in crude and petroleum now above 5 year averages. There is no supply shortage right now.
Meredith Whitney: Demand has only increased 2 percent in the last year. And oil prices have increased 17 percent. Terror is really a factor. It's not a supply depletion.
Stuart Varney: How high would stock prices be if we remove the terror threat?
Meredith Whitney: I think stock prices would be 10-15 percent higher.
More for Your Money: Buying Winning Stocks in a Losing Market
Stuart Varney: Even a losing team has winning players. Is buying winning stocks in a losing market the best way to get more for your money? All the major markets are in the red for the year. But there are hundreds of winning stocks bucking the trend. Jim, should investors buy the winners or the beaten down losers that now might be bargains?
Jim Rogers: I always try and buy things cheap. I don't try and buy things just because they're going up. The best way to get rich is to buy the train when it's still in the station. Not when it's racing down the tracks.
Adam Lashinsky: I couldn't agree more. I lived through the Silicon Valley boom. I watched how retail investors were buying things because they were moving up. If you have reason to believe that the stocks are going up because the businesses are good, it's okay to buy an expensive stock. But not because it's up already. That's a losing strategy.
Gregg Hymowitz: If you're buying stock purely because the price is going up, that's a fool's game.
Ben Stein: You should invest on the fundamentals and buy a stock when it's cheap.
Stuart Varney: Jim, what would you buy in this environment?
Jim Rogers: I like and own Suncor (SU). It's a company that has massive amounts of oil. The world is running out of oil, but this company isn't.
Ben Stein: I like, but do not own, J.C. Penney (JCP). It's an incredibly well run company. It's been down for one or two months, but it's an incredibly well run company.
Adam Lashinsky: I agree with Ben. J.C. Penney is buying back more stock than the street had expected. They're growing faster than the street had expected.
Gregg Hymowitz: We like Boeing (BA). We don't own the stock yet but we think this company has a great management team.
Stuart Varney: Richard Branson just dissed Boeing by going to airbus. Adam, do you like it?
Adam Lashinsky: I don't like Boeing. It looks too risky to me. They have a deal that could fall through, causing a bigger charge. I like EchoStar (DISH). This is one of the leading satellite companies. It's trading at 10 times forward cash flow. I wouldn't be surprised if someone buys this company and you can make money off that. I do not own it.
Ben Stein: Buying on cash flow is a fool's game.
Head to Head: “Four More Years of Hell”?
Stuart Varney: Teresa Heinz Kerry telling hecklers at a campaign rally that if Bush gets re-elected it would be "four more years of hell." But have the last four years really been hell for Americans?
Bob Beckel: That's what my ex-wife said when she filed for divorce. The employment numbers that came out Friday showing 32,000 new jobs were added in July weren't promising. People have turned off to Bush when it's come to the economy.
Stuart Varney: Those numbers that were out Friday were not exactly a measure of hell.
Ben Stein: The economy is not really in bad shape. Here are some statistics: Since the start of the Bush presidency, GDP is up 14 percent in real terms. Personal consumption is up 13 percent. There's the highest percentage of Americans owning their own houses ever. Highest corporate profits ever in history. We did have one incredibly hellish thing, namely terrorism. It's very very hard for me to link that to President Bush. I just don't see how she comes up with "hell."
Bob Beckel: Every time a Democrat has gotten elected the market has gone up and unemployment has gone down. Inflation on average when Democrats have been in office has been lower than when Republicans have been in office.
Stuart Varney: What about the Carter years?
Bob Beckel: I was in the last two years of the Carter White House. But even if you average that in, there was a lower interest rate under the Democrats.
Ben Stein: But the point is to not look back and do data-mining, which is a clever political trick. But to instead look at things going on right now. It's true, Bush has not done things perfectly. I would not have cut taxes as much as he cut taxes. But you cannot link that to the problems with employment.
Bob Beckel: Ben, if you're so worried about me using statistics, you opened up this whole show using White House statistics. You went through fifteen lines worth of statistics. The fact is they ain't all that great. But I still think you're book is terrific.
Ben Stein: Thank you. But I'm giving you current statistics. Not statistics from the days of Coolidge.
FOX on the Spot
Meredith Whitney: Kerry's "awkward" lunch at Wendy's will hurt his campaign and beef up stocks!
Adam Lashinsky: Oil spikes to $50/barrel and stocks fall up to 5 percent by GOP Convention.
Mike Norman: Gas & oil prices fall 25 percent by October.
Gregg Hymowitz: Mike is right! And Dow jumps 10 percent by election.
Jim Rogers: Mike & Gregg are wrong! Energy prices remain high. Buy Shell Transport & Trading (SC). I own it.
Ben Stein: Soft patch in economy ends soon and will stocks rebound.
Forbes on Fox
How are politics and global events affecting your wallet? We’ll put the story In Focus and give you the bottom line.
David Asman: The new terror alerts came just before a string of high level terrorist arrests all over the world, including two in our own back yard. The info we get from these thugs could stop another big attack in America. We're connecting the dots, maybe even closing in on al Qaeda's home office. Could this signal the start of a huge rally for stocks?
Mike Ozanian, senior editor: Absolutely!
David Asman: When does the rally start?
Mike Ozanian: We're moving closer and closer up the food chain, getting closer to bin Laden. Look, the economy's growing at 4 percent, unemployment's 5.5 percent, it's been oil prices that's been scaring consumers from spending money. I can't tell you exactly when, I don't have my crystal ball, but after we toppled the Nazis after WWII — and I think this is as big a fight — stocks roared after that. And i think they will when we topple bin Laden.
Jim Michaels, editorial vice president: I think if we nab bin Laden, the market will put on a nice rally. But this isn't just a matter of people, Mike. We're fighting an idea here. It's a lousy idea, but Communism was a lousy idea and it took us 70 years to bring it down. I don't think this threat's going to go away.
Steve Forbes, editor-in-chief: Unfortunately, the threat is not going to go away. It's more than a personality cult. Also, you have Iran and North Korea out there. Iran's the biggest source of terror today, biggest sanctuary, biggest trainer of these thugs. Till we deal with Iran, terrorism's going to remain a major threat.
David Asman: Elizabeth, are the markets ever going to turn around with all these threats?
Elizabeth MacDonald, senior editor: I don't think anytime soon. I think unfortunately al Qaeda has a really deep bench, and I think Jim is right — we are fighting an idea and that's Islamic facism. Look, these guys have taken over the diamond trade in Mali, Chad, and Niger. That's a really big problem and I think they're going to be with us for some time. This is separate from al Zarqawi and bin Laden. This is a separate movement that's happening out there.
David Asman: The market's been depressed, no question about that. But is it from this terrorist overhang that's got folks worried, or is there something fundamentally wrong with the economy?
Mike Ozanian: There's nothing fundamentally wrong with the economy. Bush inherited a recession from Clinton, the economy's now expanding. But I think we've made a lot of progress with the war on terror. We've annihilated the Taliban. We've even got the Saudis to help us out. So I think things are looking a lot better. And Jim, this is different than Communism in a way. Russia wasn't sending planes into our buildings over here. Communism and Socialism were concepts, and they took a long time to defeat. These are nothing but a bunch of murderous thugs who are trying to kill us, and we have to kill them first.
Steve Forbes: But that was the Marxist, Nazi-like ideology that came out of the first World War. This stuff started in WWII in the 1940's. But concerning the stock market itself, I do think there are worries about the economy, i.e. John Kerry winning and putting on new taxes, and what the Federal Reserve's going to do. So, it's more than just terrorism that's weighing on the market.
David Asman: But I remember you saying 'markets climb walls of worry.'
Steve Forbes: They do indeed, when we get the wall of Kerry out of the way!
David Asman: Now Elizabeth, I remember YOU saying the market still has room to grow.
Elizabeth MacDonald: Oh yes, I do think the markets will grow. I think the S&P will have 10 percent growth next year. That may not sound great, but its pretty solid in my mind.
Steve Forbes: That's too pessimistic.
Elizabeth MacDonald: It's probably too pessimistic. But Mike is right, the world economy, not just the US economy, has been growing at a fantastic clip. And we have survived two wars and this Islamic fascism. I just think this movement will be a lead blanket on the markets for some time to come.
David Asman: Jim, we don't want to downplay these arrests this week, because tremendous arrests have been made all over the world. If we've undermind their plot to attack us here again before the election, won't the markets react well to that eventually?
Jim Michaels: Look, we've had them on the run since Bush invaded Afghanistan. We've taken two of their countries away from them. We've been making steady progress. They have not been able to launch an attack here since 9/11. But, it's a long fight. We're fighting an idea. It's not the same idea as Communism, but it has a lot in common with a utopian vision of a world of God.
David Asman: Steve, if the terrorists don't strike us before the election, markets have got to react well to that.
Steve Forbes: I think so. But the bottom line is, I think what the market's worried about now is less about terrorism, more about fundamentals like what the Fed's going to do, taxes and things like that. When we get those worries out of the way, and I think we will, there's plenty of upside in this market.
Mike Ozanian: I'm more worried about Kerry and the fact that he might be elected president. And if he was, he'd fight a more sensitive war. That's a lot of crap! We've got to kill these guys before they kill us!
David Asman: Well, Mike, what do you think about all this pessimism, and talk that we're going to be fighting this war for decades?
Mike Ozanian: I don't agree. I think we're going to win a lot faster, and when we do I think stocks are going to rally big time!
Elizabeth MacDonald: I don't think so. I think Al Qaeda has a really deep bench, tens of thousands of these guys have gone through their training camps and I think it's not just an idea; it's a cult of serial murderers. And these guys are all about getting into Heaven by killing people.
Jim Michaels: And it's scary, because these are not idiots from some little dusty villiage. Some of these are highly educated guys; they're American, German, British citizens. This thing goes very deep.
David Asman: So if it's as deep as you guys say it is, what do we do with our cash? Do we stay away from stocks forever, Steve?
Steve Forbes: No. You go into the stock market at precisely a moment like this, but don't have any illusions that one thing is going to pop it up. Markets will climb over time, but don't expect big events to do it for you.
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: No matter who wins this November, the election outcome won't affect the markets one bit!
Lea Goldman, staff writer: I don't think the markets care. I think the biggest factor sabotaging the markets right now are higher energy prices. There's nothing Bush can do about that in the short run. In the long run, if Kerry wins, he's looking at presiding over a Republican-controlled congress, that means gridlock.
David Asman: Sometimes gridlock is good for the market!
Lea Goldman: Sometimes. And the truth is, markets have performed better under democratic presidents, by and large.
Steve Forbes: Markets do do well under Democratic presidents only when Republicans have firm control of Congress and can pass tax cuts as they did during the Clinton years. But when you have tax-happy Kerry, who hasn't met a tax he hasn't liked, and tort-happy John Edwards, you've got a real problem. It's going to weigh on the economy. Both of them want to tax dividends, they want to tax capital gains, they want to tax incomes more, small-business owners more. You put that together with when these tax cuts expire, bad news for the markets!
Elizabeth MacDonald: I can't get lost in the moral transports of indignation about a Kerry victory wrecking the markets, even though a few weeks ago I said that they would happen temporarily. And I think Steve's right, I think dividend and cap gains taxes are really bad for the market. But look, we need to not let our reality checks bounce here. Cash flows are coming in at a solid pace. Corporate profits are coming in at a really decent pace. World economic growth is up. I'm really bullish on the market and I don't think a Kerry victory will hurt it either way.
Jim Michaels: Elizabeth, people don't buy stocks because the economy's strong, they buy because they hope they can get a good return on their money. Kerry has basically said he's going to tax the investor class. He's going to make stocks less attractive. Frankly, I will be looking more at tax-exempt bonds than stocks if those tax increases go through.
Elizabeth MacDonald: I don't think Edwards should be taxing small businesses. But he's also moving to cut corporate tax rates.
Steve Forbes: From 35 percent to 34 percent. Whoopee. And he's going to smash them overseas which will make us less competitive.
David Asman: Small businesses very often take their income as income earners, that is, not as business earners. If he raises the tax on the top earners, he's going to be killing off a lot of small businesses.
Lea Goldman: I'm of the mindset that corporations who can't rely on these corporate tax cuts, have to work a little harder for their profits. In the long run it makes for leaner, stronger companies with better, solid profits. What's more, what we're looking at with another Bush presidency is a prolonged war overseas. How do you think those wars are going to get paid for? Wars are expensive!
Jim Michaels: Let's look at another tax. There's a tribe of pirates out there who have their hands in your pocket every time you go to a doctor, or buy a stock, or buy a car. They're trial lawyers. Kerry's running mate is a trial lawyer. His biggest contributors are trial lawyers. We have no chance of setting back this hidden tax on the American public if Kerry wins.
David Asman: What about that, Elizabeth? Does that send a shiver up the spine of corporate executives — that Edwards might be VP?
Elizabeth MacDonald: Absolutely, but look, John Edwards is going to be the vice president, not the president. He's not going to be running Congress. I just don't think John Edwards, as VP will get a lot of say in tort reform that may get jammed through. Also, Bush wants to get rid of a lot of the loopholes that businesses could use in his tax reform plan if he wins his next term. So that could be just as deadly.
Steve Forbes: There would be no tort reform if those guys win the White House. And in terms of fighting the war, the way you get those resources is the way Ronald Reagan did it: cut tax rates, get the economy going and you get the revenues to fight those wars.
David Asman: But some say if Bush gets four more years, we get more of the same. And a lot of people don't like "the same."
Steve Forbes: "More of the same" is more of a recovering economy, simpler tax code, less tax rates, that's how you get an economy stronger. Very basic.
Elizabeth MacDonald: But its not just tax rates. Its also oil prices and interest rates. I think the market's really spooked about those two things, and poor job growth.
Lea Goldman: Bush has no influence over these factors, and they are what's sabotaging the markets right now.
Makers & Breakers
Polo Ralph Lauren (RL)
Jordan Netburn, senior portfolio manager at Axiom Capital Management: MAKER
The company has done a great job of repositioning themselves and put the premium back in their shirts and clothing line. They appeal to the sweet spot of the luxury market, $80,000 income households. These type of consumers will pay for the best and they're doing it.
David Asman: (Friday’s close: $33.99) Now you think it could go up to about $42?
Jordan Netburn: Correct.
David Asman: About a 35 percent rise.
Mike Ozanian, senior editor: MAKER
I'm a maker. The key to a great brand is maintaining quality and this company has really updated their quality the last few months. They had a great spring. I think profits will grow. I bet Jim even has a couple of these shirts.
Jim Michaels: BREAKER
I don’t, as a matter of fact. Talking about quality, I wouldn't touch this stock. If you buy Ralph Lauren stock you do not get voting rights. Mr. Lauren, who's got an ego the size of the world and has never run a public company before, has got total control, so there is no independent management. As a matter of principle, I would not buy this stock.
Lyondell Chemical (LYO)
Jordan Netburn: MAKER
I think in a market where valuations are very much under scrutiny, here is a company at the beginning of a cyclical recovery. They make the building blocks for basic chemicals and basic industry, automotive, homes, transportation and there's just a consistent tightening in the demand chain, pricing is going up.
David Asman: All right. About $17 now, (Friday’s close: $17.18), you think up about $22.
Jim Michaels: BREAKER
Scares the hell out of me. That huge debt load, no real stockholder equity in there and they're dependent on oil to make a lot of their chemicals. I would stay away from this one.
Mike Ozanian: BREAKER
I’m a breaker too. They make great products but I wonder about management. They've lost over $100 million in each of the last three years.
Jordan Netburn: I think it comes to supply and demand. There is great demand for the product. Pricing goes up. They're passing it off, they’re getting it off, and I think that will translate into higher earnings and a higher stock price.
Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:
David Asman: Chip stocks haven't been able to catch a break recently. Those names getting hit hard but that's all about to change and that's why some folks here think there's no better time to buy chip stocks than right this moment. What stocks look good?
Elizabeth Corcoran, senior editor: You have to love these tech stocks. Everything we buy these days has chips in them. So we know that as long as the economy keeps booming, we need these things.
David Asman: Which company specifically?
Elizabeth Corcoran: I like Varian Semiconductor (VSEA) these days. We have a newsletter, “The Prudent Investor” that thinks these guys are doing well. Varian makes the equipment that you use to make the chips. And so they're really sort of the baby canaries in the coalmine. These guys are the early cycle of the economy and really look promising.
Lea Goldman: I like OmniVision Technologies (OVTI). They make the image chips that go in the digital cameras and cell phones with cameras on them. I like them because they are doing gangbusters the last three years in sales and earnings. They were totally beat up over the last few months because of a restatement of earnings that came out $9 million ahead, in favor. I think it's a total value play.
Elizabeth Corcoran: I like OmniVision. All of the stuff we're buying these days, cell phones with cameras, all of these things are using OmniVision technology.
Elizabeth MacDonald: There are a lot of stocks I wouldn't touch with a barge pole and that would be Xilinx (XLNX), Broadcom (BRCM), and Micron Tech (MU), I think it is. These stocks have had a huge run up in their inventory and I don't think they'll be able to sell off that inventory to meet demand. I like Advanced Micro Devices (AMD) because their cash flow is coming in strong at a fraction of the market cap of Intel (INTC). They've overtaken about half of the PC desktops.
David Asman: Both of these ladies are shaking their head yes, right, Elizabeth?
Elizabeth Corcoran: Sure. These guys have always been the second runner to Intel but they've got some sweet chips right now and they're tweaking their nose.
Lea Goldman: I don't like them. They're too expensive. I mean, it's priced into the stock. I think you can do much better.
David Asman: Every party needs a pooper and we have one right here. Mike?
Mike Ozanian: I'll be the party pooper. I think these are all good businesses but you should have bought them like the early stage of the recovery. I think it's too late. The other thing that bothers me is that these companies all use stock options which they don't expense, so I kind of think their profits are a little phony.
Elizabeth Corcoran: You're the guy telling us the rally is coming. These are the stocks to be in when the rally is getting going. If you really believe all the stuff you've been saying, that's all there is to it.
Lea Goldman: I agree, and I think options in this case are attracting talent where it's necessary and is going to help.
Elizabeth Corcoran: In Silicon Valley you need these options to get workers. This has been a big debate with the rest of the country but at the end of the day you have so much competition for really great workers, you need those options out there.
David Asman: Bringing it full circle, Mike, the first segment you were saying the market is about to take off. Won't chip stocks take off with it?
Lea Goldman: He has short-term amnesia.
Mike Ozanian: No, no. I think there are better places to be than chip stocks right now. I think they're better early in the market.
Stock Smarts: Can Al Qaeda Destroy our Economy?
Ed Koch, former New York City mayor, says no, Al Qaeda cannot destroy our economy because it is too large, but the terror network can hurt it. He says New York City is estimated to have lost $9 billion in tax revenues through 2003 as a result of the 9-11 attacks, and roughly $35 billion worth of real estate was destroyed on that day. That attack damaged our economy, but it didn’t destroy it. He says it’s important to get Congress to address the oil supply in this country through incentives to both conserve and create alternative energy sources because the U.S. is too vulnerable to Al Qaeda’s threat to disrupt the oil supply and raise oil prices to the point where it could put a serious crimp in our economy. He says we cannot allow the terrorists to remain a threat, and we must destroy them before they do more damage. “They want to kill us, and we have to kill them before they succeed.”
Evan F. Kohlmann of globalterror.com says Al Qaeda can destroy our economy. He says that is their goal, and we have to consider that it is a possibility. One way Al Qaeda can cripple our economy is by shutting down the airline industry with attacks on aircraft using surface-to-air missiles. He says even the most basic missile launcher can shoot down a commercial airliner and Al Qaeda is very dedicated to the idea of bringing down the U.S. economy and should not be underestimated. He adds that another way the terror network can hurt our economy is by targeting our oil supply and raising the price of oil to $100 a barrel, which is what Al Qaeda says it wants to do.
Jonathan Hoenig of Capitalistpig Asset Management says Usama bin Laden and his terror network are barbarians that could never destroy the U.S. economy because our economy is the largest in the world. They destroyed buildings and murdered thousands of people, yet our resilience and strength pulled America through. He says Al Qaeda itself doesn't frighten him. What scares him is the effect the terrorists could have on the political climate in this country. “Look what happened in Spain, where a terrorist attack prompted the election of a socialist government.” He says Al Qaeda can only win by scaring Americans into pacifying terrorists instead of eliminating them.
Wayne Rogers of Wayne Rogers & Company says Ed Koch is right. Al Qaeda can hurt our economy, but it can’t destroy it. He says World War II didn’t break the United States and neither will the War on Terror. He says America is too strong and resilient, and even if Al Qaeda pulled off another attack, the economy would bounce back just like it did after 9-11.
Charles Payne of Wall Street Strategies agrees with Wayne. He says we survived the Cold War even though the enemy had planted many infiltrators among us who were determined to hurt our economy and our way of life, and we’ll survive Al Qaeda’s efforts to do the same. America would rebound if Al Qaeda attacked again.
Best Bets: Wayne’s Hottest Stocks
Wayne tells the crew what he’s betting on now.
Suncor Energy (SU)
Friday's close: $28.05
Wayne says he likes Suncor Energy because the company doubled earnings last year and the chart is in great shape. Charles says he’s afraid of this stock because its operating cost has risen and he thinks it’s too pricey. Jonathan says this is a momentum stock and the group is strong so he wouldn’t fight it.
Burlington Resources (BR)
Friday's close: $35.14
Wayne says he doesn’t see any top to the price of natural gas, and this company has increased earnings and is a strong play on that trend, especially going into the winter. Jonathan says he thinks energy trusts like Pengrowth Energy Trust (PGH) or San Juan Basin Royalty Trust (SJT) are a better way to play rising natural gas prices. Jonas says he thinks the whole energy sector is already played out. He wouldn’t buy Burlington here.
Universal American Financial Corp (UHCO)
Friday's close: $11.10
Wayne says UHCO’s earnings are up 45 percent in the last six months. Charles likes the stock too; he recommends it to his clients. Jonas says supplemental insurance is going to be a huge growth business for a long time, and this is a good play on that growth.
Who Will Create More Jobs: Bush or Kerry?
Democratic strategist Susan Estrich says John Kerry’s plan will provide more jobs for Americans than George Bush’s. She says you needn’t look farther than the latest employment number – 32,000 jobs added in July — to know that President Bush’s plan to create jobs isn’t working. Economists were expecting more than 200,000 jobs for the month. She says families are losing manufacturing jobs, which are being replaced by lower-paying service jobs and John Kerry’s plan to create incentives to bring jobs back to America will take care of that problem.
Jonathan Hoenig points out that the 32,000 number came from a business survey of payrolls which does not include self-employed individuals – a growing segment of our economy. He adds that the household survey that includes self-employed individuals and determines the unemployment number showed that 629,000 more people were working in July than in June, and that is why the unemployment number fell. He thinks President Bush’s plan to stimulate the economy with lower tax rates is working and will continue to work. He says the Democrats exist to divide the country and John Kerry’s whole economic plan rests on improving the middle class by putting business owners on the ropes. He says Kerry favors increasing the minimum wage by 30 percent, and he calls his tax scheme “classic Karl Marx income redistribution.” He adds that Kerry also wants to tax people earning over $200,000, which makes Jonathan wonder who will create the jobs if those who generally do are penalized in this way.
Question: “Is it better to buy-and-hold stocks or actively trade them?”
Jonathan says what’s important is to be a smart investor, not necessarily an active or passive investor. He says using “stop/loss” orders, which protect you on the downside is one way to invest with your head. He thinks more people should use these to let the market take them out of losing positions and allow their winners to run. That way you are letting the market decide what to hold and what to sell. He says just buying and holding on doesn’t work anymore. Jonas disagrees. He says “buy and hold” is best!
Question: “Wal-Mart’s (WMT) down more than 10 percent since March. Is it due for a back-to-school bounce?”
Wayne says Wal-Mart is a “dull” stock that has been in the same trading range for the last two years and he wouldn’t buy it. Jonas says he doesn’t think this will be a great back-to-school season when compared to last year because we won’t get the big tax credit for children we got last year. He wouldn’t bet on Wal-Mart now.
Question: “What do you think L3 Communications as a long-term holding?”
Jonas says you cannot lose on defense bets because you have a current president and a presidential “wannabe” fighting over who is going to spend more money on defense.