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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; Charles Payne, CEO of Wall Street Strategies; Herb Greenberg, senior columnist for MarketWatch.com; and Tom Adkins, publisher of CommonConservative.com.
Trading Pit: Follow the Leader?
President Bush may say he doesn't look at the polls, but Wall Street is watching the numbers very closely. Two weeks ago, polls showed as much as a double-digit lead for Bush, and stocks rallied.
But last week, polls showed a much tighter race, and stocks had a very tough time.
Will Wall Street continue to follow the president’s poll numbers?
Tom Adkins: Look at the polls and look at the Dow. They are almost identical. As George Bush goes, Wall Street goes. Why? Let's go back to Business 101. Low taxes create a better economy. High taxes crush the economy. John Kerry wants to raise taxes. George Bush wants to lower taxes. Wall Street investors, who are responsible to invest the vast majority of people's life savings, know these simple facts. And they know Democrats don't. That's why the Dow and Bush's poll numbers are tied together. The Dow is hanging around 10,000 because Wall Street isn't sure who will win. But the better Bush looks, the better the Dow looks.
Gary B. Smith: I think it was more of a coincidence that the market was going up, while Bush increased his lead. Right now I believe stocks will pullback, but Bush will keep his lead, so therefore, I don’t think the market is following his poll numbers. But I do think the market will go up leading up to the election and after it’s over.
Herb Greenberg: Wall Street dislikes uncertainty. So what it really hates is a close election. If Kerry had come out of the gate faster, the market would probably have responded the same way if he were ahead. But what will really move the market will be jobs, interest rates, and the economy—not the polls. In the end, any leap by Bush in the polls is a trade and is not something to invest in.
Charles Payne: I disagree with Gary that it’s a coincidence that the market is moving with Bush’s poll numbers. Look at what the market did after Kerry, Bush’s top competitor, has done well. After the Iowa Caucus, when Kerry came out of nowhere, the market moved down the next day. Stocks were also down the day after the New Hampshire Primary. Every time Kerry does very well, the market reacts very negatively. I think the market is moving slightly ahead of the polls, once again proving it to be the best harbinger of the future. I believe this trend will continue, stocks will head higher, and Bush will win the election.
Tobin Smith: Stocks didn’t fall because Bush dropped in the polls! Stocks fell because oil went up $3/barrel last week. As far as the election is concerned, Bush is in the driver’s seat. Money is being sucked out of stocks and into oil investments. But by the very remote chance that Kerry wins, investors are going to have to change their investment strategy. Big drug stocks will get hammered. And dividend-paying stocks will also get hurt.
Pat Dorsey: Earnings season and the price of oil will have a much bigger effect on the market than the polls. Analysts have been raising earnings estimates too high and you’ll see a lot of companies miss expectations. This will weigh on the market a lot more than how Bush, Kerry, or Nader performs in the polls.
Tobin, Pat and Charles each picked a stock that’ll win big if President Bush is re-elected.
Tobin is betting on eResearchTechnology (ERES) to win big if Bush wins in November. He said that the President and Secretary Tommy Thompson are pushing for money to go into electronic medical records and electronic systems for healthcare. eResearch dominates in this area. The company’s earnings grow 60-80 percent a year. Tobin said the best thing about this stock is that it will go up if Kerry wins too! Charles agreed that this is a hot stock, but investors should be wary because it has already had quite a run up. Pat said this is definitely not a cheap stock. However, it has a lot of cash flow, but could run into a lot of competition, which would eliminate the company’s advantage. (eResearchTechnology closed on Friday at $18.01.)
Charles chose Bank of America (BAC). He said it is well diversified and will benefit from the financial climate in this country if Bush wins. He thinks it is cheap and well positioned to head higher. Pat thinks it is fairly valued right now and will take a while to digest the acquisition of FleetBoston, but he does like its 3½ percent yield. He recommended holding on to the stock if you own it, but not to buy it now. Tobin said Bank of America has already had a great run, and its growth pattern has slowed down. (Bank of America closed on Friday at $43.98.)
Pat picked Sallie Mae (SLM) because Kerry has made some noise about reforming the student loan process, which would hurt Sallie Mae. He thinks if Bush wins, Sallie Mae will do well. It dominates the student loan market. Tuition keeps going up, the demand for higher education is high, and students have to keep borrowing more money. Pat thinks it will hit $54 in a year. (Sallie Mae closed on Friday at $43.75.) Tobin likes Pat’s thinking, but he said there have been issues and investors should consider these problems. However Toby thinks Sallie Mae could do well under Bush. Charles pointed out that the Bush administration is against government-sponsored enterprises. Also, Fannie Mae (a government-chartered mortgage company) just had accounting problems last week and Sallie Mae has the same financial structure. It looks cheap fundamentally, but Bush may want to dismantle it or change its corporate structure.
Are the hottest stocks in the market the ones to buy right now? Herb asked the Chartman.
First up: Kmart (KMRT). It’s up 260 percent since January 1st! Herb said this huge boom didn’t come as a retail play; it came as a real estate play. He added that the theory is that the company is going to sell all of its stores, which have a lot of underlying value. Additionally, there is speculation that its chairman is going to turn this and other companies into a company like Warren Buffett’s Berkshire Hathaway (BRK.A). Herb thinks he’s a smart guy, but if it doesn’t sell all the stores, there’s a lot of risk. Gary B. said Kmart just keeps getting stronger. It also recently broke through a resistance line at $80 and he would only sell the stock if it fell below $80. (Kmart closed on Friday at $86.30.)
Next up, Oracle (ORCL). In just over a month, the stock is up 12 percent. Herb said the company hasn’t done much in the last few years and reported, in his opinion, mediocre earnings. It also concerned him that a market research firm found that Oracle has a very low customer opinion rating. Gary B. looked at the chart and said that Oracle broke out of a long-term downtrend line, which means its trend of heading lower finally changed and it should start to head higher. (Oracle closed on Friday at $11.04.)
Lastly: Longs Drug Stores (LDG), a big operator of drug stores in CA. Herb likes that it is starting to turn things around and good news is heading its way. Plus, it is up 40 percent since March 22nd. Gary B. said the stock couldn’t break a long-term resistance line and just broke below a short uptrend. It continues to drop and he recommended staying away from it. (Longs Drug Stores closed on Friday at $24.48.)
Tom's prediction: In debates Bush flips, Kerry flops; Dow up 500 points by last debate
Gary B's prediction: More tricks than treats in October; Nasdaq drops 8 percent
Tobin's prediction: More violence and troops in Iraq; Armor Holdings (AH ) gains 30 percent by 2005
Pat's prediction: Colgate (CL ) can brighten your smile & bottom line; up 30 percent in 2 years
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; Barbara Corcoran, founder of the Corcoran Group; Leigh Gallagher, senior editor at SmartMoney magazine; and Alan Colmes, co-host of "Hannity & Colmes."
The Bottom Line: Un-Believable $cam?
Neil Cavuto: It could be the biggest money scam in history, supported by our tax dollars! It's not Enron or WorldCom. We're talking about the United Nations! In the Enron scandal, the CEO and other executives walked away with over $700 million. But that's peanuts to the U.N.'s Oil-for-Food scam in Iraq, where it's alleged Saddam alone pocketed more than $10 billion through illegal kickbacks and oil smuggling. Should the world be outraged and should our tax dollars be supporting the U.N?
Jim Rogers: It is outrageous how much we Americans have spent on the United Nations. The United Nations should be abolished. They're incompetent an they have never solved any problems. I've traveled throughout the world. You see these fat cats living like kings. I'm all for humanitarian help, but this is an inefficient and corrupt nightmare that's taking billions of dollars and getting nothing to show for it.
Gregg Hymowitz: First let's correct something. None of the U.S. tax dollars went to the U.N. oil program. The oil program was the largest humanitarian program done ever, funded completely by Iraqis. Now let's look at the facts. Was there some corruption. Yes, but there were also positives. Hunger in Iraq went down 50 percent and healthcare dramatically improved.
Neil Cavuto: Where happened to all the billions of dollars, Iraqi money or not, that was supposed to be funneled into the United Nations to feed these kids. A lot of that money never got to those kids. Are you remotely incensed by that?
Gregg Hymowitz: Yes, absolutely. That's why Paul Volcker is doing an examination and investigation. But it was not U.S. tax dollars that were lost. This was funded 100 percent by Iraqi oil.
Meredith Whitney: I was in Iraq last December and you can see Saddam's palaces were huge. Over the fence on the other side was a shanty town. The oil for food program is emblematic of the criminal activity that's been going on at the U.N.
Ben Stein: This scandal is large but small compared to the Milken junk bond scandals and others. The U.N. is an assortment of dictators, thugs and psychopaths with a few good countries like the U.S., Britain, and Israel mixed in. We should be disgusted with the U.N. but we shouldn't get out of it.
Neil Cavuto: Barbara, do you think they'll be hell to pay from the fallout from all of this?
Barbara Corcoran: Nothing comes from any scandal in the end, except for some of the bad guys getting caught. It's so easy to critique something and say it's not working. But it's so hard to create something that's going to work.
Jim Rogers: We're spending billions of dollars on the U.N. and have nothing to show for it.
Barbara Corcoran: We're the wealthiest nation in the world. I consider it an honor that it's here.
Gregg Hymowitz: You cannot indict the entire organization for the effort of one of the largest humanitarian efforts ever.
Meredith Whitney: The oil for program is atrocious, ok? The U.N. has rendered itself virtually obsolete. Nobody is paying attention to it.
Ben Stein: The U.N. has rendered itself a moral disgrace by its incredible racism against good countries like the U.S., Britain and Israel. It has no moral value whatsoever.
Jim Rogers: I'm not saying they're good guys or bad guys. I'm saying their inefficient and corrupt.
Gregg Hymowitz: What institution do you think does run efficiently Jim?
Jim Rogers: FOX News doesn't do a bad job.
More for Your Money: Debate Bulls!
Neil Cavuto: The Presidential debate season kicks off on Thursday night. Will those contests decide who wins in the White House and which stocks win on Wall Street?
Leigh Gallagher: I think everything hangs on this debate, as it did four years ago. I think Kerry will really hit it out of the park. The voters are waiting to hear from him. I think these debates are absolutely critical.
Neil Cavuto: Did Gregg give you your talking points?
Gregg Hymowitz: I'm probably going to surprise you actually. I'm a little nervous about these debates. I agree that they're pivotal. If John Kerry is going to win, he has to make an outstanding showing at these debates. I think it's going to be a little like four years ago where Gore won on substance and Bush won on delivery. I'm a little bit afraid that John Kerry is not going to be able to wow people on his delivery.
Neil Cavuto: You know all John Kerry has to do is show up as the same guy at each debate. That's what hurt Al Gore in his debates. Alright Ben Stein, how important are the debates?
Ben Stein: Very, very important. I remember vividly, I'm the only one who's old enough to remember, how Nixon blew it in the debates with that sweaty upper lip. Nobody is going to have a sweaty upper lip this time. Mr. Bush is that warm sincere guy. He's the guy in your senior high school class who you want to be friends with.
Jim Rogers: I hate to disagree with all of you but I don't think many people are going to watch.
Neil Cavuto: I think a lot of people are going to watch.
Jim Rogers: Well unless someone does something really stupid it's not going to matter that much.
Meredith Whitney: If Kerry does anything like he did on the David Letterman show, he's lost already. This guy is the worst politician. If Clinton was a 10, Kerry is a minus one.
Neil Cavuto: One of the points that have been raised though is, don't underestimate.
Leigh Gallagher: Exactly. The only thing that I think might happen is that he might come off as too polite.
Neil Cavuto: What would you be buying in this environment?
Leigh Gallagher: If Kerry is elected, with his health care plan that will cover more of the 27 million uninsured Americans, 43 actually, I'd buy hospital operators. One I really like, but do not own, is Universal Health (UHS). It's at its 52 week low and it's a very well managed company.
Ben Stein: I don't think anyone has to worry about Kerry being too polite. I think Bush will win the debates and win the election. I very much like and own the iShares Dow Jones Dividend Index (DVY). I think we're going to have that low dividend tax for a very long time.
Gregg Hymowitz: I think if John Kerry wins the debate and gets elected, I think financial stocks rally. One of the brokerage stocks we like but do not own is Goldman Sachs (GS).
Meredith Whitney: I think that Bush cleans up in this election. I like and own Pfizer (PFE). It's a cheap stock compared to the overall market and I don't think Bush or any of the Republicans are going to mess with healthcare.
Jim Rogers: I wouldn't buy anything. Next year is going to be bad for the stock market no matter who wins, although I think Bush will stay in the White House.
Head to Head: Media Hypocrisy?
Neil Cavuto: Bad for Bush — run with it! Good for Bush— ignore it! Is that what the media is doing? The CBS thing not withstanding, it just reminded me of the media bias covering my nerdy world in the economy. Good news is interpreted as bad news. In the prior administration good news was just good news.
Alan Colmes: I didn't hear that things were good under Clinton. I don't hear that as much as I hear the positive stuff out now about Bush. It is out there. There's also a lot of negatives. There's spin on both sides. Do you really think the media is out to get somebody? Don't you think the media goes to where the story is?
Neil Cavuto: Absolutely, but they prefer certain stinks. In 1996 when Bill Clinton was running for re-election he had a higher unemployment rate than we do now. Everybody says the economy was hunky dory. We've been generating jobs at a pretty good rate now, at about 1.7 million over the past 10 months. We have a lower unemployment rate than Clinton did when he was running for re-election. And everyone bashes the economy.
Alan Colmes: The unemployment rate is one indicator. And you're right it seems to be consistent with what it was during the Clinton years and more should be made of that. But what about 1.3 million more people in poverty in the last year, 1.4 million people without healthcare. President Bush made a promise about how many jobs would be created and that promise has not been fulfilled.
Neil Cavuto: There have been studies done on this. I know we've lived in a difficult world in this last decade, prior to terrorism, prior to a fight against al Qaeda. There have been studies looking at the number of favorable economic stories in the Clinton administration and the Bush administration. There were 44 percent positive headlines in the Clinton administration versus only 23 percent in the Bush administration. Here is a good example. Last March when we generated over 300,000 jobs, do you know how the Associated Press ran it that day? It said, "Bond Prices Tumble on Jobs Report."
Alan Colmes: Nobody gets their news from just one source, unless of course it's FOX News and your show. But not everybody did what the AP did. I keep hearing the excuse from this administration, whatever 9/11 caused that's why we have these negatives in the economy. The eighteen weeks following September 11th, that's when most of the jobs were lost.
Neil Cavuto: See, you're gobbily-gooking-it. Here's my theory on a lot of journalists. You're not like this and I hope I'm not like this, but most are depressed and miserable S-O-Bs. I think they translate that misery to what they write and what they report. And they are largely not a Republican crowd. So anything that makes the Republicans look bad, they love to knock them down.
Alan Colmes: We've seen so many negative stories on Kerry and his military service.
Neil Cavuto: But how did that military Swift boat stuff get going? It took of all people, bloggers, to bring it to the mainstream media's attention.
Alan Colmes: But that's not my point. My point is, the Swift boat stuff, they've been all over the channels. They've gone after Kerry on stuff you wouldn't go after a Vietnam veteran for.
FOX on the Spots
Gregg Hymowitz: Bush tries to tap breaks on energy prices by tapping into nation's oil reserves. It's just a political move before the election that won't have much effect on energy prices.
Ben Stein: Bush will build up military personnel over next few years. That will help build up Boeing's (BA) stock price. I own it.
Jim Rogers: Fannie Mae (FNM) scandal may send a big name Democrat to jail. The mortgage financial company is full of executives with democratic ties, including its CEO Franklin Raines. I am short FNM.
Leigh Gallagher: Citigroup (C) cleans up image and goes up 25 percent by year-end. I do not own it.
Meredith Whitney: Sorry Neil! Say good-bye to Yodels and junk food stocks. They will not recover from low-carb craze.
Neil Cavuto: The debate on Thursday could single-handedly decide the presidential contest. Bush does well and markets will soar convinced that the treasured tax cuts will remain in place!
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: John Kerry is coming down hard against the war in Iraq. It looks like that will be his main theme from now until Election Day. Is this a good move or is it a strategy that will lower the morale of our troops and the value of your stocks? Jim, what’s your verdict?
Jim Michaels, editorial vice president: Well, I think he did more damage to himself than the stock market. History shows that no war ever goes smoothly. It never goes the way you expect. The victory goes to the guy who has the wherewithal and the will to stick it out. There is a guy who said ‘this is a good war,’ we run into a little setback and he says ‘oh my God, we have to pull out.’ If Franklin Roosevelt had done this, we would have given the Pacific to Japan after MacArthur suffered a terrible defeat in the Philippines in 1942. He has shown himself to be a lousy leader.
Quentin Hardy, Silicon Valley bureau chief: Well, our troops should be proud that we're having a healthy debate in this country. We're having an election and a healthy debate. They represent a great democracy. What's wrong with Kerry pointing out that things haven't gone well? I think it is equally demoralizing for the Commander-in-Chief to say he wouldn't have done a thing different when the occupation has obviously gone badly.
Elizabeth MacDonald, senior editor: I'm personally not happy that we haven't found weapons of mass destruction. But the guys on Wall Street keep telling me on and on again, ‘why isn't the media talking about what Saddam did, the gory creativity of this guy?’ And for these guys and for the troops, this is what our troops have fought against. And this is what they found: that Saddam Hussein used hammers to break bones, amputated limbs with chainsaws, threw live victims at acid baths and ovens, raped women in the presence of their children and husbands, and, reportedly, one whole prison camp was populated mostly by children. That’s what the troops have been up against.
David Asman: So, Lea, there were far more people being killed everyday by Saddam than are being killed now.
Lea Goldman, staff writer: That's not the argument that Kerry is putting forth. The issue is ‘how are we handling the war now and how will it be going forward?’ There is nothing wrong. I think it’s more demoralizing to have a candidate who is critiquing a president - Listen, welcome to campaigning. That's what happens. Versus a president who can't fess up to the fact that he doesn't know how much a war will cost, he doesn’t know what outcome will be or how long it will be. What happened to Usama? ‘Oh, he’s not so important to capture anymore.’
Dennis Kneale, managing editor: Kerry's new attack on Iraq could be exactly what he needs. He has not presented a great vision for America. This is new. I think he is saying things a lot of Americans have privately felt and are afraid to talk about and now he’s doing it. In any heavyweight championship match, you can’t just barely beat the guy. You have to knock him out.
David Asman: What about stocks and investors in all this battle?
Victoria Murphy, staff writer: Is Iraq better off than it was under Saddam Hussein? Yes, probably, in the short term, maybe there is more violence. Long term, I think Iraq is going to be better off without Saddam. But let's think about us - the U.S. I think the war in Iraq has just escalated the war on terror. And that's why the stock market is worried. That's why investors are worried, because this feels like a more uncertain world, because of what we've done in Iraq.
Jim Michaels: Here is a guy who voted for the war. He said it was a good thing and necessary. We have a few setbacks. And it's not a major setback. And he says ‘well, we’d better get out.’ That is defeatism. That is not leadership. Leadership is the will to stick it out when you're right.
Lea Goldman: He has made it clear that he doesn’t have imminent plans to pull out. What he is proposing is bringing in troops from other countries.
Jim Michaels: What other countries? The German army? There is no German army. The French army? Come on.
Lea Goldman: Bush's idea of diplomacy is serving salsa and chips at Camp David.
Elizabeth MacDonald: Your point is that Kerry is right to bring up the negatives. That's America. We do debate and Quentin is right in a healthy way. But also bring up the horrible things that Saddam Hussein and that regime did. And what those Iraqis lived under for 35 years was a hideous mess and it was disgusting. You talk to any Iraqi and they are more than happy that we came in and liberated. And we know there are problems now. But you have to report the whole truth and not just slices of it.
Dennis Kneale: We have bad guys doing bad things in countries all over this world and we are not invading them. And that's hard for Bush to say why Iraq and no one else?
David Asman: Lea brings up the point we should get more allies in. How do we get them? They say they don't want to come in?
Quentin Hardy: I think Bush’s speech to the UN this week was defiant and not particularly helpful.
David Asman: How does Kerry bring in more outsiders?
Quentin Hardy: You clear the table, you get a debate going and show some successes in Afghanistan. You show a willingness to impose an actual democracy in Iraq. There is no sign Allawi is doing that.
Jim Michaels: That's what they are trying to hold elections for [for] God's sakes. What more can he do?
Quentin Hardy: This week he was interfering with the judiciary. He’s firing judges left and right. He didn't talk about that before congress.
David Asman: John Kerry also criticized the Iraqi prime minister who has put his life on the line time and again in defending the Iraqi people and being a leader. Was that a smart move?
Victoria Murphy: Kerry's problem is he can't look at the economy, because the economy is starting to pick up. So he has too look at Iraq. If he looks at the polls he can say that's where swing voters see weakness in President Bush. Is it fair for him to be criticizing the guy who could be rebuilding this country? Well, there is probably points there where he can criticize this guy. And he is fair to do that.
David Asman: And Dennis, getting back to investors, are investors spooked by what John Kerry is saying?
Dennis Kneale: Investors are going to be a little spooked if the Iraq war becomes a heated issue, dividing the entire country, even more so than it's done today. A short-term dip in the market for John Kerry who feels like he wants to guide the country? So what?
David Asman: But you say ‘divided the country,’ more and more people are going for Bush.
Lea Goldman: The polls are indicating that Kerry is picking up a little bit of traction.
David Asman: After being really down in the dumps after the Republican Convention.
Lea Goldman: I would never ever suggest that investors make investments based upon the mood swings of the latest polls.
Elizabeth MacDonald: Investors ought to pay attention to the entire, well-rounded story of what's going on in Iraq and how we're helping places like Sudan as well.
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: Any self-respecting republican has a clear choice in November. It’s a no-brainer. Their candidate? John Kerry.
Quentin Hardy: Run in two directions. Put one party in congress and senate and the presidency and look what you got: the biggest deficits ever, crazy spending, never saw a pork barrel bill they didn't love to death. You can't get rid of congress. The guys will all get elected for life. Senate, also tough. You can remove the president. If they are in opposition they can't do they can't do much damage.
David Asman: The point is a divided house is good for the nation because it creates gridlock and less spending.
Mike Ozanian, senior editor: Sometimes it happens and sometimes it doesn't. The primary purpose of the president, his primary responsibility is to defend this country. Bush is doing a great job of that. He has taken the fight to the enemy. Kerry wants to turn over the keys of the defense to this country to the French, Germans and Russians who have sold arms to Iraq. On top of that, Kerry wants to socialize medicine in this country, which will cost at least $1 trillion over 10 years.
David Asman: So Kerry would spend more money than Bush?
Elizabeth MacDonald: I don't know about that. I don't agree with Pat Buchanan 99 percent of the time, but do agree when he says this: ‘That Washington is all accelerator, the brakes are gone.’ Kerry may be to the left of Mondale when it comes to tax cuts, but Bush is to the left of Clinton when it comes to spending. We have European levels of deficit spending going on.
David Asman: It’s true that Bush has never vetoed a spending bill. He’s just spending, spending, spending.
Dennis Kneale: This is the weirdest political calculus I've heard in a long time. ‘If you want Republicans to win, vote for Democrats.’ That's the strangest Orwellian, Machiavellian take on things. You want Republican policies in our government, vote Republican.
David Asman: As Elizabeth said the brakes are off. Every spending bill is passed and doubled.
Jim Michaels: Bush has pushed through some strong pro-growth tax cuts. He had to pay a price for it. He had to pay a price for support on the war. The price he had to pay was saying ‘ok’ to a lot of lousy, rotten spending. I'll make a prediction. In his second term, he will be ‘Mr. Veto’ on spending.
Quentin Hardy: This is a guy who said he would be a uniter, not a divider. This is a guy who lied about how much the Medicare spending was going to cost. I don't know why you guys trust this guy. You want to cut deficits? You vote a democrat in and create opposition and get a healthy debate.
Elizabeth MacDonald: Bush wants to cut spending and if he wins this re-election — reports indicate only $2.3 billion, that's not a lot of money when we have $422 billion deficit. That's a drop in the bucket.
Jim Michaels: He can't control the war spending. We got to see this war through. But I'll guarantee you that if Kerry gets in, and repeals those pro-growth tax cuts, that that will do more harm to the economy than all the spending.
Dennis Kneale: I’ve got to tell you that Quentin and Liz both say that the party of LBJ, of FDR, of McGovern, of Hubert Humphrey will be the party that cracks down on spending? That's a little out of line.
Elizabeth MacDonald: No, it's not. Kerry has a pay-as-you-go proposal in his plank.
Mike Ozanian: Kerry's pay-as-you-go proposal is I pay so that somebody else can go.
Quentin Hardy: Last Democrat in was Clinton. Had a balanced budget. Faced opposition on the Republican side in the Senate and Congress, it worked out great. Let's do it again.
Makers & Breakers
Eric Stokes, founder of Market Neutral Strategy and author of "Market Neutral Investing": MAKER
It's a technology company for people who are nervous about investing in technology companies. They have been a pioneer in computing. They morphed from being a hardware company to a software company. But they have a terrific patent portfolio. They collect royalties from Intel (INTC), from Dell (DELL), from Gateway (GTW).
David Asman: And it's about $26 (Friday’s close: $26.20). You think it can go up to 40 percent, to what, $44?
Eric Stokes: That's correct.
Jim Michaels: MAKER
I like the stocks for all the reasons Eric says. I'm not anti-tech. I'm anti-overpriced tech stocks. This company has a lot of cash, no debt, that has a real business and a growing business. It has real assets and a strong cash flow. What more can you want?
Mike Ozanian: BREAKER
A little predictability in earnings. The earnings are very erratic and the stock is already at an all-time high. They have had to take a lot of restructuring charges. And that makes me nervous.
• Questar (STR)
Eric Stokes: MAKER
It is an interesting hybrid company. They are, in part, an exploration company. They have very prolific fields up in Wyoming. Combined with that, they are also a regulated utility. So you’ve got some upside if energy prices stay elevated.
David Asman: Seems like a safe stock. It's at $44 (Friday’s close: $44.12) and you think it can go to $50?
Eric Stokes: That’s correct.
Mike Ozanian: BREAKER
Sorry. I'm a breaker. They have a $65 million loss from hedging on their books, that they may have to deduct from earnings. That bothers me a little bit.
Jim Michaels: BREAKER
I'm afraid that it's not a pure energy play. It's half and half. It's not cheap for an energy stock. And I don't see any particular appeal to it.
Eric Stokes: I disagree. Relative to other natural gas utilities, it’s trading at a discount and I do think there is a big upside if gas prices stay high.
Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:
David Asman: The latest issue of "Forbes" magazine even more proof the economy is getting stronger. It's the “400 Richest Americans” edition. Pound for pound the richest group Forbes has ever seen and these rich cats can make you some money, too. Pete, I guess this is how you've been spending your summer, working on this issue. It looks pretty good. What's in it and why should we care?
Pete Newcomb, senior editor: We work year round on it, not just the summer. We’ve found 313 new billionaires this year. That’s the most ever. In fact, the minimum amount you need to get on the list rose to $750 million. That's a very high number. Last year it was $600 million.
David Asman: Why is that important for investors? Not many people watching are billionaires. Maybe some are but not many.
Pete Newcomb: I think what it shows is that the underlying fundamentals of the economy are sound as wealth creation goes on and that's good for investors.
David Asman: And there is one guy there that's no surprise. Mr. Bill Gates. Microsoft (MSFT); is that still a good bet or is it overpriced?
Dennis Kneale: Microsoft has sucked wind this year. And a lot of tech stocks look like they were coming back and slowed down. But the fact is, this guy is one of the only major founders still running his company. They're fearsome and kick butt all the time. And you can't go wrong five years from now by buying Microsoft today. And within two years, I predict Gates has his privately held company that controls images, photographs, advertising images, all these things. And he will take that thing public. It’s called Corbis. Watch for it and buy it because this guy is worth betting on.
Elizabeth MacDonald: The economy is so strong because of technological efficiencies and also because I do think outsourcing is helping a lot. I went offshore and found a company in India run by a billionaire, Azim Premji, called Wipro (WIT). They sell a lot of outsourcing services to North American businesses.
David Asman: This is a company you call up, think you are talking to Detroit and you’re really talking to New Dehli?
Elizabeth MacDonald: The reason I like this guy is because he thinks his integrity is his most important asset. So much so that he won't take bribes. He has endured power outages. It has not stopped his profits from growing, on average, 40 percent over the last five years.
Lea Goldman: I’m going for Martha Stewart.
David Asman: Martha Stewart?
Lea Goldman: She was not on the list this year. Last time we saw her was back in 2001. She has fallen off and troubles have hit her hard and I think she is coming back. When she has served her jail time and out of home confinement she will be back at Martha Stewart Living Omnimedia (MSO), she has already signed a 5-year renewal contract, and the stock is on fire.
David Asman: A lot more on Martha coming up in "Cashin' In."
Elizabeth MacDonald: The stock has hit a new 52-week high and also they're smart. They're doing a show for people who love their pets and they have bought magazines and newsletters for natural, healthy living. That's a new branding and new merchandising opportunity.
David Asman: And Pete, one thing that was surprising is only 50 of the people on this 400 list were on the list in 1982. Billionaires tend to lose their money and don't always pass it on like they do in England and elsewhere.
Pete Newcomb: It’s easier to make money than hang on to it. We lost 54 people this year.
StockSmarts: Dem Implosion, Stock Explosion?
Presidential candidate John Kerry trails in most of the polls as his camp tires to dodge the CBS memo mess and find its voice to send a clear message; some say the Democrats are imploding.
So if Wall Street really wants a Bush presidency, would an implosion from the Dems trigger an explosion in stock prices?
Wayne Rogers of Wayne Rogers & Company says that a Dem implosion won’t cause a stock market explosion, but it would be very good for the stock market. The market definitely applauds what the Bush administration (and the Congress) is doing for the economy (Congress just extended a portion of the Bush tax cuts). In terms of the CBS memo mess, he feels that Dan Rather sabotaged the notion of a free press, which is something that America needs in order to survive. The stock market will ultimately endorse a Bush presidency over the long-term. And Wayne says that no matter how rich you are, the Alternative Minimum Tax is in effect.
Bob Beckel, Democratic Strategist says the only thing imploding is the stock market, and not the Democrats. He also says the John Kerry is for middle class tax relief, and than Kerry wants more of the tax burden shifted back to wealthy Americans. He also says that the market is down since the Republican convention, and the market is historically a good indicator of who will win the election – and that doesn’t bode well for President Bush.
Jonathan Hoenig of Capitalistpig Asset Management says when Kerry’s numbers go up, the market goes down. But Jonathan can also picture a scenario that sees President Bush win the election while the stock market goes down. Jonathan is scared by the amount of business regulation that the Bush administration is putting into play.
Mike Norman of the Economic Contrarian Update agrees with Jonathan, and points out that since February 11, when Kerry was the winner in the Iowa caucuses, the market has gone down.
Dagen McDowell of FOX Business News says that John Kerry could blow this entire election and tank in the polls and it still wouldn’t matter to the market as much as the rising cost of oil and the overall weakness in the corporate earnings front. Dagen thinks that many investors will play it safe in cash before the election.
Adam Lashinksy of Fortune Magazine thinks (like Jonathan) that even if Bush wins, there might not be a stock market explosion. There is a whole list of things that are more important to the market than the election (earnings, oil, inflation). One thing the market doesn’t like about the president is the deficit and the government spending. Adam thinks that cash is a great place to be until the election, to see where the world is heading.
"Fear Factor" Stocks
Word that Al Qaeda is planning a “spectacular” attack on the U.S. before inauguration day is keeping investors focused on the companies that help to protect the country. Our crew came up with some stocks that could go up as the terror threat picks up.
Wayne’s pick: Internet Security Systems (ISSX)
Friday's close: $16.44
This is a company that makes software to protect business computer systems from potential risks (that could be from terrorism). He likes the company’s recent earnings and revenue increase, and thinks the company is the leader is this group. Adam doesn’t like the company, saying that it is moving into the hardware business, and going from software into hardware is a very difficult move. He is also concerned about the company’s growing margins. Mike Norman likes the stock, but he thinks it’s a little expensive right now.
Mike’s pick: FLIR Systems (FLIR)
Friday's close: $62.90
This company makes products that use thermal imaging technologies (using temperature to produce pictures). Mike says that government will be using this technology more and more in the fight against terrorism. And although it has had a good run, he thinks it has more room to grow. Wayne thinks this is a terrific company – the leader in this technology. He’s a little concerned about the prices (wishes he owned it about 5 points earlier). Adam likes this too.
Adam says Marsh & McLennan (MMC)
Friday's close: $45.67
This insurance company owns Kroll, which is a risk-consulting firm that deals with terrorism as part of its business. And if times remain tough, it could benefit. Wayne says that Kroll is such a small part of Marsh’s business that it really won’t affect the stock. And the insurance aspect of the company makes it hard to move the stock. Mike is concerned that if the economy slows down, this stock would be hurt. But, he does think that it is attractively priced right now.
Best Bets: Bargain Buys!
Stocks priced so low you would be insane to ignore them!
Jonas says Krispy Kreme (KKD)
52-week high: $44.54
Friday's close: $12.20
This is the stock that everybody used to love – and now it’s like the Enron of the industry. But it’s not like Enron – it’s more like Tyco, and it could totally come back. How low could it possibly go? Jonathan asks the rhetorical question: “how low could it go? – to zero!” Mike bought the stock at $17 when it was hit with the “low carb” craze, but then sold the stock when it was hit with an SEC investigation.
Mike says eSpeed (ESPD)
52-week high: $28.24
Friday's close: $9.11
Cantor-Fitzgerald owns this company. Its business is an electronic trading platform for the treasury markets. And with the growth of globalization, this stock has to do well. (Mike owns shares of ESPD). Jonathan thinks that if you want to buy a trading platform, take a look at the Chicago Mercantile Exchange Holdings (CME). Jonas agrees with Mike – government debt is a huge growth business (since the deficit is growing).
Jonathan says Electricidade de Portugal (EDP)
52-week high: $31.15
Friday's close: $29.26
Jonathan says that utilities have been “super strong” – especially the foreign utilities. And EDP has everything he is looking for in a stock, most specifically its part of a strong sector (he owns shares of EDP). Jonas says that you should play the U.S. utilities – too much risk in the foreign companies.
Stock of the Week
Last week’s pick was PMC-Sierra (PMCS) by Jonas Max Ferris. For the week of September 17-24, the stock was down 2.5%.
Wayne, Jonathan and Dagen answered some of your questions.
Question: Martha Stewart’s stock (MSO) jumped on news of a deal for a new reality television show. Could this mean bug money for the shareholders?
Wayne says, “this thing is crazy”. The stock ran up 40% last week alone, and any stock that runs like that scares Wayne – no matter what the news may be. And if is based just on the reality television show, that makes things even more crazy. He would not touch it.
Dagen says that she would stay away too – look at Donald Trump; his show “The Apprentice” is a huge hit, but Trump’s casino business has been slumping nonetheless. Jonathan says this isn’t his kind of stock (news driven, rumor driven), but if you believe in Martha and her brand, it is worth a look.
Question: General Electric (GE) reached a new high this year. I’m thinking about buying shares. Does it have the wind at its back again?
Jonathan wonders what the catalyst will be for some valuation growth from GE. It’s a market performer, but it’s not one of his best ideas for new money. Wayne has owned GE for a long time, and says that is still a very solid company.
Dagen says, “don’t listen to your old man” – Blockbuster could get “innovated out” of business by pay-per-view movies on cable and the Internet. Sony just bough MGM, and being part of the movie business scares Wayne – even though he is in the movie business himself!