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: New All-Time High?
President Bush won reelection by getting more votes than anyone in history. He is by all accounts, a President that is business friendly, which the stock market likes, as indicated by last week's rally.
It was nearly five years ago that the Dow peaked at 11,722. So is the stage set for a new all-time high for stocks?
Bob Froehlich: The Dow will make a new all-time high by July 4th. But it won’t hit that high just due to the removal of the election’s uncertainty, it’s also about money. Corporations are loaded with cash. They will use it to buy other companies, increase dividends, buy back some of their own stock, and hire new employees—which the Employment Report on Friday showed.
Gary B. Smith: I’m a little more conservative than Bob. I expect the Dow to make a new all-time high by the start of 2006. It’s been heading down and needs to pullback in the short-term. But when it does, buy stocks, because the sell-off we’ve been having for the past few months is over!
Scott Bleier: I think the Dow hits its high by New Year’s 2007. That’s 7 percent a year for the next 2 years, which should happen easily. But the Dow will be the laggard. The best gains will be for the Nasdaq, although it won’t break its high in that time. Higher oil prices and failure in Iraq could slow things down, but I don’t expect either to happen.
Tobin Smith: I’ll go one better than Bob. We’ll make a new high by July 3rd! The stage is set and I think we’re at beginning of a big bull run. There’s $80-$100 billion of cash coming into the market with the Microsoft (MSFT) dividend and the AT&T Wireless (AWE) deal. But the Dow is not a good number to look at, because if the Dow still had Kodak (EK), it would be 10,700. Merck (MRK) and other pharmaceutical companies are going to continue to give it a hard time.
Pat Dorsey: An all-time high isn’t too far away, so I think we’ll hit it during Bush’s second term, but it won’t happen in the next couple of months. But getting to Bob’s point, I hope that companies only buy back their stock and pay dividends with their extra cash because most acquisitions don’t work and only destroy shareholders’ money.
Scott, Bob, Pat & Toby each picked stocks that are set to make new all-time highs.
Tobin: I like UNOVA (UNA), which is the leader in radio frequency ID devices (RFID). These are little chips that go into products and are used to track and collect data. UNOVA is leading the frontier and is ready to make a new high. Once the stock hits this new all-time high, I think UNOVA’s RFID business will split off into its own stock. I also own and recommend UNOVA. (UNOVA closed on Friday at $19.57. UNOVA’s all-time high is $26.63.)
Bob: Toby, I like you, but not your stock. I don’t like that it is so small and doesn’t pay a dividend.
Scott: I like it for another reason, because it is the leader in industrial automation, which means it does body welding and assembly operations. And if the economy comes back strongly, it will do very well.
I own and recommend Johnson & Johnson (JNJ). It is certain to make a new all-time high because it increased its sales for 71 consecutive years and also has increased its dividend every year over the past 42 years. (Johnson & Johnson closed on Friday at $59.18. J&J’s all-time high is $65.89.)
Pat: This is one of the highest quality companies on Wall Street, but I’d like to buy it at a cheaper price.
Bob: I like it. Plus it has a great dividend.
Pat: My pick is InterActiveCorp (IACI). It owns a number of companies including Expedia and hotels.com. Its online travel business is the leader for them. Plus, I like that it has lots of cash. (InterActiveCorp closed on Friday at $25.00. InterActiveCorp’s all-time high is $42.88.)
Scott: It is too confusing and expensive for me.
Tobin: I prefer choosing companies that are the best in their industry and this is not the best.
Bob: I think Wachovia (WB) is great! It is one of the best banks out there, has a great management team, has great, diversified products, and pays a great dividend. I own it. (Wachovia closed on Friday at $51.07. Wachovia’s all-time high is $65.94.)
Pat: It is a high quality bank, but I’d like to buy it at a cheaper price.
Toby: I would rather own Citibank (C) or another bank that has more accelerated earnings.
The commander-in-chief of the charts picked best stocks to own over President Bush’s next four years in the White House.
Gary B. said Northrop Grumman (NOC) is a great stock. On a side note, he also loves their commercials. It also has a terrific chart that is moving up and should make a new high. (Northrop Grumman closed on Friday at $53.80.) Bob also likes Northrop and added that it is a very diversified defense company. He said it will always benefit from increased defense spending and it pays a great dividend.
Gary B. also said Yahoo! (YHOO) will do well over the next four years. It is a leading Internet company. He said its chart is also heading up and he expects a huge move. He thinks it will make so much of a move, that it too will make a new all-time high in the next 4 years. He advised to buy it and hold on to it. (Yahoo closed on Friday at $36.35.) Bob is concerned that the company’s revenue is limited to advertising. He said Yahoo! needs to figure out other ways to make money.
Pat's prediction: AIG (AIG) is A-OK; gains 20 percent in the next year
Scott's prediction: A chance for Mideast peace is a chance to buy First Israel Fund (ISL)
Tobin's prediction: Days numbered for Iraqi insurgents; Ceradyne (CRDN) up 25 percent in 6 months
Cavuto on Business
Neil Cavuto was out this week. Dagen McDowell hosted and was joined by Jim Rogers, president of JimRogers.com; Gregg Hymowitz, founder of Entrust Capital; Ben Stein, author of "Can America Survive?"; Meredith Whitney, executive director at CIBC World Markets; Bob Beckel, democratic strategist; Dave Nelson, CEO of DC Nelson Asset Management; Herman Cain, chairman of A New Voice and former candidate for U.S. Senate.
Dagen McDowell: Is there now definitive proof the market will rally under President Bush? Let's get the bottom line. Well, if ever there was any doubt about which candidate Wall Street favored it was erased last week. First, an Election Day rally collapses when it's leaked on the Internet that John Kerry was ahead in the exit polls. Then on Wednesday when it's clear President Bush will emerge a winner, stocks rocket higher for the week. Meredith, do you think it was a coincidence?
Meredith Whitney: I don't think it's a coincidence. Bush is pro-business. He's going to standardize the tax code, and he's going to be aggressive with tort reform. He's also going to create incentives for small businesses to grow and hire more people.
Dagen McDowell: Bob, what do you think? Bush is pro-business. That's great for the market and great for the economy, right?
Bob Beckel: Do I think it's great for the economy? Not necessarily. I'm not surprised. It wasn't one of those things where I fell off my chair when the market went up. It was interesting to see how far the numbers went down when those leaks came out on the exit polls. You still have to deal with the fact that a lot of the things George Bush wants to do costs money. And the problem is he doesn't have money. Not to mention the fact that his budget doesn't include a nickel for Afghanistan or Iraq.
Dagen McDowell: But Ben, a lot of these things don't cost any money, like tort reform.
Ben Stein: Bush has been an explicitly pro-stock market president. He's lowered the tax on dividends and lowered the tax on capital gains. He's been pushing the market up. Kerry has said he would push it down. The market is relieved the guy who wanted to push it up has been re-elected. That's it. It's not complicated at all. However, Bob raises good points. Where is the money going to come from?
Gregg Hymowitz: One of the things Bush talks about is making these tax cuts permanent. If that happens, that increases the budget deficit by a trillion-and-half-dollars over the next 10 years. Where are we going to get the money? We're only going to be able to get foreigners to pay for our spending for so long. One day they're going to wake up and look at our fiscal state and say, 'I've had enough of this.'
Jim Rogers: The market has been going up since May. The market has been expecting Bush to win. What we're in now is a blowout phase of a rally which has been going on for six months. Meredith says this is good for the market. Ha! Next year is going to be bad and 2006 is going to be bad.
Gregg Hymowitz: The equity markets have gone up, but rates are going up too.
Jim Rogers: And the dollar is collapsing this week. So a lot of people are unhappy. And as Gregg points out, somebody has to finance this.
Dagen McDowell: But Meredith, rising rates help the economy, right?
Meredith Whitney: Well, rising rates are an indication that the economy is improving, so it doesn't necessarily help the economy. Rates rise to stymie the economy. If Bush goes through with privatizing social security that money goes into the market. And it's a mathematical simplicity that it will lift the market.
Bob Beckel: This economy was fueled a lot by people refinancing their house on adjustable rate mortgages. When these go up they're going to cost consumers more each month. I think we're kidding ourselves if we don't think that interest rates are going to go up. That may not impact on business so much, but it's going to impact on the consumer.
Dagen McDowell: But Ben, if rates go up slowly and moderately, isn't that okay for this market?
Ben Stein: It'll be fine for the economy and market. And I must say, economists are scratching their head. They're not really sure anymore about the connection between deficits and interest rates.
Gregg Hymowitz: The one silver lining in all of this is if you look at the press conference after Bush's victory, all of a sudden you got the sense that he was talking more and more about fiscal restraint. So maybe if there's a hope for the market, it's that they get their fiscal house in order.
Bob Beckel: One thing to keep in mind, the congress, the lame duck session, is coming back to deal with unfinished appropriation bills, which is a dangerous situation for America when they're sitting in there. The second thing is, George Bush says he's going to use his political capital. I don't think he's got that much political capital and political capital depends on having the money to do it.
Meredith Whitney: Did you look at the popular vote? That's political capital.
Bob Beckel: Three million votes is political capital? It doesn't matter. He didn't win last time, and he still uses political capital.
Ben Stein: You're still fighting that battle Bob? You need a massive dose of anti-depressant. He won last time. He won this time. That's it. It's over.
Bob Beckel: Tomorrow we ride at dawn. We're back in it buddy. You think they're really going to take a one trillion dollar cut in the social security fund?
Ben Stein: No, I think they're going to allow people to take money from one pocket and put it in the other pocket. And they're going to allow people to take a small portion of what they paid in the bond market and put it in the stock market.
More for Your Money
Dagen McDowell: Small companies, that's where the jobs are and that's why President Bush says he will help them grow. So if you buy small company stocks now, will you get more for your money? Dave, are small company stocks a good bet under President Bush?
Dave Nelson: The president has always understood that tax breaks for small businesses creates a beach head for employment. And yes, this tax break is good news for small companies. It gives entrepreneurs a chance to expend capital and hire new employees. What's more important here is small companies and small cap stocks in particular can benefit from some of these tax incentives. But I caution investors. Do not invest in individual stocks unless you fully understand them. That's why I'm recommending the Royce Micro Cap Fund (RYOTX).
Gregg Hymowitz: We can talk about small cap stocks, but let's be clear. When Bush talks about small business he's talking about sole proprietorship and the like. He's not talking about public companies that just so happen to have a small market cap.
Ben Stein: I totally agree with Gregg. What President Bush is proposing is to help family owned companies, small companies that aren't publicly traded.
Jim Rogers: Gregg and Ben are exactly right. Bush is trying to help the families at home. But big companies are going to do better in the stock market next year and the year after. As the dollar goes down their reported earnings go up. So if you've got to own stock, and I don't recommend that you do, but if you must, you should own big companies.
Dagen McDowell: Even though you didn't vote for President Bush Gregg, you are betting with him. You have a stock pick for us?
Gregg Hymowitz: If we're going to talk small cap stocks, I'm going to give you a double whammy pick. I'm going to give you the oil and small cap combo. One of the companies we own is Holly Corp (HOC). It trades at roughly 13 times earnings. It's an independent oil refiner. The environmental laws are going to continue to make it tougher for new refinery businesses. So you get the oil and the small cap aura. We own the stock and we like the company a lot.
Head to Head
Dagen McDowell: Does our economy need another tax cut to really take off? Time to go head to head. Herman, do you think the Bush tax cuts have kept this country afloat and does the president need to cut more?
Herman Cain: I believe he does need to cut more. Now if you recall, back in 2003, he was trying to pass twice as much as he actually got passed, which would've put an even bigger stimulus in the economy. If you go back to the Kennedy tax cuts of 1963, if you go back to the Reagan tax cuts of 1981, they all worked.
Bob Beckel: Let me take you back to a more current president Herman. Clinton increased taxes with no help from Republicans, on the wealthiest Americans. And it was followed by one of the greatest booms in the history of the economy and the stock market. So, there's a lot of history we can play with here my friend. After you take these tax cuts, how are you going to pay for a government that Bush has promised to pay for — whether it's Social Security, more defense spending or the two wars we have going on.
Herman Cain: You pay for it by letting the people spend more of their money. If we had not passed those tax cuts in 2003, this economy would've truly been in the dumps.
Bob Beckel: If you believe that those tax cuts that George Bush gave to the middle class were the reason that this economy stayed barely afloat, I can tell you that a big part of this was people refinancing their homes. There was a huge boom in that.
Herman Cain: Bob, how do you call this "barely" when the gross domestic product over the last 12 months annualized has been greater than the GDP when Clinton was running for re-election. How do you call it "barely" when under President Bush there's been 14 consecutive months of job growth and under President Clinton there was only seven positive months of job growth. The economy is stronger and all you have to do is not be in denial.
Bob Beckel: Herman, I promise you I am not on a river in Egypt. In the last four years, the poverty rate has increased, the average family income has gone down. People have lost their jobs in record numbers. They've gotten jobs back but they jobs are paying less and with fewer benefits. One-in-six children go to bed in poverty in this country. Is that something George Bush should be proud of?
Herman Cain: You have this way of selectively pulling out statistics that are extreme. Have some people lost their jobs? Yes.
Bob Beckel: Some?
Herman Cain: Are some people still in poverty? Yes. I read an article just two days ago that talked about new home ownership sales are up over 3 percent in this economy. But yet you and others keep calling this a lousy economy.
Bob Beckel: The reason those homes are selling are because interest rates are low. The way George Bush is running this deficit they have to go up. And as a result of that, you're going to see this economy come to a screeching halt.
Herman Cain: It's because of the Bush tax cuts that the interest rates are low.
Bob Beckel: Now that's denial!
FOX on the Spots
Gregg Hymowitz: Re-finance your home now! Mortgage rates have bottomed.
Meredith Whitney: Stock market soars on Bush tort reform!
Ben Stein: Drug stocks, REITs & high dividend stocks win under Bush!
Bob Beckel: Bush won't be able to get his tax cuts made permanent!
Jim Rogers: Hillary Clinton will not be the next U.S. President!
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: Uniting our country and boosting our stocks. Could we do both if President Bush replaces some of his cabinet with democrats?
Mike Ozanian, senior editor: Hell no. They just turned around the economy, they’re winning the war in Iraq, they’ve captured about 75 percent of the Al Qaeda operatives, the stock market’s up about 300 points since Bush won re-election. That suggestion is like saying a football team that just marched the ball all the way down to the 1-yard line should kick a field goal instead of going for the touchdown. Go for the touchdown and the two-point conversion.
Dennis Kneale, managing editor: Field goals win football games all the time. I'm not a conservative, but I play one on TV. Fifty-five million people voted to fire George W. Bush. How do you try and get some support from them? You do it by holding accountable the guys in your administration who screwed up the weapons thing, who screwed up the Iraq unrest, who screwed up torture in prison. And as a first proposal, let me say for attorney general we could go for Jeb Bush, the brother, and pull a Kennedy move like JFK. Or go for Eliot Spitzer, the NY state attorney general and make him attorney general of the United States.
Steve Forbes, editor-in-chief: I don't know what poor Dennis is on but he sounds like CBS who still has not conceded the election to Bush. The fact of the matter is Bush won a decisive victory and if he wants to bring a democrat into the cabinet he could do no better than Zell Miller, who understands what the president stands for and pushes policy. The president has an agenda. Push it.
David Asman: We heard Zell Miller at the Republican Convention. Would there be others besides him?
Quentin Hardy, Silicon Valley bureau chief: I don't want any democrat in there. I say it is time to let it rip, because the president got his clear mandate with his 51 percent victory. And they picked up some seats in the senate. So let's go. Let's have a real reality check on this stuff. You think cutting taxes on the rich fixes the deficit? Go ahead. You think the war in Iraq is going to bring democracy to the Middle East? Go ahead. You think a constitutional ban on gay marriage fixes the American divorce rate? Go ahead. And in four years I will admit I was wrong. But if you are wrong, please don't blame the media or the democrats. Let's see if this stuff works.
David Asman: They either fall flat on their face or declare victory.
Jim Michaels, editorial vice president: Quentin is going to get his way. There will be some reshuffling and some new faces, but Howard Dean is not going to be appointed Secretary of State, Ralph Nader will not be attorney general. Whoever gets appointed are going to be hawks on defense and hawks on tax cuts.
David Asman: Somebody like Zell Miller.
Jim Michaels: Zell Miller. Sam Nunn would be another possibility.
Elizabeth MacDonald, senior editor: This was one of the most bitterly divisive elections since Nixon. I think the democrats in congress are really going to start fighting back with filibusters. The president didn't run for president of Bob Jones University or president of the 700 Club. The way to get his programs through is possibly to have some democrats in the cabinet.
David Asman: Like who?
Elizabeth MacDonald: Lee Hamilton, co-chair of the 9/11 Commission. Make him national director of intelligence, that new position. Or get Sam Nunn in there. Or the Pentagon.
Steve Forbes: David, the bottom line is that it’s not who you have in the cabinet, it's what you get done and the policies you pursue. If the policies work, all will be well.
Elizabeth MacDonald: Not if you have democrats who are going to fight back in congress and filibuster.
Steve Forbes: The reality check for Elizabeth and the senate, they're going to break filibusters now. Those senators can read election returns. They beat Daschle by being obstructionist.
Dennis Kneale: I think that even republicans need to see some changes in the faces running this country. And the four key areas that will help the markets further: treasury, fed, defense, secretary of state. Colin Powell will be gone before we know it.
David Asman: And Mike, some of these folks in the cabinet are going to leave of their own accord, right? Who do you replace them with?
Mike Ozanian: What Bush needs to do is not worry about replacing people in his cabinet but taking his case to the American people better. Because people like Quentin report these fallacies about the rich. The rich in this country, the top 1 percent, they earn 17 percent of all income and pay 34 percent of all taxes. Bush needs to go out and take his case to the American people and say, ‘look, stop listening to Quentin and Dan Rather. We have got to lower the top tax rate which is 35 percent. And cut that back.’ If you want to get the market and the economy going, that's what he needs to do.
Quentin Hardy: Mike, we’ll try it again. I said go ahead and prove these theories to me. Cut taxes for the rich and show me how it ends the deficit. I'm ready to see this thing. What I don't want is republicans who have been in power for 30 years whining about how beset they are and saying it is a democratic conspiracy and there’s this liberal media. Look, you guys have been in power for decades already. Get over it.
David Asman: One thing that Quentin says is cut taxes. We already cut taxes. What's happened? Have the tax revenues increased from those folks who have seen lower taxes?
Steve Forbes: Absolutely. And the tax cuts were across the board like they were for Reagan and Kennedy. The deficit projections have gone down this year over $60 billion. We reduced the burden on people, it works. And Jim is absolutely right. As ‘Cool Hand Luke’ says, “there is a failure to communicate.” And Mike, they cannot make that mistake again. They have to make their case to the American people.
Elizabeth MacDonald: What's really hanging up the market is Iraq and terrorism. It still frightens me that some people in this country are more afraid of gay people showing up at their doorstep than Usama bin Laden. Look, we need consensus. The Bush administration needs to get more democrats behind his campaign to win the war in Iraq.
Jim Michaels: If we had gone for consensus we never would have retaliated against 9-11. The terrorists would still be running wild.
Elizabeth MacDonald: There are a lot of democrats in favor who we're for going after.
Jim Michaels: 70 percent of the terrorists are dead or in jail.
Elizabeth MacDonald: That’s not true.
Steve Forbes: Mush is no substitute for substance. The key is he has a muscular policy. Pursue it and the country would be better off for it.
David Asman: We already heard Bush say ‘I've got some political capital from this election. I'm going to use it.’ It sounds like he will not be inclusive as far as his cabinet is concerned.
Dennis Kneale: It sounds like he's in a mood to really stick it in his rivals' faces. And if he wants to do that, I have a nomination for him. I think he should nominate John Kerry to be ambassador to France.
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: President Bush's big win is bad news for the stocks and the economy, last week notwithstanding. Stocks, historically, have done much better with a split government. So Neil, even though stocks had a great rally, a Bush rally this week, you think they may go down?
Neil Weinberg, senior editor: Whether you believe in historical analogies or fundamentals, the market doesn't look good. The analogies are the stocks do poorly when one party controls everything; they do poorly under the republicans compared to the democrats. If you look at the fundamentals, next year's earnings, which the market really cares about, are going to be about half what they were this year. And on top of that, yesterday the dollar hit an all-time low against the euro. Foreigners will not want our stocks.
David Asman: But all this foreign news is not hurting the market. Ever since Bush won it's been doing great.
Steve Forbes, editor-in-chief: In terns of earnings, they’re not going to go down 50 percent next year. The growth rates may slow down after two torrid years, so profitability is still there. The markets like Bush because he will cut tax rates again and reform social security.
David Asman: He will cut tax rates again?
Steve Forbes: Absolutely, as part of simplification. You’re going to see the permanence of getting rid of the death tax, you’re going to see social security reform, you will see health savings accounts get pushed, and in tort reform, the barbarians are finally going to get their comeuppance.
Lea Goldman, staff writer: My big concern is consumer confidence and consumer spending. We’re entering the holiday season and it’s still not where it should be. We saw a great bounce on the jobs report on Friday, it was fabulous, but a little bit of an aberration because of the post hurricane hiring.
David Asman: A lot of it was cleanup workers.
Lea Goldman: Right. Will it last? I'm not so sure.
Jim Michaels, editorial vice president: Oh, hell, I'll give you some history. The stock market does better when women wore shorter skirts. I understand they're getting a little shorter. Therefore the stock market is going up. But forget these superstitions about sunspots and skirt lengths and presidential years. The stock market does well when you have a business-friendly, investment-friendly policy in Washington. And when you have the economy recovering, when you have taxes being cut, the market will do well. And the market is doing well. And it will continue to do well.
David Asman: So Quentin, all the ducks are lining up for a bull market here.
Quentin Hardy, Silicon Valley bureau chief: It's a weird day. I'm in line with Jim. History teaches but does not dictate. And it's not about historical patterns as much as the character of the people in power. And at the end of the first Bush administration, the DOW was down 8 percent. And the S&P was down 20 percent. A lot of that had to do with the character of the people in power. If they get their act together and control spending, if they get their act together and try and get up some sensible policies, the market will go up this time around. It didn't the first time.
David Asman: Neil, here is another one, social security reform. We heard about that. That excites Wall Street a lot. Because they will see more money coming their way, right?
Neil Weinberg: They will see a lot more money but at the same time Steve is talking about all these great tax cuts. We've already had great tax cuts and the deficit has gone through the roof.
David Asman: But wait a minute. You can't blame the tax cuts for growing the deficit because more revenues have been coming in because of the tax cuts.
Neil Weinberg: Over the last few months when the economy has rebounded, yes.
Steve Forbes: How did we get a rebounding economy? Because of the tax cuts. They go hand-in-hand.
Jim Michaels: And you think it will stop rebounding?
Neil Weinberg: No, but I don’t think we’re going to have the additional tax cuts that would be required right now to have the market go through the roof.
Jim Michaels: You don't need to constantly stimulate the economy. Once the tax cuts are in, that effect is permanent. People keep more of the income they got, they will work harder, they spend more. The tax cuts are permanent.
Steve Forbes: The key thing is not rebates and throwing money at people, but reducing tax rates and increasing incentive. When you get to keep more of what you make, you earn more.
David Asman: And they say tax reform, does it include the Forbes flat tax?
Steve Forbes: I'm ever hopeful that they are finally seeing the light, that the education has gone through and they will do something in terms of simplification.
Neil Weinberg: I hope they do something in terms of simplification but it will not get that simple. The reality we've seen our bounce from that.
Lea Goldman: I think the Bush bounce has all but fizzled at this point.
Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:
David Asman: What stocks are going to win now that we know Bush is going to stay in the White House? Victoria, you have a stock pick that I own and I've seen it drop for two weeks. Tell us about it.
Victoria Murphy, staff writer: A rough ride for you. Merck (MRK) is down 40 percent in the last month. Ever since they recalled Vioxx, their blockbuster arthritis drug. And a lot of that drop you can thank the trial lawyers for, because investors just got really scared. Trial lawyers set up 1-800 numbers for Vioxx users to call. And here Bush can really ease some of the pain. He wants to go after the trial lawyers and it's important to note that the association of trial lawyers, were one of the top Kerry campaign donors. John Edwards we know, former trial lawyer. I think Bush can make a difference. Bush isn’t going to import drugs from Canada.
Lea Goldman: Merck is too risky. The liabilities that Merck is looking at are enormous. And Bush will not come up on that issue quickly enough.
Jim Michaels: They have knocked $20 billion off the market value of Merck. And the maximum liability they face is maybe $10 billion.
David Asman: Mike, tech stocks. Tech has been up and down. Where is it going to be in the second Bush term?
Mike Ozanian, senior editor: I think business confidence is going to be way up. I think tech spending is going to be way up. Companies have a ton of cash. I like Black Box (BBOX). It makes networking and data storage networking systems. The stock is at $39 and it will be at least $45 by the end of the year. The company throws off gobs and gobs of cash. And it stumbled a little bit this year. The stock is off about 14 percent but I think it will rebound.
Jim Michaels, editorial vice president: I think the tech sector will be strong. And I defer to Mike on that stock. I don't know much about it. But I agree with him on the tech section.
Victoria Murphy: I agree with him on tech. And hopefully that's a boost for Silicon Valley where I am. But Black Box kind of scares me. They have some accounting issues. Their auditors have left. And insiders are selling, not buying.
Mike Ozanian: That's when you want to buy a stock, when everybody hates it.
Victoria Murphy: Insiders?
David Asman: Lea, what do you think?
Lea Goldman, staff writer: I'm putting my money with IBM (IBM). I think outsourcers are in the clear following the Bush victory. Half IBM's revenue comes from outsourcing services. They will beef it up. And the stock is cheap right now.
David Asman: Kerry was big on cutting down on outsourcing. IBM outsources a lot, so you go with IBM?
Jim Michaels: Outsourcing has nothing to do with it. Kerry was not going to do anything about outsourcing. He never said he was going to do anything about outsourcing.
Lea Goldman: He said he would close the loopholes.
Jim Michaels: This may or may not be a good stock but the Bush election does not add anything to it.
David Asman: A naysayer on IBM?
Jim Michaels: I’m not a naysayer on IBM. I just say you don't buy it because of the Bush victory.
David Asman: Jim, you're up on gas and electric stocks and one in particular.
Jim Michaels: This is a very conservative stock, but it benefits from the dividend tax cut. And that's Dominion Resources (D). It gives you a little bit more than a 4 percent tax-protected dividend. That's about 3.5 percent after taxes. And you get 5 percent or 6 percent growth in it. It's one of the most progressive utility companies in the world.
Lea Goldman: I agree.
Makers & Breakers
• Cadbury Schweppes (CSG)
Ben Halliburton, managing director of Tradition Capital Management: MAKER
They’re not just chocolate. They've got 7-Up, Dr. Pepper….
David Asman: Snapple, Trident….
Ben Halliburton: Dentyne, Certs, Halls cough drops. They have great brands.
David Asman: Why now?
Ben Halliburton: Some of the brands they have picked up from Pfizer (PFE). They're putting money behind that. Growing those brands. And we think the stock is undervalued today.
David Asman: And you think it can go to $44, a 30 percent rise. (Friday’s close: $33.80).
Dennis Kneale, managing editor: MAKER
I agree with Ben and I am a maker. I like the stock for a couple of reasons. First it has gone nowhere in the last year and could go up with the whole market, and second I think they will get bought and carved up by bigger companies.
Elizabeth MacDonald, senior editor: BREAKER
I'm a breaker. While this may seem like it's a sweet stock it has too much fat in the operation and has taken too long to cut back its plants and labor costs. And the earnings growth rate has been about negative 12 percent over the last three years.
David Asman: Not earning enough. What about that?
Ben Halliburton: Cadbury is a cash machine. They are generating $2.30/share in free cash in 2005. It’s a cheap stock and we think it has a lot of upside.
• Vodafone (VOD)
Ben Halliburton: MAKER
Vodafone is the leading provider of wireless services on the globe. And as younger people pick up phones as their primary use, as the developing world picks up mobile phones for their primary use, Vodafone has a lot of upside.
David Asman: And you say the stock could go up to $33, a 20 percent rise. (Friday’s close: $26.46).
Elizabeth MacDonald: MAKER
I love this stock. I am a maker on this stock. They are the big behemoth, the big gorilla in this area and they own 45 percent of Verizon Wireless (VZ), which is a great company.
Dennis Kneale: BREAKER
You're both wrong. I'm not sorry at all. The stock is up 26 percent in four months. It will not go up. Plus it’s best network here, Verizon controls it, not Vodafone. It’s terrible, they have ownership and no control. And they're European.
David Asman: So he is against it because they're European and Verizon is better.
Ben Halliburton: They own 45 percent of Verizon and they will continue to participate in that great growth.
StockSmarts: Bush Boom!
Four more years for President Bush. And he won the election with a slumping stock market on his watch. But a turn-around could be on the way.
The last three presidents to win and serve a full second term — Bill Clinton, Ronald Reagan and Dwight Eisenhower — all saw the Dow shoot higher in their second term:
Clinton: UP 55 percent
Reagan: UP 82 percent
Eisenhower: UP 32 percent
So will be see a Bush Boom over the next four years?
Tom Adkins of CommonConservative.com says absolutely — we are going to see the Dow up 1,000 points by the end of 2004 (we already saw big gains the first three days after the election), and up 2,000-3,000 points by the end of 2005. And the market will go up for the same reason it went up under the second terms of both Clinton and Reagan – there were tax cuts.
Adam Lashinsky of Fortune Magazine is concerned that everyone gets too excited over a “three day rally”. Everybody feels better with a “happy, jovial” President (Bush) in office, as opposed to someone who is less optimistic (Kerry). But the same factors that are weighing down the market will continue to do so under Bush’s second term. There is the fear of higher interest rates, there is still fear of higher oil and there is still fear in the Middle East. And all of those factors will be in play going forward.
Charles Payne of Wall Street Strategies thinks that one major factor that isn’t around anymore is the uncertainty surrounding the election. That factor has been removed. He’s not so sure about a 1,000-point gain by the end of the year, but stocks are on a roll, the country feels great and a lot of the economic stimulus (re: tax cuts) might be made permanent, and those factors all bode well for the market. Lower oil and the President’s plans about Social Security also helped the market along. But Charles likes the fact that there is still some pessimism out there towards the market, which could help create the perfect storm for investing. Charles sees value across the board – but it still is a stock pickers market.
Jonathan Hoenig of Capitalistpig.com says the market was clearly relieved that Kerry wasn’t elected, also mentioning that on Election Day, when the exit polls showed that Kerry was doing well, the market dropped big time. But the biggest trend he sees in the market right now is underperformance in U.S. stocks and strength in foreign stocks. And that is where he is making money. And it comes down to playing the most profitable trades.
Gary Kaltbaum of Kaltbaum & Associates takes a little bit of an issue with the notion that the market has not done well under President Bush. Gary says that most of the losses came after the attacks of 9/11 and into 2002, before Bush’s policies really took hold. He thinks that valuations are the biggest things moving forward. The market buys value, and he doesn’t think we have contracted enough to make a case for whole indices moving up. But there will be sector bull markets, and individual stocks that make great moves. There has been a lot of money lost by people who got optimistic at the wrong time. We still have work to do in terms of evaluating the total overall state of the market. You just can’t throw darts at the board, thinking that everything is going to move up. And the market was totally scared of potential tax hikes under Kerry.
Jonas Max Ferris of MAXfunds.com is pretty optimistic for the next year, because the market will be bolstered by Bush’s agenda. But he is more concerned about the long-term because we don’t know if all of Bush’s proposals will be successful. And don’t under estimate the Social Security reform – stocks would totally go up with new money flowing into the market from privatized accounts.
Second Term Winners
The crew came up with picks that have struggled during the President’s first term, but will move higher over the next four years.
Charles says: Business Objects (BOBJ)
Down 62 percent during Bush's first term
Friday's close: $21.20
This is a business software company that has been hammered over the past few years (as was the whole sector), but Charles says that because of the dip in productivity numbers, businesses will have to start spending money soon. And he would rather invest in a company that has been beaten down as opposed to one that has been through a huge run-up. Gary says it’s the wrong stock at the wrong place at the wrong time. He thinks it is going to be a laggard — it might even be a short play.
Gary says: American Express (AXP)
Down 6 percent during Bush's first term
Friday's close: $55.12
It’s big, it’s boring, but it’s a consistent stock and a pretty consistent grower. And insiders have been buying the stock, which is a good sign. Charles likes this stock – he thinks there are better pure credit card plays, but he wouldn’t talk anyone out of buying this one either. Jonathan wouldn’t fight this stock, but he is trying to stay away from big Dow stocks.
Jonathan says: Deutsche Telecom (DT)
Down 42 percent during Bush's first term
Friday's close: $19.90
This is a German telecom company — and a total under performer. But this sticks with Jonathan’s theme for foreign plays. (Jonathan owns shares of DT). Charles does think there is a lot of upside in the big telecom stocks — but he likes this as a safe play. And he doesn’t think that there is going to be a “telecom arms race” between smaller telecom companies. Gary says there are no “safe bets”, but he likes this play. If you are betting on DT, you are betting on the German economy and market — which are in real good shape.
Stock of the Week
Last week, Jonas picked Merck (MRK). For the week of October 29 — November 5, the stock was DOWN 16.2 percent.
This week, Tom Adkins went back to back, saying Merck again was a buy. He says the “best place to go swimming where someone drowned.” And even though Merck has been hammered lately (as has the drug sector over the past two years), Merck still has a great variety of products, and it’s at such a low price right now it has become a buy again. Jonathan runs through a whole list of people who have liked Merck at such higher prices, and saw the stock do nothing but fall. Jonas thinks it is priced like a tobacco stock, but Merck can afford to pay for all of those litigation costs.
Jonathan, Adam and Charles answered some of your questions.
Question: "If the president has his way and gets oil drilling going in Alaska, are there any stocks that would benefit?"
Charles thinks you can make an argument either for or against getting unto drilling stocks at this time, since oil (and the stocks) have made such a huge run. But he thinks that oil will stay at pretty high levels, and that you should take a look at Apache (APA) and BJ Services (BJS). Charles doesn’t know if Bush really will get to drill in Alaska, but we still need to figure out a way to get more oil in America. Jonathan likes (BP) and ConocoPhillips (COP), but he’s not playing them right now.
Question: "There has been so much made of 'voting on morals.' What about investing? Do you believe in SRI – socially responsible investing?"
Adam thinks that this is a very personal decision. He wouldn’t do this – make money in the stock market, then give to charity. Now, if you are someone who can’t invest in a tobacco company or an oil driller, then you could look at something like the Ave Maria Catholic Values Fund (AVEMX). But it’s just not a strategy that works for him. Jonathan thinks there is something disgusting about saying a defense company or a tobacco company is irresponsible. Charles does think that it is a very personal decision — but one person’s social responsibility isn’t another person’s social responsibility. But if it is something that drives you, there is also The Noah Fund (NOAHX)
Question: "What do you think about Google (GOOG)? The market cap seems a little high."
Jonathan says the stock has been hot, but it’s too volatile for him. It’s just too much of a day-to-day play. Charles thinks it has created a new range: 200 to the upside, 150 to the downside. If you are a day trader, give it a look. But if you aren’t, then stay away. Adam thinks the stock could go higher, but it could also go way lower – so don’t bet the farm.