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; Chris Lahiji, president of DailyTrends.com; and retired U.S. Army Col. David Hunt, FOX News military analyst.
Trading Pit: Total Victory in Iraq = Total Victory for Stocks?
Terrorists are losing their grip on Fallujah, which could be the decisive battle that will help rid Iraq of these enemies. Wall Street is watching very closely. Does this mean a total victory for the stock market?
Chris: A total victory in Iraq would be great, but right now the market on the whole is doing very well. The Dow is up 700 pts. since Oct. 23, while the Nasdaq and S&P have had double-digit gains. No matter what happens, stocks are going to triumph.
Col Hunt: We’ve had a great fight so far in Iraq and Fallujah is just about won, but it’s just the beginning. We still have to go in to Ramadi and Sadr City. Victory will come in January with the elections in Iraq. This is the beginning of the end.
Gary B: Victory in Iraq is enough for Wall Street to head higher. It is feeling good about things now that President Bush has won re-election and the death of Arafat has also helped. The war is going well and the market likes all of this. Looking at a chart of the Nasdaq, it broke through a downtrend line, and it’s not long until we reach the 2004 high.
Tobin: There is a terror component in the market. We are getting the job done in Iraq and oil is starting to go lower now that the fear factor is lessening. Oil will hit $45/barrel and it’s just about there.
Scott: The market loves what is happening in Iraq. It means the administration has the political will to get the job done. Before our election, a lot of people questioned this will. Now, the market loves it. We are on the verge of a new high for the Nasdaq and the primary markets.
Pat: Things aren’t over yet. We still have elections in Iraq and some terrorists may have escaped Fallujah and will continue to cause trouble. This is going to be a long drawn out thing. Plus, we have earnings and the economy to worry about.
A win in Iraq means a win for which stocks on Wall Street?
Gary B: I like and own Halliburton (HAL). Less terrorism in the world means companies that have a global reach are better able to expand. The chart backs me up on this one. It broke through a downtrend in September and there’s no stopping now. It will reach $50 by the end of the year. (Halliburton closed on Friday at $38.00.)
Scott: Halliburton has been in the news for a reason. It has been under congressional investigations and has accrued a lot of debt. It has moved up from $10 [in 2002] and I think it’s done.
Pat: I’m betting on cement company Cemex (CX). Cement may be boring, but the company’s 25 percent operating margins are hardly boring at all. It has lots of cash and pays a nice dividend. It is high quality at a low price. (Cemex closed on Friday at $30.52.)
Chris: I think it is a great company, but the building boom is over. Plus, it has a lot of debt.
Tobin: My pick is jewelry retailer Zale Corp (ZLC). When the soldiers come back from Iraq, they’re getting married and will be buying jewelry. I also like it because it has had good earnings growth. (Zale closed on Friday at $30.50.)
Gary B: Zale is strong, but it has gone up 125 percent in the past year. I think it is going to hit resistance about $31.50. I would wait for a close above that before you buy it.
Scott: I like construction company Fluor Corp (FLR), which works all around the world. When we are finished in Iraq, clean up and rebuilding can begin. There will be a market opportunity there. I think Fluor will reach $60. (Fluor closed on Friday at $47.33.)
Pat: Construction is not a good business. It has low operating margins and low returns on capital, in addition to legal battles that can go on for years. I don’t like it.
Chris: I’m looking at British Airways (BAB), the world’s favorite airline. Airlines have been hit so hard because of 9/11 and SARS. British Airways is growing and as soon as the terrorists are eliminated, it’s going higher. (British Airways closed on Friday at $42.82.)
Tobin: I don’t think it’s going anywhere.
Every group has its initiation and to celebrate 21-year-old Chris’ first visit to the show, we’re looking at stocks that are younger than him.
First up, Home Depot (HD). (Home Depot closed on Friday at $43.22.)
Chris: Bull. It has a great brand name, the parking lots are always full, and it has excellent earnings moving forward.
Gary B: Bull. It has a great chart that keeps soaring. Buy Home Depot.
Scott: Bull. There’s enough room for Home Depot and Lowe’s (LOW) in the business and I think it is going to $60.
Tobin: Bull. I like it because Chris is going to go build a tree house!
Pat: Bear. I own it, but I’m not buying more here. I recommended it in the low $20s, but now at $43, forget about it.
Next, Microsoft (MSFT), which became public in 1986, but is now one of the most widely held stocks in the world. (Microsoft closed on Friday at $29.97.)
Tobin: Bull. It has a new media center product coming out, plus its new gaming system will have a big impact.
Scott: Bull. I agree with Tobin. When the stock opens $3 lower on Monday, buy it.
Pat: Bear. It’s too pricey for me.
Chris: Bear. I agree with Pat. Microsoft has left its prime, and I don’t think it’s going to come back.
Gary B: Bull. It has a great looking chart.
The group also looked at Bed Bath & Beyond (BBBY). It debuted in 1992 and since then has gone nowhere but up. (Bed Bath & Beyond closed on Friday at $43.49.)
Gary B: Bear. It has had a great run, but it is at resistance now. Looking at the chart it needs to move sideways or pull back. Avoid it for now.
Pat: Bear. It is a high quality company and crushes its competitor Linens ‘N Things (LIN) consistently. But, with rising rates and lower consumer spending, it doesn’t look good.
Scott: Bear. It had a good run, but I don’t like it.
Tobin: Bull. The company is re-doing each store and bringing in new products. I think earnings will continue to grow and investors are going to want to own it.
Lastly, Starbucks (SBUX), which has done very well since it came out 12 years ago. (Starbucks closed on Friday at $55.30.)
Scott: Bear. I loved this stock for a long time, but now it is priced to perfection and I don’t think anything is perfect.
Gary B: Bull. The stock keeps going up. America is addicted to this product, so buy this stock.
Pat: Bear. It’s too expensive for me. There will be a chance to get it at lower prices. The minute the company does something slightly wrong, it’s going down big.
Tobin: Bull. We’ve already made so much money on this stock.
Chris: Bear. I hate their coffee, plus I think same store sales are going down in the next year.
Gary B's prediction: Amazon (AMZN) makes incredible move; nearly triples in 1 year!
Pat’s prediction: AmeriCredit (ACF) the beautiful! Moves higher by 33 percent in 1 year
Scott's prediction: An intelligent move would be to buy Intel (INTC); gains 25 percent in 1 year (Note: In response to this prediction Tobin said he preferred ATM, but he meant to say AMD for Advanced Micro Devices.)
Tobin's prediction: Time to change the channel! Sell TiVo (TIVO) and buy Verizon (VZ)
(When Tobin recommended TiVo on the show on Oct. 23rd, it was above the $500 million market cap that we use as a cutoff point for stock recommendations on Bulls & Bears. The stock has since fallen below that.)
Cavuto on Business
Neil Cavuto was out this week. Stuart Varney hosted and he was joined by Jim Rogers, president of JimRogers.com; Gregg Hymowitz, founder of Entrust Capital; Ben Stein, author of "Can America Survive?"; Charles Payne, CEO of Wall Street Strategies; Leigh Gallagher, senior editor at Smart Money Magazine; Robert Reich, former Secretary of Labor under President Clinton.
Stuart Varney: Making the tax code simple. That's a priority for President Bush in his 2nd term. But would that make stocks go higher or lower? Charles will a simpler tax code help or hurt the stock market?
Charles Payne: It would help the stock market because it would help the economy. Everyone knows that the tax code is obviously complicated, but the amount of money that could be unleashed into the economy that obviously would trickle into corporate coffers could be huge. It's just a matter of how you simplify it and how you make the transition.
Stuart Varney: Let's bring Ben Stein into this. Ben, what do you say, help or hurt the market?
Ben Stein: I don't think it will help or hurt it. The amount of money spent on income tax preparation is large in absolute terms, but compared with the total number of corporate profits, it's absolutely inconsequential. It would be a big help if they could lower corporate tax rates, but simplifying the code will not mean one thing or the other for the stock market.
Gregg Hymowitz: To Charles' point, it really depends on how they simplify it. If they change it to a national sales tax I don't know if that necessarily helps the economy. A lot of conservatives are also very concerned — if you've been reading the papers lately — there's a concern that simplifying the tax code is actually a way of raising tax revenues. There's a feeling that this administration needs to get the fiscal house in order and maybe this "simplification" is an underhanded way of actually raising taxes and getting more tax revenue. If that is the case, I'm not sure it helps the stock market.
Jim Rogers: Any simplification is good because as Charles points out, you free up a lot of money. It would increase corporate profits. If would increase all of our income too because we wouldn't have to spend money on all the accountants and lawyers we have to hire. Plus, if they do simplify it, they say they're going to encourage saving and investing. That would be fabulous for the stock market.
Stuart Varney: Leigh Gallagher, you're shaking your head.
Leigh Gallagher: The link between the stock market and making taxes simpler is tenuous. Look at what happened when the dividend taxes were reduced. It had very little effect on the market. It may have a marginal effect on corporate earnings, but overall I don't think it will have an effect one way or the other.
Stuart Varney: When you make it simpler Jim you eradicate loopholes, which could be bad for businesses and the market, right?
Jim Rogers: No, that's absurd. Those loopholes don't save businesses that much money. Some people would get hurt, but most of us and most companies would be a whole lot better off.
Charles Payne: The two ways to simplify would be a national sales tax or a flat tax on income. For the national sales tax, that would mean none of us would get taxed on our income. On the income tax, we'd all have a flat tax on our income — whether it would be 17 or 18 percent. That's democratically fair, certainly on the surface.
Gregg Hymowitz: Getting the tax cuts to remain permanent is going to be enough of a fight. There are a lot of issues on the table before we get to a national sales tax.
Stuart Varney: Ben, make the connection for me between simplifying the tax code and Wall Street.
Ben Stein: There is no connection. It might be good if you did something that cut all the barriers between corporate income and the person who owns the stock or owns the asset. If you just change the tax code, the money that's saved is not enormous. And it would not be a giant effect on the economy. And I hate to say this, because I hate making Gregg happy, but we do have to pay for the cost of governing this country.
Jim Rogers: We don't have to come up with more revenue. We have to cut spending.
Leigh Gallagher: I agree with Ben that there is no relationship between taxes and the stock market. The way to get the market going is to increase jobs.
Jim Rogers: Stuart, if they do a national sales tax or a flat tax that is great for stocks because then we're not taxing saving and investing anymore. And money will go into investing in the stock market and other places.
More for Your Money
Stuart Varney: Four years ago the Internet boom went bust. But are the dot-coms what you need to buy now to get more for your money? Internet stocks are on a tear once again — up more than 30 percent in the last 3 months. That's way ahead of the overall market. Leigh, are these stocks a good bet now?
Leigh Gallagher: I think they are. I think a lot of them looked expensive a year ago and it's appreciated since. There's room to go. ebay (EBAY) is up 75 percent in the past 12 months. It was expensive back then. It's not a bubble #2 for a big reason. These are different companies than they were four years ago. They are leaner and meaner. Some of them you might even say are "conservative" companies.
Gregg Hymowitz: It's a rare moment when I disagree with Leigh. I don't believe there are such things as "different companies." All companies, at the end of the day, base their value on earnings. These companies sell at ridiculous multiples and ridiculous valuations. And just because they were ridiculous yesterday and they're more ridiculous today doesn't mean you should own these stocks. I don't think you buy these stocks directly. There's other ways to play the technology boom.
Ben Stein: There is only one thing that counts with stocks and that is earnings. Maybe earnings and dividends. There are still very modest earnings for most of these companies. Ebay is an exception because it does produce solid earnings. I think Yahoo! (YHOO) is a very, very well managed company. I own a tiny bit of it.
Jim Rogers: Not only would I not buy dot-coms, I would sell them if I owned them. People should be gearing up to sell stocks, especially these stocks. Anybody who would buy these stocks at these levels is nuts. It's not smart money. It's dumb money.
Charles Payne: If you buy it here and you make 50 percent on your money between now and January, were you smart or were you dumb?
Gregg Hymowitz: It's a fool's game to buy a stock and hope that someone else is going to pay a higher price than you.
Charles Payne: Most of us watching this show are buying stock to make money from them, hoping that someone will pay a higher price for them. In this group I kind of like ValueClick (VCLK). Their most recent quarter earnings are up 350 percent. Their gross market margins are expanding.
Gregg Hymowitz: What's the multiple you're paying for it?
Charles Payne: The multiple is pretty high. I don't know.
Gregg Hymowitz: It's so high it's not even relevant.
Charles Payne: Bottom line, some of these companies, the earnings are expanding. And the same argument you're hearing here you would've heard a year ago. And you wouldn't have made a 100 percent on Yahoo. You wouldn't have made a 100 percent on Amazon.
Head to Head
Stuart Varney: Who's a better money manager, you or Uncle Sam? Let's go head to head to find out. Ben Stein says President Bush has the right idea. Americans should be allowed to invest at least some of their social security money on their own. But Robert Reich, former Labor Secretary under Bill Clinton says that would be a disaster. Ben make your case.
Ben Stein: The social security system has been a very good system. It's been able to relieve a lot of insecurity. We've got to tell people though that they can no longer count on the government to bail them out. And they're going to have to start saving on their own. And yes, it will blow a little bit of a hole in revenue. But it will also blow a hole in liabilities. What we're really saying to people is, forget the big picture, forget what the economists are talking about. You've got to start saving right now for yourself.
Stuart Varney: All right, Secretary Reich, you say this is a disaster?
Robert Reich: I agree with Ben that people do need to save more. Let me just say this, when Ben says the transition costs to get to a privatized social security are relatively low, he is wrong. By most estimates it's going to cost about $2 trillion. And remember, this is a pay as you go system. It's not as if there is a big social security trust fund there to be managed. I make social security contributions and they go to people who are retirees.
Stuart Varney: Mr. Secretary, that's the very big picture but relate it to the individual. How would it be a disaster for individuals to manage some of their own money?
Robert Reich: Individuals should be saving more. The real question is, how do you change the system? And do you change the system? Social security and the trust fund is pretty healthy for the next 15 years. Medicare is a much larger problem. But my point is, if we change the system to actually enable people to divert their social security money into private accounts, the entire system, which is a pay as you go system, won't have enough money to pay what is due now.
Ben Stein: They will be able to make up the gap just by general revenues and by deficit spending. Two trillion dollars is a lot of money to me, but it's not a lot of money in the context of the overall problem. What we're talking about here is freedom for the individual to choose his or her own investments. And not have them locked up in the very lousy returns of social security. I agree there are giant problems in the social security trust fund, but on the individual level, that freedom to invest is what is going to save people.
Robert Reich: There is no social security trust fund. There is no money there. It is just being transferred from people who are paying in, to people who are receiving a payout. If people stop paying into that, then their parents and grandparents aren't going to get social security. And please, I'd like to respond to Ben Stein's comment on not worrying about the deficit spending. We already have a $416 billion deficit. This administration is going to face larger deficits. How can we say don't worry about general revenue and don't worry about deficits?
Stuart Varney: All right, in the interest of time we're going to have to end it there. Thank you both.
FOX on the Spots
Jim Rogers: Blair pushes for Mideast peace; extends "Bush" rally.
Gregg Hymowitz: Democrats help Bush make tax cuts permanent.
Leigh Gallagher: Microsoft's new search engine will be a giant flop!
Charles Payne: Regional bank stocks outperform; buy Commerce (CBH)
Ben Stein: Dollar sinks to crisis level; hurts stock market!
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: A plan to rid our dependence on Mideast oil and all the turmoil that goes along with it. So why do some find the plan positively radioactive?
Jim Michaels, editorial vice president: There is no one single answer but most of our new power plants are fired by natural gas. Natural gas is now getting as scarce as oil. And the price has gone through the roof. If we don't go to nuclear, we are going to have to end up importing huge amounts of liquefied natural gas from the Middle East.
David Asman: Nuclear is the answer.
Jim Michaels: Nuclear is the answer.
Neil Weinberg, senior editor: Nuclear is not the answer. No lawyers and no one anywhere in this country is going to let people build nuclear plants in their back yard, because they don't like them and want them in the next state. I think the problem is that Americans are pigs. They're energy pigs who use twice as much as the Japanese or the Germans and what we need is some sort of tax…
Jim Michaels: Americans aren’t pigs. The pigs are the people in Iraq who cut people's heads off.
David Asman: Ok. We put it in focus here. But Mike, what do you think of nukes?
Mike Maiello, staff writer: I think nuclear power is a miracle worker. For one thing, it puts a liberal like me on the same side of the argument as Jim Michaels. And I think it's right. We've got natural gas depleting. We need an alternative. Also, nuclear power can be used to create hydrogen power later on. And that is what going to free us from Mideast oil.
Elizabeth MacDonald, senior editor: I like how companies that create waste never want it in their own chief executive’s backyard, they always want it in somebody else's back yard. The problem with the situation is senator Harry Reid from Nevada is fighting any effort to store toxic nuclear waste at Yucca Mountain. In 2002 when he wanted tougher safety measures to stop any terrorist attack on a nuclear plant, the nuclear industry, including nuclear regulatory agencies, fought it tooth and nail. So he is angry about that. I think any nuclear plants are going to be off the table unless you can store the waste.
David Asman: Do we need Yucca Mountain?
Bill Baldwin, editor: I think what we need is a little bit more rationality about energy and energy subsidies. I’m surrounded buy socialists. Jim Michaels wants me to help pay for his hybrid car, and Mike likes nuclear which means probably liking the liability caps on nuclear power, which is basically a subsidy.
David Asman: Bottom line is you say we could not build nukes without the government intrusion?
Bill Baldwin: I think it's very simple. We should have, for energy policy, is to repeal all of the subsidies, deductions and exemptions for all of these organic, renewable and socialist…
Jim Michaels: Bill, if you are going to do honest cost accounting, on oil, how about putting in the cost of our maintaining a giant navy to keep sea lanes open? If that isn't a subsidy to oil, I don't know what the hell is.
Bill Baldwin: So one good subsidy deserves another one.
Jim Michaels: No, it's not that.
David Asman: Hold on a second. Jim, we haven't had a new nuclear power plant built since when, 1977?
Jim Michaels: People have got hysteria stirred up. There used to be a bumper sticker. ‘More people were killed in Teddy Kennedy's car than in all the American nuclear accidents.’
Neil Weinberg: Why can't we use our energy more efficiently? I don't see what the problem is. We don't all have to be driving around in Hummers. This is the simplest way. We don't have to build nuclear plants. We just use it more intelligently.
Jim Michaels: We'll all ride bicycles.
Elizabeth MacDonald: What I think is, do you really trust that these storage containers can hold this toxic waste for 40,000 years? Jim, would you like to have nuclear waste in your backyard? No. It's not fair to these states who may have to store this waste. Harry Reid is right.
Jim Michaels: I'm 40 miles downstream from Indian Point, the big nuclear plant. And secondly, Yucca Flats; there is 1,000 feet of solid rock on top of that.
David Asman: Jim, would you plant your house on top of that?
Jim Michaels: No, but nobody will plant a house on top of that.
David Asman: So what's the problem, Neil?
Neil Weinberg: The problem is you will create more problems by saying ‘should we do nuclear or should we do natural gas or anything like that?’ I'm saying we could massively reduce this problem by using our energy more intelligently.
David Asman: The point is not relying on sheiks in the Middle East. Can we do it?
Mike Maiello: Yes, I think we can do it and we have to change the paradigm. I think it's OK to use public funds for something like building an energy infrastructure, because that benefits everyone. And I think it's a good investment in public funds.
David Asman: So Bill, public fund investment, sometimes we need it.
Bill Baldwin: Repeal all the subsidies and let oil stand on its two feet. It will beat out all these goof ball windmills and other subsidized energy.
David Asman: Only if it comes down in price. What happens if it comes down to $35 a barrel? Should we pick it up at that?
Elizabeth MacDonald: I just think the way we should be thinking is about these new technologies that make really terrific compression engines for automobiles. And The Wall Street Journal had a terrific story about that within the past couple of months. There is this new technology to make energy-efficient car engines and that's what we need.
David Asman: Should we forget about nukes and just wait for technology to come online and solve our problem?
Elizabeth MacDonald: I don’t think you forget about nukes, I think you keep it at 20 percent of the market share, which is what it's at now but look for other alternative energy sources.
David Asman: Jim, why not just wait for the market to come up with a better idea?
Jim Michaels: Because there are some things which even Adam Smith, the saint of capitalism, says governments have to do. And when something is really socially desirable, the government does it. The railroads that span our country, that brought our country together, were subsidized by the US government.
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: If you want to put more money in all our pockets, then give the rich man another big tax cut. Mike, how would cutting a rich man's tax put more cash in all our pockets?
Mike Ozanian, senior editor: The philosophy that we have is you have to punish success and punish the people and businesses that create the jobs, by cutting the marginal rate which is the rate of tax you pay on each additional dollar of income, it would be a huge increase in revenues to the government. We saw it happen with Kennedy in the 1960's and with Reagan in the 1980's.
David Asman: And it has been happening now. Revenues have been increasing from those rates that have been cut. The past couple of months.
Mike Ozanian: We will need this money. We have huge Medicare bills coming up and huge social security bills coming up and the way to get the money to do it is to cut the top tax rate.
Lea Goldman, staff writer: I'm ready to lock Mike away and throw away the key as a menace to society. What you are talking about is a myth. The fact that cutting taxes for the rich ends up pumping money into the economy is a myth.
David Asman: Why is it a myth? It did it in the 1920's, 1960's, 1980’s and now?
Lea Goldman: You will never see that money have any kind of tangibly beneficial effect on the market. It gets tucked away in tax shelters and things like that. Looming large in the background is a huge and growing deficit which requires $1 billion in financing, borrowed money every single day. We're borrowing money left and right, most notably from the Asians.
Victoria Murphy, staff writer: What's interesting is if you look at history, when we have increased the marginal tax rate on those top earners it has done absolutely nothing to increase our revenues to the government. So what we are talking about will not be solved by increasing taxes on the wealthy, because they just end up shifting their income around so they have less taxable income. The problem with raising taxes is that you're disincentivizing people from working. And that's a real negative to our economy. That and lower economic output.
David Asman: The question when you lower the tax rates, do we gain revenue or lose it?
Jim Michaels, editorial vice president: You gain revenues. In fact, they were talking at $500 billion deficit. It came in at September 30 at a little over $400 billion. It’s already starting to come down and the tax cuts are just beginning to catch on. And as far as the rich people, I don't know which rich people you know. You must know Mrs. Kerry, because Mrs. Kerry’s money is tax exempt. All the rich people I know reinvest in their businesses and keep plowing the money back. And they are more willing to take risks if they can keep more of it.
David Asman: Mike, where do you come out on this? Do we lose or gain by these rate reductions?
Mike Maiello, staff writer: Well, we certainly lose in the short term. We know that. And we know that we are in an economic situation right now where the federal government is already too strapped to properly help the states. So any tax cut you give to the top rate people is going to reduce the feds' ability to help the states and it's going to cause new taxes in the forms of fees, public transport fees, things like that.
Victoria Murphy: History shows us that increasing that top tax rate, does nothing to bring revenues into the government, because those top earners figure out ways to lower their taxable income.
Mike Maiello: I said cutting taxes, not increasing. If you cut taxes on the top earners it's going to, at least in the short term, reduce the federal government's ability to help the states. That leads to higher fees at the middle class and working class level for people around the country.
Mike Ozanian: That flies in the face of reality that flies in the face of all data on the matter. The fact of the matter is, right now, the top 1 percent of the income earners bring in 17 percent of the earnings. And they pay 34 percent of all taxes. So what you're saying is, ‘we're going to punish you by a 2-1 margin for every dollar you invest in, trying to create a new business’ and that's reality. It's reality. That's reality.
Lea Goldman: If you increase that tax cut, the difference has to be made up somewhere.
Jim Michaels: It's made up by higher revenues.
Lea Goldman: That's not fact.
Jim Michaels: The history of Jack Kennedy's huge tax cuts, as soon as they cut taxes, revenues went up. Reagan tax cut, same thing. I have to disagree with Mike. I don't like targeted tax cuts. Targeted to anybody. What we need is flatter taxes.
Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:
David Asman: Al Gore is creating a new ‘Green and Clean’ fund. One that only invests in socially and environmentally friendly companies but "The Informer" says Al has it all wrong. We're better off betting on sinners. Sin stocks, what's your favorite?
Neil Weinber, senior editor: Boeing (BA). They make a lot of things that the Defense Department uses to kill people with. That's one reason. And the other is they steal their rivals' technology. They bribe the US government and apparently cook their pension fund.
David Asman: Nasty, nasty, nasty, but they make a lot of cash.
Neil Weinberg: Business is good.
Bill Baldwin, editor: I'm very skeptical. The real sin is all their customers lose money. I don't want to own that stock.
Victoria Murphy, staff writer: If you're going to pick a sin stock you might as well go after a real sin, like gambling. I would look at Harrah's Entertainment (HET) for this reason. Poker is sweeping the nation. The World Series Poker Tournament on ESPN is turning normal, rational guys who know that the house always wins, into betting fiends. I think this is going to increase foot traffic at casinos. Harrah's will benefit and they will finish their acquisition of Ceasear's next year and that will make them the largest casino in the country.
Mike Ozanian, senior editor: Nobody has ever accused me of being normal or rational. But my 9-year-old nephew watches it on TV. I think it’s really hot right now. The stock has done great, but I’m a little bit concerned that it’s too much of a fad. These casinos, a little skimming here and there. I think it's a little too hot right now. I would stay away from it.
Victoria Murphy: The stock has had a nice run.
David Asman: What would you go for?
Mike Ozanian: Consol Energy (CNX). This is a great stock for sinners. It blackens miners' lungs, pollutes the air.
David Asman: A dirty energy stock.
Mike Ozanian: The economy needs it. They mine coal from the ground. They destroy the environment. It’s great.
David Asman: Victoria, what do you think is this
Victoria Murphy: Their real sin is they're a money loser, and if you’re going to buy an unprofitable company, go for an Internet stock or something technology.
David Asman: What do you think about energy?
Neil Weinberg: I say ‘Earth to Mike.’ The energy thing is done. Oil prices are going down. Coal will go down and this stock is hugely expensive.
David Asman: Nobody likes anybody else's stock.
Mike Ozanian: This company pocketed 26 cents on every dollar of revenues. So it’s pretty profitable.
David Asman: What do you have for us, Bill?
Bill Baldwin: Tyson foods (TSN).
David Asman: The chicken company.
Bill Baldwin: The chicken people. They are accused of hiring immigrants. They are accused of mistreating chickens. And they had dealings with a very suspicious character named Hillary Clinton. I think it's a great company. And I think there will be a big push to push animal protein across the globe.
David Asman: So you must hate this stock, Mike.
Mike Ozanian: I love this stock because I eat a ton of chicken. I might as well get my money back.
Neil Weinberg: I can add another dirty secret here, Bill, and that is that almost all this poultry, the turkey, the chicken, it’s all a big oligopoly. So for the couple of companies that remain it's a great business.
Makers & Breakers
• Corning (GLW)
Geordie Crossan, president & CEO of NBS Financial Services: MAKER
Tremendous growth potential, recent positive ruling with the FCC that will open up the fiber optic network and trading at a discount from historic levels. We see double-digit earnings growth over the last five years.
David Asman: You think it could go to $18. A 50 percent rise (Friday’s close: $12.24). Will it make it?
Jim Michaels, editorial vice president: BREAKER
This company had a near-death experience. It dropped from $170 a share to $1. It's made a nice comeback. But it's come out of it with a lot of debt and 1.5 billion shares outstanding. It's a very expensive stock.
Elizabeth MacDonald, senior editor: BREAKER
I agree with Jim. I'm a breaker. They had a tough realignment of its businesses and debt overhang is a real problem with this stock.
Geordie Crossan: $1 billion in revenue last quarter. We see tremendous growth potential. Solid double-digits and improving margins.
• Automatic Data Processing (ADP)
Geordie Crossan: MAKER
Business consulting, human resources, payroll. We're seeing increased jobs. The recent payroll announcement just announced over 300,000 new jobs. And we see double-digit earnings growth. They're trading at relative good valuation, relative to their history. And we're thinking target price of $54.
David Asman: That's from $44 (Friday’s close: $45.37). A big jump.
Elizabeth MacDonald: MAKER
I'm a maker. I think the call letters should not be ADP, but ATM. This is a cash machine and a stock that will take off when the stock market takes off because it does brokerage house processing.
Jim Michaels: BREAKER
It’s a hell of a good company. If I owned it I wouldn't sell it but I see no compelling reason to buy it. 1.5 percent yield, 25 times earnings. And it's not a compelling buy to me.
David Asman: You think it's had its run-up.
Jim Michaels: I wouldn't buy it now, yeah.
David Asman: And your answer?
Geordie Crossan: $2 billion in cash, just increased their dividend 11 percent. Long-term history. Excellent company. Cash machine as she says.
David Asman: And it is going to continue to grow?
Geordie Crossan: Absolutely. As the economy and jobs grow, that company will grow.
StockSmarts: Housing Boom Over?
In the past few years, home prices have gone nowhere but up, even while stocks have been stuck in the mud. Since the start of 2003, the average price of a single-family home has increases by 31 percent, while the Dow has dropped 8 percent in the same time period.
So will the opposite be true: stocks up, homes down?
Mike Norman of the Economic Contrarian Update says yes, we will see housing prices go down for two reasons. First, The housing market competes with the stock market for capital, and if money flows into stocks there will be less available for housing. Second, if the stock market is rising, that means the economy is strong, which in turn mean that interest rates will be going up. And that will be bad for the housing market.
Danielle Hughes of Divine Capital Management disagrees – there is so much cash on the sidelines right now, waiting to go into the equity markets, that there is plenty to go around, meaning that when people want to get back into the stock market. So they won’t necessarily be diverting funds away from potential real estate purchases. 2003 was a huge year for the stock market, and homes still had a strong run – so both can go up together.
Wayne Rogers of Wayne Rogers & Company doesn’t think there is any real correlation between the stock market and the housing market. What he does agree with is the idea of rising interest rates hurting the housing market. Real estate is a geographical and a local thing. And you have to remember that the people who invest in real estate are not the same people who are in the market to buy a home.
Jonathan Hoenig of Capitalistpig Asset Management doesn’t think the housing market is ready to crack. He says that “you have to live somewhere”, and as long as you aren’t leveraged to the hilt, owning a home makes more sense than renting. Real estate look more like a boom than a bust – we’ve been talking about a housing bubble, but there are no signs that it might burst.
Jonas Max Ferris of MAXFunds.com said that whenever the stock market crashes, people think that homes become a much better and safer place for investing. In both 1929 and 1987 after the crashes, the market for real estate was totally hot. But then when stocks begin to come back, people wish they didn’t have as much money tied into their homes so they could invest in the stock market.
Dagen McDowell of FOX Business News says that you can make money in both markets at the same time – there is no correlation between one going up and the other going down. And as long as interest rates go up slowly, housing prices shouldn’t fall too much.
Best Bets: “Four More Years” Funds
Mutual funds that get an even bigger mandate than President Bush? Our crew came up with some funds that are ready for a four year run.
Jonas says: T. Rowe Price Health Sciences (PRHSX)
Friday's close: $21.98
Jonas thinks that President Bush is going to get some tort reform legislation passed – and medical liabilities have totally been holding the health care sector back. If the President does get the reform, this fund should do well. Danielle thinks we have seen so many big health care companies (like Merck) get hit so hard lately, that she just doesn’t see this pick. Jonathan says this fund is missing the strongest picks in the sector too (mentioning the fund’s small positions in Bayer and Johnson & Johnson). Wayne isn’t crazy about this one either.
Wayne says: Fidelity Select Defense & Aerospace Fund (FSDAX)
Friday's close: $64.77
Wayne thinks that defense spending will continue to grow under a second Bush term, and he would ride this sector. Jonathan agrees – these are super strong stocks that should continue to do well.
Jonathan says: AllianceBernstein Worldwide Privatization (AWPBX)
Friday's close: $11.61
Jonathan says that when the government owns a company, it is usually bloated and bureaucratic. But when that company becomes part of the private sector, it does very well. This fund takes advantage of companies that were formerly government owned companies, now moving into private sector. Wayne and Danielle both like the pick, but Danielle doesn’t like the fact that it doesn’t take advantage of more emerging markets. Jonas says the fund is too expensive.
Danielle says: ING Russia Fund (LETRX)
Friday's close: $24.97
Danielle says that Russia has seen a huge run over the past few years – but be warned that this is a speculative pick. Jonathan says we could take a lesson from Russia with their flat tax – he wouldn’t bet against Russia right now, but thinks there are cheaper ways to play the country. Wayne says it’s a big risk/big reward play, but he likes Russia right now
Stock of the Week
Last week, Tom Adkins picked Merck (MRK). For the week of November 5-12 the stock was UP 0.9 percent.
This week, Price Headley of BigTrends.com says that The Gap (GPS) is the one to watch. He thinks that the stock will get a pop from a pick-up in shopping during the holiday season. He likes the fact that the media is skeptical of the retailing companies – but the reality is that people are still going to buy gifts, and the Gap is well positioned for the season. Mike says the holiday theme is an enticing story. But the fact is that retail sales were off a bit in October, and interest rates have started to come back up. And you still have high fuel costs hitting into disposable income, and consumer debt it really high. All of these things play against a retail stock like the Gap.
Wayne, Jonathan, Dagen and Price answered some of your questions.
Question: "I own the American Funds (AIVSX) through my Edward Jones account, and I pay a 5.75 percent commission each time I deposit money into the account. Is this normal?"
Dagen says it sounds like a lot of money, but this is the going rate if you buy a fund with a front-end load. You can avoid this by investing in a no-load fund – but if you do go with the load fund, you better make sure you are getting good advice from your broker.
Question: "Could you give me your opinion on Marvel Enterprises (MVL)?"
Jonathan didn’t see the “X-Men” or “Spider-Man”. To him, this is a news-driven stock that just doesn’t seem to be driven by anything but publicity – not his kind of investment. Wayne agrees – you can take it or leave it.
Question: "I’m looking at an energy company called Kerr-McGee (KMG). What do you think?"
This is not one of Wayne’s favorite plays in the energy sector – there are ones he likes better, such as PetroKazakhstan (PKZ) and PetroChina (PTR). And oil and gas plays are at a “toppy” level, so you have to be careful. But these companies will all have terrific earnings. Price thinks it’s too early to call a top in the oil prices; he thinks KMG is a good, safe play for the sector. Dagen says you can still play oil and energy through a mutual fund like the T. Rowe Price New Era Fund (PRNEX). Jonathan says you can play the utilities too.
Question: "I bought Marriott (MAR) a while back, and it’s having a great run. Does it still have room to grow?"
Price thinks Marriott still is a good long-term play. It might have a short-term pullback of 10 percent, but it’s still going to be strong over time. Wayne agrees that it still has some room.