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: Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, founder and chairman of ChangeWave Research; Scott Bleier, president of HybridInvestors.com; Mike Norman, founder of the Economic Contrarian; Charles Payne, CEO of Wall Street Strategies; and Adam Lashinsky, senior writer at Fortune Magazine.
Trading Pit: All About Oil?
Is it all about oil? The Dow was at 9,757 when oil prices were at an all-time high about three weeks ago.
The Dow closed the week at 10,456. That’s a big run up. And during that time, oil prices dropped almost ten bucks a barrel.
But Friday’s action proved it goes the other way too: oil shot up over two bucks a barrel and the Dow dropped over 100 points.
Mike Norman: There’s no doubt it’s all about oil. Lower oil prices are a positive for stocks and the economy and a negative when they rise. There are two concerns. One is when the Fed increases interest rates. The other is that OPEC could start cutting production.
Adam Lashinsky: We've temporarily moved on from caring obsessively about oil. The average guy on the street no longer knows or cares about the day-to-day price of a barrel oil. The market will now focus on the deficit, interest rates, and 2005 earnings.
Charles Payne: We started watching oil because prices started going parabolic. The market always needs something to worry about, but if oil prices stabilize, and the price of a barrel can stay between $40 and $50 there will be no negative consequences to stocks at all.
Tobin Smith: Oil was a trading issue and the $2 pop on Friday was short covering. There is more oil being shipped to the United States than ever before. This is going to take prices down, which will help stocks.
Scott Bleier: Oil prices and the stock market are completely correlated. The volatility in oil prices is scaring people in the oil market. They think there’s some kind of conspiracy theory. The weakening dollar hurts oil prices because people who export oil get paid in dollars, and when the dollar goes down, they need more dollars for the same amount of oil.
Pat Dorsey: I don’t think that oil and stocks are totally connected. I think the market is much more concerned with interest rates, the dollar, and the deficit. And pretty soon, the market will start taking 2005 earnings into consideration, and they are not going to be as good as 2004 earnings. However, if we have a really ugly winter or there's a major supply disruption, prices could spike, which will hurt stocks. But that’s only in an extreme case. Most likely, it won’t have an effect one way or the other.
There’s been a big shake-up in President Bush’s cabinet. Adam, Mike and Scott followed his lead and each picked a stock to sell and one to buy.
Every investor should behave like a second term president and shake things up. Sell Intel because it is old and buy Texas Instruments because of its new, wireless communications. (Texas Instruments closed on Friday at $24.75. Intel closed on Friday at $24.16.)
Scott: I like both of these stocks, but I like Intel more than Texas Instruments.
I think Intel will benefit from Centrino, which is the company’s mobile, wireless technology for laptop computers.
Mike: I also like both of these stocks. Plus, they move together.
Boeing has had a great move, but it is finding it harder and harder to compete with Airbus. Dell has found a way to cut costs and has a premiere business model. (Dell closed on Friday at $39.97. Boeing closed on Friday at $53.77. )
Adam: I agree about Boeing, but I think Dell is too expensive right now. It is a great company, but I would rather have it $6-7 cheaper.
Scott: I also think investors should sell Boeing and buy Dell. From a technical perspective, Dell has traveled sideways for about 2 years and this month broke out and looks to be heading higher.
Sell Verizon because it is already up 20 percent this year. (Verizon closed on Friday at $41.10.) Buy SBC Communications because it has lots of cash and pays a good dividend. News also broke last week that SBC made a deal with Microsoft (MSFT) for TV over the Internet. This should prove to be very good for the stock. (SBC Communications closed on Friday at $25.89.)
Mike: I don’t see a lot of difference between these two stocks, but I’d go with SBC because it pays a better dividend.
Adam: When I look at these two big “Baby Bells” I see dumb and dumber. I don’t like either of them because both companies are spending billions of dollars and we don’t know what all this spending is for.
"The Incredibles" is a blockbuster hit. Time for some “Incredible” stocks!
Tobin: My incredible stock is Silicon Image (SIMG), which makes products that are included in flat screen TVs, PCs, and DVDs. I own it. (Silicon Image closed on Friday's at $16.01.)
Charles: It is an incredible stock, but it has a lot of risk.
Pat: It’s not bad, but this business has such a short product cycle. At a lower price I might like it, but right now it is too risky for me.
Charles: I like Goodyear (GT). It was a phenomenal company that went down the tubes. It’s now coming back, is actually growing faster than its peers, and has a lot of room to grow. (Goodyear closed on Friday at $12.21.)
Pat: Manufacturing tires has to be one of the worst businesses on the planet because the better the company makes the tires, the fewer people buy. It is a terrible company.
Tobin: I don’t like it.
Pat: My "Incredible" stock is Canadian insurance firm, Fairfax Financial (FFH). It had some debt issues a couple of years ago. But right now it’s a cheap, high risk/high reward stock. I own this stock and think it could double in three years. (Fairfax Financial closed on Friday at $161.80.)
Charles: This stock is so dull and boring. I don’t like it.
Tobin: I also don’t think this is an incredible stock.
Tobin's prediction: Bush's tax plan passes by summer; Dow 12K by Thanksgiving 2005
Mike's prediction: Buying opportunity! Dow drops 5 percent until Christmas; then rallies back
Adam's prediction: Santa's bringing flat-screen TVs to the big kids; buy Best Buy (BBY)!
Scott's prediction: But Santa will be even better to digital "film" maker SanDisk (SNDK)
Charles' prediction: Get a maximum gain from Maxim Integrated (MXIM); up 30 percent in 3 months
Cavuto on Business
Neil Cavuto was joined by Jim Rogers, president of JimRogers.com; Gregg Hymowitz, founder of Entrust Capital; Meredith Whitney, Fox Business News Contributor; Ben Stein, author of, "Can America Survive?"; Mort Zuckerman, editor-in-chief of US News and World Report; Leigh Gallagher, senior editor at Smart Money Magazine; Phillipe LeGrain, author of "Open World - The Truth About Globalization."
Neil Cavuto: Is the United Nations covering up the single biggest financial scandal in history? And could it be "your" money at stake? What if the boys at Enron had said "now that you found out we're cheaters and liars, we'll take it from here and let you know what we find out in our own investigation." No way, right? Well, some say that's what the United Nations is trying to pull, stonewalling the investigation into the corruption of the oil-for-food program. And Wall Street is watching, partly because what's uncovered could further justify President Bush's decision to go into Iraq. And that would be a positive for the market.
Mort Zuckerman: This is literally the greatest financial scandal in the history of the world involving over $20 billion. The oil-for-food program was intended to help the poor people of Iraq and instead a great deal of it was going to help Saddam Hussein. This scandal has two sides to it. The U.N. side is the following: the head of the program, Benon Sevan is now being found, and Charles Duelfer, who headed up the Iraq study group, has found that he was given special oil allowances either directly or through a Middle East company that gave him several million dollars. There is no explanation as of yet why KoJo Annan, Kofi Annan's son, was working for the company Cotecna, who was approving a lot of these things.
Neil Cavuto: Ben Stein I want to go to you. There's an interpretation that this somehow benefits us. Does it?
Ben Stein: First of all it's nowhere near the biggest scandal. The savings and loan scandal is far bigger. The U.N. is a unsavory bunch of thugs.
Neil Cavuto: The Drexel scandal was bigger than $22 billion?
Ben Stein: Far, far bigger. The U.N. has become a bad joke to all decent people all around the world. I love you like a brother Neil, but I don't see what this has to do with stocks.
Jim Rogers: Ben happens to be right. This has zero to do with the stock market. The U.N. should be abolished. They are corrupt and ineffective. And yet the nation spends millions of dollars on them.
Gregg Hymowitz: And I must say, I love Ben like a father. I agree with him. This has nothing to do with stocks. But I disagree with you Neil when you tie this scandal with somehow justifying us going to war in Iraq. That is quite frankly ludicrous.
Meredith Whitney: Look, I didn't hear him try and tie that together.
Gregg Hymowitz: He tried to. He absolutely did. Go back to the videotape!
Meredith Whitney: The translation is, the standards we now hold for businesses are not being held up for the U.N.
Neil Cavuto: My premise was that clearly this was the same group that didn't want us going into Iraq and now maybe we can understand why.
Mort Zuckerman: Yes, the Duelfer report of the Iraq study group said that Saddam Hussein was using the money he made from the oil for food program to bribe various countries, to get out of sanctions so that he could resume his programs of weapons of mass destruction. His own people said that within three years he could start a nuclear weapons war. You can disagree with that, but that was a part of what the Duelfer report concluded.
Jim Rogers: What does that have to do with the stock market though?
Mort Zuckerman: Oh I'm not justifying the market. The only stocks that I follow and I know are doing well are the REITs.
Meredith Whitney: You guys have all mentioned our bloated budget and a lot of that has to do with us carrying the full weight for this war. Look at the countries that benefited the most from the Oil-for-Food program. All of those countries were opposed to our efforts in going into Iraq.
Neil Cavuto: If the U.N. would go away, what would be the fall out in the market?
Gregg Hymowitz: Long term, it would be very negative.
Mort Zuckerman: Like it or not, it is the only forum of mediation for international disputes.
Jim Rogers: They have never stopped a war in history. They've been over there for sixty years. I know people who make more money working for the U.N. than investment bankers. There are no conflict of interest rules over there. There are no auditors there. There's no one checking anything.
Mort Zuckerman: Even though it is not a totally accurate description, they are accepted as a relatively neutral observer in various places where they're trying to mediate. This scandal is a disgrace for the U.N. Their role in the war in Iraq now seems to be that they were abetting Saddam Hussein.
Ben Stein: If Mr. Zuckerman thought the U.N. had any moral authority in the last 30 years, he's a very optimistic and good-natured fellow.
More for Your Money
Neil Cavuto: A big shake up in President Bush's cabinet. Should some companies be doing the same thing so you can get more for your money?
Leigh, lots of new faces in the President's cabinet, is it a good idea for some companies to start shifting things around too?
Leigh Gallagher: It can be, and it can't be. One example of a company that's had a lot of shake-ups this week is Martha Stewart Living Omnimedia (MSO). The company got a new CEO last week, Susan Lyne, the former president of ABC entertainment. This company has been through two years of turmoil and they needed to send a message to investors and more importantly to advertisers that there's a new regime in town.
Jim Rogers: Normally in the world, when someone does something wrong they get thrown out, but not in Washington. They throw out the guys who were right and keep the guys who are wrong. Powell was right and Condoleeza Rice has been promoted. She was dead wrong.
Gregg Hymowitz: I don't think Washington plays by merit.
Jim Rogers: That's my point. Normally when a company has a bad record, they throw out the management and start over. That's good for the companies and the stock market.
Neil Cavuto: Is there anyway you'd play that with any of the picks that you have?
Jim Rogers: I own Chiquita Brands (CQB), which I've mentioned on this show before. They went bankrupt and they got a new bunch of people running it. It’s been working, let's hope it continues.
Gregg Hymowitz: A company we own that's generating a lot of excitement just for this reason alone is Thomson (TMMLF) – a French company that manufactures DVDs for movies. They recently brought in the CEO from France Telecom and there's a lot of excitement there. We're thinking that the management change will help this company.
Neil Cavuto: When there's a shake-up, do people wait till it all shakes down?
Mort Zuckerman: Well, it depends on how much you know about the company and the people who are coming in. If you have confidence in the people who are coming in, you're prepared to go in a lot earlier than other people who want to maybe wait and see. I'm fascinated by the Sears (S) and Kmart (KMRT) merger.
Ben Stein: Judging by the market's reaction this week, they should make Kmart chairman Eddie Lampert the head of every company on the New York Stock Exchange. He has taken these two companies, neither one of whom was setting the world on fire in terms of earnings, and made them into a gigantic company.
Head to Head
Neil Cavuto: The great leader of France, Jacques Chirac. He says he'll unite all of Europe and give the United States and its economy a run for its money. Is he drinking too much of his French wine?
In London is Phillipe LeGrain. He says Chirac can absolutely bring Europe together and create a power that matches the U.S. He's the author of "Open World - The Truth About Globalization."
I guess Phillipe, I just have to worry a little bit here because his record and certainly his economy doesn't show any signs of rivaling anyone.
Philippe LeGrain: Well, I didn't quite say what you introduced me as saying. But Europe's economy is now bigger than America's. More of the top 500 companies in the world are European. Germany, alone, exports more than the United States does. More corporate bonds are now issued in Euros than in Dollars. And you have to see that your currency, which used to be strong, is now plummeting.
Neil Cavuto: You also have to see the GDP of the countries in question are smaller than that of our own. That the deficits, as a percent of that GDP, is higher than that of our own. The growth is slower. That the union concentration, how that saps the overall growth of the economy, is much higher than our own. So I'm looking at that and wondering what is Jacques smoking?
Philippe LeGrain: I'm not here to defend the French President. Living standards in Europe are rising as fast as they are in America. The reason you have faster GDP growth is because you have a growing population.
Neil Cavuto: But the per capita income gains in this country are twice as high. I'm not dismissing some of the improvement you're talking about, but let's get real on the overall numbers.
Phillipe LeGrain: The average European worker is as productive, if not more productive, than the average American worker. And the reason why there's a gap in living standards because as the Europeans get richer they chose to spend more of their time enjoying time with their family, playing tennis, rather than spending every hour in the office. And that's a perfectly valid lifestyle. The point of life is to be happy, not to be the richest man in the cemetery.
Neil Cavuto: That's a very good point but the savings, which many Europeans used to brag about, is actually running below the U.S. now. So, who's zooming who?
Phillipe LeGrain: The position of the U.S. economy is unsustainable. You have an absolutely massive budget deficit. You have an even bigger current account deficit, which means that basically you're living on borrowed time. I'm not saying the United States is destined to fail anymore than Europe is destined to fail. But it's complete nonsense to say that America is streaks ahead, and Europe is finished, because the facts simply don't show that.
Neil Cavuto: Phillipe we respectfully disagree. I want to thank you very much.
FOX on the Spots
Meredith: Market spikes on Microsoft's Dec. 3rd dividend!
Jim: Sears-Kmart deal a bust for small investors; sell both!
Gregg: Jim's wrong! Everybody wins in the Sears-Kmart deal!
Mort: More jobs lead to more spending; retail stocks heat up!
Ben: Inflation's on the way...interest rates rise, stocks fall!
Neil Cavuto: Tax reform… it's coming, and it will be revolutionary despite what critics say.
Forbes on FOX
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: How do you make health care cheaper and better? Pay for it all yourself.
Neil Weinberg, senior editor: That's right. Our health care system is broken. We spend 14 percent of our whole spending in this country on health care. Twice as much as other countries, and we don't get as much. We die earlier, more of our babies die. The reason that it doesn't work right, the reason that it’s inefficient is because we don't pay for it ourselves. You have your employer pay for it.
David Asman: Everybody has a plan of some kind.
Neil Weinberg: Absolutely. We have socialized medicine in this country. The government pays for half and your employer pays for the other half. When you go to the doctor or pharmacy you don't care what it costs because you aren't paying.
David Asman: Steve, you are not an advocate of socialized medicine. What's wrong with the plan?
Steve Forbes, editor-in-chief: The problem is that you can't turn the clock back to 60 years ago. So how do you deal with the problem now? The way you deal with it now are these new health savings accounts. They’re better than an IRA.
David Asman: How does it work?
Steve Forbes: What the employer does is put the money in for routine expenses, tax free, grows tax free, spend it tax free. That enables you, the employer, to provide catastrophic insurance cheap and provide most of the deductible to you. We've done it at Forbes. We saved money. The patient is in charge.
David Asman: What's wrong with that?
Lea Goldman, staff writer: There is a lot to like about the HSAs and medical savings accounts. The problem is you would be less inclined to get preventative care because you want to save the money and not spend it.
Steve Forbes: That's like saying you will starve yourself if you pay for your own food.
Lea Goldman: I have to tell you that as a young person on the Forbes plan, on occasion, I know my colleagues and I have skipped out on routine dental visits.
Victoria Murphy, staff writer: If you were paying out of your own pocket that would probably be magnified. What Neil and Lea are saying is ‘let's create this free market where there is competition.’ But you can't really do that to health care. This is not like buying oranges and the difference is between going to Costco (COST) and Whole Foods (WFMI). We're talking about life and death here. If you make people pay entirely out of their own pocket, you are creating this really perverse situation where your income level and wealth level determines what kind of care you get.
Jim Michaels, editorial vice president: I think everybody should wake up and smell the coffee. We have the best health care system in the world. We have added 15 to 20 years to people's life expectancy because of science and the way it's applied by medicine. So why are we talking about a terrible crisis? The crisis is how to pay for it. The reason it's 20 percent -- I think it's more like 18 percent of our gross national product is because we consume so much of it. We have extended people's life expectancy into my age group where you consume a lot of health care. So the problem is how to pay for it. And you can begin by curbing the lawyers who are adding 5 percent to 10 percent to the cost.
David Asman: So Jim's point is it's a terrible system but the best there could possibly be in this world.
Neil Weinberg: I don't know. Maybe Jim is using too many of the pharmaceuticals that they're cranking out. Anyone who thinks this system is in good shape, listen. We're spending too much money. We're spending, I think it's 14 percent of our economy on this and we're not living as long. You got lots of fancy gadgets but 40 million people don't have insurance.
Steve Forbes: In terms of longevity, above the age of 60 you live longer in America than any other country in the world. We have pathological problems in this country, which make it hard for some people to reach 60. But in terms of health care, Jim is right. How do you pay for it? The way you pay for it is to provide through Medicare or through our health savings accounts. Give the patient the money. They will be better stewards of that money. Get more value. Look at lasers for your eyes. It's not covered by insurance plans, so laser surgery is one third the cost it was 10 years ago, because you have the free market at work. With health savings accounts and the patients in charge you would get more of the same for overall health care.
David Asman: The point is you can get these incentives into our health care system.
Victoria Murphy: I think that's exactly right. And I think we're going in the right direction. And if you look at the increase in health care costs, some experts say that half of that is because of these great technologies. We're in this boom of innovation in health care. And that's a good thing. One of the problems is that we're subsidizing our neighbors. Canada pays 40 percent less than we do on health care yet has greater life expectancies. And that's because they have negotiated with the drug companies.
Lea Goldman: I’m going to return to something that Steve said just a short while ago about free markets. There is no better way to let free markets prevail than let the providers, the health insurance companies, vie for your business, vie for the consumer's business. Right now, they don't give a hoot about the patient. They barely give a hoot about the member companies. And the member companies themselves are providing the bare minimum.
Steve Forbes: We have a messed up system where the patient is not in charge. With health savings accounts you will be in charge and be able to get a price and control the purse strings. You’ll get a whole different system. In terms of the technology that Victoria is talking about, you will get the learning curve hitting there as you do elsewhere and the price will come down.
Neil Weinberg: I agree with you that we have to get the patients paying for this. But why do half measures? Why not just get rid of any link between the employer?
David Asman: You are talking about taking out the middle guy. Just have a direct relationship between the patient and the doctor.
Lea Goldman: Like with any other insurance.
Steve Forbes: Politically you can't do it. Health savings accounts is the way you get to it. So let's do something realistic that gets the same results.
Jim Michaels: Absolutely, and if you are young and don't need a lot of health care, I say make these health savings plans cumulative so you can keep it until you are beyond 50 when you will need plenty of medical care.
How are politics and global events affecting your wallet? We’ll put the story In Focus and give you the bottom line.
David Asman: It is a killer that may be about to serve a deathblow to our economy and the stock market. What is it and what can you do to protect your money? It's inflation. Prices are way up for everyday necessity like gas, food, and health care. Is it a threat to our economy?
(Increase in past year: Gas prices: +30 percent, Food prices: +11 percent, Health Care prices: +11 percent)
Rich Karlgaard, publisher: Yes it is. If you've been watching the price of gold, as Steve has said we should do, you can see this coming about a year ago when gold went over $350 and now it’s $420 or $430. You look at the 2005 economy; it's in pretty good shape except for this one little problem called inflation. And it's just about on the border of getting out of control.
David Asman: Jim, people don't remember in the late 70's it was up and caused us a lot of problems. Are we heading there now?
Jim Michaels, editorial vice president: I don't think so. This is a blip caused by increased energy costs. And by the fed's kind of dilatory response to it. But there is still massive overcapacity in industry. There is still slack in the labor market. Long-term interest rates are still low. I don't see inflation getting out of control.
Neil Weinberg, senior editor: It's a big problem. Everybody knows the government statistics lie. They tell us we have no inflation but you go to the store or think about what you are paying for housing and health care and education; it's going through the roof. And we have some very worrying things. Like the Chinese and Japanese don't want our dollars. That means the value of the dollar goes down, the cost of our imports goes up, interest rates go up, the housing market collapses. We're at a point now where things could get real out of control real fast.
Steve Forbes, editor-in-chief: We do have an inflation problem and the time to kill it is now. Alan Greenspan should be fired for incompetence.
David Asman: He is responsible?
Steve Forbes: Sure he is. Whenever you print too much money, you get inflation. And he has printed too much money. As for Jim's point about capacity, in the 1970's we had a stagnant economy and inflation at the same time. Print too much money, you got a problem.
David Asman: So stop the printing presses and we're out of the doghouse.
John Dobosz, associate editor: At the retail level inflation is still pretty tame, excluding energy and food, two things you don't need to live on, right? The Consumer Price Index was up 2.4 percent annualized for the first 10 months of this year versus 1.1 percent for all of last year. It’s coming. The bond market doesn't see it. 10-year note is still about 4 percent.
David Asman: You don't have any kid in college, do you?
John Dobosz: I'm saving for that and that's growing at about 10 percent per year.
David Asman: That's growing astronomically. What about Steve’s point that it’s all the fed’s problem, that it’s all Chairman Greenspan’s problem?
Rich Karlgaard: Well, yeah. Some of my esteemed colleagues on this panel are confusing monetary inflation with price inflation, which is a matter of demand. Let me tell you, I recently talked with Sam Zell, the Chicago realtor; he’s a billionaire and smarter about this than any of us. He says the biggest threat in the economy right now is if adjustable rate mortgages go up about 2 percentage points, because if they do, that is going to squeeze a lot of people and they're going to have to pull back on other kinds of spending. On the track we’re on, that is going to happen.
Jim Michaels: My advice for what it's worth to anybody who has an adjustable rate mortgage is; convert it to a 30-year mortgage right now, you will sleep better. Rates are still low. You will sleep better even if there is a serious inflation problem.
Steve Forbes: And it's not only Alan Greenspan. He is the chief culprit, first-degree inflation felon. But another one is John Snow, treasury secretary, for this dumb theory that you talk down the dollar and that makes you more prosperous. All that does is give you inflation.
John Dobosz: You can still profit. You can still buy gold and buy hard assets, because our dollars are worth less.
Neil Weinberg: I don't know where you buy more hard assets when your dollar is worth less.
John Dobosz: They won’t be worth less in the future, so you will get more dollars back.
Neil Weinberg: We’re in a really tight position and that’s what John Snow, our Secretary of Treasury, has gotten us into this problem. They are trying to talk down the dollar to get some short-term stimulus, that Chinese imports won't be as much, maybe push up the value of the Chinese currency.
David Asman: Hold on a second. The bottom line with inflation is it takes more dollars to buy things. It's that simple, right?
Jim Michaels: That's right.
David Asman: So what do we do to get that more in balance?
Jim Michaels: Well, for one thing, you don't kill the recovery with pushing interest rates up too high.
Steve Forbes: You don't have to. You don’t have to push interest rates up. If you withdraw money from the economy, people know inflation is not coming. And interest rates stay low.
Rich Karlgaard: Well, if gold goes back under $400, stop worrying about it. If it heads toward $500, do all the traditional inflation hedges.
Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:
David Asman: Call it retail merger madness. News that Kmart (KMRT) and Sears (S) were hooking up sent their shares through the roof last week. Some here say they know who may tie the next knot and the stocks that will benefit. Bob, is betting on mergers to come a good investment strategy?
Bob Lenzner, national editor: It is because the whole retail industry let Wal-Mart (WMT) become this huge giant, $250 billion company. They didn't do anything about it. This event, a merger of Sears and Kmart, is a step toward consolidation of getting some size to compete with Wal-Mart. I think there will be more huge transactions. Having these transactions is late, but they have to come.
David Asman: We can bet on these mergers that haven't happened yet.
Mike Ozanian, senior editor: Bob is just really wired into Wall Street. The thing is this merger that Bob is talking about, it was more about real estate and undervalued land than it was about creating an efficient rival to Wal-Mart. So I'm not really sure there is a lot of money to be made in future mergers.
David Asman: Chana, is it all about real estate? And once that is done the merger will not be too good?
Chana Schoenberger, staff writer: It remains to be seen what will happen with Kmart and Sears. In terms of the retail industry, yes, there will be consolidation. However, I don’t think that you should necessarily try to pick takeover targets. What you might want to do is buy a basket of funds, a basket of stocks in the whole industry.
Bob Lenzner: I think she has a very good idea, but I want to disagree with Mike. What the situation here is there are too many department stores. There is too much square footage. There has to be a rationalization. This merger is not about putting two companies with a lot of real estate together and exploiting that. This is about the fact that there are too many department stores in the country and not enough demand.
Lea Goldman: The thing about these mergers that you have to ask yourself, is what kind of synergies can they achieve together that can't be done separately? In the case of Kmart and Sears, this is like the two ugliest kids in the classroom pairing off. You don’t expect their kids to be gorgeous. They add nothing to each other. They still have to compete with all the other big department stores and compete with Wal-Mart and Target (TGT). They bring nothing to the table
Bob Lenzner: That may be so, but they will close a lot of stores and they will cut a lot of costs.
David Asman: So Bob, who is next?
Bob Lenzner: I think that May Department Stores (MAY) could be taken over by Federated (FD). Those two companies together would only be a $30 billion company. They could cut costs and put pressure on their suppliers. What's happening is that Federated is branding all their stores in different places as Macy's. They could create a national brand.
Lea Goldman: I think department stores are on their way out. Nobody really shops at department stores anymore. They're going to the big retail outlets, discount retail outlets. Department stores are in trouble.
Chana Schoenberger: I like an exchange-traded fund called the Vanguard Consumer Discretionary Fund (VCR). It's a basket of stocks, some of the biggest holdings are Home Depot (HD), Target, eBay (EBAY), Lowe's (LOW), these are big retailers. So you don't have to pick just one. You can just bet the sector will consolidate and the stocks will go up.
David Asman: And that's a good deal for a basket of goods.
Bob Lenzner: I think it's a good thing for the viewers of this show that they would not take a chance on one particular merger.
Mike Ozanian: Chana likes using a shotgun; I like a rifle. I like one target. I like Nordstrom (JWN). Not because it's a merger play, but because it's a great retailer with a great men's shoe department. I like to buy my shoes there. Same store sales up 10 percent year-over-year and profit margins expanding.
Lea Goldman: I have to agree with you on Nordstrom. My mother lives there, she is there every weekend. I live at Coach (COH). I think Coach is the smartest company on the block right now. They pioneered this middle category. Sort of upscale, but not unaffordable.
David Asman: Even though they peaked in price yesterday.
Lea Goldman: The question you have to ask yourself, is there room to grow? And I think there is.
Makers & Breakers
• Ace Limited (ACE)
David Dietze, president and chief investment strategist at Point View Financial: MAKER
We own it. You’ve got an above-average dividend. This is a company that has grown 34 percent each year for the last five years. Following 9-11, following the recent hurricane season, insurance is a big growth industry. It's depressed right now. Buy it for a $47 target.
David Asman: You got a target at $47 (Friday’s close: $38.99). That's a 20 percent rise. Mike, what do you think?
Mike Ozanian, senior editor: BREAKER
I don’t see it. I’m a breaker. Profit margins have been falling and I wouldn't be surprised if New York attorney general, Eliot Spitzer, took a blowtorch to this entire industry.
David Asman: He is doing a lot to a lot of industries.
Jim Michaels, editorial vice president: BREAKER
The company's stock dropped on that problem, but it's recovered. If you look back at their earnings over the underwriting cycle, they're a lot lower now.
David Dietze: The Spitzer probe gives you a great opportunity. He is criticizing the pay-for-play practices. But who is doing the paying? Companies like Ace.
• General Motors (GM)
David Dietze: MAKER
It’s the Cadillac of the auto industry; the world's largest automaker. An innovation leader. 17 new models. The new lock and roll.
David Asman: The target is $47 (Friday’s close:$38.90). Mike, will it make it?
Mike Ozanian: BREAKER
I’m a breaker. I think it’s essentially an insolvent company. They make crappy cars. Worst management company in the world.
Jim Michaels: MAKER
I can't find a single broker who likes this stock. The contrarian in me says buy the stock now.
StockSmarts: The Real Election Rally
In the three weeks since Election Day, stocks have gone nowhere but up, with the Dow approaching its highs for the year.
Now all eyes shift to another big vote, as the Iraqi people get ready to hold their first free elections in January of 2005.
Will we get the real post-election market rally after the Iraqis vote?
Stuart Varney of FOX Business News says we should first take a look at Afghanistan. That tribal nation held successful elections after the coalition liberated its people. And he thinks the exact same thing can happen in Iraq. If those elections do go off without a hitch, you will get a leg up on a market rally. What you want in Iraq in stability – both militarily and in terms of the new government. We aren’t there yet, but we are moving closer. And one of the big drags on the market has been the violence in Iraq. Once the fighting stops and there is (hopefully) a successful election, the stock market would rally. But the stock market’s success ultimately depends on economic growth and profitability. If we continue to see growth, the market continues to go up.
Mansoor Ijaz, FOX News foreign affairs analyst, thinks that we are doing a very good job in Fallujah and Mosul. If we continue the success in cleaning up these cities, the Iraqi electorate will feel more comfortable about standing out in the long lines and actually voting. However, if we do not continue to do well in these cities, the elections will be much more difficult. We are at the verge of being able to collapse the biggest terrorist network in Iraq (Zarqawi’s organization). If we can pull that off, then the individual freedoms of the Iraqi people will come through – and that is the whole purpose of this mission.
Jonathan Hoenig of Capitalistpig Asset Management says that its not democracy that we want to achieve in Iraq. Democracy means an unlimited majority rule. America is a constitutional Republic. He points out that Adolph Hitler was put into power through democratic and free elections. And if Iraq elects a radical mullah, they could be on that same path. Iraq needs a constitution based on individual liberties. In terms of looking at the market, it is hard to ignore what is going on in Iraq, but he thinks the real action isn’t in U.S. stocks right now – gold is much more attractive than anything on the S&P 500. And the emerging economies are the best investment right now.
Dagen McDowell of FOX Business News thinks that if the elections do go off well, then the market would react positively in the long run. But she points out that the market has been on such a great run right now since our own elections, and we will continue to see that run throughout the rest of the year. One thing the market isn’t factoring in is if the elections do not go off well. That would be a huge negative for the market if there were problems in Iraq during the elections.
Gary Kaltbaum of Kaltbaum & Associates says democracy is always going to be good for the stock market. If we can get commerce going in Iraq, then that will be nothing but a good thing for American business and Americans stocks. But he agrees with Dagen that the success of our own elections (no recount, an election that has a clear result on time) provided a huge boost to our market. The Iraqi election is an “event” and is one of the external factors the market watches.
Wayne Rogers of Wayne Rogers & Company says that he is bullish on the stock market right now, but that has nothing to do with the potential of free elections in Iraq. What he says is that the market would react well to successful elections, but right now that is only a possibility – it is nothing more than a huge “if” at this moment. It is going to very difficult to impose democracy on a tribal nation like Iraq – what we really want is peace and stability. If these two goals were achieved, then the market would view that as a positive. And he says to look at Pakistan – its gross national product has increased enormously since we began cleaning up after 9/11. When you get an actual “middle class” going, then democracy has a chance to succeed.
Best Bets: Think Small, Win Big
Small cap stocks have been outperforming the big boys all year. Our crew came up with some small cap picks that could be big winners for your portfolio.
Wayne’s pick: Genesee & Wyoming (GWR)
Friday's close: $27.26
This is a railroad company that Wayne recently added to his holdings in the Cashin’ In Challenge (he owns shares of this stock personally as well). He likes this entire sector, and this specific stock has a good chance of moving a lot higher. Jonathan also likes the sector. And even though he doesn’t own any of the companies, he wouldn’t fight them either – the strongest play in transportation. Gary says the stock has great action and has a great looking stock. Jonas’ gut says to stay away from this one.
Gary’s pick: Massey Energy (MEE)
Friday's close: $34.20
Gary says that coal stocks are acting great, and that’s why he likes Massey. It had a breakout recently, and there is a strong demand for commodities across the board. Wayne agrees that coal is very hot right now, and it is a great alternative for oil and gas plays. Jonathan agrees that commodity plays are super strong right now.
Jonathan says California Water Service Group (CWT)
Friday's close: $31.23
Jonathan continues to play his theme of utilities with this pick (he owns shares of CWT). Water utilities are one of the lesser-followed areas, but it is one of the only areas that Jonathan has domestic exposure to. Wayne doesn’t see this one as having a whole lot of upside potential. He does think it is a very safe play.
Jonas says Phoenix Companies (PNX)
Friday's close: $10.93
This is an asset management business that is really under priced right now (priced like a bad company, when it is really just a mediocre company). Gary liked the pick last year, and thinks it could be in for another positive move in the future. Wayne isn’t too thrilled about this pick. Jonathan doesn’t like the pick too much either.
Cashin’ In Challenge
Check out the $10,000 Cashin’ In Challenge at: www.foxnews.com/challenge
Stock of the Week
Last week’s pick from Price Headley was The Gap (GPS). For the week of November 12-19, GPS went down 2.2 percent.
This week, Jonas says Eaton Vance (EV) is the one to watch. The mutual fund business is a gold mine right now. This company has some hot funds that people are very interested in, and the company also is reporting earnings next week that Jonas thinks will do better than what the street is expecting. Gary says that timing is the key to any stock purchase. And while he likes this company, he says that this stock has already had a big move up (along with the market action) – and he thinks you could buy this stock on a pull-back, probably 5-10 percent lower than its current price.
Wayne, Jonathan and Dagen answered some of your questions.
Question: "Krispy Kreme is going to open some new stores, and is also reporting earnings on Monday (11/22/04). Is this a good time to get in?"
Dagen says that even though the Atkins craze has faded a bit, this is not the time to “gobble up” shares of this stock. Krispy Kreme still has an SEC investigation hanging over its head about the company’s accounting. It could be a very long time before investors have any confidence in this stock. Wayne thinks you a better off buying the donut hole. And Jonathan says you can like a company, but that doesn’t mean you have to like its stock.
Question: "I’ve heard Wayne mention PetroKazakhstan (PKZ) on the show before. Is it a buy at its current prices?"
Wayne still like PKZ (he owns the stock) and says it is a place for new money. It is trading at a very fair level, it continues to produce earnings, and he doesn’t see it being hurt by anything anytime soon. He still likes a lot of the energy plays – you have to realize that even if oil comes down from its levels about $50 a barrel (which it has), these companies will still produce. Jonathan says that most things “energy” have done well. And even though some of the “shine is off this stock”, he wouldn’t fight it. Dagen says you don’t have to just buy stocks to play energy; you can go with a fund, like the T. Rowe Price Emerging Europe and Mediterranean Fund (TREMX)
Question: "I bought Elan (ELN) at $4.50 and was stopped out of half my shares at $24. The stock has since rebounded to $30. So I sell now or hold?"
Jonathan wonders why this viewer didn’t buy back at $24.50 – but right now Jonathan would hold this stock. The chart is strong and the group is acting well. But the real question is about position – if this person only has a 1-2 percent position (in terms of total holdings), and then maybe they should increase it. Wayne agrees – stay with this stock. Dagen also says this company has an MS drug that should gain approval soon, which will help the stock.
Question: "What do you think about Frontline (FRO), which is an oil shipping company?"
Wayne likes this stock, in addition to oil shipping sector as a whole. He’s not sure if this is the best of the lot, but he does like the play. Dagen says the only thing that is unnerving is that so many questions are coming in about energy plays, that maybe the market for these picks is reach a top. Jonathan likes the play – it’s “the right kind of stock”.
Question: "AIG took a big hit thanks to Eliot Spitzer, but the stock has rebounded some. Now there is news of an SEC settlement. Thoughts?"
Dagen says the SEC settlement is separate from what Eliot Spitzer is doing, but you should wait on this stock. Jonathan says that Eliot Spitzer is “death to any stock”, and he wouldn’t own AIG here.