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, columnist for RealMoney.com; Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, founder and chairman of ChangeWave Research; Scott Bleier, president of HybridInvestors.com; and Dave Nelson, CEO of DC Nelson Asset Management.
Trading Pit: December to Remember?
Since the near the end of October, stocks have been on a run. The Dow, Nasdaq, and S&P 500 have all made solid gains in that time.
And it could get even better. Since 1950, December's been the second best month to own stocks, with the Dow gaining an average of almost 2 percent.
Not impressed? If every month matched that return, we'd be up more than 20-percent a year!
Will it be a December to remember?
GARY B: Yes, the market will have a great December. There are 3 things that lead me to believe this: 1. The election is over. 2. Iraq is going okay. 3. Toby just bought a new house! The month of December is even better for the Nasdaq. So far its chart for 2004 could be called, the “Year of the Pause”. But the Nas is about to break through resistance and I think it’s headed to 2300! (The Nasdaq closed 2,101 at on Friday.)
PAT: All 3 of Gary’s indicators were fundamental indicators, so I’m a bit worried. I’ll give 3 other indicators, which have me very concerned:1. The dollar is falling. 2. Earnings growth in 2005 will be okay, but nothing like this year. 3. Valuations are not awful, but are not very compelling.
TOBIN: There are a lot of things that could potentially make the stock market head higher. You want to own stocks because they’re the best investment right now. But you want to own the right stocks, like natural gas and energy stocks. Fear is not in the market and it kind of feels like 1999. People are afraid of not being in stocks.
DAVE: Stocks heading up in December is a self-fulfilling prophecy. People don’t want to sell their stocks this time of year. But that means you have to pay more to “get into the game”. That’s what’s going on and this momentum is what makes December such a great month for stocks. The market is filled with two emotions: fear and greed. And right now, greed is dominating.
SCOTT: The market has had a great run and common sense tells you to scale back some of your longer positions and be cautious. But there’s an incredible demand for stocks from institutional investors who sat out most of the year. They are going to keep buying until the major indexes make new highs for the year, but 2005 is going to be tough. We’re not to the point of everyone just pouring money into hot stocks, which means it’s not exactly like 1999, when hundreds of tech stocks went from $10 to $100. Now there are only a few of them.
Gary B. and Toby picked the best stocks to own in December.
Gary B: Sony (SNE) is my pick. Sony has been rising since August and it is starting to make a real move higher. Once it closes over $36, it’ll be off to the races! (Sony closed on Friday at $35.97.)
Tobin: Consumer electronics will be huge this Christmas, but Sony is peddling uphill right now. There are better picks out there.
Tobin: Digital cameras will be a big seller this Christmas and Lexar Media (LEXR) will benefit big time. The company is a leading manufacturer of digital cameras products, including digital film. The stock took a fall because of heavy competition, but sales are now doing very well. It will be $10 by the end of this year. (Lexar Media closed on Friday at $7.79.)
Gary B: Lexar had its chance to be a star, but it failed. It’s nothing but down for this dog.
Especially at this time of year, people want to buy things on sale, so Dave, Pat and Scott each picked a stock on sale!
Dave: I like America Movil (AMX), one of the largest cellular phone operators in South America. It’s relatively cheap and has a lot of room to grow. I own it. (America Movil closed on Friday at $44.80.)
Pat: America Movil is much more profitable than a U.S. cellular company, but it still has risks. Telefonica (TEM), a Spanish wireless company, will increase competition. America Movil is okay, but I’m not too thrilled by it.
Scott: I like the stock. But once it reaches $60, sell, because it’ll be fairly valued.
(On the show Scott said America Movil has a 5% yield. The stock actually has a 0.5% yield.)
Scott: My pick is generic drug maker, Taro Pharmaceutical (TARO). This once high-flying company had a huge fall, but is now back on track. I think it will reach $40-50. (Taro Pharmaceuticals closed on Friday at $29.38.)
Dave: This stock is down a lot and could go either way. It could be a home run or a bust.
Pat: I agree with Dave. Taro is an attractive company that is turning around by investing in its future and building up its sales force. But we’ll have to wait and see if these changes pay off.
Pat: My stock on sale is Markel (MKL), a specialty insurance company. Specialty insurance is more profitable than a home, life or car insurance company. This stock is also cheaper than it looks because Markel uses very conservative accounting policies. It has a great track record and insiders own a lot. (Markel closed on Friday at $315.00.)
Scott: I agree with Pat, but the average investor isn’t buying this stock because it is trading over $300/share.
Dave: It is cheap and looks like it could do well. It’s a “Vintage Pat” stock.
I LOVE the NASDAQ 100 (QQQ)! "Q's" up 15% by Valentine's Day
Gary B's Prediction
Sirius (SIRI) makes another serious gain; triples by 2006
Eat too much? I did! Buy Weight Watchers (WTW)
Buy debt collector Portfolio Recovery (PRAA) & collect big bucks
Kids want toys, but they'll get clothes; buy Carter's (CRI)
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%. 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.com's what you need to buy now to get more for your money? Internet stocks are on a tear once again — up more than 30% 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% 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% 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%. 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% on Yahoo. You wouldn't have made a 100% 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: Keep the borders open, or make it harder to get in? Which immigration plan is better for America's economy and our stock market?
Steve Forbes, Editor-In-Chief: Legal immigration is essential to the success of this country. If you look at our PhDs in sciences and engineering, half of them are foreign born. My grandfather [BC Forbes] came to this country legally, and contributed to its well-being. And people who come in with low education but ambition, as [News Corp Chairman] Rupert Murdoch said, “if you’re willing to do an honest days work for an honest days pay, you not only help yourself, you help America."
David Asman: Well, that’s your boss, Bill, quoting my boss. So what’s wrong with immigration?
Bill Baldwin, Editor: I dare not contradict him, except when he’s wrong. I think we’ve got to get control of our borders. It’s one thing to have an open-border policy a century ago, when it was hard to get here. Only the ambitious made it. But now, with airfare the way it is, four billion people might just want to resettle in the United States. We don’t have room for them.
Steve Forbes: What we’re advocating for is legal immigration. And the way you make illegals legal, is through work programs. And it should not be beyond our capability to distinguish a handful of terrorists from millions of people who want to contribute to this country.
David Asman: But Quentin, the problem is there are a lot of illegals that are getting in too, and causing a mess in some places.
Quentin Hardy, Silicon Valley Bureau Chief: Well, I doubt that David. Most immigrants, in general, seem to be going to blue states like California and New York, where people pay more to the federal government than they get back. The red states, the parasite states that take more from the federal government than they give, don’t draw as many immigrants. Now what does this tell you? Immigrants aren't’t taking as many services as other people do. They put more into the economy, legal or illegal.
David Asman: Well, I would challenge that the red states are all parasites.
Elizabeth MacDonald, Senior Editor: There’s been no study proving that illegals or immigrants put more into the system than what’s actually being taken out. We know that there are 10 million illegal aliens in this country. And I’m just really concerned that yes, in theory, we can catch terrorists, but with 10 million people here illegally, I just get worried that there are terrorists in our midst.
David Asman: We’ll deal with security concerns in a second, but Jim, do people come here for work or welfare?
Jim Michaels, Editorial Vice President: You know, it’s déjà vu all over again, Elizabeth. There was a ‘yellow peril’ 50 years ago. We were going to be overrun by Orientals, our civilization was going to be destroyed. This country is literally built on the backs of poor immigrants. Irish and Chinese immigrants built, with picks and shovels, the railroads that tie this country together. Poor Pols and other people from eastern Europe manned the coal mines and the steel mills when locals wouldn't’t do it. Thirty-five cents an hour, they were paid. The eastern European Jews that came over here 100 years ago and more, they worked in sweat shops.
David Asman: Steve, the problem is that all that happened before our welfare system blew into the mammoth that it is right now. And a lot of these illegals are taking advantage of that, right?
Steve Forbes: Some are, but we had welfare reform in 1996. And if we have a welfare problem, that’s not an immigration problem, that’s our problem. We created that. And we created the problem in bilingualism.
Quentin Hardy: You want unqualified. OK. An uneducated, Austrian bodybuilder comes to America. He’s the governor of California, and people want to make him president. You can’t talk about ‘only the qualified may enter.’ It’s people who have ambition and drive to get here.
Steve Forbes: If you have the desire to get ahead, David, you can do great things in this country. Successful entrepreneurs come from the most unlikely places. Open the country, like it was for my grandfather.
David Asman: BC Forbes, who is also the founder of “Forbes” magazine, by the way.
Elizabeth MacDonald: I completely agree. What better way to fight back terrorism than to show that we really are about accepting the poor and the destitute. We give these people a fair break, and they make it. They get the American dream. But still, I am really worried that we’re not doing enough to catch terrorists.
Steve Forbes: But that’s the problem with the INS. They have obsolete computer programs, they don’t know who’s coming in or out of this country. If you have work programs modernized to a computer system, we can find out who’s here and who isn’t.
David Asman: So Bill, if you’re worried about the terrorists coming across the borders, if you have a guest worker program, everybody would have to be registered. It’d be easier to find who the terrorists are in the mix.
Bill Baldwin: I would be in favor of a national identity card. An electronic one, like an E-Zpass. If you didn't’t have a pass, you couldn't’t get anywhere. Now if we had that, we’d get control of our borders. If we had control of our borders we could let in more PhDs and fewer of the unskilled, low-skilled people who come and drain our resources.
Jim Michaels: These low-skilled people are the ones who come here to take the American dream; to have a chance to make a living and pool things for their children. They are the ones who, with their picks and shovels, built this country.
Steve Forbes: My grandfather never got beyond the eighth grade, and he made a success of himself.
Elizabeth MacDonald: My family also has a lot of immigrants who came over from Ireland and Scotland, and I just have to say that we should spend more time chasing after terrorists than maids from Mexico. I just think it’s really crazy that we focus so much on these really hard workers, and give them a hard time, when I still feel like there are terrorists in our midst. You saw what happened in Amsterdam, with that documentary filmmaker that was killed by a terrorist and there was a guy in their group that was on welfare in Amsterdam. That’s crazy.
David Asman: The Europeans have clearly gone overboard in terms of rewarding these illegals, right?
Steve Forbes: Well, they have. They’re out of control. Right now, because of our crazy INS, we’re throwing away PhDs who want to help us.
David Asman: Quentin, can we get control of this problem?
Quentin Hardy: We can get control of the problem by accepting immigrants. We just got through Thanksgiving, a wonderful holiday - developed by immigrants. Immigrants add to the economy. The economy grows. You get more tax revenue. You get the basis of doing more to control the borders, terrorism, the population, whatever you want to do. But don’t drain from the base that makes you strong in the first place.
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: The more the world hates America, the better it'll be for your bottom line?
Mike Ozanian, Senior Editor: Absolutely. The reason why people like the French and the Germans hate us is because we spread capitalism. Look at what happened during the Reagan years. They hated Reagan, the stock market went up 135%. Sure, they liked Clinton, but that was only because he was sleeping with interns in the White House. The French like that kind of stuff, but they hate capitalism. They like status-run enterprises.
David Asman: All right, so the closest we came to this was when Reagan was in the White House and we did pretty darn well despite the fact that Europe couldn't’t stand Reagan.
Quentin Hardy, Silicon Valley Bureau Chief: I was in Europe and Asia during the Reagan years, and they didn't’t hate us. They might hate some policies, but they didn't’t hate us that bad. Let's go to a few specifics why they might have some trouble with us now, though. Congress, for the third year in a row, has passed a huge pork-barrel spending bill, it’s going to cause huge deficits and draw off the world’s capital. Our failure to secure Afghanistan has produced a record opium crop that’s going to flood Europe with high-grade heroin. And when the world protested Iraq, as never before, our president called it a ‘focus group.’ If we treat the world with contempt, we may have some of it reflected back at us.
David Asman: I could give Quentin a whole bunch of headlines from the papers in Europe saying what an idiot Reagan was, but go ahead, Steve.
Steve Forbes, Editor-In-Chief: The fact of the matter is that they didn't’t like our policies in the 1980’s. They don’t like us today. They resent a leader. But I’d rather be resented for being a strong leader than being held with contempt for weakness, which is what happened in the Carter years of the 1970’s when probably polls showed that they actually liked us because we were so weak. That’s not the way that you have world leadership. And as for Congress, Europe spends far more of their GDP and their crazy budgets than we do.
David Asman: And that ‘value added’ tax that they have over there makes everything cost a fortune.
Steve Forbes: Yes. And they’re a dying continent.
David Asman: So, Victoria, we shouldn't’t care at all what they say about us, because they’ve got it all wrong.
Victoria Murphy, Staff Writer: Well, I don’t think that’s entirely true, because let’s look at what the private sector is doing versus what we are doing on this international level, what Bush is doing. The private sector is forging all these alliances. Think about Coca-Cola (KO), Intel (INTC), General Motors (GM). What do they have in common? They’re all looking at other countries as huge growth potentials. China, South Korea, India. These are all growth markets. And it’s going to be a huge devastation to our markets if we are pissing people off.
David Asman: So Jim, what Victoria is saying is we are cutting off our nose to spite our face. We need them because they give us money.
Jim Michaels, Editorial Vice President: Victoria, they need our trade more than we need theirs. Are we supposed to act wimpy in foreign policy? Are we supposed to raise taxes in the hope that a few French intellectuals will go back to drinking Coca-Cola? That’s not the way the game is played. If you’re the biggest guy on the block and also the best looking guy on the block, people don’t like you. It used to be “Yankee go home,” then it was “Reagan’s a cowboy, he has no real education.”
David Asman: Yeah. ‘Yankee go home and take us with you,’ but let me get Victoria to respond.
Victoria Murphy: Jim, what you’re saying is ‘we’re the biggest bully in the playground and no one likes us.’ But everyone eventually beats up on the biggest bully and he loses.
Steve Forbes: Why is it being the bully for America to lead the forces of freedom, overthrow tyrannical regimes in Afghanistan and Iraq and fight the war on terror? We’re the only ones doing it.
Victoria Murphy: Because we’re doing it unilaterally.
Steve Forbes: If you read the papers, 29 other nations have joined us in the war on terror including Australia and Britain. The Australian prime minister got reelected by a landslide.
Mike Ozanian: Forget about the big companies. What they hate about us, what they hate about Bush is the same thing they hated about Reagan. It’s the entrepreneurship that these guys put in. We had the whole tech boom and the whole venture capital boom under Reagan. It all started there. And that’s what they love, big companies. What they hate is individualism and capitalism, and that’s where it starts.
Steve Forbes: That’s why Europe is becoming a museum rather than a hotbed of innovation.
David Asman: And Quentin, they hated Ronald Reagan putting the Persian missiles in western Europe, they hated the fact that he strong-armed and remained tough with Gorbachev, and got what he wanted. There’s a lot of parallels between the reasons they hate Bush and the reasons they hated Reagan, no?
Quentin Hardy: No. We have been the dominant power since 1945, and most of the good things that they have liked involved cooperation, like the Berlin Air Lift, like Reagan in Iceland, like Clinton making peace in Northern Ireland.
David Asman: They didn't’t like Reagan in Iceland, they criticized him for walking out on Gorbachev.
Quentin Hardy: The heck! He offered to put things on the table. They liked that.
David Asman: He walked out on Gorbachev and they got furious about it. That was the ending of Reykjavik.
Jim Michaels: It was not only that. They hated him for getting up and saying that the Soviet Union was an 'evil empire.' European leaders said that’s impolite and that Reagan should treat the Soviet Union with more respect.
Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:
David Asman: It's a plan that could slash your soaring fuel bills, and help supercharge a whole group of stocks. Bill, what’s the plan?
Bill Baldwin, Editor: It's alternative energy sources. If we’re running out of oil, let’s use hydrogen, which we could make from nuclear energy. Now the problem with hydrogen is it has a tendency to explode. So here’s a grand scheme that just might work in 20 years or so. You marry hydrogen to coal and you get gasoline; a sin fuel.
David Asman: Is energy a good bet?
Neil Weinberg, Senior Editor: No. Energy is a terrible bet. These things go up and they go down. We’ve had a huge run in energy stocks in the last year. Telling people to buy energy stocks now is like telling people to buy dot.com stocks in January of 2000. It’s the wrong thing to do.
Lea Goldman, Staff Writer: Well Neil has reason to be Grinch-like on alternative energy stocks because their stock prices fluctuate and their earnings are always iffy. That’s why you want to pick a stock that’s kind of hedged, that’s not exclusively in alternative energy.
Bill Baldwin: On my somewhat-extreme theory that you could marry coal to hydrogen and get gasoline, why not buy a coal stock. Here’s one of them; Massey Energy (MEE). It’s a kind of mediocre company without any earnings, but 20 years from now that coal will be really valuable.
Lea Goldman: The problem that I have with Massey is that while it otherwise looks like a good company, the CEO just unloaded $26 million worth of stock, which is generally a red flag. I like Matsushita Electric Industrial (MC). This is the company that owns Panasonic, but in addition to consumer electronics they also make the batteries for hybrid cars. And the hybrid cars are just now starting to take off so there’s a lot of room there.
Neil Weinberg: If you want to talk about diversification, Lea, you’ve got it right there. If you look at Matsushita, what they make their money on, you’re getting a diversification into DVD players, walkman, the Japanese market and the Japanese yen.
Lea Goldman: Not exclusively.
Neil Weinberg: They may make a few things that have to do with energy, but not a lot,
David Asman: Mike, now you talked about old energy. You have an example.
Mike Ozanian, Senior Editor: I’m not into speculative plays. And I disagree with Neil here. There’s tons of oil around. It’s not like the dot.coms. These companies are very profitable. And we’re able to use it in a lot more productive way than we were 30 years ago. So I would stick with oil. Crude oil. I like BP (BP). $16 billion in profits from oil, but it is spending a lot of money on developing solar power, wind power and hydrogen power. Profits are probably going to go up 30-40% next quarter.
Lea Goldman: That’s exactly what I’m talking about. I like BP because this is exactly the kind of company you want to look at.
Neil Weinberg: I would say if you have to go into energy, BP’s not a bad choice.
David Asman: Is there anything in the industry that you like at all?
Neil Weinberg: No. Mike is telling us to buy a stock that hit it’s 52-week high this week. I’m telling you you’re buying at the top. That’s not smart.
Makers & Breakers
— Saks (SKS)
Barry Ritholtz, Market Strategist at The Maxim Group: MAKER
Clients of my firm own Saks. We like it. We started looking at it after the Sears (S) and Kmart (KMRT) merger. I wanted to see what retailers might possibly be a real estate play, but as I dug into Saks, it’s a high-end luxury retailer. It’s a turnaround story. One of the insiders, Carlos Slim, who’s on the “Forbes Wealthiest Men in Mexico” list, he’s a billionaire. He just bought almost 700,000 shares a week ago.
David Asman: And you think it can go up about 40% to $19. (Friday’s close: $14.64)
Jim Michaels, Editorial Vice President: MAKER
I'm a cautious maker. Department stores are an obsolete business, but this is a very, very cheap stock. It has some good core assets and it could be merger bait.
Elizabeth MacDonald, Senior Editor: BREAKER
I’m a breaker. This company has no clue as to what women want when they go shopping. The service is abysmal. They haven’t differentiated their fashion lines in the store. And as a woman shopper, I think women are turning to other stores who do better, such as Nordstrom (JWN) or Neiman Marcus (NMGa).
— Xerox (XRX)
Barry Ritholtz: MAKER
Xerox is another interesting turnaround story. After the market’s run up as much as it has, I start looking for cheaper stocks. Xerox has moved from the basic light lens photocopier to digital and color imaging.
David Asman: And you think it could go up about 30% to $21. (Friday’s close: $15.85)
Elizabeth MacDonald: MAKER
I’m a maker on this stock, even though Xerox laid off my Uncle Jimmy. I think the move to color and digital is a positive for this stock.
Jim Michaels: BREAKER
I’ve seen this damned stock turn around so many times; I’m dizzy from these turnarounds. I’m going to pass on this one.
StockSmarts: Congress Fails?
Congress goes home after failing the American people! Our elected officials ate their turkey (and probably attended a fund raiser or two), while leaving Washington without taking action on a security bill base of recommendations made by the 9/11 Commission.
If the two political parties can’t get together on this issue, are they jeopardizing our security, our economy and our stock market?
Jonas Max Ferris of MAXfunds.com says the Congress is totally compromising our security, but that doesn’t mean that stocks will be compromised. The market would have to see another terrorist attack in order to feel the effects of a lack of action from Congress.
Gretchen Morgenson of the New York Times says that this recent stalling from the Congress ranks fairly low in terms of things that will hurt the market. The declining dollar, rising interest rates and tax spending are much higher up on the ladder. And terror is by no means something we want, but there are more important things out there for the market.
Mike Norman of the Economic Contrarian Update says that the terrorist want to hit America economically. He says that in terms of security, we are moving forward with some of the 9/11 recommendations – we do have better intelligence sharing between the agencies. But where Congress can really affect the markets is how they set spending. And if it drastically reduces government spending, that will actually be bad for the economy and bad for our market.
Jonathan Hoenig of Capitalistpig Asset Management says that Congress doesn’t know its job. The sole role of government is to protect the citizens. And this means a strong national defense. And the fact that you can play politics with national security means that the markets could definitely be in danger.
Gary Kaltbaum of Kaltbaum & Associates says that if fear gets built up because of the inaction from Congress, then yes, the market will feel a negative effect. But the market really has so much more to focus on as of this moment, most especially the falling dollar. And the average stock market investor should care about the dollar because the more its value drops, the more confidence in our market will erode.
Best Bets: Santa Stocks
The stocks you should ask Santa to bring if you want the gift of big gains? Our crew came up with some potential winners.
Jonas says Orient Express Hotels (OEH)
Friday's close: $20.86
This company runs high-end hotels, and right now there are more rich people in the world who are willing to spend money on tourism. Mike says it’s a great franchise, but he thinks the stock is a little expensive right now. Jonathan says the hotel group is totally hot right now and he wouldn’t’ fight the group. Gary says that a miracle has happened – he agrees with Jonas!
Mike says LSI Logic (LSI)
Friday's close: $5.43
This company is a beaten-down chipmaker that specializes in nanotechnology, which is a hit area, so it is due for a rebound. It’s a totally cheap stock right now. Jonas agrees with the contrarian stance, as chip stocks are totally out of favor right now. Gary K. has one rule of thumb: don’t own the worst stock in a particular group, and he says this is the one that fits that bill. Jonathan agrees – a bad stock in a bad sector.
Jonathan says Empire District Electric Company (EDE)
Friday's close: $22.81
Jonathan likes stocks that are doing well and he loves the utilities right now. EDE is a power company that services areas of the Midwest. (He owns shares of this stock.) Jonas does like the utilities sector, but he thins this stock is a bit overblown – he’s worried that it can’t pass off the fuel costs to its consumers. Gary says until the utilities stop working, he wouldn’t fight the sector.
Gary says National Oilwell (NOI)
Friday's close: $36.99
Oil stocks continue to perform well, and this stock broke out on heavy volume last week, and he thinks we can see another 10% in this one. Mike likes to buy low and sell high – not buy high and sell low. Mike says this stock (as with all the other oil stocks) were great buys in 2002, but not now. Jonas says that while oil stocks are good, you don’t want to be with this one, as it makes oil-drilling equipment. Jonathan says the biggest advantage is going with the trend, not against the trend. So don’t fight it.
Cashin’ In Challenge
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Stock of the Week
Last week’s pick from Jonas Max Ferris was Eaton Vance (EV). For the week of November 19-26, EV went up 5.0%.
This week, Mike Norman says that OSI Pharmaceuticals (OSIP) is ready for a move up. This stock was up over 200% at one point in 2004 and has fallen back (although it is still up for the year). Mike thinks it could regain some of its losses. The FDA just recently approval its new lung cancer drug, which will totally help it recover. There is a great buying opportunity with this stock. Jonas doesn’t like stocks that are profitable and have its executives selling stock (which has happened here). Gary says this is a sell-the news stock. We already knew the FDA was going to approve this drug, and it gapped down on the news. This is one to stay away from.
Gretchen, Jonathan and Jonas answered some of your comments and questions.
“Will oil prices ever fall back into the $20-$30 barrel range?”
Gretchen says this is wishful thinking. With demand as strong as it is right now (and probably next year), and with exploration at a standstill, we might be looking at a situation with higher prices. Jonathan thinks we are more likely to see $100 a barrel before $20 a barrel - the days of cheap oil are over. Jonas says when no one thinks something is going to happen, it will happen. And since no one thinks that oil prices are ever going to drop, they probably will.
“I bought Sirius (SIRI) at $1.68, then solid it when it reached $5.53 in October. I might buy it if the stock pulls back to $4. Thoughts?”
Jonas says this stock is not a buy right now. Ten years from now, he thinks we will have Internet access in our cars, so there will be all kinds of free radio for drivers. Jonathan says this viewer has the wrong trading strategy – you never want to sell your winners then wait for a pullback. Gretchen says this is the ultimate momentum play, so you don’t know when it will run out.
"I bought PrimeWest Energy Trust (PWI) last year, and it has been on a great run. Sell or hold?”
Jonathan says that commodity-related plays like PWI are hot right now, so he wouldn’t sell this one, and Gretchen agrees. Jonas says this is only “slightly smarter than gambling”.
“What do you think about J.P. Morgan (JPM)?”
Jonas doesn’t like the financial services sector, but this is one of the best one in the business because it is so diversified. Jonathan says the regulatory risk for this stock is way too high. Gretchen doesn’t think you want to own these stocks in a higher interest rate environment.