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; Danielle Hughes, president of Divine Capital Markets; and Stuart Varney, FOX Business News contributor.
Trading Pit: Christmas Bonu$?
Looking for your Christmas bonus from the stock market? So far this month, the Dow and Nasdaq are higher, but many investors are hoping for something more.
Stuart Varney: There will be a Christmas bonus, and it will come from good news overseas. In Iraq, the Marines are doing well and the elections will be happening shortly. In Europe, the people are beginning to share our point of view on terror, and there could be a regime change in North Korea. Overseas news doesn’t usually turn up the stock market, but it was bad news from overseas that turned it down in the spring and summer. Now that the positive news is coming, I say a modest rally for Christmas.
Pat Dorsey: I have no idea what stocks will do in the next several weeks, but I don’t think that news from overseas is going to have that much of an effect on the market. Looking ahead to 2005, things look ugly!
Gary B. Smith: It looks good for a Christmas bonus. Looking at a chart of the Nasdaq, we have moved up about 20 percent since August. It has taken a necessary pause, but we’ll have a good finish. Buy now because your “bonus check” is coming.
Dani Hughes: I agree with Gary. We will see continued upward movement. We’ve seen it in small cap stocks and in large volume stocks. There’s been great momentum, and it’s going to keep going.
Tobin Smith: We’ve had a Christmas bonus. It’s been the best market we’ve had since the big run from ’03. There will be a rally in the small-cap stocks, but stay away from the big cap stocks.
Scott Bleier: The bonus came early. It came in November. We will have no December bonus. However, we’ll have a bonus in the first quarter of the new year.
Scott, Pat, Toby, and Dani pick stocks they say are better than any Christmas bonus.
Scott: I like GSI Commerce (GSIC), which builds and maintains websites for other companies. It is a small, more speculative stock, but will hit $20 by the end of the year. (GSI Commerce closed on Friday at $15.29.) It hasn’t been profitable for about 6 years, but that is changing. This year, it is going to be profitable. I own it.
Tobin: The profitability will depend on if they get a couple of big contracts. If it doesn’t get the big contracts, there’s risk.
Dani: I like this stock. It’s just where you want to buy it. It’s not yet profitable, but almost there and ready to do well.
Pat: My bonus pick is National City (NCC). It’s a well-run regional bank that does a decent amount of mortgage business. It could be a little more efficient, but I think it will do well and hit $50 in a year. (National City closed on Friday at $36.56.)
Tobin: My bet is National City will be acquired, which is a good thing for the stock.
Scott: This is a terrific company, and I like it. It is reorganizing lines of business in order to be more efficient. Plus, it has just come off its highs.
Tobin: Look for Provident Energy Trust (PVX) to give you a Christmas boost. The company owns oil and gas wells in Canada. Get the gift every month with a 12-13 percent annualized income in the form of a distribution. The company takes energy that it owns, buys new energy, and gives it to the shareholders 90 percent tax-free. I own. (Provident Energy Trust closed on Friday at $9.33.)
Dani: I hate it! Quoting a recent news statement from Provident Energy that shows that Americans aren’t guaranteed that same “bonus”: “Non-resident taxable and tax-exempt accounts will have tax withheld by the Canadian government.” This means that investors do not get back tax on the credit for the capital return.
Pat: This is very risky because it is dependent on the whims of the Canadian government and oil prices.
Dani: Get your bonus with Cisco Systems (CSCO). It is poised for a breakout. The company’s momentum and volume has been huge. I think it could go to $23 by 2006. I own shares. (Cisco Systems closed on Friday at $19.42.)
Scott: This is a great company, but a terrible stock. It’s not going anywhere.
Tobin: I agree with Scott. It’s not growing.
Pat: I don’t like it. Plus, it has more competition from companies like Juniper (JNPR).
With all the scrutiny of baseball players using steroids, Gary and Dani looked at stocks that could make huge gains, but are not on the “juice.”
Gary B: I like eBay (EBAY). It has been moving straight up and unless it breaks this uptrend, it’s not coming down. There are more gains to come. (eBay closed on Friday at $114.41.)
Dani: This stock has been going up and up for a long time. I’m waiting until it’s on sale because it is way too high right now.
Gary B: CIGNA (CI) is another stock that is ready for huge gains. It has been moving sideways and just broke over this long resistance line. Going to $100. (CIGNA closed on Friday at $81.00.)
Dani: I agree that it looks strong technically, but I don’t like that the company cut the dividend and gave it to the management.
Gary B: Electronic Arts (ERTS) is very strong. It has been thrashing around since late ’03, but broke the downtrend line. It’s ready for a big ’05 without steroids. (Electronic Arts closed on Friday at $54.19.)
Dani: I love this stock and their games.
Gary B's prediction: There is no Housing Bubble! Buy stocks like Toll Bros (TOL)
Dani’s prediction: Goldman Sachs (GS) benefits big when interest rates rise; up 30 percent in 1 year
Scott's prediction: Scientific Atlanta (SFA) has edge in digital TV recording! Up 30 percent by 2006
Pat's prediction: Buying Novartis (NVS) is a no-brainer; gains 20 percent in next year
Tobin's prediction: Gillette (G) makes the best stocking stuffers this year; Up 20 percent by spring
Cavuto on Business
Neil Cavuto was joined by Gregg Hymowitz, founder of Entrust Capital; Ben Stein, author of, "Can America Survive?"; Jon Najarian, principal at PTI Securities; Charles Payne, CEO of Wall Street Strategies; Leigh Gallagher, senior editor at Smart Money Magazine; Chris Lahiji, president of Daily Trends, and Robert F. Kennedy Jr., author of “Crimes against Nature”
Neil Cavuto: Lots of uncertainty now in the rearview mirror. So is the market ready for a breakout year? Elections are over, Afghanistan is a democracy, Iraq votes in January, and the economy seems to be doing well. Jon, are you bullish?
Jon Najarian: Oh very much so, Neil. I think we are going to see a pickup in corporate spending, IT spending in particular, on wireless, as well as voice-over-the-Internet technology – two hot areas I see over the next year. I think a lot of companies are going to benefit from this return of corporate spending. Consumers have been carrying the economy, and they are going to continue to do so, but corporate spending is going to help lift the markets even more.
Chris Lahiji: I still think there are going to be a lot of distractions moving forward. We have a very big trade deficit; a huge budget deficit, and when I look at the employment numbers I am not all that excited.
Neil Cavuto: But we have had these deficits for years.
Leigh Gallagher: I think that 2004 is behind us; I think that we are all happy to have it behind us. I think that the rally of November and December is proof of that, and I think that will continue. I am looking for 10-12 percent gains in the market. You’ve got corporate earnings to drive corporate spending; you’ve got low inflation and a rebounding jobs outlook. I am bullish.
Gregg Hymowitz: I think we are going to see okay growth. I think the market’s going to return between 8-10 percent. But you have already seem small cap stocks rallying, so I do think that the larger cap stocks that have not participated this year are probably going to do a little better, and given the dollar’s weakness, you may see bigger moves in the multinational corporations which benefit from a weaker dollar. I don’t think there’s really anything negative out there on the horizon that anyone can predict. I do still think the international scene is somewhat disconcerting though.
Ben Stein: I think the international scene is extremely disconcerting. The deficit is overwhelming. I have never seen a deficit like this before. I have never seen a situation where foreigners own so much U.S. debt before.
Neil Cavuto: But wait a minute Ben, we have seen deficits like this before, and we have seen foreigners constantly buying our bond market — what’s new?
Ben Stein: We had far bigger deficits during and after World War II, but in a period when there is basically no large defense expenditure — at least as large as it should be – we have never had a situation where foreigners own as much treasury debt.
Neil Cavuto: Okay so it’s higher now than it was, but it’s always been high, so what’s your point?
Ben Stein: It’s way higher than it was, the dollar is falling, and the usual effect of that is inflation and higher interest rates, and that has a negative effect on the stock market.
Charles Payne: Ben’s worried about the macro picture that could come to roost 10 or 20 years from now, not next year. If Jon had hair we would be separated at birth, because I agree with everything he said. You look at all the economic data that’s come out so far, and we’ve had a lot of reason for this market to pull back, but instead, the market is telegraphing a good year ahead. We are going to see two different years next year. The first will consist of fits and false starts, but in the second part the market’s going to rally in anticipation of a strong 2006. We’ve seen this picture before. The Dow goes to a new all-time high, and the Nasdaq I think will be 30 percent higher.
Gregg Hymowitz: Neil you seem very blasé about the trade deficit. Why are you so blasé?
Neil Cavuto: I am not blasé. I am a realist enough to know that we have been bemoaning this since these deficits first appeared. The weaker dollar right now is accelerating foreign buying of American goods. The trade deficit is shrinking as we speak because of that. I am not saying you can grow your way out of this. I am saying that we tend to hype the negatives, and we wait for the ghost to arrive just like people who said the last deficits we had in the eighties would trigger double-digit interest rates, and it didn’t happen.
Jon Najarian: Neil, I would also like to point out that we are seeing a lot of money flowing into mutual funds and the money managers don’t want to commit it because they don’t want to screw up their positive records at the end of 2004. That will translate into big money coming into the market in January.
Leigh Gallagher: I think a lot of that money is coming from people who are getting back into the market because a lot of the uncertainty is behind us, and I think we are going to see the result of that well into the new year.
Neil Cavuto: Ben what do you make of the fact that we pop up to the mid 10,500 region, then we pop down again, and we’ve had a hard time convincingly staying substantially over 10,000 on the Dow?
Ben Stein: There is a tremendous fear of higher interest rates. Causes have effects, and eventually the twin deficits will have an effect.
Neil Cavuto: There’s that key word Ben, “eventually.” You are chasing a ghost that I have yet to see materialize. Everyone who was complaining about double-digit interest rates when we had the Ronald Reagan deficits said that there would be hell to pay, and we never saw that.
Ben Stein: There were double-digit interest rates at the beginning of the Reagan years. They fell because inflation fell because of a very much tighter monetary policy.
Neil Cavuto: He had much worse deficits and interest rates came down!
More for Your Money
Neil Cavuto: Stocks that are ready to explode higher in 2005? Gregg?
Gregg Hymowitz: One of our favorite stocks for 2005 is a company located in Canada called Masonite International (MHM). They basically own the interior and exterior door markets, so if you believe in home building, if you believe in remodeling, and if you believe in buying stocks when they are cheap, this is the stock to buy. This stock trades at roughly 9 times earnings. We think it’s one of our best ideas, and we own a lot of the stock. One reason we think it’s been an under performer is that it doesn’t have a lot of U.S. coverage; it’s mainly followed in Canada. But if this stock were to trade at the multiple others trade at in the same industry, you would have a mid $40 stock. (Masonite closed Friday at $27.76)
Chris Lahiji: Masonite is a boring company. I don’t think the stock is liquid enough for the majority of people to own. I think the commercial and housing booms are over.
Neil Cavuto: Well Chris what are you buying?
Chris Lahiji: I am buying Waste Management (WMI). Given the fact that I am a little bearish going into 2005, I like companies that have pricing power and right now Waste Management has excellent cash flow and excellent fundamentals. They have very strong shareholder equity, and their number two competitor, Allied Waste (AW), is struggling. I think it’s a great buy heading into 2005. (Waste Management closed Friday at $31.10)
Jon Najarian: Yeah, but what if they don’t have a whole bunch of hurricanes next year? Most of the earnings this last round were because of the hurricanes — without that, I think they are practically flat on the year.
Neil Cavuto: Jon what’s you stock?
Jon Najarian: I like the Finnish telecom play, Nokia (NOK). I am already in a number of voice-over-the-Internet and wireless Internet plays, and this is a little bit of both of those, as well as the fact that in the wireless space I think Nokia is dominating. (Nokia closed Friday at $15.50)
Neil Cavuto: What is going on with that industry all of sudden — with Sprint and Nextel and all these other rumored pairings?
Jon Najarian: Well that is going to be good for them on the pricing side, but in terms of the equipment itself, I like Nokia. It’s a convergence of voice-over-the-Internet and I think the stock is cheap.
Ben Stein: Well, Nokia is a company that looks like Mr. Toad’s wild ride. If you look at a chart of Nokia for the last several years it’s breathtaking. It’s like something at Magic Mountain, and while it is currently at a fairly low point on that ride, there is an awful lot of technical innovation going on. There’s an awful lot of competition. I would say this stock is for gamblers; it’s for risk takers. I don’t like picking individual stocks, especially high tech stocks. I like the indexes, and I like the iShares from Australia (EWA). Australia is a richly mineralized country and it’s got a lot of advantages if the falling U.S. dollar keeps falling. (iShares MSCI Australia Index closed Friday at $15.93)
Jon Najarian: But what if the dollar doesn’t keep falling? I think the dollar is going to rise.
Ben Stein: It would be unprecedented for the dollar to rally unless there was a much bigger spike in interest rates than we have seen so far. We cannot have the dollar rallying with the kind of trade deficit we have unless we have a spike in interest rates that attracts foreign money.
Head to Head
Neil Cavuto: Money versus Mother Nature: Do the two have to be at odds? Robert F. Kennedy Jr. joins us right now. He’s the author of “Crimes Against Nature” a book that takes a rather uncomplimentary view of the current administration’s environmental policies. I am being nice here; you effectively trash our President.
Robert F. Kennedy Jr.: Neil, I’m bi-partisan in my approach to this issue. I am not attacking the President because he’s a Republican, I have supported both Republican and Democratic candidates when they are good on this issue, but this is the worst administration that we have had in American history on environmental policy. If you look at the Natural Resources Defense Council website, which is a national environmental group that keeps track of the Bush administration’s environmental record, there are over 400 major environmental rollbacks that have been promoted or implemented by this administration over the last three-and-a-half years.
Neil Cavuto: Does the NRDC keep track of the $4.9 billion Bush has allowed for park restoration; do they keep track of the half billion dollars for the conservation program that you hold near and dear, and do they keep track of the mandatory cut of mercury emissions? He’s the first president to do that ever.
Robert F. Kennedy Jr.: Those are things that the White House claims, but those are half-truths.
Neil Cavuto: No they are not. The $4.9 billion is in the budget. It’s there.
Robert F. Kennedy Jr.: Actually, the budget for parks has been decreased by 7 percent during this administration, and so that’s money that’s transferred from an area that he promised where it’s now been cut. But let me talk about mercury because that’s one of the most glaring mispronouncements from the Bush administration. Mercury is a really serious issue: 1 out of every 6 women now has so much mercury in her womb that her children are at risk for a grim inventory of diseases – autism, blindness, mental retardation, heart, liver, kidney disease. The mercury is coming from 1100 coal burning power plants and President Clinton had ordered those plants to remove 90 percent of the mercury within three-and-a-half years. The Bush administration accepted a $100 million from that industry, and then rewrote those regulations about three months ago.
Neil Cavuto: Robert that’s not right. He was balancing out the need to keep clean air with the need to keep millions of jobs. I think the one thing that is missed here is that we all want a clean world, we all want to protect the spotted owl, the caribou – keep them safe – but we also have to juggle this against the real need to protect a lot of jobs. If you had your way a lot of those jobs would be lost.
Robert F. Kennedy Jr.: Good environmental policy 100 percent of the time is identical to good economic policy if you want to measure the economy based upon how it produces jobs, and the dignity of jobs over the generations, and how it preserves the value of the assets in the community. What the President’s policies do is urge us to treat the planet as if it were a business in liquidation — convert our natural resources to cash as quickly as possible, and have a few years of pollution-based prosperity. You can do that, and you can generate an instantaneous cash flow, and you‘ll lose your prosperous economy.
Neil Cavuto: You don’t think you can balance out the needs for clean air and protect jobs.
Robert F. Kennedy Jr.: It’s already balanced. What the President is doing is not balancing. What the President is doing is enriching a few of his fat friends and corporate contributors.
Neil Cavuto: So the same folks that did business with the Clinton White House – he was acting on their behalf?
Robert F. Kennedy Jr.: $100 million he took from this industry and then changed two major rules: one, the mercury rule so that now they will never have to clean up the mercury, and number two, the rule against discharging ozone and particulates.
Neil Cavuto: Tell me one thing the Bush administration has done right for the environment.
Robert F. Kennedy Jr.: As far as I know there is only one good thing, and that’s the diesel rule, and it was a very good strong rule, but he’s done 400 miserable things.
FOX on the Spot
Ben: Foreign buyers keep the U.S. housing boom booming!
Gregg: Big cap stocks outperform small caps in 2005
Leigh: Farmers growing big profits; buy Deere (DE)
Charles: Lots of big deals in 2005; buy Goldman Sachs (GS) (Charles owns shares in Goldman Sachs)
Chris: Big Lots (BLI) making big Changes; stock up 25 percent in a year (Chris owns shares in Big Lots)
Neil: Huge DVD and plasma TV sales won't help manufacturers’ profits. Prices are too competitive.
Forbes on FOX
In Focus: Are Selfish Grandparents Jeopardizing Your Retirement?
David Asman: The lobbing group AARP is flat out against the president's plan to privatize even a small part of social security and the group is vowing to kill off any reforms. Are they risking future generations' social security savings?
Jim Michaels, editorial vice president: This is my answer: I'm ripping up my AARP card. My generation was paying money into the social security, getting a miserable return and living in constant terror that Congress is going to cut the benefits. I don't want my children or my grandchildren to go through that. I want them to have their own individual retirement plans that they control, that they own. Not something that you give to the government and hope they give it back.
Dennis Kneale, managing editor: Indeed America's older population is exploding and the workers paying in are not doing enough. In twenty years the number of retirees taking money from Social Security doubles to 70 million, but workers only go up a tiny amount during that time. We have a crunch coming, we have to do something. Being able to park your money in an account, and make it earn more money than the government can is one way of trying to fix the gap.
Quentin Hardy, Silicon Valley bureau chief: I think this is turning into a parody. The right is so powerful that they are now attacking the AARP. I mean ok, lets stick to the facts. Go to www.AARP.org and they point out more conservatively than the Congressional Budget Office, that it's in trouble in 2040, hardly tomorrow. And they speak of Social Security as a good base that you then build on by investing in the stock market, that's called risk management. Now lets compare our President's plan. He says that he will be able to do this by not cutting any benefits and not cutting any taxes but by borrowing $2 trillion dollars in the hopes that some day the investment pays off so well that someone else will benefit. Which is more responsible?
David Asman: Steve, Quentin's point is that the AARP is actually more conservative than the President?
Steve Forbes, editor-in-chief: Not at all. They're keeping a system that is broke, that's hurting the economy. By having that money go into the economy, expanding the economy, we'll have better benefits in the future. Galveston, Texas, three counties there have done it for twenty years, and their benefits are higher even without taking any risks in the stock market.
Elizabeth MacDonald, senior editor: The AARP Web site also has a lot of scare tactics how reform will hurt your future benefits. I think that's totally crazy. But we have to keep in mind that AARP is really a threat here. I think people join AARP more for the car insurance or hotel discounts. Maybe they should rename themselves, triple-A-RP.
Jim Michaels: Here's the catch, they use a lot of that money to lobby and they always lobby for left-wing causes.
Victoria Murphy, staff writer: I think part of the problem is that people are retiring at a very young age. If we extend the retirement age, figure out some metric, so it's a reasonable moving target, a lot of the social security problems will be alleviated. What privatization ignores is what if there is a long-term downturn in the market? What if you get a corrupt money manager? You know these things happen.
Steve Forbes: If we have a long-term downturn you're not going to be able to pay those benefits anyway, without inflation. And it terms of the future, by expanding the base of the economy through those investments, through balanced funds, you'll have more retirement.
David Asman: What we're getting now from Social Security in terms of the benefits is a lousy deal. The average annual return of the money you put in is only between one and two percent. The market does much better. The average return for the S&P 500 market index is more than 10 percent.
Elizabeth MacDonald: I couldn't agree more. People that are against this are saying look it's going to blow out the deficit. What you're really doing is using treasuries to fund privatization that you would have to issue later on anyway.
David Asman: The president is talking about putting only a tiny sliver of our Social Security savings into a private account.
Quentin Hardy: Yes. And he is talking about someday paying it off by someone else, not him, cutting benefits.
Jim Michaels: All the money I put away in my lifetime, the government did not put away for me. It spent it! And gave me an IOU. Now my generation is cashing in those IOUs, whether you issue them formally as debt or just cut them as IOUs that debt is there.
Dennis Kneale: You are taking out vastly more money in Social Security payments than you ever paid in. In 25 years I've paid $80,000 in Social Security tax, I will consume all of that in my first three years of retirement!
Elizabeth MacDonald: But the problem with AARP is that they are effectively running a business, and they are worried about alienating their customer base where they sell products. Now they also have hooked up with Scudder [Scudder Investments], an investment firm. And they don't want to be seen as having any conflicts of interests backing privatization accounts. I can bet you that there is a fear there.
Victoria Murphy: In this case I agree with what they are saying. If you look at 401k accounts people have not always made the best decisions. In more than half of 401k accounts, over 10 percent of the assets are in one single stock.
Steve Forbes: The whole point is you have restrictions, you have balanced funds, so people can't do those kind of foolish things. If you just raise the age you'll have to go to 85 to save the system.
The Flipside: Stop Christmas Shopping Now!
David Asman: Credit card debt is out of control. The average household is in debt by more than $9,000 and the average interest rate on all that debt is over 15 percent. Should consumers stop buying to get that debt under control?
Jim Michaels: There are millions of people out that owe $20,000 to $30,000. They should bake cookies this Christmas instead of buying gifts, and lock up their credit cards! Look, if you have $30,000 of credit card debt you're paying $5,000 a year in interest. That's like being in debt to the mafia.
Steve Forbes: Most households do know how to manage their money. Household wealth in this country is at an all-time high. If you tell people not to buy during Christmas you're going to have a depressed economy, they won't have any income to pay off any credit card debt. This is ridiculous.
Rich Karlgaard, publisher: The front page story in Friday's Wall Street Journal was: Europe, they don't spend! The consumer economy is dead there, consequently European countries are growing at 1 percent a year. Look if you have $20,000 in debt, use your other plastic, your ATM.
Bill Baldwin, editor: There is no question that our economy is being propped up by approximately 100 million spendthrifts and financial degenerates and we've got to stop it somehow. Most of the people out there delude themselves that they are saving money when all they do is sit tight and watch their home appreciate.
Bob Lenzer, national editor: Our saving rate is almost zero. People don't have that much saved of their disposable income. Out of every hundred dollars of disposable income they are only saving 20 cents. It's down from 8-10 percent only ten years ago.
David Asman: Is there anything wrong with having a low savings account?
Steve Forbes: It ignores the facts, the value of your assets, including you pension funds, the value of your stocks, the value of your home. If you look at the balance sheet of this country you'll find that the net worth of this country is at a record high! What are we worried about?
Jim Michaels: I'm not arguing with the boss on that one. You're totally right on the big picture. I'm talking about those millions of people who are in virtual debt to the mafia. And the best Christmas gift they can give their family is a clean, debt free card. Next year they can spend.
Steve Forbes: I think you're finding and excuse not to give presents in the name of the national economy. The one out of 20 people that are in debt should pull it back. But the other 19 of 20 who manage their affairs very well, have a very merry Christmas.
Rich Karlgaard: The people who argue against this are making a religious argument, not an economic argument. I mean debt is one of the corner stones as to why the US economy is one of the most vibrant in the world. We can extend credit because we work harder, it's part of the American story.
Bob Lenzer: Consumer debt has been very good for the American economy and driven this economy forward. But what is happening is that many people are borrowing on equity loans on their homes at 5 percent to pay off their 18 percent credit card debt.
Steve Forbes: That's wise! The fact of the matter is, when most Americans feel they are getting out of control, they pull back. Most people know how to manage their affairs in the land of the free.
The Informer: Big Stocks Are Back!
David Asman: Alexandra, you say big cap stocks are the best bets right now?
Alexandra Kirkland, senior reporter: If you look over the last five years, small caps have so far out preformed large caps. That out performance has already been priced into the small cap.
Rich Karlgaard: I disagree. I like small cap value stocks because they're under covered by analysts and traditionally that quadrant does as good as any.
Mike Ozanian, senior editor: Big is better. In this day in age to have an under covered stock is very, very rare. Rich is saying that the small cap stocks don't have hoards of analysts following them and I think years ago that was a lot more true than it is today.
Bill Baldwin: I think unfortunately we are in the midst of a decade long populist wave of hysteria against big, successful companies, like Microsoft. That's why I agree with Rich.
David Asman: So Alex, if you think big is better, what big cap stock would you invest in now?
Alexandra Kirkland: I'm a big fan of L-3 Communications (LLL). They're an intelligence, surveillance product defense contractor. They provide all kinds of military systems and surveillance training. And should continue profiting from those markets.
Mike Ozanian: I like L-3. The products are going to be used to catch the bad guys for a long time. I think there is a lot of room for growth there.
I also like the well known name Intel (INTC). It has a great reputation. They put a lot of money in education. I don't think the police are going to go after these guys Bill and they have a big global reach. The stock is very cheap at $23.
Alexandra Kirkland: I'd be cautious with Intel. I think the semiconductor industry in general has had kind of an inventory problem, so these bloated inventories are kind of hanging around which could effect earnings.
David Asman: Rich, you like the smaller stocks. What's your pick?
Rich Karlgaard: First of all, I like Intel (INTC) and I like the whole semiconductor field for the very reason that there is an inventory problem. And they're all, except maybe AMD [Advanced Micro Devices], trading at their 52-week low. I like a company called Integrated Device Technology (IDTI) trading at 18 times cash flow. Half of the market cap is cash.
Mike Ozanian: Eighteen times cash flow when you're rich like Rich may seem cheap. But for me it's a little too pricey. I don't really think it's a value stock.
Bill Baldwin: I like RPM International (RPM). It's an obscure company that makes some well known products. It makes things that are gooey and sticky and do funny things. Home owners love it.
Alexandra Kirkland: I agree. Home improvement has never been so in-vogue as it is now. With the success of "Extreme Makeover Home Edition" and "Trading Spaces."
Mike Ozanian: This one is good because it's very cheap. But their products, even though they are a small company, are very well known.
Makers and Breakers
• Zebra Technologies (ZBRA)
Roger Nussbaum, Your Source Financial: MAKER
They make products for radio frequently identification. The bar codes. It's a way to allow retailers, like Wal-Mart who is a hug client, to have supply chain management and be much more efficient. It's a way to make their businesses more efficient and spend less money.
David Asman: It's trading at about $50 and you think it can go up 50 percent to about $80. Your clients own this stock. (Friday's close: $52.50)
Jim Michaels, editorial vice president: MAKER
It's in a wonderful space. It's the leader in that space. It's a real company, real earnings, no debt, real cash flow. I like this stock
Dennis Kneale: BREAKER
I'm a breaker on this stock. I think that he is in the right area because this frequency code scanning stuff is really big. But this stock is really wobbly lately. It's down 15 percent in two months. Pound for pound versus the whole market it's almost like 50 percent more expensive as a stock. I think it's a good company, it's a good business but I would not buy this stock. And it will not go up 50 percent.
• Australia and New Zealand Banking Group (ANZ)
Roger Nussbaum: MAKER
Again, it's a very simple theme. Australia is a huge trade partner with China for all of the natural resources and commodities coming from Australia. As money comes from China into Australia it's a lift for the entire market and Australia and New Zealand Bank looks to capitalize on it.
David Asman: You think it will go up to about $90, that's about a 20 percent rise. Your clients own this stock as well. (Friday’s close: $75.20)
Dennis Kneale: MAKER
I think he's brilliant on this stock. I was just in Australia, it's an amazing economy this is a good bank and this stock is 35 percent cheaper pound for pound than the whole broad market.
Jim Michaels: BREAKER
Everything you said is true. The problem is that the stock has had a big run-up. It's in a very competitive area and it's got a lot of problems in the retail market. I wouldn't buy it at this price.
StockSmarts: Dow or Never?
The Dow has been a dog this year, basically going nowhere since January. But the S&P 500, the Nasdaq and the Russell 2000 (which tracks small cap stocks), have blown away the blue chips:
Dow Up 1 percent
S&P 500 Up 6 percent
Nasdaq Up 7 percent
Russell 2000 Up 14 percent
So is this a sign to stay away from Dow stocks, or is now the time to buy?
Dagen McDowell of FOX Business News says that you shouldn’t stay away and you should buy some these stocks right now. The drug stocks look cheap, and the entire Dow portfolio looks great for 2005. The Dow stocks also have higher dividend yields and cheaper valuations than the S&P 500 stocks. Frankly, there is nothing going on with the Dow stocks that would make it drop back to 8,000.
Joe Battipaglia of Ryan Beck & Company says that all he is hearing is “dog” – and that troubles him. It is not a portfolio of stocks he would own right now – because with each winner you are stuck with a loser; the Dow will give you Johnson & Johnson (JNJ), but then it will also give you Merck (MRK) and Pfizer (PFE). And it’s been such an under performing portfolio in 2004 because its outlook for 2005 isn’t that strong. Joe thinks the idea of a higher dividend yield isn’t that big of a deal. He also thinks that risk taking will be more in vogue in 2005, which is why you want to look to other indexes other than the Dow. And Joe thinks we will see Dow 12,000 before Dow 8,000, but only because it will be riding the heels of the S&P 500 and the Nasdaq. The only reason the Dow still exists is because it is the “Wall Street Journal’s baby”.
Wayne Rogers of Wayne Rogers & Company says that he really isn’t sniffing around any of the Dow dogs. He says (as has been mentioned on the show several times) that you have to look at this not as a “stock market” but as a “market of stocks” – individual stocks will do better (in most cases) that the overall averages. You can’t go in there and say the “Dow is going to go up”, because it is weighted down with stocks like Merck that have not done well. And he doesn’t think that you should stay away from index investing overall – he just thinks that the Dow is not an index you want to play.
Jonathan Hoenig of Capitalistpig Asset Management agrees with Wayne – there are too many weak stocks in the Dow to make an entire bet on the average. For every strong stock, there is a weak stock. It is essentially “dead money”. If you look at some of the long-term charts of the Dow, it had long periods of time where it did absolutely nothing. And if he has to choose on of the major indexes, he would go with the S&P 500 – but he would rather go with something completely different, like an index that tracks European stocks.
Jonas Max Ferris of MAXfunds.com thinks that Dow will be next year’s best performing “big index” – he likes the theory of rotating money into the out-of-favor sectors. This index would likely never have gone below 10,000 has it not been for Merck and AIG. It’s the same discussion we were having back in 2002 about getting back into the Nasdaq in 2002, because it was the cheap index at the time. Now it’s time for the Dow. And it’s also important to note that the Dow fell the least in the bear market. The Dow will never drop back to 8,000.
Adam Lashinsky of Fortune Magazine says the problem is that the selection of the Dow stocks is always looking in the rear view mirror. So the technology representation you have is Intel (INTC) and Microsoft (MSFT). Intel has had an awful year, and Microsoft has been through a “so-so” 2004. And those stocks were added to the Dow after the big tech boom had started – a classic example of the Dow getting involved too late. So if you are looking for a better selection, the S&P 500 is a better way to go. And not everybody has time to do individual stock research; so buying indexes can be a very good idea for the long haul. He thinks we will see a lot of “Dow 10,000”.
Best Bets: "Fat” Stocks
The low-carb diet craze didn’t last too long. So what stocks will get fat as American’s eat up? Our crew came up with some potentially “fat” stocks.
Jonathan says Kellogg (K)
Friday's close: $43.38
Jonathan says when he dies you can bury him in “Frosted Flakes” (a Kellogg mainstay). And this is a pretty strong stock right now. It’s not one that he owns right now, but he is certainly keeping his eye on it – he also thinks the fact that CEO Carlos Gutierrez is going to be the next commerce secretary bodes well for the stock. Wayne loves breakfast and he loves to eat breakfast, but he says he doesn’t need to eat the stock in order to enjoy it (breakfast). It seems like more of a long-term play for him, not every exciting over the next six months. Adam says we aren’t going to generate much excitement on this one, because it is so well known and well loved.
Adam says Papa John's (PZZA)
Friday's close: $32.87
Adam is going back to his college days for a pizza plays. Is the low-carb thing is really over, then pizza is going to do well. Unlike Kellogg, this isn’t a particularly well-loved stock, kind of a middling performer, but he thinks it can return to its former highs. Joe says that pizza makes it through “fat and thin”, but he thinks that this one is already topped out. Wayne again has the same problem – he likes pizza, but doesn’t need to own the stock in order to eat it. If you are looking for a chain, look at Starbucks (SBUX). (Wayne owns shares of SBUX).
Joe says Sanderson Farms (SAFM)
Friday's close: $39.06
Sanderson Farms (which farms and distributes chicken) was a stock that did well under the low-carb craze, but had a pullback after a disappointing quarter. Now it is at an attractive level to get back in. (Joe owns shares of SAFM). Wayne says this stock isn’t on his list.
Wayne says Hershey (HSY)
Friday's close: $55.42
This is a stock Wayne used to own, and he still wished he had it. The company has a long record of earnings and growth. Just a solid company – not the most exciting, but it won’t lose you money. Jonathan understands why Wayne likes HSY and SBUX – they both sell narcotics. He wouldn’t fight these kinds of stocks. Adam loves the chocolate, but wouldn’t buy the stock now.
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 Charles Payne was Monster Worldwide (MNST). For the week of December 3-10, MNST was up 0.9 percent
This week, Joe Battipaglia says that Goldman Sachs (GS) will have a big week (he owns shares of GS). He says the momentum in earnings with this stock is really going to carry it forward. When the company reports earnings (December 16), the numbers will blow away what the street is expecting – it’s a proxy for the market, and it will give us a new high. Jonas thinks that investment banking is a declining business. Asset management companies, like T. Rowe Price (TROW) and Eaton Vance (EV) are the businesses you should be looking at going forward. Joe questions how he can say that – investment banking is a total global business, and the economy is going global. And GS is well positioned globally.
Wayne, Jonathan and Dagen answered some of your questions.
Question: "I own shares of the Energy Select Sector SPRD (XLE). Can it continue to go up if oil continues to go down?"
Dagen says that crude prices really aren’t going too far down anytime soon. OPEC wants to keep prices to the higher side, and international demand is still going strong. You still want to hold this one. And even if oil gets into the $30 range, big oil companies are going to be “minting money”. Wayne agrees that these stocks will continue to make money, but he thinks that some rotation out these stocks might be going on right now. Jonathan says this is a winning trade, so you’ve got to run with it.
Question: "Wayne recommended Leucadia (LUK) at $41, and now it’s $60. Great Christmas gift! What should I do now?"
Wayne says “merry Christmas” – he still owns the stock and is still going to hold the stock. He just thinks it’s a great company, and as long as the current management team is in place, he is going to stay with it. Dagen also notes that the insiders are also holding on to their shares, and that’s a good sign.
Question: "I bought 200 shares of Home Depot (HD). It’s now over $40. Is it time to sell?"
Jonathan says he would hold on to this stock. The hardest trade to make is holding on to a winner. And as long as the trade hasn’t become too big a portion of the portfolio, you should keep this one. Wayne would put a stop-loss order in around $37.50 to protect yourself, but until then, hold the stock. Dagen agrees with both Jonathan and Wayne.
Question: "It seems that when the Fed lowers rates, CD rates fall with them. But when the Fed raises rates, CD’s stay the same. What’s the deal?"
CD rates should have moved up – the yields on 1-year CD’s are up about 0.5 percent since the Fed started raising rates. Long-term CD’s will not move lockstep with the Fed. Go to www.bankrate.com to check out the best rates.
Question: "Please tell me what you think about Nucor Steel (NUE), and what you think about the entire steel industry?"
Wayne says we might be getting into a “topping” pattern with some of these steel stocks. He would not reinvest in these stocks right now. Jonathan thinks the run is over.