DISCLAIMER: THE FOLLOWING "Cost of Freedom Recap" CONTAINS STRONG OPINIONS WHICH ARE NOT A REFLECTION OF THE OPINIONS OF FOX NEWS AND SHOULD NOT BE RELIED UPON AS INVESTMENT ADVICE WHEN MAKING PERSONAL INVESTMENT DECISIONS. IT IS FOX NEWS' POLICY THAT CONTRIBUTORS DISCLOSE POSITIONS THEY HOLD IN STOCKS THEY DISCUSS, THOUGH POSITIONS MAY CHANGE. READERS OF "Cost of Freedom Recap" MUST TAKE RESPONSIBILITY FOR THEIR OWN INVESTMENT DECISIONS.
Bulls & Bears
Brenda was joined by: Gary B. Smith, RealMoney.com columnist; Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, founder and chairman of ChangeWave Research; Scott Bleier, president of HybridInvestors.com; Bob Froehlich, chief investment strategist at Deutsche Asset Management; and Price Headley, investment strategist for BigTrends.com.
Trading Pit: $ocial $ecurity
President Bush's plan to save Social Security allows taxpayers to invest a portion of what they pay into Social Security, into the stock market.
So if everyone took full advantage of this plan, about $150 billion would go into the market annually. Now, to put this into perspective, that's about the same amount that goes into all stock mutual funds each year.
But is this good for the stock market?
Bob: The privatization of Social Security will be the single most important event in the history of the stock market — both in the short run (this year) and the long run! If it is privatized this year, the stock market will soar 25 percent instead of just 10 percent. In the long run we will be creating an even larger and more powerful investor class. Chile was the first country to privatize in 1981. At that time, those private accounts made up 1 percent of their economy. Now it’s 50 percent!
Gary B.: I don’t know if this is going to help at all. Wall Street firms like large accounts and these are going to be a lot of small accounts. There will be a lot of administrative work for little pay back. It will flow in eventually, but won’t have a dramatic immediate impact.
Tobin: This will be great for stocks because it is teaching young people to be investors. The plan is designed to have young people put $1000 a year into the market. But this is long-term money that will be going into index funds. This money won’t be managed or traded around; it’ll be “safe” money.
Price: Social Security reform as it is now proposed, will not happen. The program has obvious problems. There will be more liabilities than assets by 2018. But the proposed plan is good for younger retirees, and not so for older retirees, which is why support is split down the middle. I think a diluted version of this reform will pass, which means it won’t have nearly as large an impact.
Scott: There will be some type of privatization of retirement funds, but all the money won’t go into the stock market, especially if the market is going down. The money will most likely go into money market funds, which will help the savings rate of this country. Part of what caused the “seller’s strike” before the end of the year was anticipation of some type of Social Security privatization in 2005.
Pat: No one knows if this is even going to happen. And even if it does, there’s no guarantee that it’s going to be consistently put into the market. Investors are no more rational than your average fund manager. They put money in when times are good and pull money out when times are bad, which is exactly the opposite of what you should do.
Gary B. and Bob each picked a stock so good that you won’t need Social Security to retire rich.
Gary B.: I like Johnson & Johnson (JNJ), which has been going up for 20 straight years. It’s one of only a few stocks to “buy and hold.” (Johnson & Johnson closed on Friday at $62.70.)
Bob: This is a great stock. In fact, I like Johnson & Johnson so much, I own the stock. It’s a very diversified company with divisions in pharmaceuticals, medical devices and consumer products. J&J pays a good dividend. Plus, only 10 percent of the company’s sales come from Asia, which means there’s a lot of growth potential.
Bob: My stock is the great American company, IBM (IBM). I own it. In the long run, if you are going to replace Social Security with an individual investment, the company has to reinvent itself. That’s what IBM is doing now. It is getting out of the PC business because it is so volatile and is focusing on other areas. It is a leader in many areas: semiconductors, mainframe computers and storage. (IBM closed on Friday at $94.10.)
Gary B.: Big Blue has a tough road ahead. It took a shot at crossing $100, but failed. I’d only buy the stock if it hits triple digits, but that could be very difficult.
Are the best buys in the market the newest stocks in the S&P 500? Let’s find out!
First up, XTO Energy (XTO), a Texas-based company involved in the production and exploration of oil and gas. XTO was added to the S&P at the very end of December. (XTO Energy closed on Friday at $34.89.)
Tobin: Bull. I think this company is going to be converted into an energy trust. It has so much cash flow and will pay a 10-11 percent dividend. I own it.
Scott: Bear. This stock has already had a big run and it’s fully valued.
Gary B.: Bull. Both oil and energy are going higher and this stock is going up right there with it.
Price: Bull. I agree with Gary B. Oil prices are going up. Plus, the company just expanded their production capacity.
Pat: Bear. Corporate governance at this company is questionable and the management is overpaid. Plus, the company gives loans to executives. Awful stuff.
Bob: Bull. I like it and I own it.
Next, Compass Bancshares (CBSS), which became a member of the S&P about a month ago. It’s a regional bank with nearly 400 branches in southern states from Florida to Arizona. (Compass Bancshares closed on Friday at $44.97.)
Price: Slightly bearish. It’s not going anywhere. There’s also a takeover rumor, but I don’t think it will happen.
Gary B.: Bull. The whole financial sector is going to go up, including this. I also like the chart.
Bob: Bear. It operates in six states and is losing market share in all six.
Pat: Bear. This is a decent bank, but it’s not cheap and there’s no dividend. There are much better companies out there.
Tobin: I was much more bullish on this stock, until I heard these guys.
Scott: Bear. It’s had a good run, but is now fully valued.
The group also checked out Archstone-Smith Trust (ASN), a real estate investment trust, or REIT, specializing in apartments. It runs apartment complexes and was just added to the S&P last month. (Archstone-Smith Trust closed on Friday at $34.50.)
Pat: Bear. This is a perfect example of how the S&P adds companies to the index when they are already way overpriced. Plus, the 5 percent dividend is not impressive for a REIT. Don’t buy this.
Bob: Bull. I like the real estate market. Interest rates are going to stay low and employment will stay strong. A third of the company’s revenue comes from Washington, D.C. I love this company.
Price: Bull. I love that it has stability.
Tobin: Bear. The apartment market is hot in Washington, D.C. But Archstone-Smith must increase its dividend to become a buy.
Scott: Bear. If interest rates go up, this has a long way to go down.
Gary B.: Bull. Good chart.
Lastly, Freescale Semiconductor (FSL), which joined the S&P in December. It used to be a part of Motorola (MOT), but is now a separate company and makes microchips for cars, computers, and cell phones. (Freescale Semiconductor closed on Friday at $17.01.)
Scott: Bull. This is a spin-off from Motorola. It makes all the chips. The stock is cheap and I like it.
Bob: Bear. It’s “Motorola Lite”. If you like Motorola, invest there. There are so many better companies out there to invest in.
Gary B.: Bull. I had never even heard of Freescale before I looked at the chart, and I like the chart.
Tobin: Bull. Can I say what Pat is going to say? “The stock is overvalued. Has no free cash flow.”
Pat: Yes Toby I am a bear. It is in some good markets, but is not really a great business. And now if I could play Toby, “BLAH, BLAH, BLAH, BLAH!”
Gary B's prediction: iPod is only the start for Apple (AAPL); up 40 percent in 18 months
Scott's prediction: Flooding brings Texas Industries (TXI) a flood of profits; up 25 percent in a year
Bob's prediction: Pittsburgh rules! Heinz (HNZ) and Steelers win big; stock up 20 percent in '05
Pat's prediction: Micrel (MCRL) is a little chip company making big profits; up 33 percent
Tobin's prediction: Guess what? There's a shortage of uranium! Cameco (CCJ) goes up 40 percent
Cavuto on Business
Neil Cavuto was joined by Jim Rogers, author of "Hot Commodities"; Ben Stein, author of "Can America Survive?"; Joe Battipaglia, Ryan Beck & Co.; Meredith Whitney, CIBC World Markets; Michael Smerconish, author of "Flying Blind"; Adam Lashinsky, senior writer at Fortune Magazine; Ed Koch, former New York Mayor; and Bob Beckel, Democratic strategist.
The Bottom Line
Neil Cavuto: Big changes planned here at home after President Bush is inaugurated for his second term on Thursday. So four years from now: will we all be better off than we are today?
Ed Koch: I think we'll be far better off. I'm not an expert but I'm going to give you my gut. We have a cyclical economy and we've gone through three or four years of tough living. There's only one problem in the horizon and that is China. If we don't take action to level the playing field and to not eliminate all tariffs we'll be in trouble. They're economy can make shirts and shoes at 60 cents an hour and our average wage is $20.
Jim Rogers: Four years from now, some people will be better off. Those living in the red states will be better off. Most of the rest of us, in New York and elsewhere, are going to be worse off.
Neil Cavuto: What about real estate?
Jim Rogers: Again, the red states will do well. The blue states won't. Sell your house in Massachusetts and buy one in Iowa.
Neil Cavuto: Ben Stein, how do you see things in four years?
Ben Stein: The people who are educated and hard working and who save money and invest carefully will be better off. People who are foolish and prodigal and who don't work hard won't be well off. We can't say whether we'll all be better off. That's unknown. I am in agreement with Jim. Natural resources are the wave of the future. I have enormous respect for Mayor Koch, but there's no stopping China.
Michael Smerconish: I'm optimistic about this administration but I still have to say, I don't think we'll be much better off than we are now. And Neil, I base that on the fact that the country is at war. We don't want to acknowledge that, but we're fighting radical Islam. And consequently, we've got a budget deficit that's enormous because funding the war on terror costs a lot of money and it's going to continue to cost a lot of money. Four more years from now I think we end up exactly at the same point we are today. But that's not so bad considering.
Joe Battipaglia: The American economy performs best when the leadership at the top has a clear direction. There's no question this administration has set a course that's going to provide leadership on a global basis. Four years from now we'll be in a better place economically speaking.
Meredith Whitney: It's hard to imagine we could go through another four years like we've just experienced. For the next four years we have tort reform and standardizing the tax code. Things will look good on a relative basis.
Neil Cavuto: But we didn't know what was in store for us four years ago.
Jim Rogers: Of course not. We didn't know the war was coming four years ago. We have a huge debt now, though, that someone has to pay for.
Ben Stein: We can't predict the future on a global or national basis. Bernard Baruch said after World War I, the secret of success is to work and save. And that will be the secret to success in the next four years.
Joe Battipaglia: Look what happened this past summer. An 8 percent improvement in sales in retail. Now net worth is at a record. Total aggregate income is at a record.
Jim Rogers: Hold on, the debt is at an all time record too. And the housing bubble is causing net worth, and that's going to explode.
Ed Koch: Immediately after the elections in Iraq, we should declare victory. We brought down Saddam Hussein. We have eliminated Iraq as a danger to that region and to the United States. And we should bring our troops home. We should say to our "allies" Germany and France. And I use the word allies in quotes here. I would tell them, you have more to lose than we. And the only basis for us staying would be if you put your troops into that country to the same extent that we did. Along with Saudi Arabia and Turkey and all those countries who have more to lose than we do. The war was warranted and the President made the right decision.
Neil Cavuto: I know it's a wild card and we don't know what will happen. But I know Michael you have criticized our air safety, or lack of it. Do you see an incident within the next four years?
Michael Smerconish: We've failed to come to terms that we're fighting an enemy that we cannot identify. Our enemy is radical Islam and it was embodied by all of those 19 hijackers who had their race, gender, religion, and appearance all in common. And yet eighty year old grandmothers are getting singled out in airports.
Neil Cavuto: So you're saying unless we get back to profiling, we're going to have another disaster?
Michael Smerconish: Yes, I think we need to take a page out from the Israelis. Let's start sizing people up.
More for Your Money
Neil Cavuto: The best stocks to own for the next four years so you can get more for your money. Adam, four more years for the president starts Thursday. What's your 4-year bet?
Adam Lashinsky: The security risk in the Middle East could be diminished in the next four years. But the security risks to computer systems around the world are going to get worse. So own Symantec (SYMC). It's the leading company in anti-virus software. This is an opportunity to get into a stock that's going to get stronger and stronger.
Jim Rogers: You always come up with these unbelievably expensive stocks. Don't you ever have anything that's cheap. History has always shown that when people merge, it's usually not a good result.
Ben Stein: It's selling at 35 times earnings. That's a risky price. It's had an incredible move the last couple of years. It might have a big future, but don't you think that's already in the price?
Adam Lashinsky: We're going to come back to the things that have already had an incredible move I assume Jim, when we talk about commodities. We're talking about a technology company that's going to be one of the biggest and one of the best.
Neil Cavuto: All right Joe. What do you like for the next four years?
Joe Battipaglia: Schering-Plough (SGP) is an interesting play for the next four years. They have a turn-around specialist team in there. The prospects for this company are quite good. So you're getting into this stock at the right point in time.
Jim Rogers: The drug and pharmaceutical industry is basically under attack. We already spend 15 percent of our gross national product on it. Something's got to give or we're going to go bankrupt. And what's going to give is the drug industry.
Ben Stein: I like the Emerging Markets Index Fund (EEM). I think they have a long way to go. They're plays on the hard work of the emerging markets. And they're plays on the fact that these countries are the next America.
Joe Battipaglia: The emerging markets have just too much volatility. One year they can give you plus 30 and the next year they can give you minus 40.
Head to Head
Neil Cavuto: Are Democrats putting our economy, stock market and our very lives at risk by fighting the Bush administration on Homeland Security?
Bob Beckel: Let me make the case against Bush. He was against Homeland Security, he fought against it, he's got it now. There's not enough money to fund it right because of this ridiculous war in Iraq. The Justice Department had cut terror spending to fight the terrorist spy. The CIA just announced that Iraq is now the breeding ground for terrorism in the world. It's now clear, Bush has created more terrorists than when he took office.
Michael Smerconish: I hate to think of security in partisan terms. The only thing that's happened since the election is the confirmation hearing of Alberto Gonzales. And here were the usual suspects: Biden, Kennedy, Leahy giving him a workout when all Gonzales did was seek a legal opinion on what are the bounds of interrogation for those who are cutting off our heads, literally, in the Middle East. It is going to be partisan bickering that is going to jeopardize the country.
Ed Koch: Bob is totally off base. There used to be a time in this country when politics stopped at the water's edge. There's no question that we are off in a war of civilizations. And we're being faced with terrorists who don't care about losing their own lives. As opposed to us who love life and want to live. And so instead of Bob trying to tear the president apart, why don't you bring some helpful suggestions?
Bob Beckel: I'll make a suggestion. You used to be a Democrat. Why don't you go back to being one? It's politics everywhere now for George Bush.
Michael Smerconish: Is there a problem with anything Gonzales has done? Frankly I don't have any sympathy for guys like those that we're discussing. Torture is a relevant term. I wish someone had said that to them.
FOX on the Spots
Jim Rogers: President Bush will pull out of Iraq sooner than expected.
Joe Battipaglia: We start decisively winning the War On Terror
Ben Stein: Too much personal debt: more bankruptcies ahead!
Adam Lashinsky: Apple (AAPL) introduces vPod in 2005; stock tops $100.
Meredith Whitney: Put down the Oreo; Government goes on health kick!
Neil Cavuto: The inauguration will reinforce President Bush's rise in the polls, and give him clout when it comes to changing programs like social security and our tax code. Don't assume this is a second-term lame ducker.
Forbes on FOX
The Flipside: Tsunamis and Other Disasters Make Market Stronger!
Dennis Kneale, managing editor: We should start off by saying that losing 150,000 lives is a horrible thing and no amount of economic activity can replace that. That aside, it does stir more growth not less. It does wipe the slate clean and let people come in and build and economic activity will pick up. Some of these areas will see more new aid come in a shorter period of time than ever before in our history.
Bill Baldwin, editor: I want to quote for you a spectacularly stupid headline that appeared in USA Today in September. It said economic growth from hurricanes could outweigh costs. Now the economists who know anything about this have a very apt description of what this fallacy is. They call it the broken window fallacy. Meaning, a little kid throws a rock through a shopkeepers window and that's good for the community! Why? Because it provides employment for the glassmaker. It's hogwash because the shopkeeper is spending 60 dollars on the window and isn't spending 60 dollars on shoes. Nobody's better off.
Quentin Hardy, Silicon Valley bureau chief: What Bill's missing is what an enormous psychological impact an event like this has. The death of 150,000 people is a terrible thing. We lose more people than that around the world to Malaria, bad water, or all kinds of things that we can't prevent. Why is the world focused on this? The magnitude of it. The shock of it. The sheer size of it changes people's thinking and that is what creates a positive benefit down the road. Look at what's happened in the wake of this already. There's been debt forgiveness. You can love it or hate it, but it's an important event. There's been forgiveness of certain trade barriers on clothing. And the U.S. military is inside Indonesia in a way that they weren't before. They'll probably leave in a couple of months, but that's going to have an effect on the most populous Muslim nation. When you have a big event like this it's an opportunity to change thinking and structure and that's an economic positive.
Victoria Murphy, staff writer: I think there's a real negative when these areas are devastated. You are going to see some new infrastructure and there is a chance that it's better than the previous infrastructure. But the cynic in me says that in the long term, it's a net negative. Let's take a look at the hurricanes in Florida. Home Depot may have benefited, but Federated Department stores lost $20 million in sales.
Bruce Upbin, senior editor: There is plenty of a silver lining to this and it has to do with the international cooperation efforts. If that takes hold it can refocus itself on these poverty issues and poverty kills three times as many people as the tsunami. The world does tend to ignore these kinds of things. Look at Rwanda. If we stop turning away and looking at these places it could boost their economies.
Jim Michaels, editorial vice president: If you want to create a boom and create jobs, I can show you how to do the same thing without losing 150,000 lives. Hire a million people to dig a million holes and then you hire a million people to fill them in again. You've just created 2 million jobs.
Dennis Kneale: What we're trying to say here is that sometimes a cataclysmic, horrible event happens and investors worry about what this means for the market and what this means for the economy. And we're just trying to say that this might not mean horrible things for the market and the economy. Maybe there's new growth and new spending that comes out of it. There's a huge difference between a natural disaster that you have no control over and a disaster like 9/11. Those attacks were man-made. And afterwards it hurt the economy, it hurt the confidence, it hurt everything.
Bill Baldwin, editor: Quentin is right when he says that we should look at clean water and clean sanitation for these countries. Why couldn't we have gotten in there with water supplies 10 years ago.
Quentin Hardy: Before this, our hearts were not stirred and their governments were not ready to move. This kind of cataclysm focuses our common humanity and that is an opportunity to build. This is a horrible natural event, but people see opportunity when they see the magnitude of that.
David Asman: What about a little closer to home? We've had a lot of rain this week and a lot of people lost homes to floods and mudslides.
Victoria Murphy: California has been hit hard. There is some positive if you look at the earthquakes that have happened in San Francisco over the years, especially in 1906. A lot of rebuilding was done and we learned how to build better. That is a positive thing.
Jim Michaels: Well Chicago got rebuilt after Mrs. O'Leary's cow kicked over a lantern and set the whole city on fire. That kind of rebuilding you don't have to kill a lot of people to do. It's unproductive work.
Bruce Upbin: It gives us a mindset of preparedness, like we had in the US in the 1950s. Even though we were all paranoid about nuclear disasters it yielded all kinds of technological innovations, warning systems and communication systems. And we could give all of them to Indonesia as well.
In Focus: Is Your Company's Retirement Plan in Danger?
Quentin Hardy: Just get your head around two things this week. General Motors announced, once again, that they are going to have to cut their workforce in 2005. Now General Motors in the past two years has had to borrow $1.8 billion to cover pension and healthcare costs. It's just not going away. They have to keep paying. Another thing that happened, an accounting firm announced that in the top 100 US corporations, deferred pension obligations were not on the balance sheet. $3 billion per corporation! Now in a great moment of corporate welfare we have something called the federal Pension Benefit Guaranty Corporation that picks it up when the corporations can't do it themselves. Right now they are $23 billion in debt and it's going to get worse. It's time for corporations to cop to how much they owe.
Jim Michaels: That's not a free lunch Quentin. Those companies pay for that insurance. Now the problem with that is, the fund may be running out. But it is not corporate welfare if you have to pay for it.
Bob Lenzner, national editor: They don't want this to become like the savings and loan bail out in the early 1990s. They want to cut this off right here because it's a huge deficit of the Pension Benefit Guaranty Corporation and that will raise taxes tremendously. So the Bush administration is taking this on first. Coming up with a hard nose solution to show the world that we mean business. This is the first step before dealing with Social Security and Medicare.
Dave Asman: Will the cash be there for people when they retire?
Elizabeth MacDonald, senior editor: Well it depends on the company. The steel companies, automotive makers and the airlines were having problems with their pensions, but I don't think that it's an across the board problem. It's not going to get anywhere near the bail out of the S&L which was a $500 billion crisis. We're talking about a crisis in the 10s of billions of dollars.
Victoria Murphy: I think pensions are a relic of the past. Companies increasingly don't want to have to fund their former employees' retirement, which by the way gets a lot harder as people's life spans increase. The cost of funding retirement is higher. Even if you look at a company like IBM. They were involved in lawsuits with former employees. IBM is trying to limit its liabilities on pension plans and IBM is a healthy company.
Quentin Hardy: The top 100 companies, $3 billion on average! You don't know who they are. You don't know how much it is. You don't know what employers it is. Now Elizabeth isn't worried because tech companies don't have pensions. Tech companies don't employ as many people as airlines and auto companies and steel companies.
Elizabeth MacDonald: I didn't say I wasn't worried. I'm just saying that certain employees may not have to be so concerned. I think employees at those companies should be worried.
Dave Asman: US Airways apparently lied about the amount of money that they had in their pension. It said it was about 90 percent covered and when an organization looked into it, it was only about 33 percent covered.
Elizabeth MacDonald: We do see shortfalls but it's not across the board. The other thing is Congress sat on this for too long. And the problem with Congress is that they were getting very rich pensions. We know that there are millionaires in Congress from pensions. But I do think that Bush is right to go after this problem immediately.
Victoria Murphy: The numbers are so large. If you look at the biggest pension funds in the airline industry they are in debt $31 billion. I think it goes beyond airlines.
Jim Michaels: Everyone is talking about General Motors. General Motors is a special case. They have gone from 50 percent of the car market to 25 percent. They've got 2 retirees for every employee. They are in trouble but most companies are not in that kind of trouble.
The Informer: Comeback Kid$!
Elizabeth MacDonald: My comeback kid is Martha Stewart Living (MSO). Martha is in jail because she was convicted about lying about a stock sale. But you know, I totally think that this is a comeback stock. She's going to get out in March. She's got this reality TV show. The stock has more than tripled since the 52 week low. I think she has more ideas to expand her brand and the stock will benefit.
Dennis Kneale: This stock has tripled in six months. I'm not sure that the upside in the near term is all that great.
Elizabeth MacDonald: I don't think it's too high. I think it's a momentous stock. You have to watch the balance sheet. They have low debt and great cash positions.
Dennis Kneale: I like the bad boy of all stocks, Tyco International (TYC). The scandal-scarred Tyco. Their accounting miscues were no where near the magnitude of all the other big scandals. It's a $40 billion a year company that's profits just tripled to $3 billion last year. So buy it.
Neil Weinberg, senior editor: I like Citigroup (C). What I like about Citibank is that it is a comeback stock unlike the ones that Dennis and Elizabeth have. It hasn't comeback yet. It's increased its profits by a third since 2000 and it's trading for less than it did 4 years ago.
Mike Ozanian: I agree, I think Citigroup is pretty safe. It's got a 3.3 percent dividend yield so you can't really go too wrong with it. But my comeback kid is Shell Transportation and Trading (SC). It's an oil company. They lied about how much oil they had in the ground. They have started to come back. They are eventually going to come back as much as the other oil companies. I think it's a pretty good buy right now.
Neil Weinberg: The problem with Shell is that it is not a comeback stock because it never went anywhere. Although they had a bad scandal that got them a lot of bad press, it kept going up.
Dennis Kneale: The fact that there are other oil companies that are about as cheap as Shell. Buy them, because they didn't lie.
Elizabeth MacDonald: Wait a second. We are all ragging on Tyco. I think we are ignoring a really great business that Tyco has, the home security business, it's called ADT. It should be renamed ATM. It's a cash machine.
Neil Weinberg: It's a good business. The good thing about Tyco, it's like buying a mutual fund. They've got lots of good businesses but you can't say that it's a comeback stock because the scandal was a couple years ago
Dave Asman: Is this a good strategy or do investors come in too late for the rebound?
Mike Ozanian: You have to compare it to rivals it its industry.
Neil Weinberg: You have to go in when there is blood on the streets.
Elizabeth MacDonald: It can be scary.
Dennis Kneale: It's like catching a falling knife. We tried it with Lucent and it kept falling and falling. You have to be careful. It's very risky.
Makers & Breakers
• Applied Materials (AMAT)
Ed Shill, QCI Asset Management: MAKER
They are a semiconductor equipment manufacturer. The stock is down from $60 to where it is today. It has $6 a share in cash and a clean balance sheet. It's a tier one company. I see it doubling over the next 18 months.
David Asman: Your 12-month target price is $25. That's about a 60 percent rise. (Friday's close: $16.53)
Bill Baldwin: MAKER
These people make the equipment that makes the chips. This is a terrific company.
Jim Michaels: BREAKER
The industry is over capacity in chips now. I think the turn around in their business may be further off than you think. I would stay away from it.
Ed Shill: I think Jim's making a mistake here. With the difference between the fundamentals of the business and the fundamentals of the stock price. The time to buy this stock is when no one likes it. When the order book is down and they are laying off people which they are doing now. If you wait to see the whites of the eyes of the recovery of the stock it will be $25 or $30.
• Corning (GLW)
Ed Shill: MAKER
Corning is the world's largest LCD glass manufacturer for flat panel TVs. Last year volume was up 65 percent. Over the next three years it will continue to see 40-50 percent growth. We see this stock doubling over the next 18 months.
David Asman: $18 is your 12-month target price. (Friday's close: $11.77)
Jim Michaels: MAKER
Here's a company in three terrific businesses: fiber optics, flat panel TVs and environmental protection. The growth prospects and the leverage are terrific. I would want to own this stock and hold it.
Bill Baldwin: MAKER
I'm a begrudging maker. My price target on this for the next year is $12 not $18. But I think that it is a terrific long-term stock.
StockSmarts: Holiday Hangover?
Wall Street is suffering from the holiday hangover, but will this sell off be your best chance to buy all year? It’s been a tough start for the year. All three major averages losing a big chunk of last year's gains in just two weeks. Much like most of our crew, the market seems to be suffering from a post-holiday hangover. But Charles, you're not in that group. Will people look back and say this was really a buying opportunity?
Charles Payne, founder of Wall Street Strategies: Yeah, I think it could be. We looked back last year at so many times we thought the market was going to fall apart was a perfect buying opportunity. I think stocks are a screaming buy, but I will acknowledge with a caveat, that the risk is still heavy to the downside. We see the way the market closes every day. We see the lack of buyers. But from a fundamental point of view I do believe it's a screaming buy.
Terry Keenan: Wayne, you saved yourselves and our viewers a bunch of money by staying in cash this year. Will you stick to that position?
Wayne Rogers, founder of Wayne Rogers & Company: Yeah, I am. I think Charles is wrong here. With all due respect, I think that the caveat is the other way. I don't see that the market right now is a screaming buy. I'm cautious in here. It's got to make a base before I see that. I see a lot of downside risk. I don't like to try to catch falling daggers. Dagen, you accused Jonathan and I of not doing our homework. We did do our homework. We stayed in cash. We didn't commit. And I think that's where you should be right now.
Dagen McDowell, FOX Business News reporter: Wayne, it’s only been two weeks. There are so many reasons to be optimistic looking ahead in the year. The economy is solid, profits are still growing at a double digit clip. Inflation is not a worry. Interest rates are not going to go through the roof. There is no reason you can't buy right now.
Jonathan Hoenig, portfolio manager at Capitalist Pig Asset Management: You don't want a bargain, that's why. I know that you and Terry are at Bergdorf’s looking for a bargain. You want a sale, but not in the stock market. And weakness, to me, is not an indication of a time to buy. And I would want to see some stocks; some groups start to do better here. It's almost like on January 1, somebody let the steam out of the bag. And I want to see some strength before I put money to work.
Terry Keenan: The worst start to the New Year in about ten years. Stocks are having a worse year than Jennifer Aniston and Brad Pitt. What's wrong?
Leigh Gallagher, senior editor at SmartMoney Magazine: I don’t think that there is anything wrong. I think that the fundamentals are good, interest rates are rising, but they’re still really, really low historically. And there was all this doom and gloom last year and the year ended up. We don't want to jump to any conclusions. I think that stocks are still the place to be.
Jonas Max Ferris, founder of MAXFunds.com: I'm not as optimistic as before the election when stocks were really cheap and Jonathan had the bear suit on, but it’s still the best game in town. Bonds don’t pay a lot, cash still does not pay a lot. Real estate is overpriced. Are we going to make huge gains from here? No.
Terry Keenan: But people said that last year about real estate, bonds and commodities and they were great places to be.
Jonas Max Ferris: The market beat most asset classes last year, actually, especially safe bonds and cash. I think what we will see is gradual gains from here. I don't see a big tank from here because, where is the money going to go? Our economy is good like Dagen says. We’ve seen good retail sales numbers.
Charles Payne: I don't disagree with the premise that Jonathan is putting forth. In other words, ‘wait for the market to bounce before jumping in.’ But from a fundamental point of view, when we look back, a lot of stocks are going to probably be at their lows for the year this week or next week or the week after. So you can gradually get into the market. I know you love to chase them, but stocks that people are buying this week or next week, you will buy when they are 20 percent higher because they broke out.
Jonathan Hoenig: I’ll tell what you I am doing: a lot of pruning. We always focus on ‘should I get into the market or get out of the market.’ Maybe now is the time that people should look at their own portfolios and prune the losers, hold the winners, and see what happens next.
Terry Keenan: So what are you pruning?
Jonathan Hoenig: Well, I'm pruning a lot of the utility stocks. Some of my favorites like Green Mountain Power (GMP) or Teco Energy (TE), I've stuck with those. But others that have fallen apart like Middlesex Water (MSEX), I've had to drop some of the losers.
Jonas Max Ferris: That’s exactly what’s going on this year. Look at the DOW. The DOW, the large cap stocks, are doing well. We talked about this a couple of weeks ago.
Terry Keenan: The DOW is down 200 or 300 points?
Jonas Max Ferris: The NASDAQ and Russell 2000 are way down and given up most of the gains from the last year. This is the year you want to be in the giant cap stocks that pay high dividends. They will not fall as much and they’ll come back more.
Dagen McDowell: Wal-Mart (WMT) has been looking pretty good the first couple of weeks this year.
Terry Keenan: Wayne?
Wayne Rogers: I don't think you can just say that in blanket language. You can't just say, ‘Well, the market will do this or do that.’ This is going to be a stock picker's year.
Jonathan Hoenig: You say that every year.
Wayne Rogers: Yes, I do. By the way, that's been the strategy. That strategy has worked. I haven't been wrong. So when I'm wrong you can nail me. But in the meantime, that strategy works. And I'm saying I just don't think you can go out at this point, I'm not saying maybe next month will be different, but at this point you can't just run around and say, "I will buy the whole averages and the stock market will go up and I'm going to get rich." That's crazy.
Terry Keenan: Leigh, one strategy that typically works is when the Fed starts to raise rates you don't get in front of the moving train. We've had five interest rate increases and now the market seems to be stumbling.
Leigh Gallagher: If you look at the rates historically they are still really low. I agree with Jonas, if you pick safe bets, the stocks that pay dividends and stocks that are large cap, safe places to be, this week was a great opportunity.
Jonathan Hoenig: What makes large caps safe?
Wayne Rogers: Yeah, exactly.
Jonas Max Ferris: Because they have underperformed small caps for over five years and that's usually what happens when they come back into favor.
Dagen McDowell: And if you get a big cap stock that pays a fat, nice dividend and has a great balance sheet, that is money in your pocket.
Dagen McDowell: I didn't recommend them.
Jonas Max Ferris: Jonathan, I beat you in the Challenge with Merck. I don’t know what you’re talking about.
Charles Payne: It is something of a misnomer that there is a safe stock. We learned that nothing is always safe. But I kind of disagree in the sense that I like the small caps this year. I know they have come down hard, but look at what the Russell 2000 did last year.
Terry Keenan: It’s lost half of its gains from 2004.
Charles Payne: Most of that is profit taking, though. Let's not forget how well the Russell did last year. A lot of people think naturally because they did great last year they should do poorly this year. It doesn't work that way.
Wayne Rogers: Charles is absolutely right. I would avoid the big cap stocks. You can be there, you can be safe. But you might as well be in cash or in the bond market if you are going to be in those stocks. The small caps and the mid cap stocks is where you will find the winners. That's where you have to do your research. And that's where I agree with Charles. That's where you will make the profit.
Terry Keenan: Jonathan, is there a chance the stock market is trying to tell us something about the economy in 2005?
Jonathan Hoenig: Terry, I'm not an economist. But I do see some worrisome signs. For one thing, short-term rates are rising and long-term rates are low. You’re the economic expert, isn’t an inverted yield curve?
Terry Keenan: That spells recession. We don't have that yet.
Jonathan Hoenig: Some of my new buys have been those floating rate funds. We’ll talk about one in the next segment. I think it’s another year, and you have to look off the radar screen and not just be content owning the major averages.
Dagen McDowell: The market, last year, spent so many months factoring in all these worries like the fed hiking rates. That's one reason to buy now.
BestBet$: Hangover Cure$!
Which stocks will cure the market’s hangover?
Wayne Rogers: Well, I don't know that I would be putting in new money in the stocks right now as I've said before. But there are certain stocks that I like, such as Norfolk Southern (NSC), which I own. I bought it at a lower price. I think it’s got a way to run. It's a solid company with good earnings. Earnings are what drive the market. This stock is one that’s in a transportation group, which is not necessarily in favor right now, but it’s the best in the group.
Jonathan Hoenig: He is right. Transports are ice cold, but railroads are the shining star within the group. And if the market goes up, a stock like Norfolk Southern or Canadian National Railway (CNI), will be leading the pack.
Leigh Gallagher: I really like Norfolk Southern and think it's a great company. I think that railroad stocks don’t have as much long-term sales and profit growth. However, buying them now, when they're hot and when companies are moving goods, is a great time to buy them.
Charles Payne: We've been buying them for a year and a half and I really like it. They’re also making a lot of money due to the overflow of business for truckers who depend on the rails as well. It's a great proxy for the economy.
Terry Keenan: And you have another pick here. Your hangover pick?
Charles Payne: Mine is not a proxy for the economy. Sonus Networks (SONS). It’s one of these survivors. It’s a telecommunication play. I just happen to believe that this is one of those stocks that might have been a $100-200 stock at one point. I think all of the bad news is gone. I really love the way the stock is acting. I love the upside potential.
Terry Keenan: And your clients own it?
Charles Payne: My clients own it.
Leigh Gallagher: This is a really expensive stock. They just did a deal with Samsung. Samsung is hot right now in consumer electronics, but...
Jonathan Hoenig: If you think it is expensive at $6 what did you think of it when it was at $90?
Leigh Gallagher: I guess I’m being cautious and safe.
Charles Payne: What's interesting about this, a lot of people just look at the P/E, which is just about 150. I look at operating margins. Its last three quarters came in at: 6 percent, 10 percent, and 20 percent.
Jonathan Hoenig: What about the stock? The stock is in “NoWhereLand” right now.
Charles Payne: This stock, Jonathan, this is a prime example of a stock that you don't like at $6 1/2 that you will love at $10 1/2.
Jonathan Hoenig: To me it's like a lotto ticket. It's up or down 10 percent or 15 percent a day. Not for me.
Wayne Rogers: I agree. It’s like shooting craps. You know, I either roll a seven or snake eyes. Simple as that. That's a scary stock.
Charles Payne: There is some homework behind it. It’s not a pure lottery ticket.
Terry Keenan: So the opposite end of the spectrum you like a floating rate fund.
Jonathan Hoenig: We were in them last year and I'm coming back to them now. These are floating rates, also called prime rate funds, which are all closed end. There’s a bunch of them trading. I like the Van Kampen Senior Income Trust (VVR). I have looked at the price action of the whole group. First Trust/Four Corners Senior Floating Rate Income Fund II (FCT), Floating Rate Income Strategies Fund Inc (FRA), Floating Rate Income Strategies Fund II Inc (FRB), Pimco Floating Rate Income Fund (PFL), Eaton Vance Floating-Rate Income Trust (EFT). We own all of these. And I love the way they are shaping up. Again, if you buy into the fundamental argument that the Fed is raising interest rates, this is one of the few fixed-income securities that can actually do well in that type of environment.
Terry Keenan: Wayne?
Wayne Rogers: You’re right about your reasoning, but that stock has gone from $9 to $8 1/2 in the last nine months. It goes back to $9. Big deal. How will you come out with this stock? I don't get it.
Jonathan Hoenig: I don't put a price target on it. But I like the strength that I'm seeing right now. And price appreciation plus the dividend, this thing is paying 5 percent, I think there’s room to make money.
Leigh Gallagher: I really like ChevronTexaco (CVX), the world's second largest oil company. And this is, again, is getting back to a safe haven. We don't know what will happen this year. We don't know when the next terrorist attack will happen, but Chevron is a dividend-paying, safe stock.
Jonathan Hoeing: Why do you keep saying safe?
Leigh Gallagher: This is a good opportunity. This is a stock that is going to go up. The worst the stock will do is bore you.
Terry Keenan: Jonathan, my family, my son owns it. You don't like it?
Jonathan Hoenig: Is your son like 5 years old?
Terry Keenan: He just turned six. His college days are getting closer.
Jonathan Hoenig: The safe stock business, I don’t buy it. To me, it's a snoozer.
Leigh Gallagher: What's wrong with a snoozer that will appreciate and pay a 3 percent dividend?
Jonathan Hoenig: A market-performer for me.
Wayne Rogers: Why are you knocking safe stocks? You said Van Kampen Senior Income Trust is safe.
Jonathan Hoeing: I did not use the term "safe."
Terry Keenan: You've liked a lot of these oil stocks. Do you like this one, and do you like the group?
Wayne Rogers: I've owned this stock for a long time. I bought it when it was $1.98 or something. I held on to it. No, if I'm making a new commitment in oil stocks, I think there are better places to put it. I like PetroChina (PTR), the Chinese company. I like PetroKazakhstan (PKZ). NRG Energy (NRG) is a wonderful company. I think there are some terrific buys out there that I would put my money, if I had to put my money in oil as to some of though big ones.
Stock of the Week
Last week’s pick from Doug Lockwood was Sirius Satellite Radio (SIRI). For the week of January 10-14, SIRI went down 9.2 percent.
Terry Keenan: Need a stock to tune up your bottom line? Jonas is back and says that General Motors (GM) is ready to make a speedy profit. But Charles says it's a lemon. Everybody knows this stock, but why should they be buying it now? They’re warning about their numbers, and their health care costs are going up. Lots of bad news.
Jonas Max Ferris: A train wreck. Last week it was terrible. They forecast worse earnings in 2005. Look, a year ago on this show, this stock was at yearly highs. I hated it and said its business was terrible. But now it’s bottomed out. It’s down 30 percent from then. I think there is an angle here if the dollar keeps falling. These cars will have a price advantage to imports, which they’re losing to right now. I think the worst is behind them. Earnings come out next week and it could bounce.
Charles Payne: You are making some crazy assumptions. You are really stretching it. I own a Ford (F) and Chrysler (DCX). I root for the American car companies. These guys have so much debt, though; they are losing out everywhere conceivable. They are getting buyers, but not at a profit. The only intriguing thing they have is a financing arm. You are talking about perhaps one of the biggest time bombs in the entire stock market.
Terry Keenan: What do you drive, Jonas?
Jonas Max Ferris: I drive a BMW. And the problem is that parts are getting expensive due to the falling dollar. So at some point you will have to buckle down and buy an American car.
Charles Payne: We've been talking about safe stocks and if there GM is the definition of a stock that is not safe.
Jonas Max Ferris: This is not safe. It is a contrarian, short-term, turnaround story that has bottomed out.
Terry Keenan: And it doesn't worry you that they have all these problems, even in a good economy? What will happen if we turn south?
Jonas Max Ferris: If the dollar doesn’t stay weak or get weaker, this company could have serious problems, but I’m looking for a price advantage. Going forward. They’re doing well in China. I think this company could turnaround. They have to cut the dividend, pay off all the debt, or at least some of it.
Charles Payne: Earlier in the show, I was accused of playing craps with my pick, but you are playing craps with just one die.
Jonas Max Ferris: When the stock market is expensive, you have to look for these turnaround stories.
Charles Payne: It is the ultra contrarian play; but I would not roll the one die with it.
Question: "Are there any good mutual funds that don't have a big minimum investment? Say, under $1,000?"
Dagen McDowell: $1,000 is not chump change. That's a lot of money. But it's surprisingly hard to find a fund company that will let you open an account with that money. However, T. Rowe Price will. You don't have to put any money down. As long as you just contribute $50 every month to that account, say from your checking account. Check out the T. Rowe Price Dividend Growth (PRDGX). Dividends are where it's at in the coming year. It's a keeper.
Terry Keenan: Also good if you want to start your children and put some money in little by little.
Dagen McDowell: Absolutely.
Question: "I recently bought Wipro (WIT). What do you think about the stock over the next six months?"
San Diego, CA
Terry Keenan: Wayne, you bought it at the end of last year and put it in the Challenge. Do you still like it?
Wayne Rogers: Yes, I do. I still like it. It's an Indian company. I look overseas for some of these buys. It's a high-tech company. I think it's got a big growth potential. Earnings are very strong, around 21. I would buy that stock.
Jonathan Hoenig: Wayne, you support a company that basically promotes the outsourcing of American jobs, but yet you rail against Wal-Mart (WMT)? What's the deal with that?
Wayne Rogers: Wait a second. Jonathan, this is about making money. This is not about waving the flag. You want me to wave the flag? I did my time in the Korean War. I paid my dues. So I can invest overseas. Why not?
Jonathan Hoenig: You can invest however you want. I'm not waving the flag for Wipro right now.
Terry Keenan: What about for just making money. Do you like it?
Wayne Rogers: You are preying on those people who have had a disaster?
Jonathan Hoenig: I'm investing with them.
Terry Keenan: What do you think of Wipro?
Dagen McDowell: I agree with Wayne. I like it because the election is out of the way. Companies won’t be afraid to outsource their technology operations overseas. And that makes it a good company.
Question: "I've owned shares of Dell (DELL) since 1997. Is it time to sell, or should I keep holding this one?"
Terry Keenan: This is one of the ones that really kind of bucked the whole bursting of the tech bubble. What do you think of it?
Jonathan Hoenig: One of the old-school tech stocks. People owned this thing in 1996 and 1997. What this company needs is Steve Jobs. It needs a Steve Jobs makeover. The guy can touch anything and turn it to gold. And I would hold onto Dell. It could be the next big old tech turnaround.
Terry Keenan: Wayne.
Wayne Rogers: I think Jonathan is right. I agree with him.
Wayne Rogers: I'm scared of Winn-Dixie. It’s closer to the bottom than to the top. It’s got enormous competition and is like catching a falling knife. It’s scary.