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; Tobin Smith, founder and chairman of ChangeWave Research; Scott Bleier, president of HybridInvestors.com; Gary Kaltbaum, president of Kaltbaum & Associates; Adam Lashinsky, senior writer at Fortune Magazine; and Chris Russo, "Apprentice" contestant and senior vice president of Investments for GunnAllen Financial.
Trading Pit: Second Term, Second Chance?
The president's second term has just gotten started. In his first four years, he certainly faced a lot: the bursting of the market bubble, then 9/11, and two wars.
Yet amazingly, stocks lost little ground in that time. When Bush took office for his first term, the Dow was at 10,587. At the start of his second, it was at 10,539.
So will Bush's new term be a second chance for stocks to make major gains?
Gary B.: Absolutely. President Bush wants to do a lot of things. Tax simplification. Revamping Social Security. More tax cuts. All of these things will help the market. Stocks have been beaten with an ugly stick and it looks like there will be more downside to come.
Adam: If Bush is successful getting Social Security savings invested in the stock market, it will be a huge boom for Wall Street. Brokerages will be big beneficiaries. But this past week, earnings went up and the price of stocks went down. That’s a scary proposition four years out.
Chris: In this term, the president doesn’t have to appease everyone and wants his legacy to end with a positive note. The market has done quite well, especially considering a lot of people were predicting Dow 5,000 after 9/11. After Bush was re-elected, tons of money flowed into stocks, pushing them higher during November and December. But keep in mind, institutions and fund managers make their bonuses predicated on the year’s performance. So higher stock prices mean bigger bonuses. We are currently seeing a New Year’s hangover and stocks should regain momentum. I think there’s a good opportunity for stocks to go a lot higher.
Scott: The market may see big swings over the next four years, but I think that the major indices will be virtually at the same place. We had a wild ride during the past four years, but investors had tremendous trading opportunities. I think it will be tough, but if you keep trading and stay active, you can make a lot of money.
Tobin: This bull market is getting stale. 2005 is your best chance to own stocks — don’t’ miss it. I’m worried that in 2006 the stimulation will start to run out. I think we’re running out of gas. Actually, I dislike more industries than I like. But what I do like are energy, high dividend, and high income plays.
Gary K.: The bear market started in 2000. But that was after 18 big years. I am amazed that so many people say that the S&P 500 is cheap trading at 18-20 times earnings. Cheap is 12 times earnings. We are going to have mini bull and mini bear markets and will be stuck running in place. You just won’t be able to buy the indexes and make a ton of cash. You’ll have to be sector specific. I think gaming and steel stocks will continue to do well.
A president’s first hundred days in a new term are very important. Gary K, Tobin, Scott and Adam each picked the stock that will benefit the most in these first few months.
Gary K: I’m betting on ConAgra Foods (CAG). Right now is a good time to buy into food and beverage stocks. High-growth stocks like the ones in the technology sector have been getting blasted. It’s a good time to be in stocks that are growing at a slower pace. (ConAgra Foods closed on Friday at $30.00.)
Scott: This is a good company, but it’s already at historically high valuations.
Adam: I disagree. When oil goes down, food stocks like this will go up.
Tobin: My pick is Pioneer Natural Resources (PXD). This is going to benefit because it doesn’t have to spend a lot of money to find gas and get it out of the ground. I also think this stock will turn into a royalty trust since the company has such huge reserves. This will make its skyrocket. (Pioneer Natural Resources closed on Friday at $35.75.)
Adam: Like I mentioned earlier, oil is going to go down, so now’s not the time to be in an overbought energy stock.
Gary K: I haven’t seen any indication that oil prices are going to go down yet. As the prices stay up, Pioneer Natural Resources will do fine. I like it.
Adam: I like General Motors (GM). When a stock gets hammered like GM did recently, the dividend yield goes up. Right now the dividend is at 5.5 percent. Professional investors will buy the stock, which will bump up its price, so they can take advantage of the yield. (General Motors closed on Friday at $35.96.)
Scott: I think the dividend will get cut. I don’t like it. Plus, it is too busy paying retirement benefits.
Tobin: If you want to see a stock run like a Chevy, watch this one go down.
Scott: Citrix Systems (CTXS) is what I’m making a play on. Investors are getting scared of technology, but there’s no need to be afraid. Citrix has enterprise software, which is software that goes to businesses and the government. Businesses are starting to spend a lot more money in the technology sector. This stock has gone from $16 to $26 in the last couple of months. It has pulled back a bit and now’s the time to buy. I own it. (Citrix Systems closed on Friday at $21.92.)
Tobin: There’s not as much demand for this as there once was.
Gary K: I don’t like technology stocks right now.
Chris was fired by "The Donald," but the Chartman’s giving him another chance. Will Gary B. hire or fire Chris’ favorite stocks?
Chris: My first pick is BHP Billiton (BHP). This is a pure commodity play. Everything’s in it: oil, gas, steel, copper, gold, silver, coal. I love it at this price, plus it pays a dividend. (BHP Billiton closed on Friday at $24.36.)
Gary B: Chris, you’re off to a great start. BHP has a great chart. The stock had been hanging around a downtrend line. But on Friday it broke through, and is now a “hire” because it closed above $24.
Chris: I also like Varian Medical Systems (VAR). The company produces radiation machines to help treat cancer patients. But it is also a play on national security. Varian has a product that can see through 17 inches of steel, which gives them the opportunity to search containers coming in and out of the country. If Varian gets this government contract, the stock is going higher and higher. (Varian Medical Systems closed on Friday at $38.96.)
Gary B: This new product sounds great, but the chart doesn’t look so great. Varian broke below an uptrend line, showing that momentum in the stock is dead. It’s weak and getting weaker. This stock should be fired!
Chris: Lastly, I’m betting on generic drug maker, Barr Pharmaceuticals (BRL). In 2007, $30 billion worth of drug patents are set to expire. I think Barr will make a lot of these drugs in a generic form. I also love the chart. This is a good stock to buy and hold. (Barr Pharmaceuticals closed on Friday at $47.09.)
Gary B: Chris, you’re speaking my language. Barr finally broke through some resistance and continues to show strength. Hire this stock!
Gary B's prediction: eBay's (EBAY) okay! Buy when it hits $70
Gary K's prediction: It gets a lot worse Gary B! eBay (EBAY) is going to $50
Scott's prediction: You're BOTH wrong! Buy eBay (EBAY) now because it's going to $100
Tobin's prediction: Michael Powell's resignation makes Verizon (VZ) go up 15 percent by summer
Cavuto on Business
Neil Cavuto was joined by Jim Rogers, president of JimRogers.com; Gregg Hymowitz, founder of Entrust Capital; Jack Welch, president of Jack Welch LLC and former CEO of General Electric; Mansoor Ijaz, FOX News foreign analyst; Barbara Corcoran, founder of the Corcoran Group; Stuart Varney, FOX Business News contributor; Dani Hughes, CEO of Divine Capital Markets.
The Bottom Line
Neil Cavuto: Will Iran be the biggest worry for the president and the stock market in the next four years? Mansoor, how big a problem is Iran right now and why?
Mansoor Ijaz: It is a big deal because these mullahs are hell bent on getting their hands on nuclear weapons. They've already got all of the components for a nuclear bomb. The Pakistanis gave it to them over the last couple of years. So any action taken by, say Israel, in a pre-emptive strike could cause a closure of the Straits of Hormuz and complete chaos in the oil markets.
Neil Cavuto: But of course, Israel has a past of having gone after Iraq when it was building a nuclear facility. How likely is it that it will happen again?
Mansoor Ijaz: Here's what Iran has done differently because they've learned from Iraq. They've distributed the different components into different places where it's extremely difficult for us to take out the entire program. They've got too many components in too many different places. My view is you have to strike at them in a new way and that is by squeezing economically. What the mullahs worry about the most is people coming out into the streets and their own intelligence agencies having to turn their guns on their own people. That they can't take.
Neil Cavuto: Jack, what do you think of this? Is Iran the next wildcard?
Jack Welch: I don't think this is anything new. This has been going on for some time. I think Mansoor is right. The only solution here is negotiation with a threat of some sanctions. Seymour Hersh has raised the ante here with his New Yorker article. But I think nothing new has happened and they've been on this path for some time.
Gregg Hymowitz: Mansoor and Jack are both right. Like Mansoor said, bombing them to bits won't work. We've proven it didn't work. We did it in Iraq and it didn't work. I think Bush is very much focused on his legacy. And I don't think he wants to be known as the president who started three wars. But quite frankly I don't think this is weighing on the equity markets at all. I think the equity markets are much more concerned about the economy and interest rates.
Stuart Varney: I disagree. Regardless of whether or not America takes military action or Israel takes military action against Iran is irrelevant. This is a threat to the oil market. Oil traders are going to bid up the price of oil. The market does not like $50 a barrel oil. It's put a ceiling on the stock market. So if oil goes to $60 a barrel the market goes down.
Neil Cavuto: Jim, what do you think about all this?
Jim Rogers: I certainly agree it would be madness to try and go to war with Iran. We're already over extended. If we did it, it would end the stock market for a long time.
Barbara Corcoran: I would like to see every option exhausted in trying to make peace through the use of diplomacy. There's so much war talk with the guns a blazing. It sickens me, and I don't think we're ready for any more conflict.
Neil Cavuto: Do you trust the Iranians?
Barbara Corcoran: No, I don't trust anyone.
Neil Cavuto: So if we had diplomatic talks with them are you so sure we'd have a positive outcome?
Barbara Corcoran: No, I'm not so sure. But I think all that should be exhausted and the last thing that should happen is that your guns should be blazing. And that's the first option that our president uses.
Gregg Hymowitz: Stuart, on oil, I don't think the market even contemplates the possibility of having military action in Iran.
Stuart Varney: They'll be a great deal of talk about regime change in perhaps a different way. And it doesn't matter if it happens or not. The talk will drive the oil market up.
Neil Cavuto: Mansoor, you have connections in that part of the world. How likely is all of this, or is it all talk?
Mansoor Ijaz: The ante is as long as the rest of the world plays nice, gives them what they want and doesn't put the mullahs in a position where they could really be toppled internally, then they're not assembling the device. But the minute we put that heat on them and they haven't got enough to go with, they will assemble the device. They will test that nuclear device. And the minute you test that nuclear device you've got a big problem. Then Saudi Arabia wants to have it. The Egyptians will also want to have it.
Neil Cavuto: Jack, did the president lay the groundwork for this in his inaugural address where he more or less said the pursuit of freedom worldwide is worth the pursuit of freedom throughout the world. In other words, perhaps part of that agenda is just that.
Jack Welch: I think the president's address was really just about Iraq. Clearly the freedom speech is what he's been trying to do in the first term of his presidency.
Neil Cavuto: Let me ask you Jack, if there were to be an extension of conflict to Iran, just looking at the business financial impact in this country. What do you think it would be?
Jack Welch: We can't think that. That's not going to happen. We're stretched as thin as we are now. There's no other option but diplomacy.
Neil Cavuto: Dick Cheney did not rule it out in an interview earlier this week. So Mansoor, the reason I'm raising the issue is, do you think that some in the administration are taking it seriously?
Mansoor Ijaz: The answer is, yes absolutely. I think there are those in the administration who are making those plans and making it clear to the mullahs that there is a military option that we can pursue. The problem is the mullahs are only going to respond when the Europeans tell them that there are economic sanctions coming to the table. As soon as the Europeans get involved we have a whole different ballgame around here.
Stuart Varney: Even if there is an internal revolution in Iran that topples the mullahs, you will still have an interruption in the supply of oil coming out of Iran. And the price of oil goes up and the stock market goes down.
Jim Rogers: There are fifteen countries in the world that have nuclear weapons. Some are friends; some are not. We can't control the whole world. If we cause problems in Iran, oil goes to $90 a barrel, the stock market collapses, and none of us will be better off.
More for Your Money
Neil Cavuto: Should you buy certain stocks before they report earnings for you to get more for your money? We've got some stock picks coming up in a second but first, Jack, how should investors process the information overload from all the earnings reports and estimates? Should investors really process this information ahead of the fact?
Jack Welch: No, I think this is silly. Investors should buy on fundamentals. I can recall writing press releases with great detail, having a great quarter and waking up, looking at the market open at 9:30am, expecting to see a jump and instead seeing the stock go down. I've seen just the opposite when I was CEO.
Neil Cavuto: Well, you know how it goes. It's beating the estimate. That's all you have to do.
Jack Welch: That's not true. Get out of here. Well, IBM beat the estimate.
Jim Rogers: Neil, listen to Jack. You're supposed to look six months ahead. This stuff about what earnings are, that is such garbage. No serious long-term investor ever made a penny jumping in and out that way.
Gregg Hymowitz: Why do management teams all over the country insist on giving guidance and then coming in and aiming at that guidance, as opposed to saying, listen we're not going to give you guidance and if we're in a certain range then it's okay.
Dani Hughes: Everybody is looking at what everybody is forecasting for next quarter. Nobody looks at the great numbers that just came out. They want to hear what is happening next year.
Neil Cavuto: Ok, let's focus on next week. If that's the case, you know some big names coming out next week. What are some that you would be buying now in anticipation?
Dani Hughes: I really hate to do that myself, but I am looking at trends in an entire industry. And right now I'm looking at Nokia (NOK). They're coming out with earnings Thursday of next week. The street estimate is about 80 cents a share. The entire telecom industry has been hit hard this past week because of Motorola (MOT). Nokia is worth a second look.
Jim Rogers: That's last decade's stock. Why don't you look forward and see what's going to happen in the future? Why jump around and trade a stock for the future?
Dani Hughes: You're right. But Nokia is a strong company. They've got no debt.
Gregg Hymowitz: We like the sneaker stocks. This is a stock we used to own but we don't own now. We like Reebok (RBK). It trades at roughly 13 times earnings. The sneaker business has been strong so I imagine their numbers will come in line. I wouldn't buy it just off of next week's call, but it's a company to keep your eye on given the valuation.
Dani Hughes: The stock has had such a run up since October. I would look to sell here myself. But you're right, they're earnings do look good.
Gregg Hymowitz: And that said, it still trades at 13 times earnings so it's still a cheap stock.
Jim Rogers: But wait, why do you care about last quarter's earnings? Why don't you worry about next year or two years from now?
Gregg Hymowitz: I'm talking about the future of the company. It's trading at 13 times next year's earnings. However, a lot of people disregard forward-looking earnings because at least from a trailing 12-month basis you have some certainty from a valuation stand point.
Neil Cavuto: Ok Mister smarty pants! Jim, what are you doing?
Jim Rogers: The only thing I would find to buy in the financial markets would be airlines. Buy the bonds. That's where the value is.
Neil Cavuto: So you wouldn't buy the airline stocks. You'd buy the airline bonds?
Jim Rogers: In the United States I would buy the bonds. In Europe I would buy the airline common stock.
Gregg Hymowitz: It's an interesting way to play the airlines by buying the bonds, but I disagree with Jim. If you want to own the bonds, you'd better be prepared to own the bonds through the reorganization and hopefully come out with some equity of some unleveraged companies. I think a lot of these airlines are going to continue to race to the bottom, and are also going to have to file Chapter 11.
Inside Jack's Head
Neil Cavuto: Does President Bush need to change his leadership style in his second term? Let's go inside Jack's head. Jack Welch, you served as CEO of GE for many years. Did you have to adjust your leadership style over time?
Jack Welch: Sure you always have different cycles of ups and downs. The biggest thing the president has to do is he has to think of the media and the public the same way a CEO thinks about security analysts and employees. He has to decide what his message is, simplify it, and drive it home with relentless press conferences. Despite the aggravation of the media, he's got to be in their face. He can't just be talking to his base. The president's greatest traits are his personality and the trust in him. And yet he's being painted as somebody who lied about WMD. He didn't lie at all. Those were the facts he had.
Gregg Hymowitz: Jack is right. It would definitely help his situation if he gets out his message. But the tactics in delivering the message have to change. Wouldn't you agree now that he's more reflective on his legacy? And I think his legacy has to ultimately be one that solves the problem in Iraq.
Jack Welch: He has to get at the domestic transformation that he started to implement and deliver it by relentless communication.
FOX on the Spots
Barbara Corcoran: No bull market with our Iraq exit strategy.
Gregg Hymowitz: Despite big talk, no more wars in 2nd term!
Jack Welch: Interest rates rise less than expected in '05.
Jim Rogers: Finally a good energy plan! Buy ABB (ABB).
Dani Hughes: Despite their moves, steer clear of MCI (MCIP).
Neil Cavuto: Social Security reform, despite the naysayers, I think we'll have it. With concessions on the Republicans' part, including hiking the income threshold to bring Democrats on board, but we'll get it.
Forbes on FOX
The Flipside: Why the Market Could Soar Even Higher After Iraq's Election!
Victoria Murphy, staff writer: The elections are important because the elections are a vehicle for democracy in Iraq, and democracy is a vehicle for stability. It's what the markets want. When investors and money managers tick off the things that they think are spooking the market right now it's inflation, it's oil prices, it's Iraq. The elections are an important step to getting rid of that Iraq factor.
Mike Ozanian, senior editor: Elections aren't going to get rid of anxiety. I think the whole world, Wall Street included, knew that once George Bush was re-elected we were going to be steadfast in Iraq and see this thing through. We weren't going to run, like we would have if John Kerry had been elected. So I think the good news about Iraq is already baked into stock prices.
Jim Michaels, editorial vice president: If the elections go reasonably well, I think it will help the stock market. It's not going to create the rally we had in our market, but it's the next stage. The first stage was the military stage; this is the second stage. That doesn't mean we are going to get out of Iraq. Bush made that very clear. I have no doubt that it is a positive move, and it will help the market.
Dennis Kneale, managing editor: The market is not going to rally on the election; it’s going to rally when we get out of Iraq. It's the Iraq quagmire, and the market hates it. The elections that have caused all this terror that is making the market so unsettled now won’t spark the rally. It's not going to get better after the elections. The rally is going to happen, but for other reasons.
Quentin Hardy, Silicon Valley bureau chief: If you look at Bush's inaugural speech this week there are very few countries that he doesn't want to get involved in, from the look of things. The intentions are wonderful; the aspirations are great. It’s the same with Rice's confirmation hearings. The lack of a plan or a grasp of reality is a bit of an issue. Most of the country doesn't want to get out of Iraq, and I think there will be a rally on an expectation that we'll declare victory and leave. But we are not going to leave. We're stuck there, and it's going to cost a lot of money. And Bush stated this week that we are going to other places, doing other things. It's going to cost even more money later on.
Steve Forbes, editor-in-chief: The war on terror is going to go on for a long time. Iran is going to be the big one with nuclear weapons. What the market's concerned with right now is the prospect of higher taxes under the social security reform and the inflation under Greenspan. He still hasn't put out those fires yet.
Victoria Murphy: Sure issues at home are very important. But the market is very jittery that Iraq is turning into the new Afghanistan, a training camp for terrorists. If we get a strong government in place with the election there is hope that they are going to try and squash that activity and that is very important and relevant to the market.
Mike Ozanian: It is important that we are there. What I'm saying is that it is going to be a long process, there are going to be bumps. Wall Street tends to look 6 months out so I think that they will factor this in. I think Iraq is slowly going to improve, but I think Wall Street is anticipating that already.
Jim Michaels: This is a landmark. This is a movement along the road towards an independent and democratic Iraq. It takes us further down the field. It's not the end of the road. When you see people who have never had the right to vote before turning out in large numbers, risking their lives to do it, that's going to tell the world something.
Dennis Kneale: President Bush, in his inauguration speech on Thursday, couldn't even bring himself to mention Iraq by name. Why didn't he cite the elections? If the President can't cite the elections, I can't see why the market's going to think that it's such a great thing.
Steve Forbes: President Bush said that we are going to have Iraqs in other parts of the world; he wants democracy to spread. He's not going to withdraw from Iraq.
Dennis Kneale: That's enough to take the market down, the idea of more Iraqs in the rest of the world.
Steve Forbes: Dennis, you haven't explained why the elections are phony. Explain why.
Dennis Kneale: Many in the rest of the world will look at the elections as not a true representation of the people, because we are there, and we're involved.
Steve Forbes: They are going to have a higher turnout than we are.
Mike Ozanian: Regarding Quentin's point about Iran and other parts of the world, I think that's a bullish sign, and it's a good sign. We are the most powerful country in the world, and we are sending a signal that we are not going to hide from these terrorists.
Dave Asman: You think if we go into Iran, it's going to help the market?
Mike Ozanian: We may not have to go in. We may be able to negotiate. But we are going to deal with it; we're not going to hide from it. That's very important.
Jim Michaels: As far as this being a phony election, if it's so phony why are the terrorists fighting so hard to prevent it. Why don't they just say we'll vote, and we'll win.
Quentin Hardy: Yes, Bush has great intentions about creating prosperity and freedom in markets everywhere but he has no plan! There was nothing concrete in his inaugural speech.
Steve Forbes: Abraham Lincoln didn't lay out how he was going to fight the Civil War if it came.
In Focus: Why Ted Kennedy Is an Ally to President Bush and the Market
Mike Ozanian: Ted Kennedy is a socialist. He's the most liberal Senator in the country. Anything that he is against, capitalists will be for. He will help George Bush get his legislations through, just like he helped him get re-elected when he started supporting Kerry.
Jim Michaels: I wish it were that easy. I think that Kennedy is a bitter, disappointed man. The electoral has contaminated everything he stands for. He is going to do everything that he can to block Bush's plan in the Senate. He's going to have a lot of allies, Kerry, Reid from Nevada. It's going to be a tough fight to get the Bush program through the Senate
Elizabeth MacDonald, senior editor: I couldn't disagree more. Ted Kennedy has been a great Senator, when it comes to civil rights and the poor. He's done a fantastic job of that. When it comes to whether gridlock helps or hurts the market, it's a non-issue. It's mistaking coincidence for cause. Remember, under LBJ the government was unified and the market meandered along. Under Nixon, the government was divided and the market meandered along. What we're talking about really is Social Security reform. This is a gigantic issue. Rural Americans don't get 401Ks; they get Social Security checks.
Steve Forbes: I think Ted Kennedy's oppositions get taken for granted. On Capitol Hill there is going to be a lot of opposition, that's why Bush has to do what Ronald Regan did, go over the heads of the Ted Kennedys. That's the way to get things done.
Lea Goldman, Staff Writer: This is a total red herring. The bigger issues that investors need to be worried about are inflation, rising interest rates, and oil prices. Everybody expected that there would be gridlock; the election was that close. This is a nonevent, a nonstarter.
David Asman: Ted Kennedy knows how to use the Senate. He's been there that long. Could he block Bush?
Mike Ozanian: I don't think it will work. Bush controls the Senate, he controls Congress and he can take it directly to the people. People who know that the tax cuts that Bush put though got us out of the recession see the evidence. More people are working.
Steve Forbes: The administration, so far, has been playing the inside game. If they do that, they are going to lose. That's why Bush has to go over the Hill, to the American people. Like Lincoln said, with public sentiment, nothing can fail. Without public sentiment, it will fail.
Elizabeth MacDonald: What's really going on is the administration is trying to silence opposition. They have said that if you oppose us, you will lose at the polls. This stuff doesn't fly in the “flyover” states. This is serious stuff.
Steve Forbes: They know they have a tough battle on Social Security. They know they have to rally support. They know that AARP is against it. They know Teddy is always going to be against it. That's why you have to get the people.
David Asman: What about the moderate Democrats who might think that Kennedy has gone to far -- those who think that he’s making a bad name for the Democratic party?
Jim Michaels: Well I hope so. But remember that there are also a couple Republican Senators that are a bit wishy washy on Bush's reforms. I think Bush is going to have a hard time in the US Senate, particularly when it comes to tort reform because the lawyers own the Democratic party and they have a lot of friends in the Republican party.
Lea Goldman: I agree with Jim. But it's not just tort reform. What you are going to see now is that the Democrats are really going to have to draw a line in the sand and decide once and for all what they stand for. America is really unclear as to where they stand on Social Security. It's not enough anymore. They need to come out and say no. This is an institution of the United States, we have to preserve it, and pit the Republicans as being anti that institution.
The Informer: Nasdaq Is Back!
Dennis Kneale: I think we are looking at a 2500 mark. I think that the growth in the economy will be stronger than what most experts realize. Then you have to decide: if the market is going to benefit do I go with the Dow Jones -- old time stocks, old economy, big companies. Or do I go I go with NASDAQ? The Dow is very close to it's all-time high for the past five years. The NASDAQ is down 50 percent from its all-time high.
Victoria Murphy: The NASDAQ is whack right now! The tech stocks on the S&P 500 trade at a 40 percent premium to non-tech stocks. You're not really buying growth. Most are predicting a few percentage points higher for earning growth in tech stocks versus non-tech stocks.
Lea Goldman: I think this is deja vu. It sounds like three, four years ago when we were talking about overvalued companies, so, so profits, so, so growth.
Mike Ozanian: This is a lot like Clinton's second term where you have the low interest rate environment and strong profits. Look, earnings for the NASDAQ 100 are expected to go up 20 percent this year, versus 10 percent for the Dow.
Dave Asman: What stocks do you like?
Dennis Kneale: I like Amtel (ATML). It makes the less glamorous chips that go into high-tech gear. It trades really cheap because it's been bumping and has seen some hard times in the past year.
Victoria Murphy: It trades cheap in part because their orders are down and their average selling price is declining. What's there to like?
Dennis Kneale: What's there to like is that it's been down so long, it now looks like it's going to go up.
Mike Ozanian: I have another turnaround candidate, Extreme Networks (EXTR), which makes networking hardware and software. The stock is at about $7. They have had extreme losses in the past couple years. I think it's time for it to make money.
Lea Goldman: Extremely bad! Way too expensive -- 55 times earnings. It competes with heavyweights, like Cisco, Foundry, Juniper. It's lost in the shuffle. I like old school. I'm recommending a hospital stock. Community Health Systems (CYH), which has three great things going for it: consistent sales and earnings over the past three years, the stock is a bargain at 19 times earnings, and it hit a 52-week high this week. I think there is a lot of room to grow.
Mike Ozanian: What about the $1.7 billion in debt. And aren't you worried about Medicaid?
Lea Goldman: Not at all. Like we just talked about, I don't think Bush is going to get anything changed in the near future.
Victoria Murphy: I like Armor Holdings (AH), they make body armor and armor for trucks. The military is ordering these things. They need 6,000 armored vehicles by the end of the year. I think Armor Holding is going to benefit.
Dennis Kneale: You've just recommended a stock that has quadrupled in the past two years. It’s too pricey; it's already had its run.
Makers and Breakers
• iShares MSCI Emerging Markets Index (EEM)
Phil Demuth, president of Conservative Wealth Management: MAKER
The emerging markets are the developed markets of tomorrow. If you could have gone back to America in the beginning of the 19th century and put a dollar in our market you would have $7.5 million today. That's a pretty good return.
David Asman: You think it can go up about 20 percent to $235. (Friday's close: $193.50)
Elizabeth MacDonald: MAKER
Sounds really expensive. I like this stock. It's got a great presence in Asia. The thing of it is, emerging markets are notoriously volatile. So keep it at about 5-10 percent of overall assets.
Jim Michaels: BREAKER
As far as investing in America when it was an emerging market, Europeans got hosed in the American market. They lost huge amounts of money. Emerging markets are very dangerous and difficult places to invest.
Phil Demuth: Emerging markets have a very low correlation with the performance of the U.S. market. So if you own both, what happens is that you get a very smooth ride going up.
• Energy Select Sector SPDR (XLE)
Phil Demuth: MAKER
The energy global story is one of supply and demand. They haven't found a new oil field in 35 years, okay they have found “one”. On the demand side, you've got China. They've got the best road system in the world.
David Asman: $44 is your 12-month target price. (Friday's close: $36.40)
Jim Michaels: MAKER
If you don't have energy stocks, this is not a bad way to play it.
Elizabeth MacDonald: MAKER
Not all oil stocks are created equal, but this is a great way to play the entire industry.
Stock Smarts: Presidential Rally!
Does history tell us there is going to be a presidential rally in 2005? President Bush is now into the first week of his second term., and the conventional wisdom says the 12 months after the presidential election can be a tough one for stocks. But if you look a little closer, maybe this time can be different. The last two presidents to win second terms were Presidents Reagan and Clinton, and each time stocks surged in the first year of their second term. Is history going to repeat itself in a positive way here?
Neil Hennessy, president and Portfolio Manager of Hennessy Funds: I think so. If you look back at the Republican candidates that were incumbents and won the presidential election again, the market on average went up approximately 11.4 percent. I think that will repeat because there is a lot of good news in the economy. It’s just not being reported that way.
Terry Keenan: You know, Clinton had a good first year of his second term but both presidents, Clinton and Reagan, had 60 percent approval ratings when they took the oath of office. This president is a little below 50 percent.
Fred Barnes, executive editor of "The Weekly Standard" and co-host of "The Beltway Boys": I don't think the approval rating will have anything to do with it. There has already been a small rally after Bush was elected on November 2. I think that was probably relief that Kerry was not elected. But I don't think anything is going to happen in Washington this year that would be discouraging to the market. First you will have some tort reform, and limits on class action lawsuits will probably pass. And then you get to Social Security reform. I guess I've been a little surprised that Bush has not pulled together all Republicans yet, but there is a shot there. And actually I've been a little surprised how little interest in Wall Street is in Social Security reform. I guess maybe there is not much money to be made on millions of little accounts, which would be created. And then we get the tax reform, which will probably be on the agenda next year. But all of those are things, which I think will enhance markets. Certainly not dampen them.
Terry Keenan: Wayne, you have the big accounts. What do you think about the potential for a rally here in 2005?
Wayne Rogers, founder of Wayne Rogers & Company: Well, I didn't hear either one of you guys mention the Iraqi war. You can't ignore it. Steel has doubled in cost in the last year. All of the commodities are up. We've got inflation, we’ve got rising interest rates. I don't see it (a market rally). Maybe you see something I don't see. My crystal ball is a little cloudy on that.
Terry Keenan: The reason all those commodities are going up is we have a good recovery in the US, the global recovery.
Jonathan Hoenig, portfolio manager at Capitalist Pig Asset Management: Terry, I don't see a lot of strength in the U.S. stocks. That's kind of where I start. I'm searching for strength, but once again it looks like at the top of the year, somebody let the gas out of the bag. And I think now is the time to be a trader, to look at your portfolio and say, ‘how long do I want to own these stocks before I get stopped out of them?’ I'm looking for strength and don't see it in U.S. stocks. The Bush team is saying all the right things.
Dagen McDowell, FOX Business News: It’s really what the president did over the last four years that is the reason to be optimistic for next year. Because of his policies in part, the economy looks fantastic, jobs are growing, earnings are growing. That's why you have to love stocks for the coming year.
Wayne Rogers: This is a stock picker's market. Jonathan is right, you know.
Dagen McDowell: Let me clarify that quickly. Wayne, you always say that. And I have owned index funds in the past. I owned one last year in the Cashin’ In Challenge. They don't stink all the time. They really don't. They're cheap, easy.
Wayne Rogers: I'm not saying that they stink. I'm just saying that I think Jonathan is absolutely right. This is a stock picker's market. There are too many negatives out there. You can't just ignore the Iraqi war and you can’t ignore the deficit.
Jonas Max Ferris, founder of MAXfunds.com: First of all, the air was let out of the bag last year in stocks, and they came right back. And to Fred Barnes' point, the possibility of this privatization of Social Security is such a boon to Wall Street and to fund companies and even small caps. It’s a gravy train. Another thing, when you are re-elected, that's different than a normal second year after you're elected, because when you are re-elected it's because the economy is doing well, which means the market is more likely to go up. If you go back to the post-World War II era, in a re-election situation the market generally goes up in the year after the election.
Terry Keenan: This president never got a honeymoon the first time around, in 2001. Will he get one this time?
Fred Barnes: No. He got a little bit of a honeymoon after his re-election on November 2. But he will not get one now. The truth is that while some people in the media are saying Social Security reform is dead, it's not dead. I actually think it's got about a 50-50 chance of passing later this year and it will create all these accounts. I'm glad to hear that Wall Street wants them because they’re not going to have much money in them in the beginning.
Neil Hennessy: One of the things I always hear, and I just heard it earlier on this show, is “Oh, interest rates are going up and inflation is going up.” But it’s not like the early 1980’s when interest rates were at 21 percent and inflation was at 18 percent. Sure it will go up but it’s not going to bother the economy whatsoever.
Terry Keenan: And long-term interest rates have been going down. That could be a good or bad thing.
Neil Hennessy: But it’s another reason for people just to be negative. I'm waiting for people to turn around and say, ‘hey, the economy is in plenty good shape.’
Terry Keenan: We've had a terrible start to the year 2005 on Wall Street. Every time the market tries to go up, it ends up lower on the day. What's ailing the markets do you think?
Dagen McDowell: Look at the last couple of years. We've had a really great bull market, so people waited to take profits. They didn't do it at the end of the year. They're doing it at the beginning of the year and they’re just taking their time. But again, there are no worries in the coming year. There aren't the worries that you've had in the last three years, whether it was a war, corporate scandals, or a bear market.
Jonathan Hoenig: Dagen, let's hope that there are some worries. The market thrives on worry. It's money on the sidelines that ultimately makes the market go higher. You have to hope there is some fear in this market.
Terry Keenan: The mutual fund money is not coming in this January for some reason. Why do you think, Jonathan?
Jonathan Hoenig: I don't see a lot of interest in stocks right now, Terry. I see a buyer's strike here. And your point is exactly right on. The market rallies intraday, but somehow it closes on the lows. We aren't too low from the 2005 lows. I want to start to see some groups doing well. We've put money to work in some of the reinsurance companies. We're biting there. Mostly I'm taking a look at what I have and saying, “if I loved MGE Energy (MGEE) 10 percent higher, at what point am I actually going to pull the plug and kick this one to the curb?”
Terry Keenan: We have the election behind us, a fresh start. Why is the market behaving so badly?
Wayne Rogers: Jonathan is right. I think he's right. There were no big mutual funds accumulations during January. And Fred, to your point, a 50-50 chance? I don't understand 50-50. Why would you take a 50-50 chance on Social Security? That’s nuts.
Fred Barnes: Well look, I’m not expecting the market to soar on speculation about passage. I would think it would help the market if Social Security does pass. To your point on Iraq, we’re going to have an election on January 30 where 80 percent of the country is going to turn out at much higher rates than Americans turned out for their election.
Wayne Rogers: You think that’s the end of it? That’s just the beginning.
Fred Barnes: Things are getting better in Iraq.
Jonathan Hoenig: If you’re betting on the Bush administration as a catalyst for the market, I think that story is out. The Bush team was solidified this past week. You saw Barbara Boxer making a complete fool of herself and Condi Rice so cool under pressure. That story is out. Bush won the election. The market is asking now what’s next.
Terry Keenan: Somebody should tell Senate Democrats.
Jonathan Hoenig: I don't see a real reason to step in here. I want to see more strength.
Best Bets: Hail to the $tocks!
Time to salute the stocks that could be ready for a strong second term under President Bush.
Wayne Rogers’ pick: Viacom (VIA)
Friday's close: $37.96
(Wayne owns shares of VIA)
Wayne Rogers: Well, I like Viacom (VIA). Why do I like Viacom? They did $278 billion in 1994 versus $500 million in 1993. Earnings of $306 million versus $78 million. CBS is doing very well in spite of Dan Rather. They’ve got MTV and they got Paramount. They have a lot of things going for them. The chart looks very good. I bought it at $34 and now at $38. I think it has a way to go.
Terry Keenan: They don't have a successor to Sumner Redstone, do they?
Wayne Rogers: Sumner has picked two guys, Les Moonves and the guy who was running CBS, Tom Preston. I think they will be ok.
Jonathan Hoenig: I've watched a lot of the Viacom programming but I don't have to own the stock right here. I would rather own Disney (DIS). This stock to me, right now, is kind of stuck in ‘la-la land.’ Can you name any other media stocks that are doing really well right now?
Wayne Rogers: I'm saying this one is in a bottom (for the chart) and it looks very good. They may have a little handle on this bottom chart, but at $34 I think the stock is a terrific buy.
Neil Hennessy, president and Portfolio Manager of Hennessy Funds: Personally, I would pick Disney over Viacom in a heartbeat. I think Disney is a wonderful company.
Jonathan Hoenig: Stronger now.
Neil Hennessy: A lot stronger. And I remember when everybody was trying to say “get rid of Michael Eisner,” and the whole problem wasn’t Eisner.
Neil Hennessy’s pick: The Brink's Company (BCO)
Friday's close: $34.94
(Neil owns shares of BCO in his funds)
Neil Hennessy: To a certain extent, they're in the same business that I am in, the mutual fund business, where they take your money and charge you fees, but if you look at Brinks, here is a company with a $2 billion market cap, it has a price-to-sales ratio of .5, so you're buying it for 50 cents on the dollar. It has higher corporate earnings. They’ve gone from something like 38 cents to 45 cents to 55 cents to almost $1.02 this year. And relative strength, is positive.
Terry Keenan: And Jonathan, they probably transport your gold all around Chicago.
Jonathan Hoenig: The stock has doubled in the last year since early 2003 and to me it looks a little tired. I think LoJack (LOJN) is a publicly traded company. We don't own it but, to me, that is a stronger pick in security right now.
Terry Keenan: Not your style. Wayne, what do you think?
Wayne Rogers: I like Brink's. Their earnings are up. And I think earnings are what drive stocks. And I like Brink's. I think it's a good company and a good pick.
Jonathan Hoenig’s pick: Nuveen Senior Income Fund (NSL)
Friday's close: 9.66
(Jonathan owns shares of NSL)
Jonathan Hoenig: Sometimes you have to think outside the box. And senior loans in general, of which Nuveen Senior Loan Income Fund (NSL), is really one of the big benchmark names in a series of closed-end funds.
Terry Keenan: When you say senior, you mean the best quality?
Jonathan Hoenig: Yes. This is the highest level of paper. The unfortunate part is these are loans often times made to pretty shady companies. What I like about them is that this is one of the few asset classes that can do well if interest rates do rise. We've seen short-term rates come up now. We own this asset class. Like Floating Rate Income Strategies Fund Inc (FRA), Floating Rate Income Strategies Fund II Inc (FRB), Van Kampen Senior Income Trust (VVR), Pimco Floating Rate Income Fund (PFL), First Trust/ Four Corner FDS (FCM), I think it's a smart idea for new money right now. I see the group moving in concert.
Neil Hennessy: Do they use leverage in this fund?
Jonathan Hoenig: They are all leveraged.
Neil Hennessy: That would be wacko to try and buy into a closed-end fund with interest rates going north. It's a double whammy.
Jonathan Hoenig: If you take a look at these particular loans, they're actually floating rate funds. They're floating rate loans. If interest rates goes up, the loans in these funds will reset at higher rates.
Neil Hennessy: But they're going to lag.
Jonathan Hoenig: Look at the chart.
Wayne Rogers: If you want a 6 percent yield, yeah. That's fine. But that's not why I'm in business. I'm not just looking for just 6 percent yields.
Stock of the Week
Last week’s pick from Jonas Max Ferris was General Motors (GM). For the week of January 18-21, GM went down 3.2 percent.
Terry Keenan: Where is the one place to put your money come Monday morning? Jonas is back and he says that Amazon.com (AMZN) is his bid for a knockout buy. But Jonathan says “no sale” to this Internet giant. You're a shopaholic. Is that why Amazon is on your wish list?
Jonas Max Ferris: I'm a huge customer just to avoid the taxes here in New York. The stock is expensive; everyone knows that. The problem is high valuations. Here’s the story: eBay (EBAY) scared all the Internet stocks this week, with a really bad forecast for future earnings growth. They all fell. I’m not sure why is Amazon falling on that? People will move back in next week and realize this is a little bit of a buying opportunity.
Jonathan Hoenig: Jonas, you’re always so late to the party.
Jonas Max Ferris: Who bought utilities at the end of last year when I was recommending utility funds three years ago?
Jonathan Hoenig: Jonas, Amazon was hot the second time at the end of 2002 and into 2003. This is a weak stock and eBay just didn't just scare a couple of people. eBay got murdered last week. Qualcomm (QCOM) got murdered last week. And even your beloved Amazon fell 3.5 percent.
Jonas Max Ferris: Have I ever recommended this stock before?
Jonathan Hoenig: I feel like it's so late to the party. And this is where people really get themselves into trouble hoping for a little bounce back. With weak stocks, let them be. Why step into them at their most vulnerable point?
Jonas Max Ferris: Look at all the weak stock buying I've done on this show and made money. Merck (MRK), all the semiconductors like the ones I recommended last summer when they were weak. Coca-Cola (KO) is even strong this year compared to everything else. It's working.
Jonathan Hoenig: Borders (BGP) is a stronger bookstore stock if you want to buy books. We don't own it but I would buy it over Amazon.
Cashin’ In Challenge
Check out the $10,000 Cashin’ In Challenge at: www.foxnews.com/challenge
Question: "If Social Security does become private, how will I be able to invest my money? Can I buy stocks and funds?"
Dagen McDowell: We don't know, because the president has not really come out with a lot of details on this plan. Listen to his State of the Union Address in early February. Definitely think funds over stocks. One possibility is the Thrift Savings Plan. The Social Security accounts could look something like the investment options in that the Thrift Savings Plan is just a retirement plan for government workers. They have five investment options, and four of them are, watch out, Wayne, index funds.
Terry Keenan: Wayne, what do you think of that idea?
Wayne Rogers: Well, it’s not a bad idea. You're talking about somebody who, when you’re talking about that kind of money, you aren't looking for money that's high-risk money. So that's fine.
Dagen McDowell: They're cheap and easy. That's all you got to know.
Question: "What U.S. stocks can benefit from the boom in China?"
Wayne Rogers: Well, I don't know about the US stocks so much because I don't know which stocks are going to benefit from a China boom. But I think, for example, PetroChina (PTR), which is the largest oil company in China. Warren Buffett has a huge investment in it. I still own it. I’ve owned it for a couple of years.
Jonathan Hoenig: Put me down as saying that I think the China phenomenon has ceased for the time being. The story is out. iShares FTSE/Xinhua China 25 Index Fund (FXI) is the exchange traded fund if you want China exposure, but none of these stocks are setting me on fear right now.
Wayne Rogers: By the way, Jonathan, (PTR) challenges your 6 percent rule. They have a terrific dividend in addition to being a chance on the upside.
Question: "What do you think about Bank of Ireland (IRE)?"
Jonathan Hoenig: We own it. We own Allied Irish Banks PLC (AIB). I love the Irish and I'm a strong hold in this stock right now.