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; Charles Payne, CEO of Wall Street Strategies; and Bob Olstein, president of The Olstein Funds.
Trading Pit: Market Bomb
North Korea and its very volatile dictator, Kim Jong Il, have a nuclear bomb. That alone is disturbing enough, but, what's more, the country says it’s not afraid to use these weapons.
But is Wall Street worried? At the end of last week, when North Korea threatened the world with its nuclear might, the Dow was up triple digits!
What does an investor do if they act?
Pat Dorsey: Strictly from an investment point of view, any use of nuclear weapons by North Korea, is a fabulous buying opportunity. You buy stocks when it looks the world is going to end. Again, from an investment point of view, should you have bought stocks after 9/11, USS Cole, Desert Storm? Yes. Now I admit Wall Street is watching this situation, but it is a short-term issue. If North Korea were to fire their nuclear weapons at Tokyo for example, the market would fall considerably. But in the long term, it is not a big deal.
Bob Olstein: I will say it again. Earnings and interest rates are all that matter. The market is 5 percent undervalued. Wall Street will always find something to worry about. North Korea is a problem for traders, and traders only.
Tobin Smith: If North Korea drops the bomb on China, China retaliate and bomb North Korea into oblivion. Wall Street is looking at Iraq. The market has taken off since their elections. Earnings are slowing down and money will not keep going into momentum stocks. Instead, stocks with real earnings and real growth will be rewarded. Right now we have a great economy to buy stocks.
Gary B. Smith: This situation is a concern, but before you rush in and buy stocks, see the damage. I think it would be better to wait for the market to settle. The Dow is coming off of a terrible January. But it’s now closing in on the 2004 high, and once that is cleared, we should be headed to the all-time high. The bears are on the run!
Charles Payne: Let's face it, North Korea is using nuclear weapons as their economic plan. They decided long ago that it would be easier to build nukes than build an infrastructure that created prosperity, and now they are using these nukes to blackmail the rest of the world. As for the market, buy stocks because they are getting ready to explode higher. Almost everyday in January, the market plummeted in the last half hour of trading. It’s done the exact opposite in February. Large caps are doing well and will continue to do so, but I think small caps will do even better. Look for the Nasdaq to make a big move led by the semiconductors.
Tobin, Pat, and Bob each picked the best stocks under $10.
Pat: I like the waste management company, Allied Waste (AW). It’s cheap and has tons of cash flow. This is a risky stock, but I think it’s going to $16. (Allied Waste closed on Friday at $8.52.)
Bob: We owned Allied 3-4 years ago in our fund and are still waiting for it to play out. It’s not growing as fast as we had hoped.
Tobin: This has zero earnings and revenue growth. I don’t have the patience to wait.
Bob: My bargain pick is Quanta Services (PWR), which is a play on the electric system in America. The transmission system is about to keel over and Quanta should play a big part in getting it going again. The company’s had a terrible past, but is turning things around. I think it will hit $12-13 in the next two years. We own it. (Quanta Services closed on Friday at $7.74.)
Tobin: I see a lot of growth in this. Plus, it’s not only involved in electric utilities, but also cable. I love it.
Pat: This is a turnaround story. Utility companies also now have to put out competitive proposals, which is giving them a lot of business.
Tobin: I really like Stolt Offshore (SOSA). It specializes in offshore drilling which is very difficult. The company hasn’t had a lot of cash in the past, but that is changing. I think it will hit $12-13 in the next year and a half. (Stolt Offshore closed on Friday at $ 6.98.)
Pat: I agree that offshore drilling is difficult, but there are a number of other companies that do it. This is a very competitive business and the business goes to the lowest bidder. I think it’s bad economics.
Bob: I also don’t like it.
The one, the only, the "Bulls & Bears" Lightning Round!
In honor of Valentine’s Day, the guys looked at the stocks that could help out on this special day.
First up, this day and chocolate go hand in hand. And what says chocolate better than Hershey (HSY). (Hershey closed on Friday at $61.24)
Tobin: Bear. The company has to buy another company or double their dividend.
Pat: Bear. Wonderful firm and brand, but the stock is too expensive.
Gary B: Bull. I agree that it is expensive, but it’s not broken. Don’t sell here.
Bob: Bear. It’s fully valued. I like the chocolate, but not the calories.
Charles: Bull. Hershey could raise prices slightly and have such a huge impact on the fundamentals. This is a sweet stock.
For that romantic getaway, is Four Seasons Hotels (FS) a good buy? (Four Seasons closed on Friday at $80.97.)
Charles: Bull. I always bet with the rich folks.
Gary B: Bull. Four Seasons are the best hotels and it’s the best hotel stock.
Bob: Bear. This is a good stock at a bad price. It’s too expensive. Good company, though.
Pat: Bear. I agree with Bob. It’s too expensive.
We’ve got the skinny on Limited Brands (LTD), the parent company to Victoria’s Secret. (Limited Brands closed on Friday at $24.25.)
Gary B: Bull. Limited has unlimited growth. It’s ready to break out and go higher.
Tobin: Bull. It’s cheap. If Gary’s going to break out, I’m all for it.
Charles: Bear. The stock might be cheap, but so is the quality.
Pat: Bear. It’s not cheap enough!
Bob: Bear. Slightly undervalued.
Lastly, Tiffany (TIF), the sparkles in the little blue box. (Tiffany closed on Friday at $31.18.)
Bob: Bull. Great company and great brand.
Pat: Bear. I agree that it is a wonderful brand and it’s not broken yet, but there are problems. The company has troubles in Japan and management has been pouring money into this pearl store concept, which is a bad idea.
Gary B: Bear. I agree with Pat. Tiffany has a blue box, but also a blue chart.
Charles: Bull. I disagree with Pat. The management is doing all right. I also like that it is undervalued.
Tobin: Bull. In regards to the pearl venture, Iridesse, the first two stores are over performing. Once 20 are open, it will be a growth engine.
Tobin's prediction: Synaptics (SYNA) up to the tune of 50 percent by April 30th
(Tobin owns and recommends Synaptics.)
Gary B's prediction: Hewlett-Packard (HPQ) will miss Carly! Stock drops 25 percent by mid 2005
Pat's prediction: It's time to move back into Sallie Mae (SLM); stock gains 25 percent
Bob's prediction: Buy stocks like Commscope (CTV) that support information technology
(Bob owns Commscope.)
Cavuto on Business
Neil Cavuto was joined by Jim Rogers, president of JimRogers.com; Gregg Hymowitz, founder of Entrust Capital; Ben Stein, author of "Can America Survive?"; Danielle Hughes, CEO of Divine Capital Markets; Chris Lahiji, president of DailyTrends.com; Price Headley, investment strategist at BigTrends.com; Mark Weisbrot, co-author of "Social Security: The Phony Crisis."
Neil Cavuto: The images from 9-11 may never fade from Wall Street, but has the fear that followed that horrific day subsided? The Dow is up over a thousand points since the day before the attack. And it's also gone higher since last month's Iraq elections — the latest victory in the war on terror. Gregg, what do you think?
Gregg Hymowitz: I think the market is much more focused on earnings and interest rates. This week alone, we learned that North Korea has the bomb. They're dropping out of multilateral talks and the market is rallying. You have just as many problems in Iran, and the market is discounting it. Will terrorism always be on our minds? Absolutely. But is it in the forefront today? Absolutely not!
Mansoor Ijaz: Well, if it's not in the forefront it probably shouldn't be too far behind. If the Iranians are able to test a nuclear device, it can change the entire game in the Middle East. I think we'll have a rapid-fire sequence of events of other countries trying to develop nuclear weapons, changing the oil dynamics of the markets there forever. Let's not forget that Iran is the chief state sponsor of terrorism. If they give radiological materials to the terrorists, we've got a very big problem on our hands.
Jim Rogers: He's exactly right. There are lots of problems out there in the world. And there might be some more wars. In fact, I'm sure they'll be more wars in the future. But for the moment the market doesn't care for it. I don't know a single person who does or doesn't buy a stock because of terrorism. They buy it based on earnings and projections, the economy and the world.
Chris Lahiji: Even though terrorism is a nebulous threat, it's still there. I don't think people are paying enough attention to North Korea or Iran.
Dani Hughes: The market reacts when something happens. The market is concerned but it doesn't react until something happens. Anytime you see a terrorist arrested or some terrorist activity happen the markets change.
Gregg Hymowitz: I actually think the market is a lot smarter than we're giving it credit for. The threat of terrorism has affected earnings, right? It costs more to do things. More companies have to spend more money on security. That is being discounted in the marketplace.
Ben Stein: The market is the place to buy future earnings. How much really did terrorism affect earnings? It affected people's mood very much.
Neil Cavuto: I would quibble with that Ben. In the beginning, it did affect earnings. It was short term, you're right, but it did.
Jim Rogers: Ben is exactly right. The market is discounting everything in advance. And Dani is right. If somebody blows up the world, then the market is going to react.
Neil Cavuto: So let me get this straight. If the world is blown up, that's not a good market day.
Jim Rogers: The point is the market is always anticipating but only if it's a surprise does the market react.
Mansoor Ijaz: There's no question the global markets have a great resilience to be able to handle even the worst terrorist attacks. The problem is the market is not accurately factoring in the suddenness with which those types of events can take place.
Ben Stein: But what would the market do? If we anticipated that there was a one in a million chance of the North Koreans dropping an atom bomb on Tokyo, God forbid, what would the market do about it?
Mansoor Ijaz: But it's not one in a million anymore Ben. That's the problem.
Ben Stein: What if it's one in ten thousand? That would affect the price of Tokyo stocks very, very little.
Neil Cavuto: Wait a minute Ben. I'm seeing Tokyo destroyed. I'm thinking it's more than a short-term phenomena.
Jim Rogers: Mansoor, does that mean that you're selling short because you think the world is coming to an end.
Mansoor Ijaz: No, it's not a matter of selling short. The purpose of this discussion today is about evaluating risk value.
Neil Cavuto: Don't you buy companies that protect you in the event that everything hits the fan.
Mansoor Ijaz: Yes this is what I do for a living. Our company does exactly what you're talking about.
Gregg Hymowitz: One of the reasons the market isn't overreacting to this is maybe because they're listening to what our new Secretary of State is saying that we're not going to war with Iran or North Korea, and that we're going to finally try diplomacy.
Chris Lahiji: Mansoor is right. The odds of a terrorist attack are much higher now than 10 years ago.
Dani Hughes: A lot of industries have put into effect reforms to guard themselves against attacks. But you have to wonder how serious they take it when the New York Stock Exchange and the AMEX are in the same locations as they were pre 9/11.
More for Your Money
Neil Cavuto: Big budget cuts could mean big gains for certain stocks. We get the names so you can get more for your money. Price, how do you play this?
Price Headley: I play it by owning L-3 Communications (LLL). They are a diversified player in the defense industry. Now that we're cutting the budget down there's going to a lot of demand for the defense department to retrofit. They grew their sales by 29 percent. They're growing that by acquisitions. There's so much cash flow out of all these businesses that they're acquiring here it's going to continue to be a leader in this industry.
Ben Stein: It's a brilliantly run company. But it's already had such an enormous move. It's up more than 200 percent. It's selling at 22 times earnings, which is larger than the average of the market. Generally we want to buy stocks when they've gone down, not when they've gone up. It's not a bad bet, but I would choose one that's hasn't gone up quite as much.
Neil Cavuto: All right Ben. What are you doing?
Ben Stein: I've been saying for a long time that I love Boeing (BA). It's up 40 percent since I started recommending it. I think it's an amazingly well diversified company. The management is running a lean mean machine here.
Jim Rogers: But Ben why wouldn't you buy airlines. The airlines are all in the tank.
Ben Stein: I think they're going to stay in the tank I'm sorry to say.
Jim Rogers: But then Boeing cannot do well.
Gregg Hymowitz: Half of Boeing's business is defense. The airline business isn't worth anything, but the defense business is worth everything there.
Neil Cavuto: What are you doing, Mr. Smarty-Pants?
Gregg Hymowitz: One stock I like but I don't own is Lockheed Martin (LMT). If you look at the 2006 deal for the budget, the supplemental part of the budget, is giving a 20 percent growth in hardware. Lockheed seems to be one of the main beneficiaries of that. It trades at roughly 15 times 2006 earnings estimates. Unfortunately, there is a lot of money being invested in defense. I don't necessarily agree with that. But if that's where the money is going, that's one of the names I'd go with.
Price Headley: The problem is they could lose out of this budget because they could actually get a big project, the 22-fighter, pulled. And even they acknowledge that's a big risk.
Gregg Hymowitz: There's risks in the budget but in the supplemental budget growing hardware at 20 percent I think that keeps at least some of the...
Neil Cavuto: And you don't think that's already factored into the stock already?
Gregg Hymowitz: I think the risk of that is already factored in.
Neil Cavuto: Dani, what are you doing?
Dani Hughes: I don't think Bush's budget cuts are going to go through for the farmers. So I'm picking ConAgra (CAG). The company is a real strong staple and it'll do well no matter what happens.
Jim Rogers: Commodities prices are going through the roof. ConAgra is going to get killed.
Dani Hughes: It's a safety stock and going forward I think it'll do pretty well.
Head to Head
Neil Cavuto: Maybe we should all pay into Social Security but we shouldn't all collect it, effectively making it "welfare for the elderly". Believe it or not, that's my view. Time to go head to head.
It is not the view of Mark Weisbrot, co-author of "Social Security: The Phony Crisis."
Mark Weisbrot: There are going to be fewer people putting money into Social Security and more people taking out. That's true, but that's only half the story. If you look at Social Security and use the President's numbers for example, the system can pay all the promised benefits for the next 37 years. Even if you did nothing in 2042, according to the president's numbers, it would still pay a higher benefit.
Neil Cavuto: You're missing the bigger point here. I think Social Security has run afoul of what even Franklin D. Roosevelt envisioned. For many people in this country it is their sole means of retirement. Among the things we should be looking at is privatizing only a portion and maybe raising the retirement age and maybe making sure that fat cats like myself don't get it. And let it become what I think FDR originally meant it to be. A program targeted for those who really need it.
Mark Weisbrot: It's not much of a runaway program. The average benefit is only about $950 a month. Secondly, for senior citizens half of them would be below the poverty level right now.
Neil Cavuto: But you know as well as I do that it was not meant to be someone's sole means of support. FDR himself said make it part of something where you have pensions, you have savings. What I'm saying to people is let's look at the system for what it is. A lot of us pay into the food stamp program, but we don't all get food stamps. Maybe we have to step back and, in addition to offering people the opportunity to invest some of their Social Security, some of us, like myself, shouldn't get it.
Mark Weisbrot: Social Security now is not a welfare program. It's a social insurance program.
Neil Cavuto: It is a welfare insurance program.
Mark Weisbrot: People paid into this.
Neil Cavuto: I'm not dismissing those who worked hard and paid into it. But you know the vast majority get far more out of it than they paid into it.
Mark Weisbrot: But if you tell people they're not going to get what they paid into it that's no different than saying they shouldn't get their interest payments...
Neil Cavuto: I'm saying for those 55 and older the administration is saying you are protected. For those younger, you have an option to invest a portion of it. And for those well off, maybe you get smaller benefits or no benefits at all. It's hard medicine but it's realistic medicine.
Mark Weisbrot: For those of us who believe Social Security is an effective program, we don't want it to be a welfare program. That makes it much easier to get rid of. The fastest way to get rid of Social Security would be to make it a welfare program.
FOX on the Spots
Price Headley: Oil tops $60 a barrel; buy Oil Service HOLDRs (OIH).
Price owns shares of OIH
Gregg Hymowitz: Another refinance boom; economy roars!
Dani Hughes: HP won't find anyone as capable as Carly Fiorina; sell HP!
Ben Stein: The Bush budget gets an "Extreme Makeover" Congress style!
Jim Rogers: U.N. Secretary General Kofi Annan gets canned!
Neil Cavuto: Social Security reform: It "will" happen!! I said it last week… I'll say it again this week: The more I hear it's not going to happen, the more I know it will. There will be some concessions on privatization, including maybe raising the retirement age and the income threshold, but it will happen. Mark my words!
Forbes on FOX
In Focus: Stop Social Security Reform, Reform Tax Code Instead?
Elizabeth MacDonald, senior editor: Forget about Social Security reform. Reforming our tax system would be better for everyone. Make tax cuts permanent. Also expand individual retirement accounts instead of Social Security Reform to include even poor people. That way you avoid the bureaucratic costs from Social Security reform. You don't need it!
Jim Michaels, editorial vice president: You have to do both. The tax reform is a big deal even and would take a long time to lay out a program. Social Security is very simple, you're offering to give a big advantage to people under 40. A tremendous advantage to their future and you are not going to cost the older people anything. This should be an easy sell, then you move on to tax reform.
Dennis Kneale, managing editor: I am shocked that President Bush has made Social Security the centerpiece of his second term. It's a bad idea. Social Security should be fixed in private. Appoint a blue ribbon, by-partisan commission, say get back to me in a year and focus on tax reform.
Ken Fisher, columnist: I don't think Social Security reform is the center of his administration for this year, I think that's 2006. I think this is all about creating a wedge issue for the campaign to win Senate seats in about six states, including Nebraska, Washington, Michigan. He's already knocked out Mark Dayton in Minnesota. He's going to try to eek out Bill Nelson in Florida. It's all about politics. I don't think he has the slightest desire to legislate here.
Peter Newcomb, senior editor: We're all going to pay taxes, and whether I pay 28 percent or 20 percent it's not fundamentally going to change my life. What's going to change my life is the fact that when it comes time for me to retire and the government says that the money you've contributed all those years isn't yours any more. We can't let the next generation face that.
Quentin Hardy, Silicon Valley bureau chief: The fact is economic growth is what really matters to this country. And the tax system has become this bulky mess that the Republican Congress will not fix. It's time to stop the campaigning and do something. Bush has no credibility on Social Security but he said he had political capital with the new Congress. Let's see him do the tough thing, let's see him take on the Alternative Minimum Tax, let's see him take on the special interests, let's see some changes made.
Elizabeth MacDonald: I think what is really going to power the market is tax reform. You make the tax cuts permanent. They are helping, revenues went up in most recent fiscal periods according to the CBO. The thing of it is, you don't want the President and the Congress bogged down with in a Social Security reform fight. That doesn't help the stock market.
Jim Michaels: A guy just showed me his financial figures, he just retired a few years ago. He's getting about $18,000 a year in Social Security. If he had been allowed to put his own money in a retirement plan, based on an index fund, he would now have $900,000. Which would you rather have?
Elizabeth MacDonald: But why not just expand individual retirement accounts?
Dennis Kneale: Social Security is the center of this campaign, but if you tackle taxes instead it gives a chance for the President to crack down on these corporate fat cats and make middle America feel more supported by this administration.
David Asman: It seems that everyone under 60 is for some kind of Social Security change.
Jim Michaels: Well of course they are, and this plan isn't going to hurt people over 60 or people over 50. They are going to opt out.
Elizabeth MacDonald: It's sure going to hurt the government and our pocketbooks in terms of bureaucratic costs to set this up.
Quentin Hardy: President Bush doesn't have a lot of credibility right now on declaring emergencies and then having things change around him. There's a lot of argument over whether Social Security is an emergency or not. On taxes, everyone has agreed that the system is messed up. Everybody has agreed that the alternative minimum tax is going to be a disaster for the country. This is something where he should use his political capital and make some changes.
Elizabeth MacDonald: Bush will stick with Social Security and I think that's going to hurt him. We need permanent tax cuts to help the market.
Jim Michaels: This Social Security thing is much simpler and it can be explained much more simply. Do you want $900,000 when you retire or do you want $1,500 a month.
Quentin Hardy: They say they are going to do this stuff but they just don't, they're professional politicians.
Flipside: President Bush Should Cut More From the Budget!
Mike Ozanian: With Republicans controlling the Congress and the Senate, President Bush blew a big chance to take a big chunk of the American economy and give it back to the American people. He's keeping discretionary spending flat. This is a big mistake. He's blowing a golden opportunity to revive the economy and help the stock market by cutting the federal budget even more.
Jim Michaels: Everyone says cut, but cut what? Only 3 percent of the national budget is represented by discretionary spending. The rest of it is in things like Social Security, do you want to cut that? Do you want to cut veterans pensions? Do you want to cut interest on the national debt? You can't. There is a limited amount of the budget that Congress controls. Therefore, what you need to basically do is tell the world that you're stopping the growth of government spending.
Elizabeth MacDonald: I think he could have gone further. I say repeal the Medicare prescription drug benefit. Open up the Canada pipeline to cheaper drugs, that's the way to do it. You know a lot of these seniors don't even need prescription drug coverage because they are covered by existing plans.
Mike Maiello, staff writer: This is a heartless budget. He has chosen to cut the federal program that helps the working poor pay their heating bills at a time when heating oil prices are at record levels. He's cutting programs for food stamps.
Jim Michaels: At least half of these anti-poverty programs are junk, they don't work. They deserve to be cut out, they are pure waste.
Bill Baldwin, editor: Let's look at a baby step that the President took. He's going to cut $20 million, that's six cents per American, from the National Writing Program. That's a part of the education department. Now what he overlooked was the rest of the department of education. My proposal is to wipe out the education department altogether. That would save $70 billion.
Mike Maiello: Bush made education a major part of his agenda. He has already gone in and remade the department. At this point, it's his baby. It's his 'no child left behind' baby. He can't cut it, he won't cut it. It's wishful thinking.
Mike Ozanian: The main thing is that you don't want the government doing things that the private sector should be doing. For example, I have to pay to heat my home. Now because of Bush, I have to pay coal companies a $260 billion tax subsidy so they can find coal? This is crazy!
Elizabeth MacDonald: I think this debate would be wiped out if we had a constitutional amendment to have a balanced budget. We have $7 trillion of federal debt. We spend $320 billion on interest on that debt alone. That would take care of a lot of poor people who are uninsured.
David Asman: What about a balanced budget amendment?
Jim Michaels: Congress will find a way to get around it. They only answer is to discipline Congress. The President is facing problems with his own party on the little cuts that you all are complaining aren't enough. Congress is where the fight must be done. With constitutional amendments, they'll find ways to do off budget financing.
The Informer: Why Stocks Will Go Up 25 Percent or More This Year!
Ken Fisher: I think the S&P 500 will jump 25 percent this year. The market always does what people don't expect, and people don't expect this.
Mike Ozanian: I think all of these people who have been worried about inflation are dead wrong. I think gold is going to go down from $400 to $00 and that's going to send stocks way up.
David Asman: So people are going to take their money out of the inflation hedges and put them into stocks?
Bill Baldwin: I am very bullish about corporate profits. I think the earnings according to the S&P 500 will go up to $70. I think they are worth a very robust 16 or 17 times that. That means the stock market is going to go down by about 3 percent this year.
Elizabeth MacDonald: There is also the volatility of inflation, oil prices, etc. There are a lot of things keeping the market down. I think Mike and Ken are crazy.
David Asman: What about political issues, like the price of oil, or terrorism?
Ken Fisher: They are all very well known and priced into the market. Let me give you some simple facts. In the last century, the market in the first year of the President's term was never up between 0 percent and 10 percent. Always more or negative. And since this year I don't expect negative, I expect more. And in the positive years they average out to be 28 percent. Simply, the first year of a President's term is just much more volatile in both ways than in normal times. Secondarily, when you come through a time period like we've just been through, where the yield curve has been steep, and it's gone through the beginning of a hundred basis point flattening, the next 18 months have always been positive and they've always been huge!
Mike Ozanian: It means that inflation is going to go down, interest rates are going to go down and stock prices are going to go up!
David Asman: Ken, can you get specific for us? Do you have any stock that is going to benefit from this scenario?
Ken Fisher: I think a great stock that is going to benefit from the financial period ahead is WFS Financial (WFSI). I own it myself.
Elizabeth MacDonald: I don't see how the Savings and Loan is going to power the market 25 percent higher!
Mike Ozanian: I agree with Elizabeth, WFS has a lot of loans out to dead beats. I like Altria (MO), which use to be Phillip Morris. They make Marlboro cigarettes and Oreo Cookies, what better stock is there?
Bill Baldwin: It's products are very addictive, you know what else we are addicted to in this country? Tort law. I think the tort lawyers are going to wipe this one out with more costly tobacco lawsuits..
Elizabeth MacDonald: I'm picking Apache (APA), and oil exploration company. I think it's really cheap.
Bill Baldwin: I think it's a great stock and I think oil is probably going to stay pretty expensive.
Mike Ozanian: It's the most profitable of the exploration companies. I like it.
David Asman: It's near a 52-week high.
Elizabeth MacDonald: It's getting a sweet run up. But these guys know how to find oil on the cheap.
Makers & Breakers
• Vanguard Long-Term Bond Index (VBLTX)
Mike Norman, Economic Contrarian Update: MAKER
The president's budget slows down the rate of growth in federal spending. We are going to see the deficit decrease. We already see it happening. As a result we are going to see long-term bond yields come down, which by the way, also is happening.
David Asman: Your 12-month target price is $15, a 20 percent rise. (Friday's close: $12.19)
Jim Michaels: BREAKER
Yields 4.8 percent, the interest rates are already way down. That's an 11-year average maturity with that fund. If interest rates go up even a little you are going to get a hit to your capital.
Dennis Kneale: BREAKER
I'm a breaker. The federal deficit will not go down as much as you think. The federal cuts are going to be less because Congress doesn't have the courage. And economic growth is going to be better. Don't buy it!
Mike Norman: Economic growth will not be better. We've seen it start to slow down in the fourth quarter and we will see it again through the course of this year. The reduction in discretionary spending and the slower growth in spending over all for the federal budget will have an effect.
• Dollar General (DG)
Mike Norman: MAKER
Dollar General is a discount store. Last year these companies didn't do so well, this company got hurt particularly because it's margins got compressed from the weak dollar. But the dollar will do better in 2005. This company will grow.
David Asman: You like it now and think it could go up to $33 with in a year. That's a 50 percent rise. (Friday's close: $21.83)
Dennis Kneale: MAKER
I think he's right, I like this stock. Retail is going two ways, very high and very low. These guys are pretty good at really low. It's got $400 million in cash, that's 20 percent of revenues, which is vastly more than most companies.
Jim Michaels: MAKER
I like the financials of this company. Very low debt, they are throwing off an increasing amount of cash. They can easily raise their dividends and buy their own shares. I like it.
Stock Smarts: Why Bother Saving Social Security?
Would we be better off if we did nothing to save Social Security and let it die on the vine? President Bush continues to push his plan to let you control your retirement by privatizing Social Security. It’s shaping up to be an ugly national battle. But is it worth all this effort to save the program?
Jonathan Hoenig, portfolio manager at Capitalist Pig Asset Management: Let it die. Dagen, if you ran a business like this, like Social Security, you would be strung up as the biggest fraudster on Earth. This is worse than WorldCom, worse than Enron. It's a ponzi scheme. Your money is extorted from you today in hopes that somebody else's money will be extorted tomorrow. There is no savings or investments. Let it die.
Dagen McDowell: Wayne, you probably don't need Social Security because you're rolling in big bucks. But should we let it die?
Wayne Rogers, founder of Wayne Rogers & Company: I don't know. Nobody knows what the President's plan is going to be yet. Congress has got to fiddle with it. I think this whole conversation is superfluous, because we don't know what is going to come out. And ultimately Jonathan is right.
Jonathan Hoenig: You're dodging the question, Wayne.
Wayne Rogers: It's going to commit suicide.
Jonathan Hoenig: Are you over 55?
Wayne Rogers: Am I over 55? What do you think? Do I look like I was just born yesterday? I'm getting as much out of it before the whole thing goes belly up.
Jonas Max Ferris, founder of MAXfunds.com: And that's what I don't like about it. People below 40 are the ones who are going to get it stuck to them. If you let it die, what happens is the benefits start getting cut by force. But people like me are the ones who get cut. People Wayne's age, are going to be fine. And that's not fair. If you’re going to cut benefits, which seems to be the only way to solve it, it needs to be cut across the board; more equally. It is not fair to stick it to the people who don't vote.
Ray Lucia, host of the "Ray Lucia Show": Who’s got grandkids here? I got grandkids. Two brand new grandkids. That's what this argument is all about: saving for our grandkids. I’m not worried about it. I'll be 55 in a couple of months. I'm sure Wayne is not worried about it. You're going to get some benefits. Maybe they will be cut by a little bit. There is an easy way to solve this problem. You increase the retirement age. When Social Security was first enacted, and I've heard you say this, it was only supposed to last a couple of years. Now people are living until they are 80, 90, my grandkids, hopefully 100.
Stuart Varney, FOX Business News: I'll take the opportunity to offer up an apology to "Cashin' In" and to all our viewers and especially Jonathan a couple of weeks ago, I said I did not agree with the privatization of Social Security. I've changed my mind. I've listened to the argument and I now believe that privatization is a very good plan. You don't let it wither on the vine. You don't let it go away or pay everybody off with $10 trillion of borrowed money, no. The privatization plan is good because you have got choice. You can stay with the guarantee of Social Security, or you can privatize. That's the way to go.
Wayne Rogers: Stuart, with all due respect, we don't know what the bill will be. We have no idea what it's going to be. You don't know whether that part will pass or not.
Stuart Varney: We do know the principle that you will have a choice if you want to privatize, you can, if you want to stay with the existing guarantee, for whatever it's worth, you can. Choice is the principle. And it's a good principle.
Dagen McDowell: Jonathan, you're applauding Stuart's conversion to the privatization. So what is it? Do you let Social Security die or do you privatize part of it?
Jonathan Hoenig: You privatize it. It’s their own money; they have earned it. Let them decide how to invest it and how to save for the future. I've heard some interesting ideas floated about. Issuing bonds to pay off all the obligations of Social Security and closing the system immediately. But Stuart is right. It is the principle. And people that are responsible enough to feed and clothe themselves and get themselves to work to make the money; let them decide how to invest for their own retirement.
Wayne Rogers: You want to talk about political philosophy, that's one thing. You can talk about it. But this is not about political philosophy. This is about dollars and cents and you're talking about people's future and this is crazy. You can say ‘oh, this is wonderful in principle.’ But somebody has to pay for it. This thing is totally unrealistic. And it's not going to happen.
Jonas Max Ferris: It's a chain letter, not a ponzi scheme. Let's get that straight. You can maintain it forever. As long as you cut benefits by adding to the age to match payroll taxes. That's all you got to do. Just come out and say it, that we have to match the revenues to the costs of it. And then it can pay as you go forever.
Stuart Varney: I'm hearing a lot of talk from the left about raising payroll taxes.
Jonas Max Ferris: I'm saying cut benefits.
Stuart Varney: And raising payroll taxes and also not allowing the rich to collect Social Security benefits. That's pure socialism. That's not going to happen. I don't want to hear about it.
Ray Lucia: You don't have to raise payroll taxes. You really don't. What you need to do is have individuals take responsibility for some of their own money and understand that younger people are going to have to retire later. It's as simple as that. If you retire later, the system is fine. We can pay 80 percent of the benefits right now. It's the other 20 percent that we are worried about.
Stuart Varney: How much later?
Ray Lucia: Age 73.
Jonas Max Ferris: You should have to retire later if I have to retire later.
Ray Lucia: That's fine. I can retire a year or two later. For my grandkids it may be 10 years later.
Jonathan Hoenig: But Ray, a company that you were looking to invest in, that was always losing money, that was perpetually late on its bills, that was just a bad idea to begin with, you let it die. It would go bankrupt.
Jonas Max Ferris: The Dow is up 100 times since this system was started. This economy is growing so much, maybe a little bit of this quality where people can have some sort of guaranteed pension is not such a terrible idea.
Jonathan Hoenig: Everything in Social Security is up for grabs. The age we're talking about now, the level of the benefits, whether there will be benefits at all.
Jonas Max Ferris: There are a few years of later retirement. It's not all up for grabs but you have to retire a couple of years later to keep it going.
Stuart Varney: If you are in your 20's or 30's, and you opt for the privatization option and you put money into the stock market, you’ve got 30 or 40 years to watch it grow. And it will grow over a 30 or 40-year period. That's a very, very strong probability.
Wayne Rogers: That's all fine and dandy. But you've got to make up this deficit before you get there. And you're talking about principle, if you start it from scratch, you could say ‘this is a good plan.’ But this thing is in the toilet right now.
Stuart Varney: The plan is not without its downside. You have to borrow a chunk of money now. That's the downside. I'll give you that.
Wayne Rogers: This is a bankrupt system.
Dagen McDowell: But Ray, the system does not start running out of money to pay full benefits for 37 years.
Ray Lucia: 2052, according to the CBO. It's not a bankrupt system. We can provide 80 percent of the benefits right now. On the subject, though, of privatization and private accounts, we're only talking about privatizing a piece of it. Not the whole thing. There will still be a backdrop of security. The concern that I have, Dagen, is this: investor behavior. Most of these young kids, 22 years old; they will not be investing the money appropriately. We know that from all the behavioral studies that have been done.
Jonathan Hoenig: I'm always a little bit angry with people who say ‘you can make money but you are too much an idiot to invest it.’ And these liberals who say ‘people will lose their shirts in the stock market,’ they can put it in a savings account. It doesn't have to be in the NASDAQ-100 (QQQQ). You can invest in bonds and savings and however they want to. It's their money to invest.
Wayne Rogers: There are going to be rules about it anyway. Congress is going to set rules about what you can invest in anyway. You don't even know what the bill is. And you guys are talking about something you don't even know about yet. I don't get it.
Ray Lucia: I'm talking about market timing. Investor behavior. Most investors do the wrong things at the wrong times for the wrong reasons. That's the concern with the privatization of these accounts.
Best Bets: Big Risk, Big Reward$!
Ready to take a chance? The stocks that have some risk but could pay off big time.
Ray's Best Bet: Caesars Entertainment (CZR)
Friday’s close: $20.46
Ray Lucia: I thought since we were going to talk about gambling I would use a gaming stock for today. I’m talking about Caesar's Entertainment. This is a fantastic company. Besides the fact that my wife is at Caesar’s right now doing a little shopping, that expansion is incredible. And I figure that's good for a couple of points bump on Monday. This is a company that's got their act together. Harrah's (HET) will take them over. This will be a company that's moving into the UK. They are getting involved in the gaming industry with the Indian casinos. People are going to Las Vegas and spending money like crazy. This is a good stock.
Dagen McDowell: Wayne, you go to Vegas. What do you think of Caesars?
Wayne Rogers: I like all of the gambling stocks. I said that before. I talked about Boyd Gaming (BYD) on the last show and it was up five points on Thursday. So as I said, I was trying to pick the best of those. I think Caesars is a terrific company. Wynn Resorts (WYNN) is a good company. The gaming stocks will do very well.
Jonathan Hoenig: They've been doing well. And Wayne, your Boyd's has done well. But we're not kind of following this area right now. It's not my top choice.
Dagen McDowell: Wayne, what's your pick?
Wayne's Best Bet: eResearch Technology (ERES)
Friday’s close: $15.27
Wayne Rogers: I like eResearch Technology. I've traded that stock several times in the past and I own that stock now. It's had a terrific year. Earnings were up very strongly. It traded very heavily on Thursday, too, about six times its average daily trading. So I think it's ready for a move. It has been in a bottom trend for a while. Revenue has increased enormously in the last quarter and for the year. So I think it's a good one.
Dagen McDowell: This company collects data for clinical trials, for medical trials, what do you think? It seems like a hot area.
Ray Lucia: What we need for the stock to keep going up is we need some more Vioxx and Celebrex scares. If we're gambling, I'm all in with you. I think it's a pretty good company.
Dagen McDowell: The stock has been weak. Do you like it?
Jonathan Hoenig: It’s a software company. I don't see a lot of software companies or companies with “E” preceding the name doing real well. But Wayne, you did follow the instructions. It's kind of a lotto ticket. It’s not for us, though.
Dagen McDowell: Jonathan, you got the floor and going south of the border. Really south of the border. What do you like?
Jonathan's Best Bet: CPFL Energia (CPL)
Friday’s close: $22.79
Jonathan Hoenig: What do Argentina, Brazil and Mexico’s markets, have in common? Do you know? These are markets that are at all-time highs. So that's where I'm sniffing. And I'm taking a look at CPFL Energia. This is a major Brazilian electricity producer. It continues with that theme that I've been playing for a long time right now, which is international utility stocks. Dagen, you remember Scottish Power (SPI), I owned from last season's Challenge? That's doing real well right now. So I try to look for areas of strength and Brazil is a place you want to be right now.
Dagen McDowell: These stocks are hard to research. Do you like this one?
Ray Lucia: The only thing I know about Brazil is a great restaurant where they serve you all kinds of meat. I would not put money into this stock.
Jonathan Hoenig: Why?
Ray Lucia: Because I know nothing about Brazil.
Jonathan Hoeing: Why not take a moment and learn something about Brazil?
Ray Lucia: I’ve got an English-Brazilian dictionary and right next to Energia is a picture of Enron.
Dagen McDowell: Do you like Jonathan's pick, Wayne? You've been overseas.
Wayne Rogers: It's gone from about $16-22. It's had a heck of a run. I don't know that I would buy it right at this price. And I certainly don't know that it's the Brazilian Enron. But it is in the same exact business. They do trade power. They do a lot of those kinds of things. And Jonathan has been very successful with this. I wouldn't bet against it.
Stock of the Week
Last week’s pick from Mike Norman was Ariba (ARBA). For the week of February 7-11, ARBA went down 14.2 percent.
Dagen McDowell: Jonas is back and he likes IAC/InterActiveCorp (IACI). It owns a lot of travel sites including Expedia and Hotels.com. Jonathan says he is not taking a trip with this one. So Jonas, you're up. Why do you like it?
Jonas Max Ferris: Great collection of top Web sites. Match.com. A big area in travel. I think earnings next week are going to be better than people expect because these underlying businesses are very strong.
Jonathan Hoenig: What's the definition of insanity, Jonas?
Jonas Max Ferris: You don't want to hear about it.
Jonathan Hoenig: When you keep doing the same thing and expecting a different result.
Jonas Max Ferris: All the times I've recommended the stock on this show would be zero.
Jonathan Hoenig: You talked about Amazon.com (AMZN) a couple of weeks ago.
Jonas Max Ferris: I would buy it today.
Jonathan Hoenig: It tanked.
Jonas Max Ferris: It was Stock of the Week. It was up over 3 percent for the week.
Jonathan Hoenig: Two weeks later it didn't take.
Jonas Max Ferris: It was a Stock of the Week, not three weeks.
Jonathan Hoenig: Internet stocks are so weak right now. From eBay (EBAY) and Amazon.com, I don’t see these names doing well right now. And the story is out about this company being broken up.
Jonas Max Ferris: I'm talking about it being broken up. The stock chart of Internet stocks, in my opinion, is irrelevant. That would have made you buy them back when the charts were really great. You want to look at the underlying businesses and that's what you are taking in.
Jonathan Hoenig: I’m looking at the underlying businesses, Evite is a terrific site, but is it worth $1 billion?
Jonas Max Ferris: Have you used one of their businesses in the last month? I bet you have. And spent money. Expedia, almost every month I'm paying them something..
Dagen McDowell: Do you like this one?
Jonathan Hoenig: No, no. I don't see it.
Jonas Max Ferris: You use their businesses, you don’t use the Brazilian electronics businesses. You don't like this business, but you like the one you don’t use.
Jonathan Hoenig: I would rather own a company that owns hotels like Hilton (HLT) than a company that owns Hotels.com.
Dagen McDowell: Do you own Hilton?
Jonathan Hoenig: We don’t own Hilton.
Jonas Max Ferris: I am not against hotels. I recommended one a few weeks ago.
Jonathan Hoenig: Internet stocks are super weak.
Jonas Max Ferris: On the charts, on the charts.
"Cashin' In" Challenge
Check out the $10,000 "Cashin' In" Challenge at: www.foxnews.com/challenge
Question: “I think the best way to save Social Security is to take off the $90,000 cap and make the rich pay more. Thoughts?"
Dagen McDowell: But Ray, at more than 6 percent on payroll taxes, if you make $120,000 a year, that's an extra $2,000 a year in taxes. Wouldn't that hurt the economy?
Ray Lucia: It's actually $4,000 because the employee has to pay $2,000 and the employer pays $2,000. It would definitely hurt the economy. This is not the way to solve the problem. We've got the Social Security system indexed every single year. So our taxes are going up whether we want it or not. But to make it like that is bad for the economy.
Dagen McDowell: Do you like our viewer's idea?
Wayne Rogers: Ray makes a good point. A lot of people forget that the employer has to match that. And a lot of people forget that that's a big hunk of dough. I don't care if you soak the rich. I don't care one way or the other.
Jonathan Hoenig: I do, Wayne.
Wayne Rogers: You do, Jonathan, because you're rich. But some of us are not as rich as you. That's all.
Jonathan Hoenig: Some of us only have only about 10 properties around the world instead of 20 as maybe you do. I don't know, Wayne. The rich pay plenty of taxes as it is. That's not the way to save Social Security.
Question: “Are mergers ever really all that successful? I’ve hear mixed things."
Jonathan Hoenig: Sometimes the cost savings are not borne out for years and years after. So if I owned a company that gets bought out, I would start from scratch with the new acquiring company and re-evaluate it and say ‘is this a business that I want to own moving forward?’
Dagen McDowell: And companies like General Electric (GE) have done well going out and buying other companies.
Ray Lucia: Some have done very well but as a certified financial planner, I've spent most of my life helping little business owners and in these mergers, you find lots of problems. Whether it be ego or the economics don't work out exactly right. And we've seen just as many horror stories as we've seen the GE stories.
Dagen McDowell: Wayne, what do you think?
Wayne Rogers: The key is doing your homework. Due-diligence is what will tell the story. If you build a model on something that is faulty to start with you will wind up in trouble.
Question: “Does the crew think that eBay (EBAY) is a promising stock?”
Wayne Rogers: I like the business. I just think it's a terrific business. And Meg Whitman spoke recently, the CEO, and she talked about a ton of money in China, in the market there. As I've said before on this program, I think China is going to be one of the great capitalist countries in 10 or 15 years if they can keep the political system stable. She is right that there’s a big future out there. It's a terrific company. Whether you buy it at this price or not, that's something else.
Dagen McDowell: That stock chart looks weak. Do you like eBay?
Jonathan Hoenig: Wayne is right. It’s a great company. But, you know, as we talked about before, I don't see a lot of Internet related companies really leading the pack right here.
Ray Lucia: Short term, scary company. Long term, there is 125 million people signed up. 52 million used the service last year. That's hard to argue with. Long term it's a buy, short term, scary.
Question: “I’m a novice investor and I’m looking at a metal stock – Carpenter Technology (CRS). What do you think?"
Jonathan Hoenig: We're not playing steel right now but Companhia Siderurgica Nacional (SID) is strong and AK Steel (AKS) is strong. So for me, Carpenter is not my top choice, but if I held it I would try to hold on because it looks like the commodity boom is here to stay.
Dagen McDowell: Would you recommend this for this guy?
Ray Lucia: I'm not sure I would recommend this. New investors have no business buying any one individual stock, especially this one. I think they need to buy a mutual fund to get started with and if you want to buy a steel stock, buy Nucor (NUE).
Wayne Rogers: I would put in a stop loss order and let my profits run. And I would stop it if it hits it.