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: Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, editor ChangeWave Investing; Scott Bleier, president of HybridInvestors.com; Bob Froehlich, chairman of investor strategy at Scudder Investments; and Chris Russo, “Apprentice” contestant and Senior Vice President of Investments for GunnAllen Financial.
Trading Pit: Rally of the Year?
April has been the best performing month for the Dow over the past 55 years. The blue chips have made an average gain of almost 2-percent each April. Think that’s no big deal? Well, if every month made that gain, the Dow would double, that's right, double, every three years!
So with April right around the corner, is the biggest rally of the year about to begin?
BOB: The biggest rally of the year is indeed about to begin. I think it’s all about earnings. First quarter earnings will catch Wall Street asleep with big surprises to the high side. Economies outside the US are booming which are making export boom. First quarter earnings are reported in April. We have very weak comparables. April will be a month to remember!
TOBIN: April would be the biggest month if Bob were a bear! The concern right now is interest rates. The Fed has said they are going to raise rates to contain inflation. What really scares me is inflation driven interest rates. And then there’s oil, which is actually a larger inflation fear than a concern for overall earnings. The market may make a run in April, but it will be a head fake.
PAT: Inflation is a definite fear for the market right now. But I have to disagree with Bob, because I do not think that comparisons over last year will be easy. There have been some disappointments already. And any company that doesn’t beat expectations by a country mile is going to get crushed. Now I’ve seen more bargains than I have for a couple months, but it’s still nothing too exciting.
CHRIS: Interest rates are going up. The price of oil is heading higher. The deficit is increasing. I see the market making a possible gain of 5 percent, but then the bottom will fall out. The Dow is headed to 10,000, not 11,000.
SCOTT: I think there’ll be a little rally in April. But the interest rate scenario is not built into the market, and the Dow will fall below 10K. The Nasdaq will hold up better, but it’s going to be very tough for the next couple of months. In fact, I’m short Apple (AAPL) and Toll Brothers (TOL) right now.
Are the biggest stocks in the Dow, the best ones to buy now?
First up, Citigroup (C), the largest financial services firm in the world. (Citigroup closed at $44.52 on Thursday.)
Bob: Bull. I think landscape in financial services is going to change. A great dividend payer. Big benefactor from privatization of Social Security.
Scott: Bear. Wait for it to fall under $40 before buying.
Pat: Bull. A great bargain right now.
Tobin: Bear. At $35 it’s a great buy. At this price, it’s not.
Chris: Bear. Rising interest rates is horrible for the financial stocks.
Now to Exxon Mobil (XOM), the biggest stock in the Dow. And it might be getting bigger with gas prices on the rise. (Exxon Mobil closed at $59.00 on Thursday.)
Tobin: Bull. A stock you want to own for the long-term. It’s increasing the dividend and buying shares back. Oil is going to stay at $45-50/barrel for a long time.
Pat: Bear. A $50 stock that’s been chased by hot, hot money. Not a buy above $45.
Chris: Bull. It’ll digest its latest move and then head higher.
Bob: Bull. Oil is going to have higher highs and higher lows. Great dividend payer.
Scott: Bear. Recently sold it. Oil stocks, as a whole, have topped out for the year.
Next: General Electric (GE). It was the biggest Dow stock until Exxon passed it last month. (GE closed at $35.73 on Thursday.)
Scott: Bear. You could do better. You could do worse. It’s like putting your money in quicksand because it’s going nowhere.
Tobin: Bear. It’ll be lucky to gain 10 percent.
Pat: Bear. Fairly valued. Much better values out there.
Chris: Bear. I’d look elsewhere.
Bob: Bull. GE is a proxy for the global economy, which is going up in the next 6 months.
Finally: Microsoft (MSFT), the biggest software company in the world. Before the tech bubble burst, it was the most valuable company in the world, too. (Microsoft closed at $24.28 on Thursday.)
Pat: Bull. Generates $1 billion in operating cash flow each month. Coming out with a big new operating system. It’ll hit $30 soon.
Chris: Bear. Needs to spend some money. Increase the dividend. Reinvent the computer. Do something!
Bob: Bull. If Pat says it’s going to $30, it’s going to $30! And Microsoft is going to raise its dividend.
Scott: Bear. I’d like to buy it, but it acts miserably and is going nowhere.
Tobin: Bear. Pat is right, it’s going to $30…but it’ll take until 2010!
March Madness isn’t just for basketball! The first annual Bulls & Bears stock tournament! Each guy picks his favorite stock and you vote right here at FoxNews.com for the best pick. (You can vote for the stock you like the best on this page. Toby won last week, getting 33 percent of the votes, with his pick of Patterson-UTI Energy-PTEN.)
TOBIN: USEC (USU). I’m going with uranium. This is a company that used to be owned by the government and is the dominant player in enriched uranium, which goes into nuclear power plants. There are 65 new nuclear plants being built throughout the world.
Pat: Demand for uranium is high. However, “nuke stocks” in general have been in a bubble. I’d wait for it to pull back to $12. (USEC closed on Thursday at $16.69.)
BOB: Anheuser-Busch (BUD). I drink it and own it! This is a wonderful company that pays a great dividend.
Chris: As a man’s man, I hate to say this, but I don’t like Budweiser. The stock is making new lows.
(Anheuser-Busch closed on Thursday at $47.28.)
SCOTT: Coherent (COHR). It’s the world’s largest manufacturer of commercial and scientific lasers. Earnings estimates are up. I think the stock is going to $40-45. (Coherent closed at $32.72 on Thursday.)
Tobin: More like incoherent! Eventually this stock will be a winner, but just not right now.
PAT: First Horizon (FHN). It has a 4 percent yield and is a nice little regional bank based in Tennessee. And the nice thing about banks is that if they under perform, they get bought out.
Scott: The other “nice” thing about banks is that when interest rates are heading higher, they head lower!
(First Horizon closed at $40.00 on Thursday.)
CHRIS: Komag (KOMG). The company makes the thin-film disks that are used in computer disk drives. It just raised its guidance. I protected myself with a stop loss at $20, but I think it’ll move up 20 percent.
Bob: One word: BANKRUPT!
Scott's Prediction: Oil/gas prices have peaked; makes auto stocks rev up
(Scott recommended DaimlerChrysler-DCX.)
Bob's Prediction: Buy Coke (KO) and you'll smile! Up 20 percent by 2006
Chris' Prediction: Marvel (MVL) is fantastic! Gains 30 percent in 3 months
Tobin's Prediction: Sales of Easter hams help Smithfield (SFD) rise 20 percent
Cavuto on Business
Neil Cavuto was joined by Ben Stein, author of "Yes, You Can Be a Successful Income Investor"; Meredith Whitney, Executive Director of CIBC World Markets; Charles Payne, CEO of Wall Street Strategies; Jon Najarian, CEO of Najarian Capital; Joe Battipaglia, CIO of Ryan Beck & Co.; Jerry Brown, Mayor of Oakland, California.
Neil Cavuto: The good news behind sky-high gas prices that you won't hear anyplace else. Gas prices sky rocketing this month, but so far the pain at the pump has not made a dent in our very strong economy. Is that a huge bullish sign for the stock market? Ben Stein, you see these high gas prices and say it's time to buy stocks. Why?
Ben Stein: It's high gas prices plus the uncertainty of interest rates, the uncertainty of federal trade deficits. Times of uncertainty have traditionally been good times to buy stocks. I'm not talking about how the market will be a month or two months from now, but ten years from now I suspect you'll be very sorry if you did not get in.
Neil Cavuto: Next year around this time. Are we better off?
Ben Stein: Next year you will be better off. But I'm not a speculator.
Meredith Whitney: In ten years, who knows? But for the near term it's very scary for investors who think that the rates are going to go up.
Neil Cavuto: What's the near term for you?
Meredith Whitney: The next six months. And towards the end of the year things don't look so good. I don't see incredible demand. So I don't see huge opportunity for growth. You see the Fed really pulling back money supply and that's bad for equities.
Charles Payne: I agree with the premise that Ben put forth, you want to buy on weakness. But we're talking about gasoline prices which are dependent on crude. Oil at $57, $60 a barrel ultimately hurts the economy. Crude oil between $40 and $50 is more tolerable.
Neil Cavuto: That's assuming it goes a lot lower from here.
Charles Payne: That's an assumption based on historical fact. There's a lot of hype with this in addition to so-called demand out there. I think now, the big thing is interest rates. As they go higher, the market is going to be shaky. As the market goes lower, that's when you follow Ben's advice.
Meredith Whitney: Gas prices at the pump are flat with last year. Oil prices are up 30-40 percent.
Charles Payne: Gas prices are at all-time highs, certainly after the explosion at the BP plant.
Neil Cavuto: But not at inflation adjusted rates.
Jon Najarian: The market’s going to keep going up for a lot of reasons that Ben noted. The fact that the economy is going so strong, and yet has so many people negative on it, is a reason I like the economy. The consumer has shrugged off the impact of higher gas prices, that's indicated by the nine-and-a-half percent surge we just saw in new homes.
Neil Cavuto: Yes, but we didn't see the surge in existing home sales. And we see from the data that it's slowed a bit.
Jon Najarian: The consumer wants brand new Neil, and that's another good sign. They're shopping in luxury Toll Brothers homes and that's good news.
Joe Battipaglia: What your going to see in the next couple of weeks is the answer on energy, and that answer is good. As we talk today, inventories are running 6 percent higher that the five year average. This is a situation where I think the price will start to recede. OPEC is going to raise production, not cut it. It think we can see $40/barrel oil in the not-so-distant future.
Ben Stein: I love Meredith like a daughter, but the fact is the money supply is not contracting and is instead rising according to Fed data. The main danger Greenspan sees is that the economy is growing too strongly. If you see that, you're seeing something no one else is seeing.
Neil Cavuto: Actually we have seen it Ben. I pointed out data this week Ben. But you don't argue that the higher these gas prices go, it's going to put a crimp on the consumer?
Ben Stein: If it went very much higher it would be a crimp on the consumer. We've started using energy much more efficiently. I think we're going to see a drop in energy prices anyway.
Meredith Whitney: The M1 supply of money has contracted. The biggest fear is the consumer supports 70 percent of GDP and the consumer has been financed by low rates. As low rates go up, it is less inspiring for the consumer to borrow and spend.
Neil Cavuto: We've done fairly well in the face of this up tick in rates.
Charles Payne: Ben, I can't believe you're buying into this whole inflation is a scare thing. And as far as interest rates, we're recovering from 45-year lows. The real test is when we get to 3-and-a-half on the Fed funds rate or maybe 4.
Neil Cavuto: That's just a matter of time now.
Joe Battipaglia: The Fed’s recognition that inflation has returned commensurate with economic growth has done wonders for the dollar and has knocked commodity prices down. Oil prices are backing off. This is a very interesting phenomena.
Neil Cavuto: It's only a couple of days phenomenon.
Joe Battipaglia: Yes, but it does suggest the Fed is tuned into this. It does suggest that the interest rate structure is moving correctly.
Jon Najarian: You've got the biggest company in America today, General Electric, raising guidance. Because of that guidance going higher, I think this stock market is just starting to move.
Neil Cavuto: So what does the biggest car company tell you when General Motors says it looks stinky?
Jon Najarian: It does look stinky because of the automobiles that they're producing, the SUVs and the pickups, are the ones consumers don't want.
Meredith Whitney: But also most of their sales are generated from zero financing.
Joe Battipaglia: In the month of March, Toyota Motor had one of its best months. They were supply constrained here in the United States; they're breathing on the heels of General Motors.
More for Your Money
Neil Cavuto: Time to find the next big takeover bet so you can get more for your money? Charles, what do you have?
Charles Payne: EMC (EMC) has been a takeover candidate for a long time now. The stock has come down dramatically. We're seeing a lot of takeover activity. You really have to be an end-to-end provider and this makes the perfect piece for a lot of different companies like IBM and Computer Associates.
Jon Najarian: I love you big guy, but the Documentum has not given us what they're supposed to have given us. That's their new product that's supposed to integrate all of these, all your desktop applications, so you can have a paperless office. I own EMC, but I've been depressed about it because the stock has not rewarded me.
Neil Cavuto: Jon, what are you buying right now?
Jon Najarian: I like an independent refiner called Tesoro (TSO). They refine crude oil into gasoline. Michael Wylie just came on to their board of directors. Wylie used to run a little company called Baker Hughes. And I think the $2 billion Tesoro is indeed a takeover target.
Ben Stein: Tesoro is an incredibly well-run company. It's had an amazing turnaround in the last three years. It's a very good company, but I think it's awfully high. I don't think it's a bargain. You're not buying it at its peak, but near its peak, and that makes me nervous.
Neil Cavuto: Joe, what are you doing?
Joe Battipaglia: Banks are continuing to consolidate, particularly with this change in interest rates. AmSouth Bank (ASO), a $48 billion commercial bank out of Alabama has the right footprint for an acquirer. The stock trades at 25. I think it can go 30-35 on a takeout.
Charles Payne: I don't think there's a lot of upside potential. I can't see it commanding a large premium. If there is a deal, it would be probably at the current share price or even lower.
Neil Cavuto: Ben, what are you doing?
Ben Stein: I like the banking sector too. Washington Mutual (WM) has been talked about as a takeover candidate for a long time. It hasn't happened yet. It's the perfect company for a nationwide footprint as you might say, a footprint that goes coast to coast. I own shares.
Neil Cavuto: What if they are the acquirer?
Ben Stein: They're not making enough money to be the acquirer.
Joe Battipaglia: Their faltering here because they have a large mortgage portfolio that's starting to drag them down. I think they're a troubled company, and in this environment, I don't see them as a delectable target.
Head to Head
Neil Cavuto: Could the government's effort to protect you from potentially harmful prescription drugs actually cost you your life? Time to go head to head. Joining me, Jerry Brown, the Mayor of Oakland, California.
I guess what worries me is, in an effort to look after the safety of Americans, we're keeping potentially life saving or at the very least life improving drugs off the market, and that the good for a lot of these drugs more than outweighs the bad.
Jerry Brown: You always have a cost benefit to the question here. Any chemical you put into your body is going to have an effect, and in many cases, a bad effect as well as a good effect. So nobody should be fooled that there is a magic trouble-free intervention by way of chemistry. Having said that, there are a lot of fabulous interventions by way of pharmacology that we're using. And we don't want to restrict that.
Neil Cavuto: But Mayor, we're doing that. When those who develop these drugs are saying, 'Uh-oh we had one case of death. The drug is being pulled. We better go slow on this.' And then there are people out there who desperately need these drugs, who would be willing to sign a waiver, anything, just to get access to them. And they can't. That hurts them, right?
Jerry Brown: Right, adults should be allowed to make their own decisions, and there's always going to be a tradeoff. Here's what I think is missing. After the drugs are approved, the FDA has to have the ability to do further testing. Second, doctors take drugs approved for one thing, and go and use it for another. And thirdly, when you talk about all the great things the drugs do, you also have to show the downside.
Neil Cavuto: But Mayor, here's the thing. Show the downside. But for those with advanced Lou Gherig's disease, or Multiple Sclerosis, the opportunities that come from these drugs, they won't have the chance to ever see them. They are doomed right now because the access to a drug that might improve their life, the government has already taken that opportunity away.
Jerry Brown: As you frame it, obviously somebody who has a life-threatening disease should not be denied something that really can help. What I'm saying is when these drugs get on the market, that there are many consequences that were not discovered with only 3,000 human tests and when you hit the larger population you have to be able to react, and the doctors have to be supervised, and yes the advertising has to be fair and balanced.
FOX on the Spots
Joe Battipaglia: March "correction" madness is over! Market rises 10 percent.
Meredith Whitney: Housing prices have peaked; Time to rent!
Jon Najarian: General Motors (GM) has bottomed; Buy it now!
Ben Stein: Forget inflation! Oil dips; Interest rates stay tame.
Charles Payne: Ben's right! Dump oil stocks; down 10 percent in 2 months.
Neil Cavuto: Something good out of the tragic Terri Schiavo case: more people, rich and poor, are discussing how they want to live their final days. It's good for families to talk, and good for them to discuss what has — up until this tragic case — been the un-discussable. Maybe some good can come from this human tragedy.
Forbes on FOX
Flipside: College Cri$i$!
Peter Newcomb, Senior Editor: One of the reasons we have such a strong democracy is because we've done such a wonderful job educating the middle class. As a proud member of that group and as the father of two children, I'm going to have to shell out close to half a million dollars to send my kids to a decent university. That's just an outrageous number. I think something needs to be done about that.
Quentin Hardy, Silicon Bureau Chief: The problem begins with ourselves is some ways. We value some of these elite universities so highly, that we'll do anything to get our kids in there, as if they won't be able to make a mark without it. Most Americans go to community colleges and state schools that don't cost as much and do a great job. By the way, at many of those great universities, your kids aren't going to get a great education. They're going to have some teaching assistant or graduate student push them through.
Elizabeth MacDonald, Senior Editor: The overall cost of college tuition has far surpassed the rate of growth of family incomes and inflation. And the problem here is that colleges will say that we have to have sticker shock with our tuition price because we are giving out a lot in financial aid. But guess what, 2/3 of that financial aid comes in the form of loans. So students are becoming extremely indebted by the time they graduate.
Victoria Murphy, Staff Writer: More kids are getting grants then are getting loans. A lot of studies show that the net cost of a college education has actually been flat because grants have been rising over time. I'm not saying that college tuitions are not high, but I'm saying that financial aid, in a lot of ways, is picking up the slack.
Steve Forbes, Editor-in-Chief: Uncle Sam has become "Uncle Sugar" to these universities. The government is to blame because when they give the grants and they give the loans guess what, the colleges and universities raise the tuition. It's just a conveyer belt of taxpayers to colleges and the students are left holding the bag. Whenever they give aid to students, they end up raising tuition, so the student is left no better than before.
Rich Karlgaard, Publisher: There's a real scandal here and that's colleges have unlimited pricing power because employers have turned a college degree into a credential. Now why does a sales person or a web designer need an art history degree? Because it gives employers a way to avoid discrimination suits which have tripled in the last decade. So we have this 'credentialization' of white-collar America, colleges know this and they jack prices up.
David Asman, Host: Are you saying lawyers are to blame for this?
Rich Karlgaard: This has happened because the court systems have permitted a tripling of job discrimination suits over the last decade.
Quentin Hardy: Why isn't this a free market? Why don't people just vote with their feet. Choose better schools that aren't charging as much and offering better value and giving a real education. There are values to be found out there. You guys like free markets, why do we continue to worship these Ivies? Maybe they aren't really delivering value for money?
Steve Forbes: Part of it too is that the colleges know that they can keep raising tuitions because Uncle Sam will keep subsidizing the students. If Uncle Sam would stop the subsidy, we wouldn't see this rapid rise in tuition.
David Asman: You know it's not just the Ivies. Here is what the scare is all about. A four-year degree currently costs an average of $77,740, that's an average for tuition, room and board at both public and private universities. If you have a kid right now, by the time he or she heads to college you'll have to spend $223,800.
Elizabeth MacDonald: Two thirds of all financial aid that is given to students every year comes in the form of loans. It's not mostly grants, its loans. And the scandal here is colleges for years have been raising money from rich people in the form of big endowments. They are becoming greedy bankers. They are sitting on those endowments. Those endowments are suppose to reduce tuition costs.
Steve Forbes: How much does a tenured professor teach undergraduates today versus ten or twenty years ago? To find the answer you'll need a microscope.
Victoria Murphy: Harvard doesn't want to look like a bargain. If Princeton jacks up its prices Harvard doesn't want to look like the value play, so it escalates its price.
In Focus: Is Social Security Reform DOA?
Quentin Hardy: The idea that the White House was borrowing trillions of dollars for private social security accounts and putting it in the stock market thinking that some day a Congress with some real guts would be able to cut benefits is not going to work. But we should be grateful for what that means for the market.
Steve Forbes: It's DOA in that fact that the President never really put anything on the table, which is why the critics have had a field day with it. If you put something on the table then I think you can revive it and get something through.
Mike Maiello, Staff Writer: If whatever we've been hearing about is dead than that is good for the markets, because the debt that we would have had to take on to do that non-solution solution would have killed us.
Elizabeth MacDonald: To me this is very clear. If you set up private accounts, you do have to issue trillions of dollars in debt but you would have to issue that debt anyway to pay for future benefits. In other words, what the President is saying with these private accounts is this; you keep more of your money so the Congress doesn't spend it on government kickbacks or you get to stay in the system. If there is no reform it means more deficit spending and higher taxes down the road.
Lea Goldman, Staff Writer: I'm on the mindset that this is a "dead plan walking". I'm getting flash-backs of Hillary Clinton's healthcare plan. I wish people would call it as they see it. I think the impact on the market is nil. It's just a lot of talk and a lot of hot air. We're not even talking about nuts and bolts here. It's not going to have any ripple effect on the market.
Steve Forbes: I think it's depressing the market, because the market fears that if it does something they're going to have a substantial tax increase which will weaken the economy. This is not the way to solve future problems. It's counter productive. If you make the economy weak, what's the point?
Elizabeth MacDonald: The other issue that is a problem here is Medicare. The cost of Medicare and Social Security by the year 2030 will surpass the entire budget and that is frightening.
Quentin Hardy: Yes Medicare is an enormous crisis and one the President hasn't addressed at all here. However, what has been healthy about this Social Security debate is the focus on people's inability to save enough. One quarter of 401Ks get no investment from employees. Only 10 percent of 401Ks get the full investment. That is a tax benefit to people every year. People should be doing that and they are not.
Mike Maiello: There are some solutions that aren't radical. For instance, you could raise payroll taxes, according to the trustees, by a mere 2 percent and get solvency. A mere 2 percent is not going to kill us.
Steve Forbes: If you give the politicians even more money by raising taxes it's like bears with honey. They're going to spend it, they always do.
Quentin Hardy: I can not change how a politician is. It's amazing that Bush thought that somewhere down the road there would be politicians who would cut benefits when the can't. That was a big part of his plan. What could change this would be raising retirement age.
Mike Maiello: I don't like the argument that we can't fund a program just because there are irresponsible politicians out there. Then why do we do anything? Let's dissolve the government.
Elizabeth MacDonald: I think what the President needs to be clear on is that if you do go with private accounts your benefits will be cut. But, it's a good thing to be in control of your own money.
The Informer: Higher Gas Prices Are Good!
Victoria Murphy: Gas prices will keep heading higher and therefore, so will some energy stocks. This week there was a fire at a Texas oil refinery and oil future prices popped. So this is a sign that the market is very tightly wound and it's because we are in a period of high demand for oil. This isn't like the 1970s which was a supply problem. This is a demand problem.
Rich Karlgaard: Well, there is demand. But a third of the price of oil is a reflection of the weakening of the dollar over the last 18 months. Now if I thought that the dollar was going to continue to weaken I would agree with Victoria but in fact Federal Reserve Chairman, Alan Greenspan, has stepped in and said enough is enough. I think we're going to see $40 a barrel oil prices by the end of the year.
Lea Goldman: I disagree. Demand is very tight that's why it reacts very aggressively to any kind of interruption.
John Dobosz, Associate Editor: Victoria is right. That huge explosion at the refinery was about 3 percent of all U.S. gasoline.
David Asman: Victoria, what's your stock based on your thoughts that oil prices are going to go up?
Victoria Murphy: I like Valero Energy (). They are good at processing and refining sour crude and a lot of companies are not good at this. Sour crude is cheaper so Valero has cheaper commodity costs and it will impact profits.
David Asman: John, you don't think oil prices will continue rising but you still like this stock.
John Dobosz: All refiners make money on the spread between the price at which they buy their oil and the price at which they can sell their refined output. If oil goes down, which I think it probably could, their profit margin will go up.
Rich Karlgaard: Oil and oil stocks are heading lower, which makes me sour on Valero Energy.
Lea Goldman: I like PetroKazakhstan (PKZ). It's a great company. It's a bit of a misnomer because it's a Canadian company sitting on tons of oil reserves in Kazakhstan.
Rich Karlgaard: I like Canadian beer, not Canadian oil. My bet is that oil prices are going to go down because the dollar is strengthening therefore I like airline stocks, particularly Southwest Airlines (LUV) because it's so well managed.
Victoria Murphy: I "luv" Southwest as a passenger but I don't like the stock. I think it's pricey. Airlines scare me and Southwest is seeing a lot of competition.
Makers & Breakers
• CAMBIAR OPPORTUNITY FUND (CAMOX)
Adam Bold, The Mutual Fund Store: MAKER
This is a large cap growth fund. It's run by Brian Barish out of Denver, Colorado. It's unique distinction is that he's beaten the S&P 500 every year of fund's existence.
David Asman: You think it can go up over 20 percent to $21 within a year. (Friday's close: $16.61)
Peter Newcomb: MAKER
It has a marvelous track record. Large cap is nice and safe and it has low management fees.
Elizabeth MacDonald: MAKER
This is a fund that is looking for cheap, undervalued shares. They have a great track record and Morningstar, the mutual fund gurus, rate this fund very, very, high.
David Asman: A few caveats. This fund is already up a couple of points over the past 6 months alone and why pay a fee when you could go into an exchange traded fund, which tracks a certain market of stocks but doesn't charge a fee?
Adam Bold: The bottom line is that when I make a fund recommendation I can't guarantee results. What I can do is do things that are going to improve the odds of success. And when you see a guy like Brian Barish who's gotten the job done year after year, it greatly enhances your odds.
FORWARD HOOVER FUND (FFSCX)
Adam Bold: MAKER
This fund is run by Irene Hoover out of San Francisco. She's just been an absolutely superior small cap manager.
David Asman: $22 is your 12 month target. (Friday's close: $17.65)
Elizabeth MacDonald: MAKER
I'm a maker on this one. Irene has been looking for baby blue-chip stocks. In other words, those small companies that will explode with growth. Strong business models and great financial management makes this a good fund to buy.
Peter Newcomb: BREAKER
I'm a begrudging breaker on this one. Small caps make me a little nervous and I'm not really bullish on that segment of the market right now.
Stock Smarts: Bubble Proof?
Is the housing market “bubble proof” or did something happen last week that spells doom down the road?
Mortgage rates are on the rise. So what? The housing market is still hot. Rates are still historically low and home prices are showing no signs of going lower. So, is the housing market bubble proof?
Jonas Max Ferris, Founder of MAXfunds.com: Absolutely not. There is no investment in the world that is bubble proof. The most frightening thing is when people think an investment is bubble proof just because in the past it has done a certain thing. There has been a lot of spectacular data here about housing. Just last week, new home construction prices are going up. That is danger, and a sign there could be a bubble. People need to be aware that is a possibility. Maybe buying a home that just doubled in price with 5 percent down is risky.
Tom Adkins, RE/MAX Property Center: If prices are going up, that means just the opposite — there is no bubble. Prices for housing are determined by people's ability to buy. That is determined by the following simple formula: net income versus cost of buying the house. If rates go up a little bit, and the cost of housing goes up a little bit, but people's incomes are outstripping that, prices are going to go up. The housing market looks great because the economy looks strong.
Wayne Rogers, Founder of Wayne Rogers & Company: Well, I don't know. I think you all speak with forked tongue. Let's face it; housing does follow the interest rate market. A lot of these adjustable mortgages will become suspect in about six months. A lot of that will slow down. What you're going to see first is a slackening in the pace of the market. You're going to see absorption rates go down. Then you're going to see a rise in prices and housing stock. Yes, we're on the edge of a bubble is the answer.
Terry Keenan: Herb, you're out there at ground zero for this housing market. What do you think?
Herb Greenberg, Senior Strategist at Marketwatch.com: I think that Wayne is more than correct. I would take it to the next level and say not just adjustable rate mortgages, but also interest only mortgages that people are coming into, two-year interest-only mortgages. They are not even paying down the principle. These people, if they can't afford two years from now to make up the difference if prices come down, they are going to be under water. The issue of housing prices is an issue of supply and demand. When you get tract homes at $1 million, almost $2 million, there are a limited number of people who can afford those homes.
Dagen McDowell, Fox Business News: But Herb, there is going to be a floor on this housing market, looking into the future, simply because we have demand from new households being formed, immigration into this country, and then also 77 million baby boomers retiring and buying second homes. That gives you at least some support.
Terry Keenan: But they will be selling their first homes I guess, if they’re moving into their second homes.
Jonathan Hoenig, Portfolio Manager at Capitalistpig Asset Management: You have to live somewhere. Owning a home is part of the American dream. Should people own a home? Yes, save some money, get a down payment and own something. You have Tom on the other end of the extreme. You love these interest-only mortgages. Last time around you said you own like 15 homes?
Tom Adkins: Much more than that. I'm buying about 10 this year.
Jonathan Hoenig: Mazel tov to you, best of luck. I think people are going to get hurt, though, Terry. The rest of the panel is onto something here. It's technique that matters. People have to live beneath their means, not outside their means.
Tom Adkins: If it was very difficult for people to buy these houses, they wouldn't be buying them. They are buying the house and getting the mortgages because they are making more money.
Terry Keenan: Homes used to be a vehicle for savings as well – a vehicle for retirement. With interest only mortgages, no one is building any equity. You're essentially leasing your house.
Tom Adkins: If you are paying off the principle on your mortgage, but you can take the principle and do something better with it like buy stocks, or buy a bigger, better house that appreciates faster, it’s a smarter move.
Jonas Max Ferris: First of all, we just saw the cost of renting a home is at historic lows compared to the cost of buying. That's a dangerous sign that prices have gotten out of whack. People say it's only in certain regions. That's like saying only certain stocks in 2000 were overpriced. California, Florida, New York, that's like half the market cap of homes in the whole country. It if they are overpriced, the whole market is overpriced. It is a bubble.
Jonathan Hoenig: Jonas, what do people do then? Should they sell their homes and start renting apartments?
Jonas Max Ferris: First of all, there is nothing wrong with owning a home. We're talking about speculative buying, a second home. We’re also talking about upgrading a home, putting down 5 percent equity on a home that has just doubled in price. That is a very risky move. The home falls 20 percent, you're totally under water.
Terry Keenan: Wayne, you have been lightening up on your real estate lately. Are you still doing that?
Wayne Rogers: I'm still building some homes and I'm selling them, but I'm in an entry-level market in one place. As Herb rightfully points out, in north San Diego County, $2 million is an entry home. What are you, crazy? People cannot afford that. It's going on in Riverside County. Eighteen percent of the population there can afford a new home. That's it. So this thing is definitely coming to a halt. It's just a question of time before interest rates choke them.
Terry Keenan: Herb, we've seen what's happening in the auto industry. No more zero percent financing; sales are tanking!
Herb Grenberg: I think that is telling you where this is going to head. Interest rates go up, this is a given. Interest rates go up; houses become less affordable. I wish that weren't the case. Tom is going to win in all this because you have to remember he's a realtor. He's speaking the realtor line.
Tom Adkins: I'm an investor, though.
Herb Greenberg: You're an investor. You can afford those interest-only mortgages. Other people, if it’s a place to live, live in the house, just understand there is risk. Remember, those of us who lived in the bay area in the end of the 1980's who bought houses in bidding wars and couldn't sell them three years later because nobody wanted them, that's going to be repeated.
Dagen McDowell: Herb, that's the point, if you plan to live in it 15, 20 years, you shouldn't be that worried.
Herb Greenberg: Nobody does anymore. That is the problem.
Dagen McDowell: Maybe that needs to change.
Terry Keenan: Not a problem for you, Tom. I think the average ownership now is seven years. It's great for realtors.
Tom Adkins: Let's remember one very important thing that Dagen has touched on. If you live in a house and you own a house, you own it already.
Terry Keenan: You don't if you're only paying the interest on a $2 million mortgage.
Tom Adkins: My first house that I sold was $38,000. If that guy did an interest-only mortgage, and took that money, he could have been paying his principle and put it in the stock market, he would be a millionaire today.
Wayne Rogers: Terry is right, you do not own the house. You are leasing it from the bank, from the government agency where you pay your taxes.
Tom Adkins: Not true.
Wayne Rogers: You don't think about the tax burden and the insurance burden and all those other things. Herb is absolutely right. When that stuff gets out of hand, you cannot afford it and they will not be able to afford it. They are going to get squeezed. Those things will go into foreclosure.
Terry Keenan: This week the market got a scare. Alan Greenspan actually surprised us a bit by perhaps indicating he's a little worried about inflation. Is that going to mean that rates will go up more quickly?
Jonathan Hoenig: The market shook up this week, Terry. Tom shakes his head, but a lot of interest rate sensitive instruments like utility stocks got clubbed this week. To me the issue with the housing is size kills. That's the old adage from the trading floor. People are leveraged to the hilt. You have to sell those. There are no bids there, and you get out at the bottom.
Best Bets: Big Names, Big Money!
They are the big name stocks that could bring you some big money. Let's get our group's best bets. OK, Jonas, you're up first. What's your big bet?
JONAS’ BIG-NAME BET: Wal-Mart (WMT)
Thursday’s close: $50.66
Jonas Max Ferris, Founder of MAXfunds.com: I'm big on this big theme. I think big stocks are the way to go. They’ve had a long, bad run. Wal-Mart is the biggest retailer in the world. It's been weak for about five years because it got overpriced in the 1990'S. Now it's as cheap as the market, doing bang-up business in taking over supermarkets, growing across the world. It’s a great stock to get at these valuations.
Jonathan Hoenig, Portfolio Manager at Capitalistpig Asset Management: You never fail to surprise me: picking some of the worst stocks on the market. I love Wal-Mart, the company.
Jonas Max Ferris: JetBlue (JBLU) last week?
Jonathan Hoenig: Wal-Mart is dead money. The stock is at a new 52-week low. That's not a roaring buy signal. It’s the middle of one of these trading ranges.
Jonas Max Ferris: It was in a trading range like that in the early 1990’s for about 5 years, and then it broke out and doubled.
Jonathan Hoenig: I would rather buy it at $60 and hope it's going to $160 than try to pick it here in the middle of this trading range.
Terry Keenan: Wayne, we know you're no fan of their business practices, but what about the stock?
Wayne Rogers, Founder of Wayne Rogers & Company: Jonathan is absolutely right. You don't want to be in this stock right now. I wouldn't commit new money to it ever. If you want to be in that area, you go into Target (TGT). I would not go into Wal-Mart. Wal-Mart is headed south. It's stayed there a long time. It's a wonderful business as far as an economic thing goes, but as you know, I'm somewhat morally opposed to what they do to small town America.
Terry Keenan: Do you own Target stock?
Wayne Rogers: No, I do not.
Terry Keenan: What's your big bet here?
WAYNE’S BIG-NAME BET: Procter & Gamble (PG)
Thursday’s close: $52.60
Wayne Rogers: Well, I like Procter & Gamble. I think it's a defensive play because I think the market right now is very volatile and subject to a lot of extraneous things that are going to cause the market to be very choppy. P&G is a large company. It has increased earnings in the last four quarters. I think it's a terrific company. I would buy it here as a defensive play. I would not buy it expecting to make a lot of money.
Terry Keenan: Jonathan, what do you think of P&G?
Jonathan Hoenig: I have been impressed with a lot of the companies that make products we need every day, like Clorox (CLX), which is another strong name, similar group to P&G, like Playtex (PYX). Not where we’re betting money on in my fund right now. I have been impressed with the stock. I would try to hold through the market turbulence that we’re having.
Terry Keenan: You're defensive also?
Jonathan Hoeing: The market got shook last week. I think you have to be very careful about putting new money to work. I would hold P&G, just not new money for me though.
Jonas Max Ferris: I think Wal-Mart will hurt businesses like P&G because they are so big they get to control margins with the pricing power.
JONATHAN’S BIG-NAME BET: Sony (SNE)
Thursday’s close: $41.28
Jonathan Hoenig: People know Sony. They know the stock has been a major laggard for a long time. They just brought in Howard Stringer. I'm hoping he can bring a bring dose of US-style, take-no-prisoners, capitalism. Sony could be a real turnaround. If we see at Sony what we saw in General Electric (GE) in the 1980s.
Terry Keenan: Have they lost their lead? We always had Sony TV’s. Last weekend we bought a Samsung.
Jonathan Hoenig: I have had a Sony TV for 14 years. The thing won't die. This is a top brand that’s in need of a turnaround.
Jonas Max Ferris: I kind of agree. Other than the recent PSP launch, I think they have missed a lot of key products like the mp3 player. I have been a bull on Japan for a few years. I'm concerned our weak dollar will make it hard for Japanese companies to export a lot of goods to this country. The stock is worse than a lot of stocks I have talked about. You sound like me trying to find a bottom in this stock.
Jonathan Hoenig: I think you have better odds with Sony than a lot of the dreck you pick.
Terry Keenan: Wayne, what do you think of Sony?
Wayne Rogers: Actually, I like News Corp (NWS), the parent of this network, a little better than Sony. I think Howard Stringer is a very charming guy, he's a great storyteller, a great speech maker. Whether or not he can run this company, I'm not sure. But Sony is a good company, and it's solid, and all of those kind of things. I just don't think it's the best one. It's not on my list right now.
Cashin' In Challenge
Check out the $10,000 Cashin’ In Challenge at: www.foxnews.com/challenge
Question: “Wayne often talks about a stock ’forming a bottom.’ What does he look for to signal ‘a bottom?’” – John Oleyar, Westerville, OH
Wayne Rogers, Founder of Wayne Rogers & Company: Well, it's not a secret, because if it was a secret and I talked about it, it's no longer a secret. But let me tell you what I do look for. I look for drying up of volume at the bottom. You're looking at a chart of the stock. You look at a dry-up of volume. Then you see when the stock goes through a certain formation: some of these are double bottoms, some are described by various diagrams you would want to ascribe to the stock. Then when the stock begins to break out, that is to say when the stock volume increases and the stock price rises on volume increase and after a base has been formed, then you can look at that as a buy signal.
Dagen McDowell, Fox Business News: Technical, technical, technical. If you are just looking at fundamentals, all you have to know is, do you think the stock is cheap and do you like the company's business going ahead?
Jonathan Hoenig, Portfolio Manager at Capitalistpig Asset Management: More dangerous words were never spoken. Terry, I think a lot of times people want to buy a stock that's in the news that day. They see that Krispy Kreme (KKD) is down 15 percent. They want to grab a bargain. That's the way to get in the stock. I want to see a stock doing well with no buzz. What are you laughing at?
Herb Greenberg, Senior Strategist at Marketwatch.com: He's talking about Krispy Kreme a bargain. Don't say that, Jonathan. There is so much risk there. That's a case of a chart showing you something that you have to be really careful about.
Terry Keenan: You don't own Krispy Kreme, do you, Jonathan?
Jonathan Hoenig: No. It's an example of how low a stock can go. A lot lower than people think.
Dagen McDowell: You could have looked at that business, Jonathan, and figured out there were serious problems there. Hello, FCC investigation.
Jonathan Hoenig: We never owned it.
Wayne Rogers: If you don't look at the chart, and you don't look at volume and price, you're not going to pick a good entry level, even if you love the stock and the fundamentals are great. So you have got to do some technical homework.
Terry Keenan: You probably use that in 25 percent, 50 percent of your decisions, Wayne?
Wayne Rogers: It has an influence on every decision I make. I don't just do it in an isolated fashion. I don't use pure technicals or pure fundamentals. I use them to help each other.
Question: “I bought Scottish Power (SPI) last year. Does Jonathan still like this stock?” – Adela Batista — Key Biscayne, FL
Jonathan Hoenig: I owned it last year in the challenge. I owned it in my hedge fund. I still own it in the hedge fund. Despite the tick-up in interest rates, we still own a ton of these international utilities. A lot of domestic ones as well. I know Dagen thinks I'm insane for holding these in the face of higher interest rates. We have been shaken out of a few. But we’re holding on to the positions that are winners, and I like Scottish Power moving forward.
Question: “What do you think about the Alpine Dynamic Dividend Fund (ADVDX)?” – James Capozzi Jr. – Glen Cove, NY
Dagen McDowell: I don't like it. One, it's too young. Here is a dirty little secret: If a fund has high expenses, and this one is not cheap, then the expenses get deducted from the dividends before you get the dividend payout. You want to make sure you have a cheap fund. The Vanguard Dividend Growth Fund (VDIGX) is the one to look at.
Herb Greenberg, Marketwatch.com: You can say at least it's probably making more money consistently than Overstock right now. Here is all you need to know: Google (GOOG) is its largest customer and one of its largest competitors. What could Google do? It could either buy the company, or become a bigger competitor. Lots of risk there.
Stock of the Week
Last week’s pick from Mike Norman was Annaly Mortgage (NLY). For the week of March 21 – March 24, NLY went up 2.1 percent.
Wendell Perkins is here from JohnsonFamily Mutual Funds. He says Wyeth (WYE) is a cure-all for any ailing investor. His fund holds shares of this stock. Why should someone buy this stock now?
Wendell Perkins, JohnsonFamily Mutual Funds: The pharmaceuticals have been exceptionally unpopular with investors, but Wyeth is really a very interesting name to own today because the company has a great diversified product line and a very strong pipeline. This is a company that's creating about $4 billion a year in cash. It has very strong operating and gross margins and has ultimately some very good growth for investors in the long term. And to top it all off, management just raised estimates for the first quarter on Monday of this week, and suggesting that there may be more upgrades coming forward.
Tom Adkins, RE/MAX Property Center: I took a look at it. I thought to myself, not a bad stock. There is no compelling reason to buy it. I agree with you that the sector has been beaten down, time to jump back in the sector. If you want to get back in, look at two stocks. Johnson & Johnson (JNJ) in the same sector or Merck (MRK) if you want to roll the dice a bit.
Terry Keenan: Do you own either of those stocks?
Tom Adkins: I have owned Merck twice this year. Bought it and sold it, bought it and sold it. It's pretty good.
Wayne Rogers, Founder of Wayne Rogers & Company: I like Wyeth. I think he's onto something here. It had a good move this last week. I think the company has done well. He's right. The company has beat the street, and it’s beating the street maybe by 10 cents in this quarter. I think it's a good company. I think it's going somewhere. I think you're on to something.
Wendell Perkins: Absolutely. When you look at the pharmaceutical group, we have not seen any management stepping forward and saying things are looking good for us. This company is. Investors are hungry for that kind of thing in this industry.
Terry Keenan: Wayne, are you seeing the kind of bottom in the chart of this stock that you look for as one of our viewers asked?
Wayne Rogers: Like I said, last week it gapped up on pretty heavy volume, so that's a very good sign, yes.
Tom Adkins: If you look at the past year, especially the past six months, it's going up and down. It's not breaking ground, it's not doing anything compelling to make it a buy.