Published June 06, 2005
DISCLAIMER: THE FOLLOWING "Cost of Freedom Recap" CONTAINS STRONG OPINIONS WHICH ARE NOT A REFLECTION OF THE OPINIONS OF FOX NEWS AND SHOULD NOT BE RELIED UPON AS INVESTMENT ADVICE WHEN MAKING PERSONAL INVESTMENT DECISIONS. IT IS FOX NEWS' POLICY THAT CONTRIBUTORS DISCLOSE POSITIONS THEY HOLD IN STOCKS THEY DISCUSS, THOUGH POSITIONS MAY CHANGE. READERS OF "Cost of Freedom Recap" MUST TAKE RESPONSIBILITY FOR THEIR OWN INVESTMENT DECISIONS.
Bulls & Bears
Brenda was joined by: Gary B. Smith, columnist for RealMoney.com; Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, editor ChangeWave Investing; Scott Bleier, president of HybridInvestors.com; Gary Kaltbaum, president of Kaltbaum & Associates; and Chris Russo, former "Apprentice" contestant and senior vice president of investments for GunnAllen Financial.
Trading Pit: Summer Rally?
Memorial Day kicks off the "official" start of summer. Will there be a summer stock rally?
Tobin Smith: Yes, we will get a summer rally and I think the Dow could hit 11,500. People sold out too early because they were afraid that earnings would be horrible. And earnings haven’t been horrible. The only thing that could really stop the market now is if the Federal Reserve says they will raise rates until 2006. But that won’t happen because the Fed will telegraph its interest rate moves. And when they’re done, stocks will explode.
Chris Russo: We are in a summer rally. I think the Dow will top out around 10,800, but then will fall to 9500 by the end of the summer. Right now we are in a no news environment--earnings season is over and there's no news in the summer to push the market higher. Big institutional investors are buying stocks and "suckering" people in. This inflates the price of stocks and causes investors to get in because they're afraid they'll miss the rally.
Gary B. Smith: I agree with Chris. The summer rally has already started. The Nasdaq has gone almost straight up, gaining about 8 percent in the last month or so. And it has a ton of resistance at 2100. That's where I think we may see some real selling, causing stocks to stall out. This is where the big institutions will start taking profits and lock in their gains before the inevitable summer meltdown. But if we can break through 2100 with no problem, the Nasdaq should hit 2200.
Scott Bleier: We are currently in the summer rally. Intel (INTC) has been up twenty days in a row. When was the last time a big cap Nasdaq stock was up that many days in a row? During the summer, we will hit the resistance that Gary B. mentioned, and then go nowhere for a while. But at the end of the summer, when earnings come out, stocks will break out.
Pat Dorsey: Stocks don't have much left for a summer rally. Nasdaq stocks are already up a bit from their lows. Earnings growth is solid, but it has slowed down from last year. The economic environment is good, but not fabulous. There are a few good stocks out there, but I don’t see us powering up through the summer. The bargains I’ve found are Fifth Third Bancorp (FITB), Novartis (NVS) and Diageo (DEO).
There’s a new "American Idol." But who will be the “Stock Idol?” Tobin, Gary K, and Scott faced off. Pat, our own Simon Cowell, played the part of the judge.
Gary Kaltbaum: I’m rocking with petroleum company, Tesoro (TSO). It’s a strong stock that didn’t pull back when oil got hit. Plus, insiders are buying it right now. (Tesoro closed on Friday at $44.09.)
Pat: Oil refining is a very cyclical industry. It’s too risky. Don’t buy.
Tobin: I’m hitting all the right notes with Cree (CREE), which is transforming the world with light. The company owns the technology for white light. If all the incandescent bulbs in the U.S. were replaced, our energy bill would be lowered by 29 percent. This stock could go to $60 when the LED wave hits. (Cree closed on Friday at $29.64.)
Pat: Toby’s not totally off-key, just a little flat. The demand for LED is increasing, especially since the technology is used in cell phones. The problem is that Cree has a lot of competition. And this is cutting into Cree’s bottom line.
Scott: My stock, Solectron (SLR), will outperform all the others. This company makes electronic storage equipment. The company’s balance sheet is better than last year. I think the stock will hit $5 in the next 6 months. I own and recommend it. (Solectron closed on Friday at $3.49.)
Pat: Finally someone with talent on this show! Scott has hit all the right notes. The company has restructured very well under a new management team and the demand is improving. I really like that the stock is cheap and think it has a 30-40 percent upside. But this is not a long-term hold; so if it gets above $5, get out.
Get ready for summer! Gary B. and Chris picked the stocks they say are ready to heat up as the temperatures head higher.
Gary: I like Family Dollar Stores (FDO). The stock hit a low around $24 earlier this month, but since then has been heading higher. It’s ready for a big rally once it closes above $27. I own this stock. (Family Dollar Stores closed on Friday at $25.55.)
Chris: Ninety percent of the time I agree with you Gary, but not on this. This stock is going to be worth $1!
Chris: My pick is LifePoint Hospitals (LPNT). The price of healthcare is rising, but the doctors aren’t the ones making the money. It’s the insurance companies and the hospitals that are! This stock is going to keep heading up. I own it. (LifePoint Hospitals closed on Friday at $44.59.)
Gary: LifePoint has moved sideways for the past few months. This could head higher, but it isn’t worth the risk.
Chris: All right Gary, hopefully you’ll like WCI Communities (WCI). It’s a homebuilder in Florida that’s putting a focus on retirees. There could be a bubble here, but I still believe this is one to own. (WCI Communities closed on Friday at $30.30.)
Gary: I like WCI. It has a great chart and just broke through a downtrend. Buy WCI now because I think it’s going to mid $30s.
Scott's prediction: Think housing boom is big? It's going to get even bigger!
Chris' prediction: Oil prices are going higher! Exxon Mobil (XOM) gains 15 percent
Gary K's prediction: AIG (AIG) is a-OK! Up 15 percent in next 90 days
Pat's prediction: Say “I do!” to Blue Nile (NILE); Up 33 percent in 1 year
Tobin's prediction: NS Group (NSS) is piping hot; makes 50 percent gain by year-end
Cavuto on Business
Neil Cavuto was joined by Jack Welch, author of "Winning"; Gregg Hymowitz, founder of Entrust Capital; Jim Rogers, president of JimRogers.com; Ben Stein, author of "Yes, You Can Be a Successful Income Investor"; Meredith Whitney, Executive Director at CIBC World Markets; Mike Norman, founder of Economic Contrarian Update;
Neil Cavuto: Raising the retirement age to close the gap in Social Security, could this be the quick fix that restores investor confidence and sends stocks on a tear? Back in 1937 when Social Security began, the retirement age was set at 65 -- higher than the life expectancies of both men and women. Today, full retirement has been lifted to 65 1/2 and it's working its way up to 67. But the average man is expected to live to 75, the average woman till 80. Good for us, but bad for social security's bottom line. The latest proposal: Raise the retirement age! Jack, that means a lot more workers. Can the economy handle them?
Jack Welch: Yes, I think it can. I think this is a very smart idea. It'll give us more part-time workers. It's a good remedy. Raising the age is the right answer. We have a chance to employ more people. It's a no-brainer.
Ben Stein: I agree. We bought a house out in Palm Springs, and out there the shops are recruiting older workers because they know older workers have the right work ethnic and pay attention to detail. Them staying in the work force will save Social Security.
Jim Rogers: I'm all for raising the age, but I'm against making it retroactive. All of a sudden we say, "Screw off?" That's why Social Security should be privatized so that everybody owns their own retirement.
Gregg Hymowitz: Ben and Jack are absolutely right. Life expectancy and health care costs have ballooned. And those who have the wealth like Jimmy probably should not get as much as someone who doesn't.
Meredith Whitney: We wouldn't be forcing the issue to be retroactive unless we were in dire straits. Another easy political maneuvering is to accelerate legalized immigration, thus having even distribution of retirees and workers.
Neil Cavuto: But Jim you're arguing that it was promised to you and you should get it. That if you knew then what you know now, you would've never given in, right?
Jim Rogers: That's the whole point. You don't, and you didn't have a choice. Is there no honesty left?
Gregg Hymowitz: We shouldn't compound the problem though. It doesn't work anymore. We have to fix it.
Jack Welch: Jim, your tax rate has changed at least 20 times. Things change all the time.
Jim Rogers: But that's different than saying to someone if you go into the workforce and pay taxes into a fund, we're going to give it back to you, and then not giving it back.
Neil Cavuto: Ben, there are a lot of programs that well-to-do guys like Jim pay into that they never see a dime of. Will Social Security become means tested?
Ben Stein: It's a very good idea. There's no reason we should be getting the same level of Social Security benefits we were originally promised. If the system is in trouble, the poorest of us should get that money.
Jim Rogers: So you want to raise taxes?
Ben Stein: Yes. Absolutely.
Neil Cavuto: So make it an entitlement program.
Ben Stein: The wealthy are plenty rich enough.
Jack Welch: I totally agree with that. You have to means test Social Security.
More for Your Money
Neil Cavuto: How do you pick a winner in every sector so you can get more for your money? Jack, at GE you said you only wanted to own companies that were number one or number two in their industries. Should investors do the same?
Jack Welch: It's a bit more complicated in investing. The trick is to pick the company and people with the right innovation.
Mike Norman: I like Dell (DELL). It's the Wal-Mart of technology. They have mastered the distribution chain. This is the business model that works everywhere in the world.
Jim Rogers: Why would you want to buy something that's so expensive?
Mike Norman: I see Dell moving into markets it hasn't been in before.
Gregg Hymowitz: I'm staying with the more mundane. We own Foot Locker (FL). This stock owns the market. I like market leaders.
Mike Norman: A lot of the marketing for the foot apparel is going to lose its steam because there's no more steroids, no more monster, juiced up athletes.
Gregg Hymowitz: That's silly. You can't tie steroids to Foot Locker.
Ben Stein: I like Boeing (BA). I own it, and I’ve been recommending it since it traded in the 30s. It's priced pretty high now, but its earnings are going to come out extremely high. It's an amazing company.
Mike Norman: This stock has more than doubled since we went to war in Iraq.
Jim Rogers: The best way to play energy is to buy sugar. Sixty percent of the cars being built in Brazil are designed to run on Ethanol, which is made from sugar, and right now sugar is trading way below its historical high.
Neil Cavuto: Jack, what do you think about that, looking not at stocks but at esoteric areas?
Jack Welch: Who would've thought of buying sugar as an investment in energy? Only Jim could come up with this very creative idea.
Inside Jack's Head
Neil Cavuto: Call it bubble-phobia! Record-breaking real estate prices have many living in fear of that popping sound. Well, a real estate bubble did burst back in 1990 while Jack Welch was sitting on top of a pile of it at GE. So, is he worried now? Let's go inside Jack's head.
Jack Welch: We're probably in the seventh inning of a ninth inning game. We're still at reasonable levels. Home prices are roughly three or four times income. In Japan when the bubble burst they had reached ten times.
Neil Cavuto: But they're not three or four times in your neck of the woods in Boston or Silicon Valley or Florida. So I'm wondering if Alan Greenspan was right when he said there were bubbles at least in parts of the country?
Jack Welch: I was in Las Vegas last weekend and they're requiring homeowners who are flipping homes to give half the capital gain back if they flip within two years.
Neil Cavuto: Yes, but they're doing it after the fact. Right? If hot areas begin to implode and the flipping stops, doesn't that spill over to the rest of the country.
Jack Welch: It could have political implications. In the 1992 election, New Hampshire had dropped dramatically in the bubble, and George Bush got hammered in New Hampshire. There's no question it will affect local politicians. I'm not saying we don't have the potential for a bubble. But I don't see one short term.
Neil Cavuto: But, what about the GE capitals? You were sitting under that during the last bubble. Did you get left holding the bag at the time? Did a lot of other real estate purveyors get left holding the bag?
Jack Welch: Of course, but we dealt with it. Last Sunday in Las Vegas I was with 40,000 real estate developers. They're bullish as can be, as they always are, even in the un-hot areas like Las Vegas and Southern Florida.
FOX on the Spots
Jack Welch: Bush gets BIG tax reform this year!
Gregg Hymowitz: Government is spending like a drunken sailor; rates rise.
Ben Stein: Uncle Sam wants you! Big boost in military pay.
Meredith Whitney: Employers paying top dollar; more jobs ahead.
Jim Rogers: Bank on Europe's small banks; buy Danske (DNSKF).
Neil Cavuto: Democrats are feeling their oats and knowing they've got the Republicans caving on key issues, including the filibuster. They're sensing a good 2006 midterm election and I think they're right.
Forbes on FOX
In Focus: Home 'Flipping' for Profits
Neil Weinberg, senior editor: A lot of people are "flipping", which is buying a house and quickly selling it for a profit. I think this is a good, but risky, way to make a speculative buck.
Steve Forbes, editor-in-chief: This is like the stock day-trading that we saw six years ago. The housing market is still up just like the stock market was up in the 1990s. People think this is the new business. Don't do it if you don't know what you're doing.
Elizabeth MacDonald, senior editor: I know people who flip, and they make a lot of money. The tax law is really generous for people making money flipping homes. It lets you shelter a lot of income. If you can do it, I would do it. But don't go deep into debt to do this. If you have extra money and you are afraid of the stock market right now, it might be a good idea but be careful.
Dennis Kneale, managing editor: This is crazy. Buy a home to live in. When you sell your home because it's gone up so much in value, where are you going to move to? An overpriced home in the same market?
Victoria Murphy, staff writer: I think the "gold rush" is over because the word is out. Interest rates are rising, which is another bad thing for the real estate market. And a lot of people are taking on really risky loans to invest in property.
Jim Michaels, editorial vice president: "Flipping" is very addictive. I bet that nine out of 10 flippers go down the drain because they miss the top of the market. A legitimate business is to buy an old house, fix it up and sell it. Just speculating to flip houses is a bad idea and those that are making money off of it are headed for trouble in the end.
Flipside: We Need a National ID Card
Victoria Murphy: It's a joke that we rely on driver's licenses as the main form of identification. Anyone can get a fake ID. Let's create a new ID by adding better technology to Social Security numbers. This would give us a way to track who is here legally and who is here illegally.
Mike Ozanian, senior editor: We would have to spend billions of dollars to take information and give it to the federal government who can't even run Social Security. It will create a disaster here like it's been in France and Germany. Not to mention that this would take away your rights. They are going to be able to track every instance of your life. Tech companies want this so they can sell their technology to the government.
Neil Weinberg: The disaster is what we have right now. Driver's licenses are a big joke. Yes there are costs involved but there might be savings, too. Maybe you could use this as an ATM or maybe we could get rid of some state drivers licenses.
Steve Forbes: A national ID isn't a silver bullet! Bad people will be able to hack into the system and steal your ID. Brining all that data together just makes it easier for people to steal.
Jim Michaels: This idea won't work. It will just cost a lot of money. The terrorists will get around it and harassing illegal immigrants isn't the solution to our immigration problem.
The Informer: Bet on America!
Victoria Murphy: I like the great American company, Starbucks (SBUX). The U.S. economy is growing faster than economists predicted and so is Starbucks. They're also expanding overseas.
Dennis Kneale: I don't like this company. They're looking at international expansion, not in the U.S. They are trading at about 50 times earnings. I like CISCO Systems (CSCO). This is the tech stock ready to come back. Their sales grew 17%, their profits grew 40 percent and the stock went up less than 10 percent.
Lea Goldman: This is not the great American company. The receivables go higher every quarter which means that this company is cutting big discounts to pad sales. I like Domino's Pizza (DPZ). It's an efficient company and it's still growing.
Victoria Murphy: I don't like it. It's in a very competitive industry. Bet on coffee, not pizza.
Mike Ozanian: I like the great American company, Nike (NKE). It's growing and it has made a lot of low-income athletes rich with fat endorsement contracts.
Dennis Kneale: I don't like Nike. They're not hip anymore, Reebok is a better bet.
Mike Ozanian: Nike profits are expanding. It's at $82 on its way to $100
Makers & Breakers
• Cigna (CI)
Patricia Powell, president of Powell Financial Group: MAKER
For the past four quarters, Cigna has been coming in with better and better earnings. The street has still not woken up to this stock.
David Asman: You've got a target price of $122. (Friday's close: $98.89)
Jim Michaels: BREAKER
It's not under discovered. It's up over 50 percent in less than a year.
Elizabeth MacDonald: BREAKER
I don't like Cigna because of its unsteady membership and operating inefficiencies.
Patricia Powell: This is a good turnaround situation.
• Energy Select Sector SPDR (XLE)
Patricia Powell: MAKER
It's hard now to pick the correct energy company so don't. Instead, buy this spider. You have to like the oils to do well with this.
David Asman: You think it can go to $52 in 12 months. (Friday's close: $42)
Elizabeth MacDonald: MAKER
The price of oil is going to keep going up. This is a great way to play the game.
Jim Michaels: MAKER
I'm a reluctant maker. It's a good way to get into energy but you're not going to get rich on it.
David Asman: It's already had a big run up. Can it go up more?
Patricia Powell: I believe in energy for the next three to five years.
Stock Smarts: Oil Up, Stocks Up?
Oil prices are on the rise, though still off the record highs set in April. But Wall Street still has its eyes on the black stuff.
Can stocks rally even if oil prices continue to go higher?
Jonathan Hoenig of Capitalistpig Asset Management thinks stocks can go higher in the face of rising oil prices. He just doesn’t think that oil is “pulling the strings” like it was a year ago to 18 months ago. A lot of the oil stocks aren’t leading the market right now. And he doesn’t think oil stocks and energy stocks are a place for new money right now. But he wouldn’t short oil stocks.
Charles Payne of Wall Street Strategies also says that stocks can go up if oil goes up, but only to a certain extent. If we start seeing oil back to $54-55 a barrel, things could get shaky. But if it comes down below $50, that could spark a rally. We also have to admit that there is a big “hype factor” in terms of inflating oil prices right now.
Wayne Rogers of Wayne Rogers & Company says that oil companies have accumulated a lot of cash, so if oil comes down but remains above $30 a barrel, these companies will still be making money. Wayne doesn’t think that higher gas prices would really hurt the economy all that much, certainly not the average consumer. Where is will hurt the most is with businesses. The main problem we have right now is that we don’t refine enough oil. He does think that certain oil stocks are worth a look; stocks that have been beaten down but still have strong fundamentals, like PetroKazakhstan (PKZ) and PetroChina (PTR) – he owns both.
Stuart Varney of FOX Business News says that if oil does get back to that mid-$50 a barrel range, it will put a cap on what the stock market can do. He thinks that the Dow level would be around 10,800 and the Nasdaq around 2,100. And if the price of oil ever went to $60 a barrel, the market would totally come down. He thinks there is a greater risk in a 10 percent loss in stocks as opposed to a 10 percent gain with the oil situation we have right now. Higher oil prices will lead to higher gas prices, which take money away form the consumers.
Jonas Max Ferris of MAXfunds.com thinks that oil is actually going to come down to $35 a barrel soon. But he says that if oil is trading higher because there is a lot of global demand, then that is a good thing for stocks. But if oil is up because of speculation, then stocks will suffer. Right now he thinks there is a $15 “speculation” premium and that’s why oil will come down. If oil is high because the economy is hot, that’s a good thing.
Dagen McDowell of FOX Business News says that oil is going to $60 a barrel because demand is so strong. And because demand is so strong, it is a sign that the U.S. economy is in good shape. So in that respect, stocks can go up.
Question: "My wife and I are loading up on stocks that pay dividends to set up a retirement income. Is this a sound move?"
Wayne Rogers thinks anytime you can invest in an income producer and put money away, it’s is a good move. Jonathan says that you should pick strong stocks, and that dividends should be the extra gravy on the side. Leigh Gallagher of Smartmoney says it’s a sound strategy especially if you pick solid companies, which are increasing their dividend, something she says more companies are doing. Dagen advises that you need to make sure to spread your money around and diversify your holdings.
Jonathan says he isn’t looking at either of them at all. He feels that anything that the FDA could be looking into is not in his bag right now. Leigh agrees that biotech is risky, but she feels that Biogen is in a better position. Wayne feels that if they’re not “falling daggers,” they’re certainly not “rising mountains.” He says he would stay out. Dagen thinks that you can make money in biotech, but through a mutual fund, because it spreads your bets around.
Question: "What does the crew think about Goodyear (GT)?"
Leigh says that Goodyear has been up 25 percent in the past month and wonders how much further it can go. She would stay away. Dagen agrees the tire business isn’t good and that the stock has been up a lot. Wayne also agrees. Jonathan feels that if he wanted to buy a tire company, he would go for Bandag (BDG).
Question: "Are Wayne and Jonathan still into Goldcorp (GG) and other gold stocks?"
Jonathan says that while the gold stocks have had a big run up since 2001, he doesn’t think they are where the action is now. He doesn’t own any gold stocks and does not believe they would be a smart place for new money. He says the strength of the dollar is keeping a lid on gold. Wayne agrees with Jonathan. Dagen says she never liked gold, and still doesn’t. Leigh doesn’t like it either.
Question: "What do you think about the Firsthand Technology Value Fund (TVFQX)? I think it looks risky, but also could be a big winner."
Dagen feels that the fund is risky. She says that T. Rowe Price offers a cheaper and safer fund. Leigh agrees. Wayne says tech is too volatile and wouldn’t pick this fund. Jonathan says that he’s not into tech as an asset class right now.
"Cashin’ In" Challenge
Check out the $10,000 Cashin’ In Challenge at: www.foxnews.com/challenge
Best Bets: Vacation Stocks
Wayne, Jonathan and Leigh are back and they've packed their bags with the stocks they say you should take on vacation this summer.
Wayne's Vacation Pick: Orient-Express Hotels (OEH)
Friday's close: $28.23
Wayne says he likes the stock not only because they have great hotels, but also because their revenue and earnings have increased every year over the past three years. Jonathan likes the fact that they own branded hotels that people know. Leigh says she loves the company, but doesn’t like the stock because the company is still 42 percent owned by its original parent company, which plans to sell soon. She feels this will put too much pressure on the stock.
Leigh's Vacation Pick: Hilton Hotels (HLT)
Friday's close: $23.81
Leigh feels we’re having a huge travel rebound and that Hilton has some great holdings like Doubletree and the Waldorf. Jonathan says it’s a strong stock, but would rather buy the preferred stock (HLN). He does add, though, that he wouldn’t short HLT. Wayne likes it because he thinks the company has a great CEO.
Jonathan's Vacation Pick: Puget Energy (PSD)
Friday's close: $22.45
Jonathan loves utilities and loves this stock for it’s price action and lack of buzz. He says that stocks like this one, NSTAR (NST) and PNM Resources (PNM); all of which he owns; are where the action is. Leigh thinks the stock has been a laggard.
Stock of the Week
Last week’s pick from Tom Adkins was Nucor (NUE). For the week of May 23 -27, NUE went up 4.2 percent.
Charles is back and he says that Diamond Offshore Drilling (DO) would be a slick buy on Tuesday morning. But Jonas just thinks the pick is crude.
Charles thinks that Diamond is a great trading stock and believes that crude oil is going to go up, especially with the summer driving season. He thinks that it can go up at least to its old highs, if not higher. He says that the people who are buying the stock are money managers who understand the company’s long-term value, and therefore investors should consider buying the stock as well. He feels that sometimes a stock is expensive because the demand supports it.
Jonas not only feels that the bull market in commodities is officially over, but does not understand the company’s high valuation. Jonas cautions that it’s dangerous to speculate in the oil market.