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
This past week’s Bulls & Bears:
Gary B. Smith, RealMoney.com columnist
Tobin Smith, ChangeWave Research editor
Scott Bleier, HybridInvestors.com president
Pat Dorsey, Morningstar.com director of stock research
Charles Payne, Wall Street Strategies CEO
Trading Pit: Bulls or Bears in 2006?
Will the bulls or bears rule the stock market in 2006?
Gary B. Smith: It will be a very good year for the market, after a first quarter sell-off. I think the major indices could gain 25 percent. Stocks broke out in mid 2005 and a pause would be healthy. Then the market would be ready to resume its move in April.
Charles Payne: I think the bulls will rule, but it isn't going to be cut and dry. The economic backdrop, the amount of money on the sidelines, and a friendlier Fed will all contribute to higher stocks in general. By the way, solid earnings have virtually been ignored and they will begin to play a larger role. I think the major indices will be up 15 percent or better.
Pat Dorsey: We’ll see more of the same. The economy will be okay and maybe slow a bit. Valuations are not high, but are not compelling either. I do think the small cap run is done and I'd start looking to buy big cap stocks.
Tobin Smith: From the low point of year, we’ll gain 12 percent. Oil prices won't go crazy. Fed won't raise rates. Consumer spending slows, but business spending increases.
Scott Bleier: It will only be okay for the major averages next year because the economy will finally slow down. There will of course be sectors that do very well, but the Dow will be stuck between 10,500 and 11,500.
What were the Bulls & Bears best and worst calls of 2005?
First the best:
No. 5: On August 27th Pat said to buy Avid Technology (AVID) and it’s gained 50 percent. (Avid closed the year at $54.76.)
No. 4: On July 2nd, Scott said JDS Uniphase (JDSU) would be the best stock to own for the rest of the year. JDSU has gained 57 percent. (The stock closed the year at $2.36.)
No. 3: On May 14th, Charles picked Ivax (IVX), which is up 71 percent. (Ivax closed the year at $31.33.)
No. 2: Tobin said Tenaris (TS) was strong as steel on May 21st and the stock has almost doubled, gaining 76 percent. (Tenaris closed the year at $114.50.)
And the best call of the year: Back in January Gary B. said iPod was only the start for Apple (AAPL). What a call! It’s up more than 100 percent! (Apple closed the year at $71.89.)
Now the worst:
No. 5: On July 30th Pat said he liked Dell (DELL). But it’s lost 26 percent. (Dell closed the year at $29.95.)
No. 4: Tobin said not to buy Google (GOOG) until it fell to $250. It never got that low and has gained 48 percent. (Google closed 2005 at $414.86.)
No. 3: On the first of 2005 Charles said Wireless Facilities (WFII) would be the stock of the year. Not quite. In fact, it’s lost 46 percent. (The stock has fallen below the minimum $500 million market cap for our show. It closed the year at $5.10)
No. 2: Gary B. said to buy General Motors (GM) on August 27th. A lot of troubles for GM and it’s lost 42 percent since the Chartman’s call. (GM closed 2005 at $19.42.)
And the worst call of the year: On January 29th Scott said worries about oil were about to end and that the price of a barrel of oil would fall to $40. In late August oil went to a record high (not adjusted for inflation) climbing above $70/barrel. (Oil closed the year at $61.04.)
In a special round of Predictions, everyone picked their best stock for 2006.
Tobin Smith's Top Stock for 2006: Evergreen Solar (ESLR)
Gary B. Smith's Top Stock for 2006: Amgen (AMGN)
Charles Payne's Top Stock for 2006: St. Jude Medical (STJ)
Scott Bleier's Top Stock for 2006: Applied Materials (AMAT)
Pat Dorsey's Top Stock for 2006: Expedia (EXPE)
Cavuto on Business
Neil Cavuto was out this week. Stuart Varney hosted and was joined by Jim Rogers, author of "Hot Commodities"; Ray Lucia, host of "The Ray Lucia Show"; Dani Hughes, CEO of Divine Capital Markets; Patricia Powell, president of Powell Financial Group; Joe Battipaglia, chairman of investment policy for Ryan Beck & Co., and Herman Cain, radio talk show host.
Stuart Varney: President Bush is climbing back up in the polls. If he keeps moving higher in the New Year will that spark a rally in 2006?
Joe Battipaglia: In 2006 Bush has to have an agenda that he can realize. He needs a strong plan for Iraq and he needs to push forward there with positive developments there. Second, he needs to make permanent the tax cuts of 2003. And third, get your arms around the budget. Talk about discipline and spending.
Ray Lucia: I agree with my Italian buddy wholeheartedly. What George Bush needs to do is continue on his bully pulpit. He needs to tell the people of the world that we’re okay.
Patricia Powell: He has to come out swinging. He has a thousand days left in his administration. He can get a consensus on tax reform. He can make the tax cuts permanent and that’s really important. You could see a tremendous rally from that.
Dani Hughes: He’s in a fortunate position of being secondary to the economy right now. The reason why Bush is down in the polls is because sentiment on the war is becoming a lot more negative. If you look at LBJ from 1964-1967 and compare those years with Bush’s approval ratings from 2002-2005 they both went from the mid-seventies to low forties.
Herman Cain: The reason the president’s poll numbers are going up is because he went on the offense relative to the war and people started to hear the real message rather than just the rhetoric. He’s been winning the war on terror and we’ve got a strong economy. In addition though, he needs to do more relative to the war. He has been losing the war on rhetoric. The Republican members of Congress have got to help him.
Jim Rogers: The market will go up on its own. And when that happens President Bush may see a bump up in his poll numbers. When people are making money they’re happy with the leadership, but I happen to think the market will be down in 2006.
Head to Head
Stuart Varney: 2006... The year tech stocks come back stronger than ever? Let's go head to head
Patricia Powell: If not 2006, then when? We have been in a bear market in tech for over five years, which was the result of that Y2K problem that was given to us by the industry, and companies blew their budgets with unproductive spending. Now you have all these companies sitting there with all this obsolete technology having to spend more on rising commodity costs and wage increase and they need to improve productivity to stay ahead. The only way they can do that is to invest in technology.
Ray Lucia: I agree with Patricia. There’s no question about it. There’s hundreds of billions of dollars sitting in corporate coffers. Last year was the year of big corporate buybacks, this year, I think, is going to be the year for information technology.
Dani Hughes: We’re three for three. I think technology is really going to make a move starting in 2006. We’ve looked at a couple of different trends. One of them is China, which is the biggest wireless communications country in the world. They are going to be issuing licenses for new wireless 3G technology next year, which we think is going to be a big boon for that particular industry. Also, HDTV has been on the rise. It’s going to go from 5 percent of the market in 2004 to 20-25 percent in 2007.
Stuart Varney: Okay, so three out of three say a tech boom in 2006. Joe Battipaglia, you going to make it four out of four?
Joe Battipaglia: No, because for the last ten quarters you’ve had 9 percent growth in capital spending and a big chunk of that is technology so what’s the problem? I think the problem with these stocks has been valuations. Many of these stocks were carrying big multiples coming off the boom; they went into the bust phase and are still compressing. Two of big culprits here are Cisco and Microsoft who account for a large part of the technology valuations. They are now getting towards attractive multiple valuations so: Will we see more of the same in capital spending in 2006? Yes. Can you see some lift in these stocks? Yes. But in the big sense, you have to pick your spots.
Jim Rogers: They may continue to spend on technology but remember the return on a lot of this technological investment has not been so great. It costs a great deal of money to bring in new productivity gains, so it’s not as good as it looks. I agree with Joe. You may see more spending. You may see some rallies in technology stocks, but I wouldn’t buy them with your money!
More for Your Money
Stuart Varney: So what's the best tech stock to own in 2006? Time to get more for your money
Ray Lucia: I like Microsoft (MSFT). This is a company with a product line to die for. It has $50 billion in the bank. Seven billion committed to research and development. Microsoft closed Friday at $26.15
Jim Rogers: I am shorting this stock because I expect it to be a dog in 2006.
Joe Battipaglia: The theme here in technology is to buy the stocks in transition, and I think Palm (PALM) is the answer. They are moving from the old Palm Pilot to a wireless device to compete with Research In Motion. It’s trading at a low multiple to revenue, to cash flow. That’s the kind of stock I think will do well in 2006. Palm closed Friday at $31.80.
Ray Lucia: It’s got a lot of competition coming in 2006. Motorola’s got this RAZR technology that was dynamite in 2005. I did a poll around my office among those that use these handheld computer devices and they gave me double thumbs down on Palm, and that’s a pretty good analyst report for me.
Dani Hughes: I like Powerwave Technologies (PWAV). I own the stock. They are in wireless technology and are suppliers to Motorola, Ericsson – all of the big names in wireless. I think we will see another 40 percent move up in the stock in 2006. Powerwave Technologies closed Friday at $12.57
Patricia Powell: I think PWAV is in the right area, but I have some real concerns about the company. They’ve been growing thorough acquisitions. I always worry about management that can’t manage in a field that’s growing so fast that it has to go out and buy up other competitors.
Patricia Powell: When you are buying any individual technology stocks they are very risky — you can make or lose a lot of money very fast. That said: I’m looking at NVIDIA (NVDA), which makes graphic chips. It is a ‘techies’ dream. It’s up a lot this year, probably up a lot next year – about 35-40 percent next year. But again, any hiccup in the road and you could lose a lot. NVIDIA closed Friday at $36.56
Joe Battipaglia: You’re paying about two-and-a-half times revenue for it. Twenty-four times free cash flow. How much more can you get out of this? Graphic chip companies run great till they hit the wall, and I’m afraid that you are at that point where this company’s next stop is the wall.
Patricia Powell: He’s too soon.
FOX on the Spots
Stuart Varney: Where will the Dow be this time next year?
Patricia: Dow over 12,000 on December 31, 2006
Joe: Dow 11,650 on December 31, 2006
Dani: Dow 11,600 on December 31, 2006
Herman: Dow 10,800 on December 31, 2006
Jim: Dow 9,500 on December 31, 2006
Forbes on FOX
In Focus: Iraq: Key to our Safety and Stocks in 2006?
Jim Michaels, editorial vice president: Iraq is very important. What's taking place there is history in the making. Unfortunately, the public doesn't fully realize it because the media is reporting mostly negative stories about Iraq. But we are winning and when the public does realize it there will be a big boost to the market.
Victoria Barret, staff writer: There is a lot of downside potential for the market when it comes to Iraq and only a limited upside. If Iraq develops into a stable democracy, it won't create a huge market for American goods and services and that's what investors really care about in the long run. But if Iraq deteriorates and we send more resources over there and if terrorism spreads from there, then that could scare our market.
John Rutledge, Forbes contributor: Stock prices and land prices are up 200 percent to 300 percent in much of the Gulf region, which is a good indicator that things are working out over there. The U.S. is overcome by fear of terror and war right now, but the fundamentals look great — economic growth, profit growth and low long term interest rates - and it's just a matter of time before that shows up in the market because fundamentals always win over fears.
Quentin Hardy, Silicon Valley bureau chief: The Mideast markets are up because prices for their oil is up. That's largely because of the disruption we've caused from the Iraq war. And what victory are you talking about in Iraq? The victory when the Bush administration said 'we would roll right into Baghdad' or 'when we catch Saddam' or 'when we find WMDs' or 'when Iraq holds it's first elections'. I don't know why anyone would believe the administration when it says we're winning now.
Rich Karlgaard, publisher: The good news is that Iraq is stabilizing and our campaign is slowly and steadily successful. But what our market needs in order to go up this year is for our government to extend the tax cuts and avoid another terror attack on our shores.
Lea Goldman, staff writer: Our stock market is a barometer for the health and security of our country. This past year there has been a drag on the market because of war and the fear of terror. So if Iraq becomes a symbol of democracy in the Middle East, then that will reflect positively in our market. But if we fail in Iraq and it becomes a haven for terrorists, then it will reflect negatively in our market.
Flipside: Help the Little Guy by Cutting Big Biz Taxes!
John Rutledge: Absolutely! Cutting corporate tax rates is important for the economy, especially for the worker who relies on the capital of other people to earn a paycheck. And the key for the worker, and the economy, is to keep capital here at home. Capital can now move around the globe freely thanks to communications and low cost financial markets. So if we lower our corporate tax rates and keep them low we will attract capital. But if we do the opposite, we will drive capital out of America to other places with lower rates. And American jobs and paychecks will go with it.
Victoria Barret: Corporate tax rates have been falling in the U.S. since the 1960s and corporate profits are at historic highs. So why cut corporate taxes now during a time our government has a huge deficit?
Rich Karlgaard: Capital is always sloshing around the planet looking for its best opportunities. Cut taxes on corporations, and more money will flow into their stocks.
But I'd give greater priority to extending those income and investor tax cuts of 2003. That's what has helped the economy and market.
Lea Goldman: Last year the GAO reported that 94 percent of American corporations reported tax liabilities of less than 5 percent of their incomes between 1996-2000, a period when they were raking in money hand over fist. The last four years have seen $4 trillion dollars in tax cuts for corporate America and the wealthiest Americans. Wanna help the little? Then cut his/her payroll taxes.
Quentin Hardy: Any discussion of corporate taxes is incomplete without a thorough
airing of corporate welfare — tax breaks, subsidies, no-bid contracts, sweetheart deals, offshore repatriations holidays, etc. The bottom line in this case is that we need to figure out how much companies are actually giving the government after their getbacks.
David Asman, host: But doesn't America have some of the highest corporate taxes of all the industrialized nations?
Jim Michaels: Yes but it's like Quentin says, there are so many breaks for some companies that the real tax rates are much lower. And giving corporations a tax cut would be political suicide. The government needs to make permanent the pro-growth Bush tax cuts and move towards a flatter tax system, which allows a 100 percent write off against capital spending.
John Rutledge: I agree that we need to extend the personal income tax cuts, but if we don't keep corporate tax rates low as well, we will be outsourcing our capital and jobs.
Informer: Hot Trends and Hot Stocks In 2006
Victoria Barret: One hot new trend is super-communications for businesses that need to keep track of goods that are designed in one place, manufactured in several others, then sold and marketed in another. Autodesk (ADSK) does this with cutting edge software that helps different parties in different locations see and hear the same images in real time.
Lea Goldman: Autodesk's CEO gave cautious guidance recently and one of the companies core markets are architects and home builders. And if you think the housing sector is cooling then I would stay away from this stock.
I prefer Nuance Communication (NUAN). It specializes in speech recognition technologies used in voice activated services. Like hand free cell phones and new car models that are increasingly using voice activation features. There are huge growth opportunities here.
John Rutledge: This one's too risky for me. The company's stock price has double in the last year, making it too expensive. And it is a thinly traded stock, which could make it's price very volatile.
I prefer something more boring and safe like the iShares Dow Jones U.S. Technology (IYW). It's an exchange traded fund, which is a basket of more than 200 tech stocks. I think it will benefit from an infusion of telecom investments that will take place when Congress passes a new telecommunications law in 2006 and by the growing investments in information technology by China and South Korea.
Victoria Barret: I like the communications idea, but this ETF is boring with big names like Microsoft (MSFT) and Dell (DELL), which probably won't grow very much next year. I you like communication stocks, you're better off owning something like Cisco (CSCO).
Rich Karlgaard: I think the biggest trend out there is digital data — from security to regulatory compliance to RFID chips. EMC Corp (EMC) is the biggest data storage company and it should benefit form the data explosion.
Quentin Hardy: I like the data storage trend, but think Rich picked the wrong company. EMC has such a big market share right now that it makes it hard to achieve high growth.
I prefer Hewlett-Packard (HPQ), because the company's new CEO, Mark Hurd, has turned the business around based on his cost cutting and management changes. Now he's going to execute on the plans his predecessor, Carly Fiorina, never could to make HP a big player in running huge data centers for industries like banking.
Rich Karlgaard: I like HP and its new CEO, but it's very hard for companies the size of HP to grow revenues. This stock probably will not outperform the market.
Makers & Breakers: Best Stocks to own Under $10
• Silicon Image (SIMG)
Jon Najarian, founder of InsideOptions.com: MAKER
The company creates and drives industry standards for digital content such as high-definition multimedia. Its forward price-to-earnings is 21, which is cheap in a high growth business. And it has quarterly revenue growth of 17 percent and an operating margin of 20 percent. I own the stock and think it could reach $16 within 12 months. (Friday's closing price: $9.07)
Victoria Barret: MAKER
I'm not sure it can jump 70 percent within a year, but it does have huge growth potential. Forty percent of its sales come from consumer electronics like HD TVs and iPods which are flying off the store shelves.
Jim Michaels: MAKER
I like the stock but I have a warning for our viewers. This is a very thinly traded stock with light volume, which could make its stock price very volatile. So if it jumps next week, I would wait to buy it when it settles back down.
David Asman: The stock has been nearly cut in half in the past year. Could it keep falling in value?
Jon Najarian: It is a volatile stock, but I think the rewards outweigh the risk.
• Newpark Resources (NR)
Jon Najarian: MAKER
This is a behind-the-scenes company based in Louisiana that provides multiple drilling services for oil and gas exploration and production companies. It helps drill, maintain oil fields and cleanup sites. This company should also benefit from all the money helping rebuild the Gulf region after the devastating hurricane season. I own the stock and think it could reach $12 within 12 months. (Friday's closing price: $7.63)
Jim Michaels: BREAKER
This is a small player against big rivals and I think all the good news on the energy sector is already out.
Victoria Barret: MAKER
I like the environmental angle of this company because the industry is looking into drilling in places like Alaska and the oil sands in Canada. And this company has figured out how to clean up those types of sites. The one hesitation I have is that its earnings are difficult to understand.
Our “Cashin’ In” crew this week:
• Jonathan Hoenig, Capitialistpig Asset Management
• Jonas Max Ferris, MAXfunds.com
• Rebecca Gomez, FOX Business News
• Gary Kaltbaum, Kaltbaum & Associates
• Mike Norman, Economic Contrarian Update
• Frank McKinney, author of “Maverick Approach to Real Estate Success”
Stock Smarts: Hosuing In 2006 – Boom or Bust?
2005 was another record year for the housing market but there are plenty of signs that a slowdown is starting, including a drop off in sales for November.
Should we be worried about a crash in 2006?
Jonas Max Ferris is definitely worried about the real estate market in 2006 (“the boom is definitely over”). He thinks thank prices nationally could be down 10 percent — dropping off maybe 20 percent in some of the “hot” markets. Inventory is piling up, with about a half a trillion dollars worth of unsold homes on the market. He sees nowhere to go but down.
Frank McKinney disagrees, saying that we could certainly see increases (percentage-wise) in the high single digits. If you look back from the historical perspective, over the last 30 years, home prices have come up around 6 percent a year. And the notion of a “bubble” in the housing market needs to be dispelled. The stock market bubble of 1999 and 2000 saw a lot of value lost in a very short period of time. That just doesn’t happen in real estate.
Mike Norman thinks that while we might see a pullback in the real estate market from some of the extended gains we’ve seen in recent years, we should still see gains in the real estate market. He also notes that the real estate market competes with the stock market for investors’ capital, and he doesn’t think that business conditions are good for stocks right now. Therefore, more money will continue to flow into real estate.
Gary Kaltbaum thinks that the housing boom is “definitely, definitely, definitely” over, but that doesn’t mean we will see the “end of the world”. We will see a loss of speculation in the market, and a loss of the people buying in at any price, and that will bring a good correction to the market.
Rebecca Gomez says that a lot of people now who are on the sidelines are seeing interest rates coming back up, and this will cause them to wait even longer to buy a home, anticipating a drop in prices.
Jonathan Hoenig wonders if someone’s house were going to drop 10 percent in value, would they sell to make the money then rent? He thinks that’s just crazy. The real trouble in the real estate market will come to the people who are overextended and have leveraged themselves to the hilt.
Question: "If Congress changed the laws regarding how CEOs are paid, would it help the stock market and the economy?"
Rebecca Gomez feels that the shareholders should be worried about how much the CEOs are being paid. Jonas Max Ferris thinks that Congress is grandstanding and they should put pressure on the SEC and FTC to make sure that there is enough disclosure in the negotiating of CEO pay deals. He says that Congress shouldn’t be going to the public with this.
Jonathan Hoenig agrees that this is a matter for the public to decide and that if you don’t like what the CEO is paid, you sell the stock or you become an activist shareholder. Jonathan says that this is how a free market should work.
Question: "I think VeriSign (VRSN) is going to have a great year in 2006. What does the crew think?"
Looking at the chart, Jonathan is not thrilled with the stock. He would rather buy the NASDAQ-100 (QQQQ). He is not putting a lot of money into tech right now.
Question: "I've been adding some international investments to my holdings. What do you think about the Fidelity Latin America Fund (FLATX)?"
Jonas feels that the emerging markets are getting pretty tired. He would rather go with the T. Rowe Price Latin America Fund (PRLAX), which he has been recommending in his newsletter. Jonathan loves Latin stocks, but feels that the real money has been made and the story is out on this one.
Question: "I bought the Materials Select Sector ETF (XLB) in March. It's been flat since then. What do you think about this one?"
Jonathan maintains that this is a winning trade and that you let the winners run. Rebecca points out that there are concerns about a recession, and that a lot of people may be interested in stocks like this for that reason.
Best Bets: The Be$t for 2006!
Jonathan, Jonas, Gary and Mike are all back with the picks they say could make you the most money in 2006!
Gary's 2006 Bet: Nabors Industries (NBR)
Friday’s Close: $75.75
52-wk High: $79.87
52-wk Low: $46.20
Jonas’ 2006 Bet: Vanguard Telecom Services VIPERs (VOX)
Friday’s Close: $54.46
52-wk High: $58.17
52-wk Low: $49.83
Jonathan's 2006 Bet: ASA Ltd. (ASA)
Friday’s Close: $55.01
52-wk High: $55.65
52-wk Low: $33.26
Mike's 2006 Bet: iShares Lehman 20+ Year Treasury Bond (TLT)
Friday’s Close: $91.90
52-wk High: $97.00
52-wk Low: $87.53
Cashin’ In Challenge
The 2005 “Cashin' In Challenge” is officially over. Congratulations to our winner, Dagen McDowell.
Next week we'll have a recap of the highs, lows and their new picks for the New Year.
But do you think you can match wits with our crew? You're going to get your chance! Log on to www.foxnews.com/challenge — soon you'll be able to sign up for the 2006 “Cashin' In Challenge” powered by SmartMoney.com and go head-to-head with our experts!
Face-Off: All-Time High in ’06?
The Dow is near 11,000, just a stone's throw from its all-time high set back in 2000. Could it crack it’s high in 2006?
Jonas Max Ferris thinks the Dow could definitely add 1,000 points, particularly in the early part of the year, citing that the economy is strong, corporate profits are good, taxes are low, inflation is under control and interest rates are staying low.
Mike Norman disagrees. He does not see the business conditions in the next year that could drive the Dow that high. He feels that the stock market will go down in 2006, due partially to interest rate cuts in the second half of the year.
Happy New Year from the "Cashin' In" crew – see you in 2006!