Can The U.S. Quit Oil?

Scott Bleier
Question: I have a couple of thousand shares of Verizon Communications (VZ). Do you have any thoughts about future performance? I have received the benefits of two or three splits, so I am still ahead. These shares are held in a 401K plan. Thanks — Douglas

Scott Bleier: I would absolutely hold your VZ stock. It is well-suited for a retirement account.

You have obviously owned it for a long time since the last split was in 1998 when the company was called Bell Atlantic. Verizon is now included in the Dow Jones Industrial average and generated over $75 billion in revenues last year plus pays a 4.3% dividend yield.

Not only do they supply hardwire phone service to millions of home and businesses, but they partially own Verizon Wireless, which is the most successful cellular phone service in the country.

They are in the process of bringing broadband fiber optic cable directly into the home. It is a huge, multi-year undertaking that is costing the company billions of dollars. But once that is finished, they will have the potential to generate huge revenues by offering a “one-stop service” for voice, data and video to both the consumer and to business.

The expense of that build-out had created lots of nervous investors and VZ was one of the worst performing stocks in the Dow Jones in 2005. But 2006 has been a different story, as the stock has made back much of the previous year's loss.

I think the stock can easily get to $50 in the next few years. Combine that with a decent dividend, and you should expect this to be a 15-20% per year grower for the next few years.

Question: I am writing a thesis paper on how to actually force the country off of oil as the primary power supply. I kind of get what you're saying about speculators netting long crude oil and commercial hedgers netting short but would like an easier way to make this argument or guidance on where to find a better understanding of your point. Thanks — Ryan (West Chester, PA)

Scott Bleier: You must have been listening to FOX News Contributor Mike Norman during one of his rants on how speculators have single-handedly caused the rise in energy prices. In hindsight, his theory had credence, as oil prices are falling fast based on investors' liquidations. The fact is that there has been a glut of oil on the market even with record high prices — and its correction is long overdue.

But a thesis paper based on “forcing” the country off oil? I can't wait to see your methodology and conclusion!

The first rule of economics in a free capitalist economy is one of efficiency and cost. If oil is cheaper than an alternative, then the free market will support its use. Low-priced oil is what has prevented our country from a “crash course” of alternative fuels. It has been easier and cheaper to simply be a slave to the oil-based economy. The only way to successfully integrate alternative fuels is by having the alternative be more cost-efficient than fossil fuels.

Realize that the entire world's economy is based on plentiful petroleum products. Setting aside any theories of oil's demise, there is still plenty of oil untapped in the world. Until the oil supply is disrupted, there is only one way to bring about a wide-reaching alternative, and that is through government intervention.

Only if government creates significant and costly incentives can the widespread use of alternative fuels be instituted or mandated. The government can use special incentives, payments, and tax breaks to foster alternative fuel adoption. It can also penalize the use of fossil fuels by adding tariffs, or taxes.

But a free market economy has tremendous disdain for such heavy-handed government intervention. It would be a very costly endeavor for the U.S. taxpayer and tremendously disruptive to the domestic economy.

Most Americans would rather pay $3 for a gallon of fuel to a domestic ethanol company rather than to an OPEC nation. But creating the environment that creates efficiency and ease of use will be a long-term and very expensive project.

Only when and if there is a bona fide crisis — and people cannot get gas for their cars— will there be meaningful change.

Question: What do you think of Quest Diagnostics (DGX)? — Joe

Scott Bleier: Quest is the leading diagnostic laboratory providing services to major hospitals, doctors and insurance companies. It has been a steady grower during the past 10 years, and up until recently had been a strong market performer.

But DGX just lost a major contract that supplied about 7% of their yearly revenue to their main competitor, Laboratory Corp of America (LH). The loss of that business sent the stock down over 15% in one day. The news was so damaging that the CEO could not yet predict what it would do to the company's earnings, so the stock is mired in some uncertainty for the time being.

But Quest has operated under adverse conditions before and has always come out a stronger company. I believe the recent adverse news will be a temporary setback for the company, and after a few quarters the company will be back on track. The stock will be very attractive in the high 40's.

Question: Is Pier 1 (PIR) a sell? I remember the days when it was “the” place to shop for home goods, but it seems those days have passed! — Dana

Scott Bleier: Gosh, PIR has been an awful stock! Since early 2004, the stock has lost over 70%. There have been a variety of factors that has contributed to the company's rocky road, but there may be some light at the end of the tunnel.

The company had been struggling to pay their hefty dividend. That dividend payout also removed much needed liquidity that prevented the company from expanding. So they just decided to suspend that dividend. This is actually a case where not paying out a dividend to shareholders may actually help.

They also announced that their CEO would resign in early 2007. Realize that when a company does poorly, it is management that must take the blame. I'm not sure anyone can do much better than the current chief executive, but the market is welcoming the change.

The bottom line is that I would not buy the stock now, but if I suffered through owning it, I would wait to see how the new management guides the future of the company.

Scott Bleier is a FOX News business analyst and contributor, a regular panelist on "Bulls & Bears" and a frequent guest on "Your World with Neil Cavuto." Read Scott's full bio here .