Stock Smarts: Dow Strike Three?
The Dow has not seen three straight losing years since World War II (1939-1941). And even with huge rallies like we had last Wednesday (5-8-02), the Blue Chips could be headed to that third down year. Is it going to happen?
Chris Bonavico of Transamerica Funds thinks that the Dow will finish up in 2002, as he says the "old economy" stocks, like 3M (MMM) and Procter & Gamble (PG) will do well. He does think the S&P 500 will have a rough time for the rest of 2002, as it has so many tech stocks. He says that an investor must look at each stock on an individual basis and make a decision based on the company’s merits not bet on the market as a whole.
Dagen McDowell from FOX Business News says that the Dow will finish up for the year because it isn’t weighted down with all those tech stocks. She thinks that the recovery we will see in the economy will trickle down to stocks.
Hilary Kramer from A&G Capital says the Dow will make it three in a row. Investors need to see profits and peace, and we don’t have either right now. We live in an "event driven" market, so when a Cisco comes out with good (not great) news, the markets will react to the plus side. But the same holds for negative news.
Jonathan Hoenig of Capitalistpig Asset Management first points out that the Dow is a price-weighted index, so higher-priced stocks like IBM (IBM) have a huge bearing on the Dow. And he points out that like IBM, many of these stocks are having tough times and he thinks they will help to keep the Dow in the dumps this year. But he thinks the fundamental question is flawed, since he believes the Dow isn’t really representative of the market. He says it’s just an index of 30 large stocks. Investors still have to look at small cap stocks and other areas (gold stocks, REITs) for opportunities.
Jonas Max Ferris of Maxfunds.com definitely thinks the Dow will end the year down. The earnings growth just isn’t there to justify the high valuations seen among the Dow stocks. He notes (in response to Jonathan) that the Dow is a good measurement for the U.S economy as a whole, since it does include leading companies in a variety of industries.
Some members of the panel offered up their rules for investing in a tough market and the stocks those rules point to right now.
Hilary’s rule: "Find undervalued leaders in beaten down sectors."
Hilary’s pick: Lehman Brothers (LEH)
Chris’ rule: "Seek sustainable advantage and good cash flow."
Chris’ pick: Allergen (AGN)
Jonathan’s rule: "Don’t follow the herd!"
Jonathan’s pick: Aberdeen Commonwealth Income Fund (FCO)
Mutual Fund Face-Off: The Best Short-term Bond Fund?
They can be a higher yielding alternative to money markets with just a bit more risk. Dagen and Jonas faced-off over their favorites.
Dagen: SsgA Yield Plus Fund (SSYPX)
Minimum Investment: $1,000
Expenses: for every $4.80 for every $1,000 invested
Year-to-date (through 5-10-02): UP 0.4%
Jonas: Strong Short-Term High Yield Fund (STHBX)
Minimum Investment: $2,500
Expenses: $8.00 for every $1,000 invested
Year-to-date (through 510-02): DOWN 0.9%
Dagen and Jonathan wrapped up the show by answering some email questions from viewers:
Question: "I averaged down on Global Crossing (GBLXE). I now have 1200 shares averaging $1.85 per share. Should I keep buying, hold on, or sell?"
Jonathan: I do not like the idea of averaging down. Buy strength, not weakness. I would sell of some of these shares (possibly half) take the loss and look for new ideas to put money to use.
Dagen: Get out of this stock.
Question: "I have over $125,000 in index funds. Our broker said we should get between 12-15% a year. What do you think?"
Dagen: "First I think you need a new broker. Any broker who tells you to expect 12-15% is lying. It is something that just can’t be guaranteed." But it is good to have some of your portfolio in index funds
Jonathan: If you want to be balanced and look at index funds, check out some of the small cap indexes.
Question: "Jonathan said he might short Lockheed Martin (LMT) after the Joint Strike Fighter contract was announced. Did he, and has he covered?"
Jonathan: I didn’t short, but I should have, as LMT went down right after the contract announcement. But it has come back significantly since then, which shows that shorting a stock is really a strategy for short-term investing.
Dagen: LMT is a good buy right now for the long term.
If you have a question you would like answered on the air, please email us at firstname.lastname@example.org.
If you are interested in receiving a transcript of the show, please call 888-443-6988.