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; Tobin Smith, founder and chairman of ChangeWave Research; Scott Bleier, president of HybridInvestors.com; Joe Battipaglia, chief investment officer of Ryan Beck Company; and Adam Lashinsky, senior writer at Fortune Magazine.
Trading Pit: Money Christmas
Right before Christmas, the Dow gave investors a gift, and closed at its highest level in more than 3 years!
Will it be a Money Christmas for investors?
Joe: Yes. The stock market looks very healthy going into 2005. I expect a 10 percent gain for the S&P 500. Consumers will stay strong, oil prices will continue to slide, and the Fed will move rates slowly.
Adam: The market feels more confident than it has in months. Oil prices are relatively stable, the weak dollar is helping U.S. companies turn profits, and we’re at a point haven’t seen in 5 years. Investors will make money if they’re long the big indexes. It looks like a Goldilocks stock market, not too hot, not too cold, just right.
Gary B.: The market is in good shape. I’m still bullish. I’m a little worried Adam’s bullish, but the chart is backing him up. I expect a nice run to finish the year and that the S&P 500 could hit 1250 by the end of January.
Tobin: The Santa Rally will carry through 2005 because the good news will continue. A bull market means there’s more good news than bad news. The first quarter of 2005 will be the second strongest quarter as far as sales demand and growth that we’ve seen in 3 years! You don’t want to chase stocks and don’t want to own the big caps. You want to own the leaders in the S&P 600 (the Standard & Poor’s index of small cap stocks) because the S&P 600 has led the markets the past 4 years.
Scott: 2004 was very tough for investors. The market was stuck in a miserable trading range until the election and then the Dow, Nasdaq, and S&P 500 all had an incredible rally. But now is the time to sell because there is going to be a vicious correction coming in the first quarter of 2005. I expect the Nasdaq to lose 8 percent and the Dow to drop 4-5 percent. However that will be an excellent buying opportunity.
A Secret Santa Stock X-Change with Joe, Adam, Tobin, and Scott.
• Joe: Western Digital (WDC). The stock is cheap and its PCs are flying out the stores’ doors. Its next several quarters will be very strong.
Tobin: I like Hitachi (HIT) better.
Adam: There’s not a lot of growth upcoming for the PC market.
(Western Digital closed at $10.49 on Thursday.)
• Tobin: Fording Canadian Coal Trust (FDG). This company is going to double the contract rate of the coal it sells and this will make its dividend explode from $8 to $16-18. And that dividend is almost 100 percent tax-free because it’s a Canadian trust.
Adam: Yes, I like the coal theme.
Scott: Coal has a very bright future and Fording’s yield will explode.
(Fording closed at $74.85 on Thursday.)
• Adam: Citigroup (C). Everyone’s been down on the financial sector, especially this stock. It’s been punished for its scandals and now is a cheap stock. Also, it pays a dividend over 3 percent.
Scott: It has a decent dividend, but it’s better to buy smaller regional banks. Don’t buy the big banks that make acquisitions.
Joe: Even though he didn’t like my stock, I like his. Citigroup has a good yield and I think it will perform well in 2005.
(Citigroup closed at $48.75 on Thursday.)
• Scott: Harman International Industries (HAR). This is a great way to play the American consumer electronics boom. Harman is a group of companies that make stereo equipment and speakers. But now they also put infotainment (DVDs, CDs, etc.) in cars. It’s expensive, but worth it.
Joe: Here are the directions on this gift: Be careful, this one’s real expensive!
Tobin: Harman was good to buy at $30. There’s a lot of risk now in this stock. If you do buy it, put a sell/stop at $120.
(Harman closed at $127.05 on Thursday.)
Certain Christmas Specials just stand out. "Rudolph the Red Nosed Reindeer" —definitely one to remember. "A Charlie Brown Christmas," also a classic. But nothing compares with the Chartman's Christmas Special Extravaganza! And here, the stocks steal the show!
Gary B.: First on my list, Sepracor (SEPR). This chart moved sideways for a long time and then broke out. It’s now set up very well and is headed to $70. (Sepracor closed at $59.25 on Thursday.)
Adam: I’m just happy to have a bit part in your big special. This company makes drugs and the reason is just headed higher is due to an insomnia drug, which was just approved. It’s extremely expensive, has a lot of competition and is heavily in debt.
Gary B: Next a stock even a Grinch like Adam should like, RPM International (RPM). It has a similar chart to Sepracor. It moved sideways and broke out, but then it pulled back and started heading back up. This means it’s in great shape.
Adam: I hate this one a lot less. It makes Rust-Olem. RPM has a solid dividend, but there is a fear of asbestos litigation. But the company makes a ton of cash. I was just kidding before, I like this stock. RPM International closed at $19.40 on Thursday.)
Scott's Christmas wish: Oil drops to $35/barrel; Dow nears all-time high in 2005
Gary B's Christmas wish: Bears stay in hibernation! Nasdaq 2600 next year
Joe's Christmas wish: BIG GUYS get some respect! Big caps outperform small caps (Joe recommended General Electric-GE and Johnson & Johnson-JNJ.)
Tobin's Christmas wish: No more headaches from Pfizer (PFE); gains 25 percent by January 15th
Adam's Christmas wish: Alpine Dynamic Dividend Fund (ADVDX) goes up another 20 percent in 2005
Cavuto on Business
Neil Cavuto was out this week. Bob Sellers hosted and was joined by Jim Rogers, president of JimRogers.com; Ben Stein, author of "Can America Survive?"; Meredith Whitney, executive director at CIBC World Markets; Dani Hughes, CEO of Divine Markets; Jordan Kimmel, portfolio manager at Magnet Investment Group; Jon Najarian, principal at PTI Securities, and Santa Claus.
Bob Sellers: Is America and the market ready for a period of peace and prosperity? A lot of good cheer in the market over the last couple of months with the Dow hitting a new 3-year high just last week! Is the market in the Christmas spirit, Ben?
Ben Stein: The market is definitely in the Christmas spirit. It's anticipating continued growth in earnings. Nobody would have predicted that interest rates would've been as low as they are in December. I think we'll have prosperity next year. But peace is a long way off.
Jim Rogers: Ben, I agree with you. There won't be peace anytime soon. As far as prosperity is concerned, the economy is peaking right now, and by next Christmas things will be worse, not better.
Jon Najarian: I am bullish on the market. The low interest rate scenario and the low inflation scenario are two of the reasons we're going to continue to do well.
Dani Hughes: I agree with Jon. The market has done phenomenally well in December. We've seen a Santa rally like we've not seen in many, many years, though we are seeing that some sectors are really starting to peak. The utilities sector has run up considerably over the past couple of months, and it looks like it's time to take some profits now.
Meredith Whitney: What Jon was referring to was a bullish sentiment on Wall Street as evidenced by hedge funds being positioned long the markets. When you talk to hedge fund managers they'll say, "We're very bullish year end. But we think there's going to be a dramatic sell-off at the beginning of the year."
Jordan Kimmel: My prayer is for peace, but I think prosperity is going to be a little bit easier to come by. It's still going to be a stock picker's market. There are a lot of areas of prosperity. I love the way the market looks right now.
Jim Rogers: Listen to what Jon says. Listen to what everyone says. It's the best it's been for 10 years. Everything is booming and hot. That's not the bottom. You're supposed to sell when everything is hot.
Ben Stein: But Jim, that assumes an ability to time that rarely occurs in the life of the ordinary investor. And if he is timing, he should see that price to earning ratios are very favorable for buying, not selling right now.
Jim Rogers: I'm the world's worst trader. I'm the world's worst timer in the world. But I know you're not supposed to be buying when markets are acting like this.
Ben Stein: With all due respect to your obvious genius, the market, on a price earnings basis, is priced cheaply by the standards of the last fifteen years.
Jon Najarian: I agree with what I'm hearing on both sides. The debt issue is something we're facing, however, the money flows being as heavy as they are, and given that the first of the year we're going to see an additional boost, I have to believe it carries us. Not just for two weeks like it did this year, but well into the first quarter of 2005.
Bob Sellers: Meredith, a lot of people have been putting money into the real estate for the past few years. So now is the money going to go back into Wall Street?
Meredith Whitney: I'm merrily inclined for 2005. You have strong possibilities for peace now that Arafat is gone, and you have the hope for tort reform and Social Security reform. Once there are alternative investments outside of just investing in your home, you'll see money coming out of homes and going into the market.
Ben Stein: There's already money pouring into the market. We don't need money to come from real estate. Still, there's not going to be peace, not in Iraq.
More for Your Money
Bob Sellers: Have you noticed that the classics are better than all the new-fangled specials this time of year? Anyway, stocks that are just like the misfit toys, unknown and unwanted now. But not for long! Let's get the names so you can get more for your money. Jon, what's your misfit stock?
Jon Najarian: I like Perrigo (PRGO ). These guys make over-the-counter medications for CVS, Wal-Mart, Walgreens, and others. Anything to treat aches, pains and colds. Going into the wintertime I love the stock. It's at $17 a share, and I own shares.
Jordan Kimmel: This goes against my own model, which looks for increasing revenues and increasing margins. What you have here is a stock that's technically bad, but that's not the problem. The problem is it's getting cheaper. There's no insider buying, and there are too many institutions.
Jon Najarian: With people switching off Vioxx, Aleve, and Celebrex, don't you think more and more people are going to go to these over the counter remedies?
Jim Rogers: Jon, how can you say it's a misfit if it's at Wal-Mart and CVS?
Jon Najarian: It's a misfit because of the market's perception. The market has it at a $7 discount.
Bob Sellers: Well, let's find out what Jordan would put his money into.
Jordan Kimmel: Here's number one on my own model, Metal Management (MTLM). They're involved in metal recycling. What you have here is tremendous acceleration in revenue.
Dani Hughes: This stock has an interesting story. It's been on a complete tear over the past few months.
Bob Sellers: Jordan, you like those momentum plays don't you?
Jordan Kimmel: This is our top ranked stock and of course we own it at our firm.
Bob Sellers: Dani, what would you buy here?
Dani Hughes: I like Openwave Systems (OPWV ). It's a misfit stock. A lot of people hate it. These guys make the software that's used on your cell phone. Our firm owns this. We don't yet recommend it. But I do like the story.
Jon Najarian: I like the stock, but I worry with Sprint and Nextel getting together. Openwave is a big provider for both those guys. I think maybe they get hammered on valuation.
Bob Sellers: Ben Stein, what do you like?
Ben Stein: I like Ryland Group (RYL ). It's a very successful home builder. I don't think the home building boom is anywhere near its end. This stock has remained strong for a reason. It's run incredibly well.
Jim Rogers: I'm short home building stocks. I'm not short Ryland, but I'm short home building stocks. Ben, you think this housing bubble has further to go?
Ben Stein: I'm not sure it's a bubble anymore. It has further to go before it pops.
Inside Santa's Head
Santa Claus made his last stop at FOX News Channel and told the crew all about the night he had.
FOX on the Spots
Dani Hughes: Buy nice companies like UPS, not naughty ones like Fannie Mae.
Jon Najarian: Book next Christmas in Europe. It'll be a bargain!
Ben Stein: As a gift to America, I hope for a strategy to win in Iraq.
Jim Rogers: You’ll get great deals on clothes in 2005; apparel imports will be cheaper!
Meredith Whitney: Santa sides with Shaq! Miami beats the Lakers.
Forbes on FOX
In Focus: 'Tis the Season to Be Thankful!
Rich Karlgaard, publisher: I feel like in this country every day is Christmas morning. Last week I was able to work at home so I could attend my kid's Christmas plays; thanks to a Dell computer by Michael Dell, Microsoft software from Bill Gates, a Cisco router, and the Internet thanks to the Defense Department. We have these great products that innovators and entrepreneurs give us on a daily basis. We have a lot to be grateful for; that we live in a country that provides this bounty.
Jim Michaels, editorial vice president: I give credit to the founding fathers who bequeathed us with a system that enables Rich's entrepreneurs and innovators to do there thing in a way they couldn't anywhere else. The result is we breed more entrepreneurs, we attract more from other countries and we've got the world's strongest economy thanks to the founding fathers.
Quentin Hardy, Silicon Valley bureau chief: Jim and I often disagree but one thing we agree on is the spread of democracy over our lives. We argue all year about the methods and the means, but democracy is spreading around the world and that has been a benefit to us as a nation and to everyone else involved. Beyond that I am thankful for my family and for my church.
Bill Baldwin, editor: I'm very thankful for something that we don't have, but a lot of other countries do have, and that is price control on drugs. Lance Armstrong is alive today in part due to three Bristol Meyer Squibb drugs. And the industry is spending $33 billion a year on our needs. A lot of it's wasted, a lot of it is made into junk, but they are saving lives. I am thankful.
Elizabeth MacDonald, senior editor: I am thankful for the people we lost in 9/11. People who set such a great example for us. I'm also thankful for the soldiers fighting for freedom and everyone fighting for freedom to get people out of the hold of Islamic Fascism. Especially Muslims women who need the help that we bring them.
Steve Forbes, editor-in-chief: I'm thankful that we live in a country that does welcome immigrants, like my penniless grandfather. It allows people to discover and develop to their fullest God given talents. Also I'm grateful for Fox's fair and balanced news. Grateful to live in a country where both commerce and philanthropy both mean helping other people in different ways.
David Asman, host: Everyone is talking about the system here. If it's such a good system, why is so difficult to duplicate?
Jim Michaels: Because it demands that the politicians limit their power and respect private property and respect individual rights. Politicians hate to do this and you've got to push them aside.
Elizabeth MacDonald: Yeah, it means powers must be subordinate to the rule of law. It is being duplicated in places like Hong Kong, Singapore and Korea.
Bill Baldwin: Capitalism is spreading. It's very hard to resist once you get a taste of it.
David Asman: Rich, you're thankful for all of the entrepreneurs, the inventors, the internet of course is a product of those inventors. But as we've seen since 9/11, some bad people can use a good thing like the internet. Does that make it a double edge sword?
Rich Karlgaard: It is a double edge sword, but all the sharpness is on the side of good. Look, I want to put in a word for the person's birthday who we are celebrating. Love and forgiveness are really the foundation for this great economy of ours. We have entrepreneurs who can go out there and take risks because we do not shoot them or jail them when they fail. And that is almost unique in the world and let us never forget that or lose that.
David Asman: Steve, you credit our country for welcoming immigrants, but since 9/11 we've been a little more reluctant to welcome the immigrants. Is that going to change?
Steve Forbes: I hope so. I hope with our new homeland security chief that we will hopefully reform the INS and it will bring people in again, people who want to come and contribute to our country. It shouldn't be beyond our capabilities to distinguish somebody who wants to better their lives and better America's life from a terrorist. We have the technology to do it.
Quentin Hardy: I think the reason it's hard for democracy to replicate elsewhere is because you have to be willing to take risks. This is true in a marriage and this is true in democratic capitalism. People have to be willing to risk and deal with the unknown willingly. It does turn out better. You have to be willing to believe in yourself. I think that is the great lesson for this season.
Elizabeth MacDonald: And the bottom line is we are so grateful for the leaders who are calling a spade a spade. They are calling it what it is. There is a problem with Islamic Fascism and people have the right to be free. That is the future of every nation: freedom.
Steve Forbes: The bottom line is that America, whether its commerce or philanthropy, is serving the needs and wants of other people. This is what makes us a great nation.
The Flipside: Santa Claus Is the World's Greatest Capitalist!
Steve Forbes: Christmas is about giving. Christmas stimulates giving. We get a thrill when we see our kids faces light up when we give them presents. So it makes us give them more, which makes the economy more prosperous, which means we can do more. People have more opportunity. It's a virtuous circle.
Quentin Hardy: Santa is a great guy. And Santa invented the seasonal thing. You wouldn't have annual car models or fall fashions without Santa coming up with his Christmas season. I really like the guy, but the old elf has gone too far. Santa comes out around September now and you have to fight him off with every credit card you have. It ruins the spirit of the season a bit.
Rich Karlgaard: In our field of technology an amazing transformation has taken place. A generation ago all the cool products, like PCs and copy machines, came out in the business environment. Now the consumer is king. I credit Santa for not only igniting the economy, but for driving research and development in technology products like iPods, DVDs and flat screen TVs.
Victoria Murphy, staff writer: I think we are giving the old guy a little too much credit. I think Americans would head to the mall anyway. We have this unsustainable desire for newness. I don't think we need Santa to tell us that we want the new iPod mini or the next new digital camera. I think it's part of what drives our economy. We always want the newest, greatest thing. That's a very American idea. It shows up in our fashion, in our politics and in our ideas. As much as I do like Santa, I feel like we're giving him a little too much credit.
Mike Ozanian, senior editor: The French and the Germans celebrate Christmas in a big way too, but they're socialists and their economies are in the tank and their stock markets are in the tank. It's our free market system and our capitalistic system, that's the reason that our economy is the largest and our stock market is the biggest. It's not Santa driving this, it's our system.
Dave Asman: Does capitalism give?
Steve Forbes: Absolutely. The problem with Europe is that they nationalize and socialize Santa. The fact is, that in terms of capitalism you are serving the wants and needs of other people. You may be a scrooge inside but you don't succeed unless you help someone else. You want to profit from it, but it forces you to pay attention to other people.
Quentin Hardy: You know what Santa does on December 26th? He takes a plane to Florida. He's able to take a couple weeks off because he plans ahead. He doesn't go on a spending frenzy. I'm afraid that people get a little too caught up in Santa. Too many retailers depend on Santa to bring it all home at the last minute.
Steve Forbes: Anyone who has been involved in fund raising and capital drives know that to get people to give you've got to stimulate them, to get them to stretch. They do more than they anticipated. That's what the Christmas season does and we all benefit from it.
Rich Karlgaard: This is where the great virtue that America has, Attention Deficit Disorder, helps us out. By the time February rolls around we are ready to give again. Victorians invented Santa Claus, surging the great industrial revolution in England. Now we embrace Santa Claus the most. And the country that embraces Santa the most sits on top of the world economy.
The Informer: Christmas Stocks for Steve!
Bill Baldwin: Since Steve has a real soft spot in his heart for the French, I offer him a French oil company called Total (TOT). Imagine this, they take over the American retail market and you don't go for a fill-up you say I "totaled" my car.
Steve Forbes: Total is up to its eyeballs in corruption with Saddam Hussein and the Russians. Get a good oil company like a Chevron or ConocoPhillips, an American one.
Lea Goldman, staff writer: This falls under the headline, 'what do you get for the guy that has everything?' You get him gold. So long as the American trade and budget deficits continue to put pressure on the dollar, gold's a buy and I give you Newmont Mining (NEM), one of the largest gold miners in the world.
Steve Forbes: I think this is a gift that I appreciate if it depreciates. I think if gold goes down in price it's good for stocks, good for bonds, because inflation is going down. So I like your gift. I hope there's less of it, that will make me really happy.
Jim Michaels: I'm a cheap skate. I'm going to give Steve a $3 stock called Calpine (CPN). It's a company that generates power for very clean power plants. I'm going to put a condition on the gift too, that he has to hold it for at least two years. At the end of the two years, it may be worth $0 or it's going to be worth five times the current value.
Steve Forbes: I hope this gift doesn't turn into a lump of coal. I like Jim's ability to spot bargains. I'd hold Calpine.
Victoria Murphy: I know Steve likes technology and that he likes capturing memories, so I give him SanDisk (SNDK), which is a Silicon valley maker of flash memory cards. These go in your digital cameras and digital cameras are one of the hottest items under the Christmas tree today. It's a little cheap, which I hope you don't take the wrong way. It's a little cheaper than its rivals.
Steve Forbes: I love it. iPod and others. It's a bargain stock and I think it's got a great future.
Makers and Breakers
• Smithfield Foods (SFD)
Patricia Powell, Powell Financial Group: MAKER
All across America this morning you're going to find hams baking and those hams have to come from somewhere. Smithfield is the largest pork producer and hog production company. They are playing off of the low carb craze. They've been absorbing some acquisitions. There is going to be tremendous opportunity for improvement and a low price.
David Asman: You see a 30 percent upside to this stock to a 12-month target price of $39. (Thursday's close: $29.24)
Elizabeth MacDonald: MAKER
Ho-ho-ho! Merry Christmas, I'm a maker on this stock. This is a company that is using American ingenuity at it's best. It had a problem as being criticized for it's pork waste and it's possibly working on a project to turn that waste into fuel.
Jim Michaels: BREAKER
I'm sorry to be a grinch on Christmas day, but the corn hog ratio is still with us. It's a cyclical company and I don't want to buy it at its peak.
• Lehman Brothers (LEH)
Patricia Powell: MAKER
It's a global financial company. The average guy on the street is not going to know this company but their customers are. Institutions, corporations, governments, high network people, the economy is finally moving forward, it's a great stock.
Dave Asman: You own this stock and you think it can go up to $112 within a year. (Thursday's close: $86.97)
Jim Michaels: MAKER
It's an inexpensive way to get in to what looks like a very good mergers and acquisition boom, that will likely go on for a couple of years. I'd buy it.
Elizabeth MacDonald: MAKER
I agree. It's a lean mean investing machine, plus it's got Neuberger Berman. This is a great stock.
StockSmarts: $pirit of Stocks!
Terry Keenan: Will the spirit of stocks bring us good cheer and profits in the New Year? Well, it's the most wonderful time of the year and stocks are living up to that spirit with a strong finish in 2004. The Dow, Nasdaq and S&P are all set to finish the year higher. So will 2005 be an even better year for stocks? Charles, 'tis the season to be jolly; will it continue?
Charles Payne, founder of Wall Street Strategies: Absolutely. I’m probably the most bullish going into 2005, and for so many reasons. Fundamentally, I think we're ok. The only drawback may be some comparisons this year, corporate earnings-wise, but the economy is strong. We have lived through the spike in oil. We have lived through so many different things. Then we have historical factors, for example, the ‘Dow Theory.’ The Dow transports are up, utilities are up, the Dow is breaking out. This market looks so incredible. I'm so worried that I’m so excited. That’s the only thing I’m worried about.
Terry Keenan: Wayne, what do you think for 2005?
Wayne Rogers, founder of Wayne Rogers & Company: I think Charles is absolutely right. I think it's going to be a terrific year. The economy is going strong. I don't think you can stop it. You're right about transportation. I think that's one of the areas that's done very well and will continue to do well through the rest of the year, at least through the first six months. The only signs I see that are bad is that everybody is a little bullish now and that makes me a little nervous.
Terry Keenan: Jonathan, you stick with what worked in 2004?
Jonathan Hoenig, portfolio manager at Capitalist Pig Asset Management: A year is a long time. I mean, you think back to 2000, the first quarter of the year, the first couple of months looked good. A lot can happen in a year, so I don't look that far out. But right here, right now, stocks have a bid. I don't think you fight them, but for me it means concentrating on what I think are the best risks right now. Is the Dow going to be up next year? I’m not sure, but I think the specific sectors and the areas of the market like international stocks, like the utilities and telecoms, that's where I want to be right here, right now.
Terry Keenan: So you’re staying overseas. Leigh, is the Dow going to be up next year?
Leigh Gallagher, senior editor at SmartMoney Magazine: I am an optimist. I think it will be. I'm looking at probably, at least 8-10 percent, if not more. I think we have some very strong indicators. I think it will be a sector-driven market. I'm looking at sectors like transportation, like travel, which is making a big rebound; especially domestic, U.S. travel, as more Europeans will come here this summer, I think that will be a big area to look at.
Terry Keenan: That would take us to a new high, maybe up 10 percent. Do you agree?
Mike Norman, founder of the Economic Contrarian Update: Terry, look, Santa was very kind to the market this year, but there is a grinch in the picture. That grinch is named Alan Greenspan, and he'll be much more prominent next year as he continues this campaign of rate increases and at some point, it will have an effect on the economy and it will have an effect on the stock market. This whole panel is bullish and I think that's a sign that we should be a little bit cautious at this point. Look, I think January is going to be strong. We have the January effect flowing over, but then after that, I think the market goes into a correction and we have to see how things play out in the economy.
Terry Keenan: Jonas, how does it look from your vantage point?
Jonas Max Ferris, founder of MAXFunds.com: I kind of like what I’m hearing from Mike. Last year, everyone was optimistic. I have to say that I think the losers of last year are going to be where it's at next year. We're talking about the giant caps, the Mercks (MRK), the Pfizers (PFE), the Coca-Colas (KO), all the stocks that stunk in 2004 will be great in 2005. And all the hot areas; utility, telecom, foreign stocks, they're going to be weak.
Jonathan Hoenig: But why, Jonas? I mean, the market doesn't know that it's January 1st. I think people pay too much attention to the calendar.
Mike Norman: I'll tell you why, Jonathan. Very simply, President Bush has made it a point in his second term to reduce the budget deficit and that has been behind the trend in the weak dollar, which has been so important for a lot of these multinational stocks, and industrial commodity stocks. If we see a reversal on the foreign exchange trends, I don't think these stocks will do as well.
Terry Keenan: You think you'll see reversal because the interest rates will go up?
Mike Norman: Exactly.
Terry Keenan: Wayne, are you sticking with what worked for you in 2004? The oils and those kinds of companies?
Wayne Rogers: I'm kind of sticking with the same thing. Certainly, I think Jonathan is right. You can't see out a whole year. January 1 is an arbitrary day. The market has a trend right now, it's going with that trend and I would stay with that trend, probably for the next 30-60 days and you have to see what happens. Greenspan is going to raise interest rates. Yes, that will ultimately have an effect and it will dampen certain things, but there are always some stocks out there that you can find that will do well. I'm going to be fishing overseas again like I was last year. I think that's a good place.
Terry Keenan: You know, even though the Dow is up, we had lots of big losers in the Dow. Intel (INTC), down about 20 percent. We have Merck and Pfizer getting killed. Would you be buying some of the losers?
Charles Payne: Not aggressively. You can buy them because a lot of the so-called ‘bad news’ is built in. But I think, right now, you stick with the winners. I will say one thing, though: In hindsight, this was a great year, but throughout the year people were on pins and needles. I think next year it will be the same. We will have about 30 percent of the year where the market really takes off and the rest of the year I think we'll be challenged.
Terry Keenan: It wasn't a great year. It was a ho-hum year.
Leigh Gallagher: Let's not fool ourselves. I do think it will be a company-driven market next year. Sure, interest rates are a risk but that's why you stay away from things like real estate. You just pick your sectors wisely.
Terry Keenan: Stay away from real estate? All of America has just been putting more money into their homes.
Mike Norman: What about the consumer? The consumer is affected by real estate as well, and that's 70 percent of our economy. 70 percent of our GDP is driven by consumption.
Jonathan Hoenig: What about the real estate itself? We talk about a real estate bubble a year or two years ago. This was another great year for REITs.
Terry Keenan: It was a great year for retailers because they suddenly became REITs.
Jonas Max Ferris: Guys, wasn't the last two years about the losers coming back? Think of all the hottest areas, Japan, utilities, telecom. They were the biggest losers two years ago, and they had a good, strong two-year period. Now it’s time to find some new losers.
Terry Keenan: That's why you're looking at the blue chip losers. Wayne, the Christmas numbers from retail look a little weak. It looks like people may be a little tapped out. Will these interest rate increases through 2005 really hurt the consumer?
Wayne Rogers: I don't see that happening, no. I think the weather is what hurt the consumer here in the last week. I think as long as you see personal income rising, the jobs are rising, the economy is doing well. I don't see that as a soft spot. There are spotty things within that, but I don't see that as a soft spot. Once again, I think you fish in those waters where you see the fish are traveling, as it were. I wouldn't go around looking for losers now to say, ‘ok, I'm going to stick with some big cap loser because it's down. And therefore, it's out of fashion and therefore I should buy it.’ It may stay down forever. Some do, you know.
Best Bet$: Mistletoe Stocks
Terry Keenan: No need for mistletoe to kiss these stocks. Ok, Jonathan, what stock are you curling up with under the tree?
Jonathan Hoenig, portfolio manager at Capitalist Pig Asset Management: I'm not only giving it a kiss Terry, but a big French kiss. It’s Veolia Environment (VE); we talked about it once before. It’s in one of my favorite groups right now. You know, when I like a group I jump in with both feet. We own it in the fund, we have owned it for quite some time. We own tons of the foreign utilities; some domestic as well. I just think Suez (SZE), VE, and the California Water (CWT), are ones we talked about. This is where the action is right now. So, I'm giving it a big kiss for Christmas.
Terry Keenan: What do you think, Wayne?
Wayne Rogers, founder of Wayne Rogers & Company: I think Jonathan is not with in with both feet. I think he's under the water. Jonathan, I'm surprised that you'd pick a French one.
Jonathan Hoenig: Why do you say that, Wayne?
Wayne Rogers: Some of these are good. I believe you.
Jonathan Hoenig: What do you have against the French?
Wayne Rogers: The chart on it is terrific. I think you have a winner there. I think it's a good pick.
Terry Keenan: Charles?
Charles Payne: I don't disagree with it. There are a lot more, but I certainly wouldn't tell anyone to pull out at this point. The momentum is there, and I think the fundamentals are there as well.
Leigh Gallagher, senior editor at SmartMoney Magazine: This is the old Vivendi (V) environment. The good Vivendi, not to be confused with the other one that we don’t want to talk about. It’s another weird “V” name, but I like it.
Terry Keenan: All right. You have another pick here.
Leigh Gallagher: I love FedEx (FDX). Think of all the millions of people who are opening gifts this morning, thanks to FedEx, which got them there on time. This is a company that has consistently outperformed the market. Its sales and earnings growing consistently. It’s a big old time company, but one that has been nimble and changing. It's an Internet play in a lot of ways. It’s a small business play and a big business play. You can't go wrong with this company.
Charles Payne: I agree. My kids have owned this stock for many years. It’s also sort of a proxy on the overall economy and the global economy which I happen to be bullish on.
Terry Keenan: And the Kinko’s acquisition seems to be working for them as well?
Charles Payne: That was really a smart deal. They couldn't get Mailboxes Etc., so they one-upped them again. They only have one competitor, UPS (UPS), so there’s room for both.
Jonathan Hoenig: I wonder sometimes is it that FedEx is so good or is it that the U.S. Post office is so awful? The Kinko's thing was brilliant so I’d stick with this winner.
Terry Keenan: Let's move on to your pick, Wayne. One we get a lot of questions about. What is it?
Wayne Rogers: Leucadia (LUK). You know, I have talked about it in the past. I think it’s a terrific company. It's got a great chart. How much is left in it? I can't tell you. I'm a great believer in management. When I pick management, I think you go all the way with those guys.
Terry Keenan: You own it and owned it for a long time.
Wayne Rogers: That is correct.
Charles Payne: It’s one of those stocks that it seems everyone is picking today; where the momentum is there, all the factors are there. Definitely hold on to the stock. If you buy it, make sure you use a tight trailing stop, because it’s made a pretty good move already.
Leigh Gallagher: I like it. I wonder how much is left. I also think for the average investor, this is a holding company, it's kind of hard to get your arms around it. But I do like it.
Terry Keenan: Charles, what’s your pick here?
Charles Payne: SunGard Data (SDS), which is a little different from the rest of the picks because it's not a momentum play yet. I want the investors to get in a little early. We’re looking at a company that has sequentially been knocking the cover off the ball. And I really believe that this is one that's going to benefit from the financial community, doing very well. Not just next year, but for a while to come.
Terry Keenan: Jonathan, love it or hate it?
Jonathan Hoenig: It's not getting me excited. I’d probably go for NCR Corp. (NCR) more than SunGard right now. We're not fishing in this water right now, Charles.
Terry Keenan: Continuing that fishing metaphor. Fishing for this one, Wayne?
Wayne Rogers: No. You know, Charles, I love your picks most the time. This one — it's kind of a mediocre one.
Charles Payne: This is a guppy and you guys aren't going to like it until it becomes a whale. That's good. I want the viewers to buy it while it was a guppy.
Leigh Gallagher: I like it. I hate to be so bullish, but it's Christmas. I like this one. Its clients are financial services firms. I think that bodes well for 2005.
Cashin’ In Challenge
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Stock of the Week
Last week’s pick from Wendell Perkins was Mattel (MAT). For the week of December 20-24, MAT went up 2.1 percent
Terry Keenan: Mike Norman is back and he says that the mortgage company Fannie Mae (FNM) is the stock you need to own on Monday Morning. Back on November 27, Christmas came early as Mike picked OSI Pharmaceuticals (OSIP) as the Stock of the Week. Since then, it's up 50 percent, most of those gains coming last Friday.
Great call, Mike; a lot of pressure on you. The company’s in turmoil, the management was fired this week. Why in the world would you like it?
Mike Norman: Exactly. Look, this is a very important company. The turmoil has been caused by some accounting irregularities.
Terry Keenan: Some? $9 billion in profits.
Mike Norman: Frank Raines, who was the CEO of the company, has been kicked out. The company is going to take a charge of $9 billion. Look, they have a trillion dollars in assets. That $9 billion charge represents less than 1 percent of its assets. They'll be able to re-liquefy. This company serves a vitally important function, not only in the economy in a sense that it liquefies the mortgage market. It has all these assets.
Jonathan Hoenig: I don't know. But I tell you, if Fannie Mae shoots up 50 percent, I’ll eat every ornament on your Christmas tree. Why would you want to own a company that's being run by regulators? For me, that’s just a problem right from the start.
Mike Norman: It's absolutely not being run by regulators. Look, the company has had some accounting issues. They're addressing those issues. Let me say this: Freddie Mac (FRE) had the same situation back in 2003, the stock got hit, it went down to about $40. It's up to $70 right now. That was a great time to be buying it. Exactly when these issues came out. We have the same exact thing going on here with Fannie Mae.
Jonathan Hoenig: I don't know. This is super-widely owned. I don't think it's as panned, hated or as out-of-favor as you think. This is a super-widely owned stock.
Mike Norman: Jonathan, there’s one thing you can’t dismiss. It's a company with a trillion dollars in assets, the second largest issuer of debt after the federal government. It is very, very strong.
Jonathan Hoenig: Look, what the regulators did to the insurance companies this year. All you need is one FedEx (FDX) from Eliot Spitzer and you have 30 percent of your market cap wiped out. Not a place I want to be right now.
Question: "My Social Security checks are Ho-Ho-Hum. By next Christmas, will I be able to invest that money in stocks?" — Santa Claus, The North Pole
Jonathan Hoenig: Well, it depends on what Santa's financial condition is, Terry. Santa has a lot of presents to give out. Does he have tons of credit card debt? I think, for a lot of people, if they had extra cash to put to work, the first step should be to pay down debt. Get their financial house in order and then consider the stock market. As we talked about in the first segment here, the bid is with stocks right now and I wouldn’t fight it.
Terry Keenan: Is he going to get his social security money to invest by this time next year?
Jonathan Hoenig: Santa has to be over that age. So he'll get it. But for Santa's kids I wouldn't count on it.
Terry Keenan: Wayne, he’s got a seasonal business, he's getting up in years, is he getting that social security money?
Wayne Rogers: Well, you know, you all forget about Mrs. Santa. She can collect a check too, so they have a double hit here. So, yes, I think there's a chance they can make some real money this year. I'd look forward to Santa being bigger and fatter next year, and possibly not being able to come down the chimney. I'm a little worried.
Question: "I have shares of Circuit City (CC) that I bought at the start of the year. Should I buy more, sell or hold?" — Brady Bjornson, Alexandria, MN
Leigh Gallagher: I think Brady should sell and I think he should seriously look at a competitor right in his backyard in Minnesota, that's Best Buy (BBY). Circuit City had a great run this year, but it hit a big bump last quarter. It missed its earnings big time, because it had depended on this bankcard business last year. That's dangerous territory for retailers; to say nothing of the fact that this company is competing against Best Buy and Wal-Mart (WMT). The prices across the board are going to drop faster than you can say LCD.
Jonathan Hoenig: I don't know. You dump a winner to buy a new stock, Leigh?
Leigh Gallagher: I think the ride is over. I think that bad things are ahead for this stock.
Wayne Rogers: Well, Jonathan and I have generally the same approach on this kind of thing. I would put a stop in around $13.90, or something like that, and let the market take me out. If he's got a winner, and he’s got it there, why not do that? Unless he has a capital gains problem for this year that he needs to adjust for tax reasons.
Jonathan Hoenig: For new money, I'd go the video game route and check out Gamestop (GME), which we don’t own, but, for me, is a stronger stock right now.
Question: "I bought shares of Guidant (GDT) at $29.50 - now it's over $70. With the J&J deal in the works, what should I do with the stock?" — Jim O'Dell, Washington D.C.
Wayne Rogers: Merry Christmas to him because he did a great job. I think he should stick with it, because I think Johnson & Johnson (JNJ) is a terrific company. I think he has Guidant, goes into J&J stock, it's an all-time, long-term winner. It’s going to continue to be. He just has to be patient and live with it.
Leigh Gallagher: I agree. He should hold it and be happy he has it. J&J is one of the most diversified healthcare pharmaceutical companies out there. With Guidant, it now has a presence in the stent business, to prop up all the arteries of the people who are on Atkins and are going to need it.
Terry Keenan: And, you know, J&J stock has held up remarkably well. Double-digit gains in a year, when the rest of the industry is just devastated.
Jonathan Hoenig: Yeah. I mean, this was a year not to own those safe drug stocks like Merck (MRK) and Pfizer (PFE). I mean, you had to look under the hood. Like Novo Nordisk (NVO), which is that insulin maker from Europe we talked about.
Terry Keenan: What's wrong with just owning J&J?
Jonathan Hoenig: Well, the trend is with it, Terry, so I certainly wouldn’t fight it.