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.
Reminder: We'll be back at our regular day and time next week. The Cost of Freedom will start Saturday at 10 a.m. ET with "Bulls & Bears."
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 Herman Cain, CEO of The New Voice.
Trading Pit: Market Madness
It's been a crazy couple of weeks for stocks. The Dow lost 500 points during the six trading days from April 12-20.
Then, on this past Thursday, a gain of 206 points, which is the biggest single day gain in about 2 years.
On Friday: another wild one. The Dow was down about 150 points in the final hour and then rallied in the last few minutes limiting the day’s loss to 60 points.
What happens next?
Tobin Smith: We've hit the bottom for 2005. Only a spike in oil prices could take us lower. Now you can start to buy. And if you’ve been holding on to some big, old tech like Microsoft (MSFT) or Cisco (CSCO), you can start to sell if we snap back. With these stocks you’re paying for growth, but there’s no growth. Also look to get rid of stocks of car companies and auto parts. I’d look to start buying stocks in energy, food, and titanium.
Gary Kaltbaum: I’m in the exact opposite camp! We topped out months ago and still have a lot more to go. We’re in a bear market. Let’s face it, bear markets happen. It’s not a bad word. You just have to step aside and let stocks go through the process. Bear markets have sharp rallies that make you feel good and then a few days later they bury you. That’s what happened this past week.
Herman Cain: Call me the Bulldog! I’m in between these bulls and bears. Now is the time to show some calm. We’re going to get some correction, but when you look at business fundamentals, there’s strength in a lot of businesses. This is not a time to panic; just know how to play the volatility. Now’s the time to start buying undervalued stocks. I like Whirlpool (WHR). (Herman owns this stock and is on its board.) And let’s not forget that the Dow did break below 10,000 and then rallied back against some very big economic odds.
Gary B. Smith: Over the next few months, we're going to go up. But first, we need to drop just a touch more. This is definitely a buying opportunity. In particular, tech has been the most despised and that’s where I’d look to buy. I especially like eBay (EBAY).
Scott Bleier: We have passed the washout phase. This is just a hiccup because gas prices went through $2/gallon. The economy can stand on its own two feet. I agree with Gary B. that we’re going a little lower. Then I thin you everything in sight because we’re at the end of a drop.
Pat Dorsey: Earlier this week, when stock were selling off, I was getting excited, because I was starting to see a lot of bargains. But the Thursday's gain, took some of it away. When Caterpillar (CAT) reported last week, it showed that there was amazing strength in China and North America. This demand from U.S. companies means the U.S. economy is healthy. There are some good stocks out there to buy right now, like International Game Technology (IGT) and eBay (EBAY). Usually when stocks get cut in half, it’s better to be buying than selling.
Stock X-Change
It’s Merger Mania! The "Bulls & Bears" pick the companies that could be bought out and make the stock skyrocket.
Pat: I like Steel Dynamics (STLD), which is a low cost producer of steel and is twice as efficient as rival, Nucor (NUE). One reason this could be taken over is that a lot of foreign companies with a lot of cash are looking to get around tariffs. Buying an American company, such as Steel Dynamics, is one way to do that. This stock is going to $40. (Steel Dynamics closed on Friday at $29.85.)
Gary K: I think the steel play is over. This stock’s already been hammered and economic growth has peaked.
Gary K: My pick is Activision (ATVI), the second largest video game maker in the U.S. The gaming business is smoking and Electronic Arts (ERTS) looks like a good buyer for them. The numbers are great. The business is great. There’s a lot more coming for this company. (Activision closed on Friday at $14.63.)
Scott: Computer games are a huge business. Last week, video game retailers GameStop (GME) and Electronics Boutique (ELBO) merged. I like Activision as a takeover play, but from a technical standpoint, the stock looks ugly.
Tobin: I’m also looking at steel and alloys. I like and own Allegheny Technologies (ATI), which is also a large producer of titanium. I’m using the same strategy as Pat mentioned earlier. The largest titanium company in the world is in Russia, and in order to get around tariffs, it needs to buy an American company. Plus, Allegheny is low in cost and high in productivity. (Allegheny Technologies closed on Friday at $24.31.)
Pat: This does not have a pretty balance sheet. If you want to buy a company that could be taken over, have a back up plan in case it doesn’t happen. Also, it’s important to buy the takeover target at a cheap price, and Allegheny is not cheap right now.
Scott: DRS Technologies (DRS) looks like a company ready to merge. There’s been no group more bulletproof than defense. L-3 Communications (LLL) made a run for DRS early last year and I think they are going to make another one. I own and recommend both DRS Technologies and L-3 Communications. (DRS Technologies closed on Friday at $44.75. L-3 Communications closed at $70.92 on Friday.)
Tobin: DRS is expensive! The only way you’ll make money from this stock is if it’s bought out
Chartman
Gary B. selects stocks set to take charge as new leaders of the market.
Gary B: General Motors (GM) has been hated, despised and ridiculed… but it’s ready to bounce back. GM is currently at very long term support line and now’s the time to buy. (General Motors closed on Friday at $26.74.)
The stock has dropped almost 75 percent from its top, so there’s very little risk if you buy now. I own it.
Tobin: General Motors is dead. It has lots of debt and very little assets to make revenue.
Gary B: Google (GOOG) is ready to take charge. It built a base below $200 and is showing strength while the rest of the market has been tailing off. Buy now and follow it to $250. (Google closed on Friday at $215.81.)
Tobin: Google looks good. There’s been a shift in how companies advertise. More big companies are advertising on Google because they can immediately see the payoff. A company pays for a link. Once someone clicks on it, the company can easily see how many sales the advertising produces. Plus, Google is going to make more money on cell phone searches and has 25 new products in the pipeline.
Predictions
Gary K's prediction: The Dow falls to 9,000 before it climbs to 11,000
Pat's prediction: Buy The MERC (CME)! It sold off for stupid reasons
Gary B's prediction: Despite big losses, Delta (DAL) doubles in 1 year
Scott's prediction: Tech isn't wrecked; LSI Logic (LSI) up 30 percent by fall
Tobin's prediction: Get the good stuff! Buy Fortune (FO) & sell Bud (BUD)
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Cavuto on Business
Neil Cavuto was joined by Jim Rogers, President of JimRogers.com; Gregg Hymowitz, Founder of Entrust Capital; Dani Hughes, CEO of Divine Capital Markets; Bob Froehlich, Vice Chairman of Scudder Investments; Ray Lucia, "Ray Lucia Radio Show" host.
Bottom Line
Neil Cavuto: Should you just pretend Social Security doesn't even exist to have a better chance of retiring rich? The president's plan for private accounts in Social Security is on life support. Now many say to save the system they'll likely raise the retirement age and possibly cut benefits, especially for those considered "well-off". Jim, should people just write off Social Security when they make plans to retire rich?
Jim Rogers: Certainly anyone under 40 years old should forget Social Security because it's not going to be there no matter what happens in their lifetime.
Neil Cavuto: Really?
Jim Rogers: No, of course not. They're going to debase the currency. The government is in a huge deficit. Do the arithmetic. People should start saving as soon as they can.
Dani Hughes: You have to educate yourself too. Not just about stocks and bonds but real estate and tax issues.
Neil Cavuto: Have you given up on Social Security?
Dani Hughes: I'm not counting on it. I'm counting on myself.
Neil Cavuto: I'm hearing that from a lot of young people today.
Gregg Hymowitz: A lot of young people today are born out of a certain sense of self-reliance. They didn't come from the Depression so Social Security hasn't meant as much. The program needs some fixes. People like Jim should not get Social Security. But what everyone else is saying does make sense though. You have to start early and you have to save. I don't think you should invest blindly though. The equity markets in the last 6 years have done nothing. The S&P has not moved an iota in the last 6 years. So you can't invest blindly and I agree with Dani, start early.
Bob Froehlich: I agree with Jim Rogers. I don't think you should rely on seeing anything from Social Security. If you want to retire rich as an American investor the only thing you should be doing is investing outside the United States. The greatest opportunities are not going to be in the U.S. I'm a flag-waving proud American but the opportunities are not going to be here. You have to be in places like China, Latin America and South America. If you want to do the math — 6 percent of the world's stock market is represented by emerging markets. But they account for 70 percent of the land and 85 percent of the people. That's where the upside is going to be. It's not that difficult to retire rich 20 years from now as long as you're a big global investor. I think you won't have to worry about Social Security.
Gregg Hymowitz: You know Bob, they've been saying that for a long time but in the last 15 years the international markets have paled in comparison to the equity markets in the U.S. equity markets. So for the last 15 years you've been better off being a U.S. investor than being a global investor.
Ray Lucia: If you want to add an extra 20 percent to your slice of pie, Carnegie Mellon did a study. It was in Forbes back in November. If you invest your stocks in your personal account, and your bonds and your fixed income inside your IRA's and your 401k's, you end up with about 20 percent more money. One of the things that you can do to retire rich is to make sure you have your asset allocation right. Certainly you invest overseas. You don't want to invest everything overseas, but you want to have some of your assets invested so that it gets the best tax treatment.
Gregg Hymowitz: I'm not from Carnegie Mellon, but that to me makes no sense. Why would you ever invest your lower yielding investments in your tax-exempt account as opposed to investing your higher growth investments, i.e. your stocks?
Ray Lucia: It's actually very simple. You have a 15 percent maximum tax bracket for capital gains and dividends. And you have an ordinary income rate that's 35 percent. I don't think Carnegie Mellon lies.
Jim Rogers: Once again Gregg is not good for my nervous system. If people can put aside their money for 35-40 years and then the government can say, "Just because you've been successful we're not going to give you the money." That is outrageous. And that's what you advocate Gregg.
Gregg Hymowitz: What I advocate is this: multimillionaires, notwithstanding that they've paid into the system, at the age of 68 should get less money or possibly no money.
Jim Rogers: The deal they made with me and with everyone else is, "Give us your money, we'll put it aside for you, and we'll give it back to you." And now after 30 years they're going to say, "Wait a minute. We're changing the deal." What the hell kind of government is that?
Gregg Hymowitz: I agree with you. The change in the deal has to be phased in. It shouldn't affect guys like you who are a year or two away from retirement.
Neil Cavuto: Well, I think he's like 10 or 20 years away from retirement. By the way, he's been retired for like 30 years already.
(LAUGHTER)
Bob Froehlich, what do you make of this notion that the sooner we get the psyche past us that Social Security might not be guaranteed, the more likely we're to do what Dani said, which is to start looking after ourselves?
Bob Froehlich: That's a critical issue because people are still thinking that it's the government that's going to take care of me. As long as they have that potential safety net, if you will, they'll always put that off. You have to pay yourself first. Don't rely on someone else taking care of your retirement for you.
Dani Hughes: You always have to pay yourself first. Take your money out. Invest it first before you pay your other bills. And always know your exit strategy before you make your investments.
Neil Cavuto: But does your generation truly feel that the president's plan, where you can invest part of it, is a waste of time?
Dani Hughes: I can't really speak for my entire generation, but I really think that Social Security as it stands now, is just not a reality.
Neil Cavuto: So they recognize that. Wouldn't they be open to what Jim says, which is investing some of their own money, if not through their own, then through Social Security?
Dani Hughes: Absolutely. It's worked in a lot of other countries.
Neil Cavuto: So why is this whole thing frittering away?
Jim Rogers: Because guys like Gregg want to make it an emotional issue when it really shouldn't be an emotional issue.
Gregg Hymowitz: I'm trying to make constructive changes to the system that'll help in the next 15 years. I don't hear the idea you have.
Ray Lucia: 73 percent of all the benefits are already pre-funded. We know we're going to have enough money to cover 73 percent of the benefits. Jim and I are safe. Dani is potentially safe. If you raise the retirement age there's still going to be some money in the bank for my kids and my grandkids.
More for Your Money
Neil Cavuto: Patience pays. Just take a look at how much money you'd be retiring with if you'd sat on a 100 shares of each of these stocks for the last 30 years:
100 shares of each since 1975: Wal-Mart (WMT), Johnson & Johnson (JNJ) and Altria (MO) now total: $3.3 Million. (Original Investment: $13,838)
$3.3 million on an investment of less than $14,000. So what stocks should you buy now to help you retire rich? Time to get more for your money. Dani, what are you buying?
Dani Hughes: I am buying eBay (EBAY) because eBay is a lifestyle changing company. This company has the potential to make markets move. Their growth is going to be primarily in Europe and overseas.
Gregg Hymowitz: What's the multiple?
Dani Hughes: Ah, you've got me. It's down 40 percent. It's at 52-week lows. The stock has potential over time.
Bob Froehlich: Well, I'll answer Gregg's question. The P.E. is 50 times earnings. That's one reason I don't like it. The second reason is they don't pay a dividend. It could work out okay but it's a much more competitive marketplace right now. And I think some of their revenue is suspect.
Neil Cavuto: So what are you doing?
Bob Froehlich: I'm sending my money overseas to China Mobile (CHL). It's the world's largest cell phone provider. They have a customer base of 200 million subscribers. They have a 65 percent market share. I don't think the next big thing is the Internet. I think the next big thing is phone text messaging.
Neil Cavuto: You've obviously been following my daughter around because that's all she's been doing. Dani, you don't like China Mobile, right?
Dani Hughes: Over the long term, we don't know what's going to happen in China. We've been talking about China for the last 15 years and really only in the last 2 years have we seen some real movement.
Neil Cavuto: Gregg, what are you buying?
Gregg Hymowitz: Zinc. No, I'm just kidding. Jimmy is here and I thought that would get a rise out of him. I don't think there are a lot of people who own the first three stocks we mentioned for thirty years. That's a problem right there. One company we like is Citigroup (C). We've owned this stock for about 13 years now. It's at 11 times earnings and it's a global financial play.
Neil Cavuto: What do you like Jim?
Jim Rogers: Thirty years ago you might've bought U.S. Steel, Chrysler and you would've had nothing to show for it. I would buy hard assets. I would get my money out of the country. And I would buy airlines.
Gregg Hymowitz: Everyone always wants to get their money out of this country. But I still believe this is still the greatest country to invest in.
Head to Head
Neil Cavuto: Big moves down. Then big moves up. What's coming next for the stock market? Answers from great minds: Jim Rogers, Gregg Hymowitz, Dani Hughes and Bob Froehlich. They will help us cut through the hysteria and tell us what's really happening with your stocks. Bob, what do you think happens?
Bob Froehlich: The market is going up. We've seen the low for the year. Oil's come off its highs. The ten-year treasury has come off its highs. We really don't have inflation or deflation worries. The jobless recovery is a thing of the past. More importantly, look at earnings. Earnings are coming in at double digit above first call forecasts.
Jim Rogers: Bob, there's no question we've had a big pounding in the market in the last two weeks. So we may be due for a rally. But the market is going to be down this year and it's going to be worse next year. We had huge amounts of money spent in 2003 and 2004 by the government to win an election. Now we have to pay the price. It's not the end of the world. It's just a bear market.
Bob Froehlich: Here's the thing we're going to have going for us though is that corporations are flushed with cash and I think they're using that cash to do two things: one - to pay dividends because now the dividend yield is above 2 percent, and two — the merger and acquisition boom. I think it might be the story behind the story.
Gregg Hymowitz: I don't understand. Before you were telling everyone to ship their money overseas. And now you're saying the U.S. equity markets are the place to be.
Neil Cavuto: He's talking about long term.
Bob Froehlich: This is long term. Twenty years from now, you're going to have to be outside the U.S. but that doesn't mean there aren't good opportunities here in the U.S.
Neil Cavuto: I thought he was very clear on that Gregg.
Gregg Hymowitz: I don't know how anyone quite frankly can time the equity markets. I agree with Jim for once that there was probably an oversold condition now in the equity markets. It's very earnings driven and very fundamentally driven. There have been great winners over the past few years but if you look at the broader equity markets, again the S&P has done nothing for the last 6 years now. You just can't invest in these large indexes and just think you're going to get a return.
Dani Hughes: I agree with Gregg. We look at the Dow. Those are 30 companies. Who cares?
Neil Cavuto: Well, we do because we started the lead for this segment with that.
Dani Hughes: Well, agreed. But if you're going to invest and make money in this market, you've got to really do your homework. You have to invest in things that actually pay you to wait.
Neil Cavuto: A lot of people at Fox ask me, they must think I'm Jim Rogers or something, and they say, "I just want to invest in an Index Fund and park it for seven, eight, nine years." And Gregg is right. For the last 6 years you've done squat. So what do you tell them?
Jim Rogers: That's going to be the case for the next seven, eight, nine years. Many times in history, the market has done nothing.
Neil Cavuto: If you had invested in an index, something, what would it be?
Jim Rogers: Commodities. Commodities have tripled.
Gregg Hymowitz: Commodities are going up because the economy is improving. At some point that should be reflected in equity prices.
Bob Froehlich: You should have some exposure to commodities but you also have to have exposure to the market. As long as you have a balanced portfolio and some things outside the U.S. Just buy a little bit of everything.
FOX on the Spots
Bob Froehlich: One more hike & Fed is done. Buy financial stocks!
Ray Lucia: Death tax survives; but only affects 1 percent of Americans.
Gregg Hymowitz: Hillary's not a Dem lock in '08; many challengers.
Jim Rogers: NYSE merger spells its demise; sell Archipelago (AX).
Dani Hughes: Jim's right about NYSE; but I say buy Archipelago (AX).
Neil Cavuto: The New York Stock Exchange. Let me say this: Think condos, because after this automation is done, there's going to be no people, no trading floor, and lots of condo space.
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Forbes on FOX
In Focus: Is Our Economy Still Booming or Going Bu$t?
Jim Michaels, editorial vice president: The big picture is the economy is very strong. All the basics are right except for oil prices. Inflation remains low, long term interest rates remains low. Housing remains very strong despite one bad report. We have too many people who are paying attention to the daily happenings in the news and losing sight of the big picture. Every day there is going to be bad news and good news. Things are going very well.
Neil Weinberg, senior editor: I'll tell you about the big picture. The reason this economy is going strong is because people took $600 billion out of their houses last year. That's not going to go on. Housing is the only thing that's kept our economy going. And the only reason that housing has kept going is because of low interest rates. Interest rates are now going up, oil prices are going up, inflation is going up. The housing market is going to melt down and take the economy with it.
Elizabeth MacDonald, senior editor: I think that Jim is right. I just see the bond market putting the 10 year bond at 4.25 percent. That's really low and dirt cheap. This economy is so powerful. I see 4 percent growth. It has weathered two wars, corporate scandals and a terrorist attack. You can't beat that.
Victoria Murphy, staff writer: I am worried about the economy and have some long term numbers that support that concern. They aren't day to day but are very relevant. 63 percent of profits of S&P 500 companies are coming from financing activities. So companies aren't making money on selling things, they are making money off of financing. That's short term and 36 percent is historically very high. Over the past four years, sales at S&P 500 companies have gone up 12 percent but profits have gone up 93 percent. That's amazing. It shows that managers have done a great job at cutting costs, but that can only last for so long. I think the profit bubble is only short term.
Mike Ozanian, senior editor: We are in a boom. People are richer and they are getting richer every day. What's hurting the stock market, which looks six months out, is that politicians and people who want to run for office are taking a wrecking ball to it. There are trade winds blowing out there. We're talking about tariffs against China. Elliot Spitzer is hanging CEOs. This is what's hurting the market.
Quentin Hardy, Silicon Valley bureau chief: George Bush has put the economy on steroids. It's top heavy and brain damaged and has a record that you can't really trust. Just like sports. The economy is doing ok. And the American entrepreneur has well overcome the bad things that Bush has done. The real problem with the market is the hedge fund managers who are giving us massive volatility. The S&P 500 is moving 1 percent-2 percent a day. There is no direction or information in any of this.
Elizabeth MacDonald: When Quentin refers to Bush putting the economy on steroids he's talking about the $7 trillion record deficit that Greenspan is right to be frightened about. We have some cranky baby boomers who are going to be retiring soon.
Jim Michaels: Government spending is stimulating the economy right now. It's putting money into circulation. Government book keeping is so crooked that you can't tell what's a deficit and what's not a deficit.
Victoria Murphy: We want spending from companies. We want capital spending. I had an interesting conversation with the CEO of Sybase, a billion dollar software company. They just came off of a great quarter but he's hiring timidly because he's worried that his clients are going to cut back on spending.
Neil Weinberg: The stock market is very worried right now because it does look six months out. The reason the market is worried is because interest rates are going up. Where is the growth in profits going to come from?
Mike Ozanian: The problem now is that Bush is being stabbed in the back by his fellow Republicans who are too timid to make the 2003 tax cuts permanent. That has gotten us out of this recession and would keep us going.
Elizabeth MacDonald: Mike is absolutely right. Make the tax cuts permanent and reform Social Security. That would be great for the market.
Flipside: Biggest Foreign Threat to Your Money Is Not the Mideast!
Neil Weinberg: We all know about the problems in the Middle East, but Asia has been getting worse and worse over the past few months. Obviously, we have North Korea with a very crazy leader who is very unpredictable and could start a war at any time. China and Japan are now fighting. We have China and Taiwan fighting. We have Japan saying that it's two biggest threats are China and North Korea and we have demonstrations against Japan.
Jim Michaels: I disagree, the Mideast is the focus of everything right now. The Iraq election is going down in history as a really major change. And right now they are still blowing up trucks but the public is no longer with them. There has been a sea change there. This is revolutionary. As for the Chinese, looking at the long picture, they have acted very responsibly. They've got there nationalistic sensibilities. Right now they are yelling at the Japanese because they feel that they haven't apologized enough for the atrocities during World War II. The Chinese are right to be angry. What the Japanese did in China is unforgivable. It was one of the worst massacres in history. But this is not terribly dangerous. It's normal.
Victoria Murphy: Asia is so important to our economy. China is the third largest trader in the world, behind the US and Germany. They one-upped Japan recently. Stuff is leaving China's ports so fast that there aren't enough ships to carry it. We are so dependent on China for cheap goods and we also want to make China our number one customer. I think it's foolish to write them off. We'd be in a lot of trouble.
Elizabeth MacDonald: You are talking about a problem with Japan and China and Japan is the biggest trader with China. After the terrorist attack of 9/11 we lost almost a trillion dollars in the week after. We lost almost a half a trillion dollars in economic growth. We still have terrorists trying to get control of Iraq. We still have terrorists and Islamic fascists killing and raping women, killing gay people, burning people alive. This is the real hot spot.
David Asman, host: What happens if China invades Taiwan?
Quentin Hardy: If China does invade Taiwan, China loses all of its trading around the world. I don't think they are going to do that. As far as Islamic fascism is concerned, it's an awful thing but it's not going to stop our lives or undermine our economy permanently. We can deal with it. Terrorism is a loser's game. It's not going to stop us in our tracks. I was in India last week. While I was there the Prime Minister of China was there, talking about how China and India should work together. They could be some great power. That's something we should worry about. It's not a military conflict. It's a competition around education and around getting great jobs going around this country.
David Asman: What about North Korean nukes?
Jim Michaels: Who are they going to throw their nukes at? They are surrounded by hostile and powerful countries. Japan, China and the United States. They are acting like a child, kicking and screaming to get attention saying "look, we have a nuke". They are doing this so that we'll pay them off. We're dealing with it the way we should, with a combination of others.
Neil Weinberg: I would say that the problem of people's sentiments getting out of control, is in the far east. You've got the Chinese having these major demonstrations. This could be like the big cultural revolution! Things could get out of control.
Jim Michaels: The Chinese are in the middle of the biggest boom in the history of the world. They are not going to upset this by getting adventurous.
The Informer: Brave Buys$!
Elizabeth MacDonald: It's a 'fraidy cat market right now and it's the time to buy. I like Automatic Data Processing (ADP). I think this economy is turning into an intellectual property economy and a financial servicing economy as we outsource manufacturing jobs over seas. This is a company to go with. They do payroll services processing and brokerage services processing.
Bill Baldwin, editor: ADP has lead a charmed life of 40 years. It's yesterday's story. Now they've got competition from Paychex, which use to be just with small companies but now wants to be with big companies.
Elizabeth MacDonald: I still like ADP and I would buy Paychex too.
Bill Baldwin: I'm fascinated with Cree (CREE), which is a semiconductor company. It doesn't make parts of computers, it makes parts of power equipment. It's best known for its diodes that produce light. The future is producing power.
Victoria Murphy: I think Cree's future is going to Asia. They're a company that is facing increased competition from Asian manufacturers. Their ability to price their goods has gone down. Their prices are increasing and that's not a good sign.
Bill Baldwin: Complaining that Cree has a problem of declining prices is like saying you never should have bought Dell Computer 12 years ago because prices of PCs weren't going up.
Victoria Murphy: I like Microsoft (MSFT). Microsoft's stock is where it was six years ago! I think that greatly understates the future of Microsoft which is moving away from Windows and Office and getting into mobile phones, games and less sexy software that runs servers. Also you get a dividend. And Microsoft has promised to buy back $30 billion in stock, which is a big boost to shareholders.
Mike Ozanian: I don't like it. I think Microsoft is a victim of its own success. On one side, it's being pummeled by over zealous regulators and, on the other side, it's being pummeled by companies like Google who are going to compete with it on software.
Victoria Murphy: I agree that Google is stiff competition for Microsoft. I think that Microsoft has masterfully gotten around the regulating issues. They're very smart about that stuff.
Mike Ozanian: I like Del Monte Foods (DLM). The stock is really cheap at around $10.
Elizabeth MacDonald: I don't like Del Monte. It has a dead overhang. The problem with this company is that it relies on steel for it's cans.
Makers & Breakers
• PFIZER (PFE)
Jack Ablin, chief investment officer at Harris Private Bank: MAKER
This stock is part of the drug group. The drug group, in general, is cheap relative to the S&P. They've got strong cash flow and a 3 percent or so dividend yield. So while you're waiting you still earn a good tax advantage yield. It's got low debt, so it's actually a triple A rated company.
David Asman: The target price is $38, that a 40 percent rise. (Friday's close: $27.22)
Jim Michaels: MAKER
Any time you can buy a fine company in a great industry at a knock down price, you're silly not to do it.
Bill Baldwin: MAKER
I'm a Maker too. Pfizer might just make a break through in cancer or with an antidepressant. Whatever it might be.
David Asman: I've got to give a caveat. You're target price is what I bought it for 7 years ago!
• CAREMARK RX (CMX)
Jack Ablin: MAKER
This stock is a little more fully valued. It has no dividend, so it's a little bit of a stretch. They've got strong results. It's a very good quality company. It's pharmacy benefits, which means healthcare cost containment, is a strong theme that has government backing.
David Asman: You think it can go to $48 in 12 months. (Friday's close: $39.41)
Bill Baldwin: BREAKER
A quality company in a bad industry that's being totally politicized. The politicians are going to chew it up.
Jim Michaels: BREAKER
The stock is too rich for my blood. If anything goes wrong it's very vulnerable. I'll pass.
Jack Ablin: All of the management care companies are buying PBMs right now. This could be a takeover candidate for a company like Humana.
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Cashin' In
Stock Smarts: Kill the Death Tax?
Will killing the death tax once and for all breathe new life into the stock market?
The death tax is being phased out under President Bush’s tax cuts. It goes away completely in 2010. But the year after that, it comes back in full force: 55 percent, unless the law is changed. And many say that would impose a huge burden on individuals and small business owners as well.
So would killing the death tax be bullish for stocks?
Jonathan Hoenig, Capitalistpig Asset Management: It would be bullish for stocks, it would be bullish for America. The death tax is thievery. There is no other way to describe it. We pay taxes our whole life. Why pay them at death? The only explanation is so the government can line its pockets at our heir's expense. I think it comes from the socialist mentality that peoples' wealth is the government’s, and it’s theirs to divvy up and hand out however they see fit. To me the death tax is a disgusting, un-American policy that should be put to death.
Dagen McDowell, FOX Business News: Jonathan, the estate tax is America. This country is not built on past income. It is America. This country is not built on passing wealth from generation to generation. You do away with that tax and you're going to have more and more money concentrated in the hands of folks who are already rich. That is not about entrepreneurship. That is not American.
Terry Keenan: Wayne, who is more American here? Jonathan or Dagen?
Wayne Rogers, Wayne Rogers & Company: Well, both are both political statements. If you want to make an economic statement, the death tax produced $25 billion in revenue for the government. You're going to have to replace that somehow unless, of course, Jonathan is in favor of these massive deficits. You've got to replace it somehow. You can't just say we're going to do away with the death tax.
Wendell Perkins, JohnsonFamily Mutual Funds: This is the key issue here. The death tax is a terrible taxation. We should not be paying taxes upon death. But the problem is that we can't afford at this point in time to dump a tax that raises $30 billion a year. We have a $400 billion budget deficit. There are bigger issues.
Terry Keenan: We’re increasingly becoming a country where you punch the time clock and earn wages rather than unearned income, that income is being taxed with higher FICA taxes and higher Medicare taxes.
Jonas Max Ferris, MAXfunds.com: That is exactly my big problem because Jonathan, at the core, is right that it's communist to tax somebody, because they are rich, to redistribute wealth. But taxing income is fair. And the biggest problem with this country is every different type of income stream is taxed differently. Dividends are taxed this way. Cap gains are taxed that way. This is an income to heirs and should be taxed as income like lottery winnings or gambling.
Jonathan Hoenig: The answer to everybody’s problem is always ‘screw the rich a little bit more.’
Jonas Max Ferris: And the tax should be brought to everybody because it is an income tax, not just someone who has $3 million. It is income and should be taxed across the board as income.
Wendell Perkins: No, no, what needs to happen is the death tax should be repealed, but we have to figure out a way to cut spending. This is a ‘government run amuck’ issue. We have to figure out how to control spending.
Dagen McDowell: We don't have a way to pay for this. But this money is passed on. It is not taxing the person who made it. It is taxing the heirs who receive it. And here is an option: just let them put all the money in municipal bonds and they would never pay tax.
Jonas Max Ferris: Bill Gates has yet to pay tax on most of his wealth and without an income tax for his heirs, that would be tax-free and dividends would be tax-free. Is anyone ever going to pay tax on his $40 billion?
Jonathan Hoenig: What about the wealth he's created?
Jonas Max Ferris: Why should income be tax-free? Why should he be allowed to amass $40 billion, tax-free?
Jonathan Hoenig: The money in the government's hand is dead wood.
Jonas Max Ferris: Doesn’t the government protect people with assets more than people who don't have assets? They target wealthy people who own businesses, not people in trailer parks. They should pay more.
Wayne Rogers: Jonas, with all do respect, you are beating a dead horse here. Everybody knows the problem. Present a solution, for goodness sakes. If you have to have an alternative source of revenue, and we discussed this in the past, we have talked about having a national sales tax. That is one possibility. There are a number of possibilities, but you cannot attack the problem in isolation. It has to be done in conjunction with some other things.
Jonas Max Ferris: Simple solution; tax all income as income. Dividends, stocks, bonds, working a job, inheriting money, simplify the tax code, and that is the solution.
Terry Keenan: Jonathan, we are not moving anywhere close to simplification even in this administration, that's for sure.
Jonathan Hoenig: It is terrible. It takes people hundred of millions of billions of dollars to figure out how much taxes they owe. And the death tax is the best example of double taxation. We have paid taxes on this money.
Terry Keenan: The sales tax is double taxation just as much as the estate tax.
Jonathan Hoenig: Unfortunately, the death tax is levied against the rich. It is the answer to every problem. You have to have the guts to stand up and say ‘I'm not going to take it anymore.’
Dagen McDowell: You do away with it, you have wealth and power, economic and political power, concentrated over years in the hands of a very few people. That damages everybody else.
Jonathan Hoenig: That has been earned.
Dagen McDowell: Guess what? Paris Hilton and Nicky Hilton don't earn the money they get from the Hilton family. They just don't. This is a way to make sure tax is paid on it by generations to come.
Terry Keenan: Isn't it going to be harder, Wendell, to amass a fortune like the Hiltons or other big, wealthy families given the tax rates we have right now?
Wendell Perkins: Let's step back a bit. You are absolutely right, but the issue here is, is this good or bad for the stock market? Ultimately this is a bad decision for the stock market if we can't fund it.
Terry Keenan: If the deficits get bigger.
Wendell Perkins: It will cause interest rates to rise and that will have a negative impact on the stock market. We have to think intelligently about this issue.
Terry Keenan: Wayne, let's talk about the stock market this week, with or without the death tax. It has been sort of death for a lot of people until the Thursday rally. What's going on?
Wayne Rogers: I wish I knew. Listen, I got trapped in a couple of things. I got stopped out of three or four stops in the last decline, and then I got hurt on one way where they reported huge earnings. A company that doubled the earnings, doubled the revenue, and the stock fell seven points today. I don't know what's going on. If I knew, I wouldn't be sitting here talking to you all. I’d be out there making money.
Terry Keenan: You said last week that you had been shorting some stuff and we didn't find out what, but are you still short?
Wayne Rogers: Still short on a number of stocks, yes. And I would stay there. Jonathan, I'm long your Duke Energy (DUK). I'll tell you that. I did not short that.
Jonathan Hoenig: That is good. That's made you money.
Terry Keenan: You making any money this week?
Jonathan Hoenig: U.S. stocks have to stand up and show leadership. Ford (F), IBM (IBM), eBay (EBAY), Apple (AAPL), JPMorgan (JPM), are falling off the map here.
Terry Keenan: Google (GOOG), Genentech (DNA) going the other direction.
Jonathan Hoeing: The breadth has been terrible and before I get aggressive about putting new money to work, I am supporting existing positions. Wayne mentioned Duke and utility and energy have been a profit center, but we have to see a little ‘oomph’ from U.S. stocks, because right now few of them have bids that I am seeing.
Wayne Rogers: You and I have talked about catching a falling dagger — it’s crazy. You have to see them make a base at some point to see institutional buying is coming into them before you touch them.
Terry Keenan: You haven't seen that yet? We have six or seven Dow components down double-digit percentages.
Wayne Rogers: I haven't seen it in a number of these stocks. I am recommending a stock today that I have held for a while, and it's holding, but would I go out and plunge in? No.
Best Bets
Wayne, Jonathan, and Wendell are back to tell us what stocks they have been buying for themselves with their own dough in this tough market.
Wendell's buying: Tribune (TRB)
Friday’s close: $37.26
Wendell Perkins, JohnsonFamily Mutual Funds: This is the Chicago-based publisher of newspapers, broadcasting, television stations. This is a group that's had just terrible performance over the last several years, but finally this appears to be the right time, the right price, and we think Tribune has very interesting opportunities out a year or so. If you are a good value player, which we are, I think it’s a great core holding.
Terry Keenan: In your own backyard, Jonathan. What do you think?
Jonathan Hoenig, Capitalistpig Asset Management: The Cubs don't look that great and everyone I know reads the ‘Sun Times’. I’d steer clear of Tribune. It’s too weak for me.
Wayne Rogers, Wayne Rogers & Company: If they put Jonathan and me on some of their programs, we could probably help their earnings, but I don't know. But Wendell, with all due respect, how do you know this is the time? You are right it has been terrible the last three or four years and this is another falling dagger to me. I don't know where you step in and how you determine this is the right price. I don't see it.
Wendell Perkins: You are looking at about a 25 percent discount to the market and there are very low expectations built in. It doesn't take a lot of ad revenue increase in order to get investors enticed.
Terry Keenan: Wayne, we have your pick. It also happens to be one of your most recent buys in the challenge. Are we twisting your arm here? Would you really be steering clear of almost all stocks right now?
Wayne's buying: Nextel Partners (NXTP)
Friday’s close: $22.76
Wayne Rogers, Wayne Rogers & Company: No, I like Nextel Partners (NXTP). They anticipate double earnings this year. They had a loss three years ago. The company has come back very strongly. What they are projecting looks very good to me. The chart looks good. There is institutional buying. I like it.
Jonathan Hoenig: Wayne, institutional buying, insider selling. Does that bother you? Some of the big wigs are selling million of dollars of the stock.
Wayne Rogers: The guys that run companies sometimes don't know what the heck their own stock is doing. I am not as impressed by that as I am by institutional buying.
Terry Keenan: OK. Let's get Jonathan's pick in here. It is in his only favorite sector, I think, utilities.
Jonathan's buying: Southern Company (SO)
Friday’s close: $33.00
Jonathan Hoenig: It’s the strongest thing I can find. I’m looking at thousands of stocks and to me the utilities still have the bid. Southern Company (SO) is a big name in the index and all the sector plays. And I think it's one to own right here. Like Southern, Duke (DUK), Allegheny (AYE), Black Hills (BKH), these, to me, are strong stocks.
Terry Keenan: The chart is not as nice, though, as some of your others in the last couple of months.
Jonathan Hoeing: It has been a laggard. But Alabama is just such a fantastic part of the country that I do think this is a place to be right now. You’re going to make money on the cap appreciation and the 4 percent dividend yield.
Wendell Perkins: But the problem with the stock is you have to pay 15 times earnings. I can buy the Tribune at the same price and I have some real growth opportunity long term.
Jonathan Hoenig: Wendell, I use the Tribune as toilet paper.
Wendell Perkins: It's just not the right time to own utilities at all.
Wayne Rogers: I like this stock. 17 cents last year, 27 cents this year. I like the stock. I think Jonathan has been right on the utilities. I think it’s good. But I don't know what the heck he knows about Alabama.
Cashin' In Challenge
Check out the $10,000 Cashin’ In Challenge at: www.foxnews.com/challenge
Money Mail
Question: “What would you say is the one most important thing to look at before buying a stock?”
Wayne Rogers, Wayne Rogers & Company: Well, first I look at the technical part. You have an entry price on a stock or you can say all stocks that you are going to look at are fundamentally good, and you are looking for volume and institutional support. You are also looking for a base or a trend in the stock. And those are the things that will make your decision easier.
Jonathan Hoenig, Capitalistpig Asset Management: The three most important rules in real estate are location, location, location. In stocks it's price, price, price. Like Wayne, I like to see a combination of factors. I like to see a stock doing well with not a lot of buzz out there, and not many people on board.
Terry Keenan: The volume is not as important to you.
Jonathan Hoenig: To me, price is everything. That is what you trade. You don't trade the volume.
Dagen McDowell, FOX Business News: Wayne, you have to step back and decide fundamentally if this is a good business. Ask yourself, is this a good business? Is this company competing and being competitors and innovating and growing? Does it have great products and services? It is one big question and a lot of little ones to answer.
Question: “I bought Ford (F) in 2003 at $7.32. What do you think about the stock and the other big auto stocks?
Dagen McDowell: I was talking about good businesses. Ford is a bad business. Drive out of this one, particularly if you have a profit. Ford has been losing market share to foreign competitors for decades. It's got a business that's got high costs, low margins, long-term problems like pension liabilities. If you need another reason to dump it, look at what you are paying in gas because SUV sales are in the tank.
Terry Keenan: And Wayne, General Motor’s (GM) management even called the health care situation there a crisis. Could GM be a time bomb lurking over the whole market?
Wayne Rogers: I think it's been already recognized. I think it's recognized in the price of the stock already. GM has major problems and they have institutionalized the problems, and they have to have some way to correct this or it will never come back.
Question: “How will the NYSE merger with Archipelago affect the way investors buy and sell stocks?”
Jonathan Hoenig: Hopefully it will be faster and more efficient. Look, I love the nostalgia of the floor, but we're in the 21st century, folks, and this is a smart move for the NYSE. NASDAQ, actually (NDAQ) which is a publicly traded company, has been strong lately and we’re seeing a lot of consolidation with the exchanges buying each other. Eventually there might only be two or three big global trading platforms. I think the wind is at the back of the sector.
Terry Keenan: Wayne, I think you have liked Chicago Mercantile Exchange (CME) in the past. Do you like Archipelago (AX)?
Wayne Rogers: Yes, I like all those, except I think you have to protect yourself with a stop, which I did with CME. As Tom Friedman says in the latest book the world is becoming flatter and Jonathan is right — you will see more and more combinations of these exchanges and it will be much easier. We are trading in a global market and you have to realize that if you haven't already.
Dagen McDowell: But that is the danger, Wayne, that you might not get a fair price because you have competitors being eliminated, and certainly some big investors are worried about that right now.
Wayne Rogers: Wait a minute, Dagen. What is a fair price? It is a bid and an ask. That's what makes the market.
Stock of the Week
Last week’s pick from Charles Payne was eBay (EBAY). For the week of April 18 – 22, EBAY went down 1.4 percent.
Terry Keenan: Wendell is back and he says you can bank on JPMorgan Chase (JPM) as a buy for Monday morning. He owns the stock in his fund, but Jonathan says don't put any money down on this one. Wendell the stock is down about 10 percent so far this year. The Fed isn't helping out the banks here. Why do you like it?
Wendell Perkins, JohnsonFamily Mutual Funds: If you look at what JPMorgan Chase announced with regards to earnings, earlier this week, they were actually fairly impressive. Earnings growth of 17 percent, the company earned $2.6 billion before charges, which is quite impressive. And if you look at the cost savings they are driving through; the integration of JPMorgan and Bank One, $340 million of costs that have stripped out. This is the stock now that I think investors can get more comfortable with because we understand the pieces.
Jonathan Hoeing: Wendell, what is the market missing here? I mean, you spin a great story, but from Bank of New York (BK) to Deutsche Bank (DB), Wachovia (WB), these stocks are super weak. It seems like every time the market breaks, JPMorgan is hitting a new 52-week low.
Wendell Perkins: That’s why I think this is a very interesting time to own this. Especially if you don’t think that interest rates will climb significantly from here, which we don't. This is a stock with very good upside. The investment banking business is very strong, commercial business is very strong. This is a company that really is a kind of work in progress.
Terry Keenan: And it might benefit from the turmoil at Morgan Stanley (MWD).
Wendell Perkins: Perhaps.
Terry Keenan: Some of the banks are. Jonathan, what is the market telling us about the financial stocks?
Jonathan Hoenig: I think it's saying ‘stay away.’ JPMorgan yields less than 4 percent.
Wendell Perkins: I am happy with that from a total return perspective. We can get 10, 15 percent on the stock over the next year or 4 percent dividend yield. That is a win.
Jonathan Hoenig: I don't think you're going to get it. I know in your funds you own a ton of banks in almost every one of the JohnsonFamily Funds. You are betting a lot of money on the sector.
Wendell Perkins: We think the banking industry is attractive and that JPMorgan is a great name.
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