DISCLAIMER: THE FOLLOWING "Cost of Freedom Recap" CONTAINS STRONG OPINIONS WHICH ARE NOT A REFLECTION OF THE OPINIONS OF FOX NEWS AND SHOULD NOT BE RELIED UPON AS INVESTMENT ADVICE WHEN MAKING PERSONAL INVESTMENT DECISIONS. IT IS FOX NEWS' POLICY THAT CONTRIBUTORS DISCLOSE POSITIONS THEY HOLD IN STOCKS THEY DISCUSS, THOUGH POSITIONS MAY CHANGE. READERS OF "Cost of Freedom Recap" MUST TAKE RESPONSIBILITY FOR THEIR OWN INVESTMENT DECISIONS.
Bulls & Bears
This past week’s Bulls & Bears:
• Gary B. Smith, Exemplar Capital managing partner
• Tobin Smith, ChangeWave Research editor
• Scott Bleier, HybridInvestors.com president
• Pat Dorsey, Morningstar.com director of stock research
• John "Bradshaw" Layfield, WWE superstar & nationally syndicated radio show host
• Bob Froehlich, Scudder Investments chairman of investor strategy
Trading Pit: Dow 11,000
The Dow is in striking distance of 11,000. A big rally on Friday topped off a huge week for the blue chips, gaining well over 200 points in four trading days, placing the Dow at 10,959. Is this a sign stocks are about to soar?
Bob Froehlich: We should hit 11,000 on Monday. This is all about momentum. The interest rate cycle is over. The price of oil will continue to come down. We’re heading into earnings season, and I think this one is going to be a blockbuster. All of this is going to give the stock market the fuel it needs to head higher.
John “Bradshaw” Layfield: The Dow can hit 11,000 and stay above it. The market will finally appreciate with earnings. Earnings have gone up double digits for the past 10 quarters; only the third time in the last 50 years that this has happened. I think we’ll see record merger and acquisitions. This market is set to explode.
Tobin Smith: Investors that are concerned about a lot of things need to take a step back and take a breath, because things are really okay. Gary B has said, “The market does not follow the economy.” He’s been absolutely right. The economy is just going to be good, but the stock market is going to be great. There’s a lot of money on the sidelines right now. When the market starts going up, this money will be put in, and this will make stocks head even higher.
Gary B. Smith: I agree with Bob that this is all about momentum. 11K is important. We’ve spent 6 years digesting the gains from the bull market that ran from the early 1980s up to 2000. I think the Dow may hit 11,000 on Monday, but I don’t think it close above it. I believe that may take a week or two. But when it finally does, stocks will be off and running.
Scott Bleier: The Dow should get above 11K, but this will be another one of those years that we just move sideways. However, the trading range will be higher and we will get to Dow 11,500 very soon. We’ve been trying to get through Dow 11K for such a long time. December disappointed everyone and we all expected a weak January like last year. But we started this year off with a bang, and that surprised a lot of people.
Pat Dorsey: I think we’re just going to muddle along this year. What Bradshaw said is true, earnings have been strong for the past 10 quarters, but you don’t make investment decisions by looking in the rear view mirror. This year corporate profit margins are going to come down. Earnings are still going to be good, but the growth won’t be as high as it’s been.
The Bulls & Bears each picked the hottest spots for your money and the stocks that could catch fire.
Tobin Smith: My hot spot is titanium. It’s used in jets and lately we’ve seen huge orders for Boeing (BA) and Airbus. The stock that will benefit is Allegheny Technologies (ATI). I own it and love it. (Allegheny Technologies closed on Friday at $40.48.)
Pat: Titanium is a very good market, but right now earnings are inflated for Allegheny. It hasn’t been paying taxes for the past year or so because it’s been working off losses from 2001-2004. Next year, the company will have to pay taxes again and earnings growth will slow.
Scott Bleier: Telecom is going to be big in 2006 and Verizon (VZ) will do well. It’s performed miserably. This year should be better because the company has spent billions of dollars to send out fiber to the home. The stock is worth ten points more than it is now. I own and recommend it. (Verizon closed on Friday at $31.35.)
Gary B. Smith: Telecom is a good sector and Verizon has gotten off to a terrific start this year. I would wait for it to show a little more strength and wait until it closes above $32.
Gary B. Smith: I’m betting on biotech and think this is going to be the sector for the next 20 years. I like Biotech HOLDRs (BBH), which is an exchange-traded fund, or ETF. It’s a fund that trades like a stock. The Biotech HOLDRs had been trending down, but just broke out late last year. It’s now ready for a big move up. (Biotech HOLDRs closed on Friday at $201.74.)
Scott Bleier: I like biotech, but I don’t like the Biotech HOLDRs because more than 65 percent of the fund is made up of Amgen (AMGN) and Genentech (DNA). I would rather buy the iShares Nasdaq Biotechnology (IBB), which is more diversified.
Pat: I love big banks because they are big, boring, and cheap. My stock pick is JP Morgan Chase (JPM), which is a world-class company in the making. It has a lot of profitable businesses. If it reaches the same valuation as Citigroup (C), then this stock goes to $55. I own this stock. (JP Morgan Chase closed on Friday at $40.02.)
Tobin Smith: Pat, you’ve sold me on the foreign banks in the past. Now, I would rather buy one of those instead, like Barclays (BCS) or Lloyds TSB (LYG).
Best Stocks for 2006
John & Bob each picked their best stocks to own this year.
John “Bradshaw” Layfield: I love the energy sector, which is where you’ll make a lot of money this year. The stock I like is Chevron (CVX). It bought Unocal in 2005, which was a great acquisition. So many oil companies have had problems increasing production, but Chevron used their money to buy another oil company. It’s cheap and I own it. (Chevron closed on Friday at $59.25.)
Bob Froehlich: I like the commodity play, but I’m not sure if oil is the way to go. I love the Unocal acquisition. There are a lot of good things going for this company, but I don’t like that it has a low dividend.
Bob Froehlich: One of my favorite stocks for 2006 is Bristol-Myers Squibb (BMY), which is a pure prescription drug play. When you look at the demographics around the globe, you see that people are aging in the United States, Japan, Germany, Italy and France. These are the places where people will need the most prescription drugs, and Bristol-Myers Squibb dominates these markets. I love this stock and own it. (Bristol-Myers Squibb closed on Friday at $22.78.)
John “Bradshaw” Layfield: I love the pharmaceutical sector, but I don’t like the stock. The company pays a huge dividend, but it needs to put more money into research and development of new drugs, instead of its dividend.
John “Bradshaw” Layfield: I really like Pentair (PNR), which makes water pumps. Water is going to be the greatest commodity for the next 15-20 years. We have a dilapidated infrastructure that is going to cost as much as $1 trillion to fix. We’re running out of water and need new plants for filtration. This is where this company can help. (Pentair closed on Friday at $36.65.)
Bob Froehlich: John’s not wrong, just early…by a decade! Pentair has already had a great run up. This is more of a long-term play.
Bob Froehlich: My other pick for 2006 is Pfizer (PFE), the world’s largest pharmaceutical company. If you step back from all the negative news, this company has ten drugs with a billion dollars in sales every year. That’s tremendous. Plus, it has a great pipeline of drugs. I own Pfizer stock. (Pfizer closed on Friday at $24.85.)
John “Bradshaw” Layfield: This is a great company and I own this stock too. But I do have a concern that the government must stay out of the pharmaceutical industry. If the government gets too involved in this industry, this stock could suffer.
Scott Bleier's prediction: Mining is risky but we need coal; Massey (MEE) up 30 percent
Tobin Smith's prediction: Israel will rally back; buy First Israel Fund (ISL)
John “Bradshaw” Layfield's prediction: Takeovers & earnings take Dow to 12,000 this year
Bob Froehlich's prediction: Get some bulls JBL! Dow goes to 13,500 in 2006
Gary B. Smith's prediction: Say “Hi” to Hybrids! Toyota (TM) up 30 percent
Pat Dorsey's prediction: Get hooked on Phonics! Educate (EEEE) adds on 35 percent
Cavuto on Business
Neil Cavuto was joined by Ben Stein, author of “Yes, You Can Still Retire Comfortably”; Charles Payne, CEO of Wall Street Strategies; Danielle Hughes, CEO of Divine Capital Markets; Joe Battipaglia, chairman of Investment Policy at Ryan, Beck & Co.; Barbara Corcoran, founder of the Corcoran Group, and Rebecca Jarvis, financial journalist.
Neil Cavuto: Is Wall Street worried we are forgetting 9/11? Americans vowed never to forget the horrific attacks on 9-11. But now, as the future of the Patriot Act hangs in the balance, the liberal media seem to be treating President Bush as a bigger threat than the terrorists who want us dead. Does that worry Wall Street? Joe?
Joe Battipaglia: It sure does. Investors react negatively to uncertainty. To call into question the presidential leadership at a time when there’s a key domestic agenda to keep the economy going and fight this war it’s going to hurt the stock market and hurt investors over time. We’ve been lucky so far to avoid an attack [since 9/11]. But we have left ourselves vulnerable to risk, and investors don’t like it.
Dani Hughes: Wall Street will never ever, ever, ever forget what happened on 9/11. We were there. One thing it has done is made us a lot more aware of risk -- risk in the market place; risk in travel; risk in using your credit card over the Internet. And I want my regulators to make me aware of companies doing terrible things. I want my credit card company to keep me safer. And I want my government to keep me safer from terrorists as well, but how far is far enough?
Neil Cavuto: And you think it’s gone too far?
Dani Hughes: Liberty is as important to us as it is to the rest of the world.
Neil Cavuto: Charles, do you look at this as an either or situation for the markets?
Charles Payne: Right now, the markets aren’t paying a lot of attention to this, but if we lose the Patriot Act, we’re going to regret it terribly. One of the biggest weapons the terrorists have against us is the civility of America. That’s why you’re able to get on a plane and hijack it with box cutters. That’s why you can go to a library after coming out of a Mosque and take out a book on how to build a bomb and no one follows you, or they’re not supposed to follow you. We have to go to a point where we actually bend our civility, and that includes renewing the Patriot Act. And yes, I want the president to spy on people if they really fit the bill.
Neil Cavuto: Rebecca, what do you make of this fixation we have with looking at the security apparatus and not at the guys who are trying to kill us?
Rebecca Jarvis: In general, what Wall Street is looking at on some level is the security apparatus. But what Wall Street continues to suggest in every single analyst report is that there still is a risk. The issue with that risk is how to quantify it. Wall Street has not found a quantitative factor to put into models to determine how to quantify that risk.
Ben Stein: There isn’t the slightest bit of evidence that Wall Street is worried about terrorism. The renewal of the Patriot Act would be a good thing, and there’s no evidence that it has impinged on anyone’s civil liberties. And I think it’s disgraceful the Democrats are fighting Mr. Bush harder than they’re fighting Usama bin Laden, but that being said, the markets are worried about interest rates and earnings, the budget deficit, and oil prices.
Barbara Corcoran: I guess I’m a lonely voice here today. I’m so much in opposition to the Patriot Act. It flies in the face of everything America stands for. I couldn’t even envision that we’d entertain renewing it.
Ben Stein: You don’t even know what it’s about. Give me one example of what it’s done to impinge on anyone’s civil liberties.
Barbara Corcoran: It undermines people’s confidence and security about ourselves in the United States.
Ben Stein: You are undermining their confidence. The Patriot Act has not stolen anyone’s freedom.
Barbara Corcoran: The Patriot Act makes people mistrust ourselves.
Ben Stein: You don’t even know what’s in the Patriot Act.
Barbara Corcoran: I do know what’s in it. As an American citizen, I’m always afraid now of what I say and to whom because I don’t know who’s going to come to get me.
Charles Payne: I’m more afraid of a plane crashing into a building than I am about someone looking at my library card. Earlier Joe said that we’ve been lucky. We haven’t been lucky. It’s because of the Patriot Act and other defensive steps that we have taken that we haven’t had an attack since 9/11.
Barbara Corcoran: I’m ashamed of the Patriot Act.
Joe Battipaglia: We have to be afraid about foreign predators. And let’s not forget, the risks have just been raised because we lost a key ally in Ariel Sharon. We have to talk about the risks and be prepared for them.
Dani Hughes: I want to add to something everyone has been talking about and that’s this idea of being afraid. That’s a really difficult position to be speaking from. And perhaps the Patriot Act was over the top.
Ben Stein: What’s over the top?
Dani Hughes: It makes a lot more paperwork for institutions, individuals, and corporations to deal with.
Neil Cavuto: But would you rather fill out the paperwork or be dead?
Ben Stein: Just give me one example.
Dani Hughes: There’s a ton of examples. I’ll give you one. I had a customer who wired money into an account he had with me. A year later he wired money out. He didn’t do anything in that account. I had to report him to the Federal government.
Ben Stein: That has been the law since 1980.
Dani Hughes: That was part of the Patriot Act.
Ben Stein: No, that has been the law since 1980.
Charles Payne: Dani, but you’re saying that you’re more concerned with the inconvenience of the Patriot Act?
Dani Hughes: Not at all.
Charles Payne: You talk about the fear. Ben Stein never believes that emotions have anything to do with the stock market. I think it’s a lack of fear. And maybe the fear right now is that we’re becoming too comfortable. But Wall Street is not afraid that something is going to happen, in part, because of the Patriot Act.
Neil Cavuto: Rebecca, you’re probably our youngest member here. When young people are polled on this they’re very much against continuing the Patriot Act. They look at it as very intrusive. But our other guests made the point about the safety issue. Do you feel it’s a compromised position to be in?
Rebecca Jarvis: I think for people in my generation, there is a mix of thoughts. We have to balance whether or not we forgo some of our civil liberties and protect ourselves from an unknown, an uncertainty or whether we choose to maintain those civil liberties and potentially put ourselves in harm’s way.
Ben Stein: What civil liberties are you talking about? What civil liberties have you lost?
Rebecca Jarvis: On some levels, I think people might argue that the right to free speech has been lost.
Ben Stein: Nobody’s lost the right to free speech.
Joe Battipaglia: We have to fight this war on all fronts. We have a free society and a free economy that has to be properly monitored. Bad people have to be stopped before they can bring bad things into this country. I wonder if we could’ve avoided 9/11 if after the 1993 attacks we went after the things like the Patriot Act to avoid this problem in the future.
Head to Head
Neil Cavuto: If I buy a house today, will it be worth more or less at the end of the year? Barbara, you made your fortune in real estate. Are you worried?
Barbara Corcoran: Not at all. In the end of last year for the last quarter we heard nothing but bubble babble. None of it materialized. Now 80 percent of the markets are going up.
Joe Battipaglia: I have a hard time with that analysis. These prices have doubled in four years. Why? Because of 0 percent interest rates. Now that we have real interest rates that count, the speculators pull out of these markets and suddenly those who are over-extended drop by 10-25 percent, and the rest of the country with a more normal pattern may pull back 0-10 percent. Not a big collapse but certainly a price pullback.
Rebecca Jarvis: Some markets like New York, Las Vegas, and Los Angeles…are they going to experience a slowing in the market? Absolutely. Chicago is already experiencing that. There are people here who say why pay $1000 a month more for an investment when I can just rent for a $1000 less. I’ll give you an example. Here in Chicago, you can rent a one-bedroom apartment for $1500 a month. That same apartment is going to cost you $1000 more on a monthly basis if you buy it as a condo, because you have not only the fees associated with the purchase and the mortgage, but you’ve also got the assessment, the taxes, and number of other miscellaneous fees.
Charles Payne: I’m a little shocked Barbara, because here in New York, the first day of the year we saw that Manhattan real estate was down 20 percent. I know the rest of the nation isn’t like New York. New York made a bigger move than most places, and it’s going to see a bigger decline, but we’ve got more houses on the market than we’ve had in twenty years. I listened to five conference calls from homebuilders in the last two weeks. No one is saying what you’re saying, which is home prices moving up at a faster rate than they did last year. That’s almost impossible.
Ben Stein: There’s no such thing as a bubble that goes on forever. This bubble too will come to an end. It’s already coming to an end. As Mr. Payne said, the supply of unsold housing is at a very high level. In the markets that I follow, there is already some decline. When you open the real estate section, what you see is price cuts not price increases.
Barbara Corcoran: The prices are not down. The volume is down as a result of all the hoopla over the bubble.
More for Your Money
Neil Cavuto: Betting on the "dogs" of the Dow is a popular investment strategy for bargain hunters. Will it help you get more for your money? Charles?
Charles Payne: ‘Dogs of The Dow’ are the stocks in the Dow Jones 30 Index that have the highest yields at the end of the year. Typically, these Dogs have high yields because their stock prices were smashed to smithereens the year before. I like Pfizer (PFE). This week in the Wall Street Journal there’s a big negative article about pharmaceuticals. Everyone knows the drug companies have a hard time. I think Pfizer is going to do very well this year.
Dani Hughes: Pfizer, and a lot of the big pharma, have been kicked pretty badly. I don’t like this because you’re fighting an asymmetrical war here. One drug could take down an entire company.
Neil Cavuto: What do you like?
Dani Hughes: I like another Dog called Verizon (VZ), which we recommend at Divine Capital. It’s paying about a 5 percent yield. We like it because these are the only guys who are bringing fiber into the home. It’s not a growth stock. We expect it to go 1-3 percent in the next year in earnings.
Neil Cavuto: Ben?
Ben Stein: I love Verizon. They happen to offer the best cell phone service there is, but I think they’re up against VOIP, which is going to be a giant problem for all the telephone providers. If they can beat that problem, they’ll do great and their dividend will stay there, they’ll be a wonderful rewarding stock to own. If they can’t beat VOIP, and I question how they’re going to do it, they’re in trouble.
Neil Cavuto: Joe?
Joe Battipaglia: For me, General Electric (GE) is the quintessential play on global growth. They’re focusing on key areas in the industrial category, in healthcare, in clean energy technologies like coal gasification. They are a double-digit earnings grower, good treatment on the dividend, solid balance sheet. I think it’s finally going to give us some performance in ’06.
Charles Payne: Joe, this is a lumbering giant. Now there are some questions coming out about past management. There have always been questions about the quality of earnings with this company. I think there’s a real negative perception going on with GE.
Neil Cavuto: Ben, what do you like?
Ben Stein: I like JPMorgan Chase (JPM). I think it’s an amazingly well run company. This company makes a lot of its money from investment banking, advisory services, mergers and acquisition services and participation in private equity deals. I love the management in this company. I think they’ll do well.
Joe Battipaglia: Ben is looking through the wrong end of the glass. I don’t think this company is well managed; there are better banks elsewhere.
FOX on the Spots
Barbara Corcoran: Housing boom blossoms in springtime!
Charles Payne: Short, mild winter; oil rally ends Groundhog Day
Ben Stein: Bet big on foreign stocks; buy the EFA or EEM!
Joe Battipaglia: Ben's right, but I'd stick to emerging markets (EEM)
Dani Hughes: Stay here; China, India & Brazil boost U.S. stocks!
Neil Cavuto: Following the West Virginia coal mining tragedy, some are vilifying the coal industry, whose overall safety record remains strong and whose product, coal, we need and we have plenty of. I predict a push by environmentalists and others to junk coal, but cooler and wiser heads will prevail.
Forbes on FOX
Flipside: Less Coal, More Nukes
Steve Forbes, editor-in-chief: Nuclear is the way to go. It's safe. France and Japan have done it for years. My heart goes out to the people in West Virginia. Last year 28 coal miners died, 29 in the extraction industries like gas and oil also died. Over 1,200 fatalities in onsite construction. There have been no deaths in the nuclear industry for decades.
John Rutledge, Forbes contributor: Nuclear is growing fine, but we need all the energy we can get, not just nuclear. Coal is the new oil. All of this stuff is basically stored sunlight. And all of these energy sources, in the long-term, are substitutes for international conflict.
Jim Michaels, editorial vice president: Heating bills have doubled in the past few years. Don't get mad at the oil companies and don't get mad at the gas companies. Get mad at the idiots who've blocked nuclear power in this country for 30 years. We can get much cleaner energy out of nuclear and not burn scarce fuels. Coal sounds good but it's not going to be a cheap fuel. You're going to have to gasify it and enforce safety rules and that's going to be costly. Nuclear is the way to go for electricity.
Dennis Kneale, managing editor: I don’t think it’s idiotic to consider blocking nuclear plants given that they’re producing a deadly radioactive waste that is glowing away for hundreds of years in our landfills. 4,300 people died in Chernobyl, in one nuclear mistake. Coal produces half of the country’s electricity and their death rate is down 75 percent in the past 20 years. What happened in West Virginia was a tragedy, but coal is a safer form of energy.
Elizabeth MacDonald, senior editor: Nuclear energy is the way to go. Coal emissions are turning the air around us into an atmospheric sewer. If you want to stop global warming go with nuclear energy. There are 1,500 premature deaths from coal emissions. Nuclear energy is cheaper and it’s safer.
Steve Forbes: I’m not a fan of the Kyoto Protocol but if all the nuclear plants that were on the drawing board in 1979 were allowed to go forward, we’d be in compliance with Kyoto today.
Quentin Hardy, Silicon Valley bureau chief: Government safety regulations have made coal mines safer. Global warming affects the entire planet, it’s a much bigger threat and nuclear power is a way around the global warming problem because there are no emissions like with coal.
Dennis Kneale: Government regulations have helped reduce deaths in the coal mine but look at what the company went through in the past week or two. Companies want to be safe because it’s good for the company and it’s good for its shareholders. Government regulations don’t achieve that, companies do.
Elizabeth MacDonald: In the last 15 years we’ve had lots of tax breaks for alternative energies and all we have to show for it is a more efficient light bulb. So the way to go really is nuclear energy.
Steve Forbes: Uncle Sam needs to remove the unofficial obstacles that drown these things in red tape. If they remove the red tape, like the French and Japanese have done, you get nuclear power plants that are safe and clean and everyone is happy.
Dennis Kneale: How many communities are going to welcome a nuclear plant in their backyard? Every new nuclear power plant you build is going to create new fights all over the place.
Elizabeth MacDonald: Belgium, France, Sweden, South Korea and Japan have been using nuclear energy increasingly over the years with hardly any problems.
Jim Michaels: Those companies in America that do have nuclear plants are making a lot of money now. They haven’t been hit with these increases in fossil fuels. Economically in the long-term, nuclear pays.
John Rutledge: I think we can talk about global warming and count the number of dead people but lets face it, 100,000 people died in hospitals because people didn’t wash their hands. That doesn’t prove anything. We need a lot more energy to keep this economy growing.
In Focus: 2006: Boom or Bust?
Dennis Kneale: The economy is going to boom, growing close to 4 percent this coming year. That’s 400 billion more in extra goods and services. The FED is almost done raising rates. Companies are feeling a little more confident in the outlook, they’re going to start spending a lot. Technology is going to come back, that’s half of all spending in the country. Companies are going to get faith and then consumers are going to get faith. The iPod and PlayStation 3 are also reasons why the economy is going to hum in 2006.
Neil Weinberg, senior editor: If Dennis thinks the iPod is going to save the economy he has to take his earplugs out. That’s a done story. So is the Fed and interest rates. Consumers are tapped out. The housing market has reached its peak and people aren’t going to have the money to spend. The reason all these companies have all this money in their coffers is because they have nothing good to spend it on. We are near the top and it’s down hill from here.
Jim Michaels: People ignore the fact that consumer assets are growing faster than consumer debt. We’re behind in communications. We’re behind Korea and a lot of Europe. It’s going to take huge capital spending to catch up and that money is starting to flow. If consumer spending slows a bit, capital spending will take up the slack. The economy is going to be strong this year.
Lea Goldman, staff writer: I’d like to be as bullish as everyone else but I see red flags. The housing industry is a big one. We’re starting to see mortgage defaults and we’re likely to see more ahead. And the mood on Main Street just isn’t what it is on Wall Street. They’re not spending as much. Corporate profits might be up but it’s going to be offset because people aren’t shelling out at the cash register. Then there are the intangibles like Iraq.
Steve Forbes: The economy is going to boom but there are two clouds that are going to affect it going forward into 2007. One thing is making the tax cuts permanent. That’s why we have this boom toady, 10 excellent quarters. If they’re not extended, watch out. The Fed is still printing too much money, look at the prices of gold. We have inflation out there. Inflation long-term is bad for the stock market and the economy.
Quentin Hardy: I’m in love with the American consumer. These guys keep spending through terrorist attacks and wars. But there is a worry in our relationship. They haven’t had a wage increase in 4 or 5 years. The stock market has been flat for about 5 years. Their houses look like they’re tapped out. Where are they going to get the cash to spend at the stores? There is a huge lobbyist scandal in Washington. Those guys are going to be totally preoccupied. They are going to try and buy off their constituents with more spending, putting us more in debt. I think these two things will put a big drag on the economy.
Neil Weinberg: Consumers are tapped out. All of this consumer spending was coming out of housing. That game is over. That’s why the economy is going to see a big downturn in the second half of the year.
Steve Forbes: Overall the economy is growing. Millions of jobs have been created since 2003. Consumer balance sheets are strong. Consumers own stocks, bonds, etc to the net of $26 trillion. Their balance sheets have never been better. If housing doesn’t go up for a while, big deal. They still have a lot of assets.
Informer: 2006: Boom and Bust Stocks
Victoria Barret, staff writer: I think the economy is going to continue to see the growth it did in 2005 and that means lots of job creation and lots of hiring activity and that’s great for a company like Robert Half International (RHI). They specialize in finance and technology hiring. I think it’s a great play on the economy. They’re diversifying in a really strong way.
John Rutledge: My only worry about this stock is the price. It’s a little rich. It’s also a Sarbanes-Oxley stock. I don’t like that.
Dennis Kneale: The economy is going to be hot in 2006 and YRC Worldwide (YRCW) is going to benefit. I talked to the CEO of this company Friday morning and he predicted a year ago that growth in the entire economy would be stronger because his trucks are starting to carry more stuff. He’s saying the same thing this year. The stock is 20 percent cheaper than it’s rivals in the industry. It’s just bought its two biggest rivals in the past year and a half. I think this stock is going to grow with the economy.
Neil Weinberg: This stock isn’t a good pick because it’s yesterday’s story. Yes the economy has been strong and the company has seen some growth in its stock price. So you are buying yesterday’s story. I like Wal-Mart (WMT). They’ve been bashed and beaten and the stock has gone nowhere in 5 years. The company is still growing, it’s very well managed and is building new stores. It’s cheap and you should buy it.
Lea Goldman: Wal-Mart made a deal with the devil to get its competitive edge. As evidence by women and others filing lawsuits alleging discrimination; the hiring of illegals; and the Feds are looking into illegal hazardous waste disposal. If this is how they’ve kept their competitive edge, clearly they can’t sustain it. I like a company called Blackboard (BBBB). I don’t know what the economy is going to do this year so I’m betting on a sure thing. The surest thing I know is that colleges are expensive and that’s not going to change. This company allows professors and students to put all their syllabi and their homework on-line and share it. This is great for distance learning and great for colleges to make money.
Victoria Barret: Colleges charging more for tuition doesn’t mean they’re spending it on computer software. This company has lots of competition and it’s pretty pricey.
John Rutledge: I do know what is happening this year and I like iShares Dow Jones Select Dividend (DVY). It’s a fund that trades like a stock and has about 100 dividend bearing stocks. It has beaten the S&P by 500 basis points the last couple of years. In January we’re going to have a new vote on the tax law. They are going to extend the lower tax rates for two more years. It’s a stock that will benefit from low bond yields and will benefit from telecom reform.
Dagen McDowell, host: John, isn’t it tricky betting on what Congress is going to do? They’re not the swiftest at getting things done.
John Rutledge: That’s the icing on the cake. The cake itself is the growth of the dividends.
Makers & Breakers
• Chesapeake Energy (CHK)
Jordan Goodman, author of "Master Your Money Type": MAKER
Chesapeake Energy is a real play on natural gas prices. Natural gas has actually been down recently but I think it will be going up much higher. We have a long-term supply/demand imbalance with natural gas and Chesapeake Energy is the best way to play that. They just bought Columbia Gas Systems for $2.2 billion and they have huge reserves.
Dagen McDowell: You say it can go up over 50 percent to $50 in just one year. (Friday’s close $32.25)
Victoria Barret: BREAKER
There are a lot of reasons to like this company, including really great margins. But I’m afraid you’re buying at the top and this company has lots of debt, especially because of that acquisition.
Elizabeth MacDonald: MAKER
The debt issue is not a problem. They’ve got $12 billion in assets. A lot of insider buying at this company too.
• Fording Coal Trust (FDG)
Jordan Goodman: MAKER
This is a company that has something called metallurgical coal which is the coal used to make steel. It’s got a 16 percent dividend yield and I think it’s got a lot of upside.
Dagen McDowell: You say it’s heading to $50 in just one year. (Friday’s close $36.52)
Elizabeth MacDonald: MAKER
Supply constraints and worldwide demand will keep coal prices high.
Victoria Barret: MAKER
There’s a huge demand in China for exactly what this company makes.
Dagen McDowell: But the stock has been up for four years in a row and some may say you're buying at the top at this level.
Our “Cashin’ In” crew this week:
• Wayne Rogers, Wayne Rogers & Company
• Jonathan Hoenig, Capitialistpig Asset Management
• Jonas Max Ferris, MAXfunds.com
• Adam Lashinsky, Fortune Magazine
• Meredith Whitney, CIBC World Markets
• Gregg Hymowitz, Entrust Capital
Stock Smarts: Dems v$ the Economy?
On Friday (1-6-06) we found out that 2005 ended with the unemployment rate below 5 percent, capping off a very strong year for the economy. And that's surely something President Bush and the Republican Party will point to as we get ready for the 2006 election. But the Democrats are still insisting the economy is bad and much of America is struggling.
Just good politics, or do they have something here?
Jonas Max Ferris, MAXfunds.com: The Democrats definitely want to see the economy turn bad. A bad economy is the number one way into the White House, to get the incumbent party out. It’s worked for hundreds of years, it’s the number one way. The recent, sort of mediocre job report will get some Democrats excited, but Republicans would do the same thing. They were excited when the economy was bad under George Bush’s dad.
Jonathan Hoenig, Capitalistpig Asset Management: But Jonas, is it the economy that they want to tank or is it Bush? Democrats are going to oppose Bush no matter what he does. They always seem to position themselves on the opposite side of successful businessmen. I’ve got to say that it’s almost as though democrats have disdain for anybody who actually works for a living or doesn’t want government handouts for everybody.
Gregg Hymowitz, Entrust Capital: That’s a ridiculous comment. First of all, the economy isn’t doing that well. The economy in December showed half the number of jobs that we saw. We have spiraling federal deficits, we have General Motors (GM) on the verge of bankruptcy, we have pensioners losing their pensions. Jonathan, you’ve got to get out there and get away from Wall Street for a second. Get out there and talk to middle class Americans and see how much they’re struggling. That’s where they’re getting hurt. Don’t talk to me about Wall Street right now.
Meredith Whitney, CIBC World Markets: I think the economy is doing great on so many different levels. Wages increased also in November, things are doing extremely well, businesses are starting to hire again, businesses are starting to invest again, and household wealth and net worth are up again.
Terry Keenan: And the stock market at about four-year highs, but certainly not record highs. Wayne, the poll numbers do show that this is a vulnerable spot for the president, even as the economy has been on a roll.
Wayne Rogers, Wayne Rogers & Company: Yeah, but that’s always going to be true. It’s always politics like that about the economy, but the economy, based on the statistics, we know is a lot better. Jonathan, I beg to differ with you on the point that all businessmen have to be republican as opposed to all those people who are not. Look at Jon Corzine, for example, who is the governor of New Jersey. He was a very wealthy guy. So the democrats have a lot of wealth, the Republicans as well. It’s just politics. I don’t understand what the debate is about. The statistics speak for themselves.
Terry Keenan: Adam, is this going to be an election issue that’s going to help the Democrats this year?
Adam Lashinsky, Fortune Magazine: Well, of course it’s going to be an election issue. I think this is kind of a ‘have you stopped beating your wife?’-type of question. It’s suggesting that the Democrats are unpatriotic and that they don’t care about the United States, which is kind of insulting, and isn’t really true because they do.
Terry Keenan: What about the question of whether or not they will be able to make political hay out of this?
Adam Lashinsky: They will make, as Gregg has pointed out, with people who are hurting; people who are losing their jobs in the auto industry.
Jonathan Hoenig: Why is it that the Democrats have much more sympathy for the steel worker or the union teacher than the businessman or the entrepreneur? Aren’t we all Americans?
Adam Lashinsky: The better question, Jonathan, is why don’t you have (sympathy for) schoolteachers, coal miners or steel workers?
Jonas Max Ferris: The real question is why you two Democrats can’t admit that the Democrats would love a recession. The Depression was the kick-off of their 20-year run.
Gregg Hymowitz: Jonas, that’s just crazy. Adam is 100 percent right. You guys love to paint Democrats as anti-American and anti-economy. Jonathan is painting us as anti-big business. It’s absolutely ridiculous. Wayne is right.
Jonas Max Ferris: Republicans would do the same thing. They loved the Lewinsky scandal. That’s why they’re in the White House right now.
Gregg Hymowitz: You know what? You can’t make political hay unless the facts are really there.
Jonas Max Ferris: The Democrats would want the economy to go south so they can take over the White House.
Gregg Hymowitz: Absolutely not.
Meredith Whitney: It’s the number one issue people vote on. People vote with their wallets. Are they employed? Can they get a mortgage? Long-term rates, as you know, have come down. Jobs are prevalent. People are doing very well.
Gregg Hymowitz: All I can say is I’m not sure I’m coming back.
Jonathan Hoenig: Hours and hours of tape of Barbara Boxer and Nancy Pelosi and Chuck Schumer railing against greedy oil execs. There’s plenty of proof out there, you just have to be brave enough to open your eyes and see it. And when Nancy Pelosi says, ‘we need to spend more on education and healthcare,’ I frankly think the government should spend money on bullets and bombs and guns. That’s what they do.
Jonas Max Ferris: Jonathan, doesn’t that prove that the economy is strong, because that’s what they would do? If the economy is strong, they’re going to be talking about how much money someone is making and how unfair that is. If it’s bad, they’ll just say how bad it is, and that’s the reason that they need to be in power.
Terry Keenan: Wayne, let’s just move from politics a bit, to what’s actually happening on the ground in the economy. Do you think 2006 will be a good year?
Wayne Rogers: I think 2006 will be a good year. 2005 ended up with the market lower than when it started, so even though we had a very good economy, it was not necessarily reflected in the broad, general averages in the stock market. We’ve talked about that before. I think it’s going to be a stock-picker’s market. It is not going to be something where you can just buy the market and hope that everything is going to be well. I am more frightened of what’s going on with the Federal Reserve policy, for example, than I am the democrats. Here they have stifled what is otherwise, possibly, a housing boom that could have continued for much longer than it has, and they are stifling, to a certain extent, the businesses. Ben Bernanke is going to raise interest rates. He’s going to be the same thing like Alan Greenspan. They’ll put a false cap on something that is otherwise a free market. That’s the one that concerns me.
Terry Keenan: Adam, we got some evidence this week that the Fed might be near the end of its interest rate rising campaign. Do you think the economy will be better or worse come November 2006?
Adam Lashinsky: I actually think the economy will be better, come November 2006. The market has been showing that so far this year. One thing that we are ignoring is that in 2008, I think voters are going to be more focused on foreign policy, and so it’s the president’s game to play on what happens in Iraq between now and then, for his party, anyway.
Gregg Hymowitz: Look, I think Adam is right. Not only if you are a Democrat, if you need something to focus on, you don’t need the economy. There are a number of other disastrous mistakes that this administration has made; front and center being Iraq. The democrats will probably focus a lot more on Iraq than they will on the economy, but with GM and Ford Motor (F), laying off thousands and thousands of people, it’s also easy pickings on the economy too.
Terry Keenan: But that’s been going on for 30 years, whether a Democrat or a Republican is in the White House.
Gregg Hymowitz: To Jonas’ point, I don’t think that the Democrats are hoping for a poor economy. I don’t think that anyone is hoping for a poor economy.
Jonas Max Ferris: They need it to win. A recession trumps out everything else.
Question: "What kind of justice will Samuel Alito be for American businesses and for Wall Street?"
Adam Lashinsky, Fortune Magazine: An Alito confirmation would be an unqualified good thing for Wall Street, and especially for corporate America. He has ruled for employers over employees, he has ruled for corporations over investors in class action lawsuits. He has ruled for chemical makers over environmentalists in pollution cases. This is a nominee that big business is rooting for in an unqualified way.
Terry Keenan: Sounds like Jonathan’s dream candidate. What do you think about Mr. Alito, Gregg?
Gregg Hymowitz, Entrust Capital: I think Adam is right. This is a huge coup for business. Clearly Wall Street will like it to the extent that you could say the stock market is going to react in any way, shape or form to any particular nominee. Who’s not going to like it are all the individual libertarians out there who like personal freedom. There, he has not had the same kind of record. But for Wall Street, that’s going to be a positive.
Terry Keenan: That brings us to Jonathan then. What do you think?
Jonathan Hoenig, Capitalistpig Asset Management: He’s not my dream candidate, and I am against Alito. I hope he doesn’t get confirmed. I think anyone who is obviously pro-life isn’t going to have a basic concept of property rights. That is what successful business is founded upon. I say dump Alito.
Terry Keenan: And that’s your main problem with Judge Alito?
Jonathan Hoenig: Absolutely. I don’t want to see Roe v. Wade overturned, and I think Alito is the kind of guy who would make that happen.
Terry Keenan: Wayne, what would his confirmation mean for business?
Wayne Rogers, Wayne Rogers & Company: I’m with my buddy Jonathan on this. He’s absolutely right about this guy. The tragedy in the United States is that if you think of all the 5-4 decisions we’ve had in the Supreme Court, it means that one man decided what the law of the land is going to be. That’s scary. Jonathan is absolutely right. This guy is not for personal and individual freedoms, and he scares me.
Question: "What does the crew think about Teva Pharmaceutical Industries (TEVA)?"
Gregg Hymowitz: Notwithstanding what is going on in Israel, the company trades around 27 times earnings. They’re probably the leading generic pharmaceutical company, their recent acquisition of IVAX (IVX) and some recent settlements between the generic makers and the patent holders; I think it’s very favorable. They’ve got the four biggest generic drugs out there now, if you’re going to play in the generic drug market, this is the one to own.
Wayne Rogers: I used to own this stock. I got stopped out of it, so I like it. I think it’s a very good company, it’s a solid company. I’m not sure if this is where you want to enter.
Terry Keenan: Would you take a look at it if the Israeli market continued to sell off?
Wayne Rogers: Yes, absolutely.
Adam Lashinsky: Not only is it a great company, as Gregg has pointed out, it’s got the trend behind it. Generics are where it’s at. They’ve got all the favorable momentum. Of course, the terrible situation in Israel has almost nothing to do with the value of this company.
Jonathan Hoenig: Israel is a promising emerging market. You’ve got to take a look at a fund like First Israel Fund (ISL), an Israeli closed-end fund which we don’t own, but I think generally, Israeli stocks are buying opportunities on the terrible political uncertainty there right now.
Question: "I bought Pengrowth Energy (PGH) at $13.60. Do you think I should sell or hold, or maybe add to my position?"
Wayne Rogers: I don’t know. I’ve got to tell you something. At the price he bought it, that is returning him 19 percent on the current dividend, so if he sells the stock, he’s got to put that money somewhere else where he’s going to earn 19 percent. I have no idea where he can do that. If he does know where I can get 19 percent, come tell me, because I want to put my money there.
Jonathan Hoenig: Oil was the big story in’05, and certainly the commodities trend is still intact. To be honest, if I were playing commodities, I would probably own a gold stock rather than an energy trust right now. I think a lot of the gravy has been sopped up. He’s got a winner on, and as we always say, you’ve got to let the winners run if you want to make money in the markets.
Best Bets: Payback Stocks!
Stocks that pay you money even if they take a hit? Our crew has their best stocks that pay a dividend.
Gregg's Payback Stock: Citigroup (C)
Friday's Close: $48.62
52-wk High: $49.99
52-wk Low: $42.91
Div. Yield: 3.6 percent
Gregg Hymowitz, Entrust Capital: We like Citigroup. We own the stock. It pays a little less than a 4 percent dividend. The stock was flat last year. I think that with interest rate raises slowing now, I think the financial sector is poised to do well. You’re getting close to a 4 percent yield. We like the stock. We’ve liked it for a long time. The whole return last year was in the dividend. I think this year, you’re going to see financial stocks doing better.
Wayne Rogers, Wayne Rogers & Company: I’ve owned Citigroup for, I don’t know, 5, 6, 7, maybe 10 years. I don’t remember how long. But would I buy it today just to get a 5 percent dividend? No. That’s crazy. If I can’t do better than that, I’d have to go home. No, I wouldn’t buy it today.
Jonas’ Payback Stock: BT Group (BT)
Friday's Close: $39.62
52-wk High: $42.01
52-wk Low: $35.15
Div. Yield: 4.9 percent
Jonas Max Ferris: I think that giant telecom stocks are the only out of favor class left, globally. BT Group (BT) will probably, this year, get over a 5 percent dividend yield. It’s big in DSL. Everyone is scared that they’re going to get outdone by the competition, but I think it’s a good place to be.
Jonathan Hoenig, Capitalistpig Asset Management: I’m a little mixed because I know a lot of European markets are obviously doing very well, and even some of the telecoms, but I think I’d rather own other stocks. This one just seems like it’s been a laggard for so long. It was a $240 stock. It’s like a $30 stock today.
Jonathan's Payback Stock: Eaton Vance Floating-Rate (EFT)
Friday's Close: $17.45
52-wk High: $19.60
52-wk Low: $16.65
Div. Yield: 8.2 percent
Jonathan Hoenig: I’m going back into an asset class that I’ve been in and out of, sometimes more successfully than others. That would be the floating-rate or leveraged loan funds. We own EFT it in my hedge fund and we own a lot of these. I like the asset class. I think it’s a smart place to be right now.
Gregg Hymowitz: I guess I just don’t understand why you’d want to own a fixed-income, closed-end fund. I mean with the fees that you have to pay, there are just easier ways to own fixed-income, if that’s where you want to be.
Jonathan Hoenig: That’s the point. These are floating-rate funds, so they’re not fixed income.
Gregg Hymowitz: What’s the fee that you’re paying for it, Jonathan? What do they charge as a percentage of the yield?
Jonathan Hoenig: Gregg, I’m up 8-10 percent already in the trade, so if they want to take 50 basis points, more power to them.
Wayne’s Payback Stock: Petrofund Energy (PTF)
Friday's Close: $18.97
52-wk High: $19.88
52-wk Low: $12.72
Div. Yield: 9.9 percent
Wayne Rogers, Wayne Rogers & Company: I like PTF. It gives me a return better than 9.5 percent. I don’t understand, because I thought the question here was ‘how about income stocks?’ That’s what we’re talking about. If you look at Citigroup and you say 5 percent versus this, 9.5 percent? That’s what I’m interested in as an income stream. And Jonathan’s stock is very good. I like that. It’s the same thing. We’re not looking to make a huge capital gain, we’re looking for an income. This qualifies.
Terry Keenan: And what kind of income do you get out of this one?
Wayne Rogers: As I said, this is 9.5 percent here. We were talking about PGH earlier - that was 19 percent for that guy who got in at that price.
Jonas Max Ferris: First of all, Jonathan’s stock is not a stock. Wayne wins for the highest yield, I’ll give him that, but look at what happened to natural gas just recently. It’s down about a third. If oil goes next, this whole energy sector is going to go down this year. Watch me.
Terry Keenan: Wayne, you’re still a bull on energy, right?
Wayne Rogers: I am. I still like energy. I think you’re going to see oil above $40 for a long time to come. There’s plenty left in it.
Cashin’ In Challenge
And remember, next week we'll have a recap of the highs and lows from our 2005 Cashin' In Challenge, and the new picks from the crew for 2006. But do you think you can match wits with the our stock pickers? You're going to get the chance! Log on to www.foxnews.com/challenge! Soon you'll be able to sign up for the 2006 Cashin' In Challenge powered by SmartMoney.com! Go head-to-head with our experts!
Face-Off: Best Thing for 2006: A Bad Ending for 2005!
The best sign for a great year for stocks in 2006? How about the fact that 2005 ended so badly?
Since 1900, when the last five trading days on the Dow in December are down, the Dow in January is up 76 percent of the time (source: Ned Davis Research).. And a good January often means the entire year will be bullish. So is this really a good sign?
Adam Lashinsky, Fortune Magazine: It’s a good sign for people who like that sort of thing. You can’t argue with the fact that when the market slumps at the end of December, it’s up in January and then it’s up the rest of the year. If you’re not concerned with this sort of ‘chartist voodoo,’ you can just take solace in the fact that last year was so flat that even as earnings were improving so well, investors are due to get paid here, and that’s what you saw with the exhaustion at the end of December and the up tick so far this year.
Jonathan Hoenig, Capitalistpig Asset Management: Yeah, but Adam, this type of statistical gymnastics isn’t ‘chartist voodoo;’ it’s trivia. To be honest Terry, what happened in March or spring of 1932 really has no bearing on what’s happening today in the market. I think the problem with these type of ‘January effect’ strategies is what happens if you’re wrong this time and it’s March and you know what? You’re down 20 percent. Do you hold on just because it’s been a good year on average? You’ve got to deal with the market in the here and now.
Adam Lashinsky: Where I’ll agree with Jonathan is that this is not an excuse not to have a diversified portfolio. The one think you need to look at is where weren’t you in 2005? What did well and what should you have been in? What should you be in years and years to come. Nothing can replace that.
Jonathan Hoenig: I always say the market doesn’t know what day of the month or month of the year it is.
Terry Keenan: So is it going to be a good year, Jonathan?
Jonathan Hoenig: For gold, yes. For stocks, I’m not so sure.