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
• Joe Battipaglia, Ryan Beck & Company chief investment officer
Trading Pit: Can the Bulls Beat bin Laden and Iran?
Wall Street and America are dealing with two big problems: bin Laden threatening new terror attacks and Iran demanding nuclear weapons. Both hit stocks hard Friday and caused the Dow and Nasdaq to suffer their worst point losses since 2003.
Are the bulls up to the double threat?
Joe Battipaglia: The bulls are up to this challenge. Terror threats and Iran's nuclear desires are ongoing issues that from time to time may rattle the markets. We are still at war. Oil prices rose immediately and that makes investors very nervous. Also, technology stocks reported horrible earnings and Google (GOOG) is under siege by the government.
Gary B. Smith: The market is concerned about both and will always be to some extent. But the bulls can definitely overcome this. The threats by Usama were just an excuse to sell. If these threats happened in October, when stocks were at a low, the market could have just as easily gone up.
Rebecca: This is a cliché, but the market got hit with the perfect storm. There's the Iran/nuclear situation, then the UBL tape, disappointing earnings, the government going after Google, and stocks at a peak. There is just no catalyst to move the market forward.
Tobin Smith: Market has no problem with bin Laden. Iran with nukes is a big problem. Iran can't have nukes. Someone will take these bombs away. Bull markets and rallies start out of desperation. They don't start when everyone's bullish. We needed to get some ugliness and negativity to build a base. That's what we're doing. The economics have not changed and the market will go nowhere so long as oil is above $65/barrel.
Scott Bleier: The fear factor and the price of oil definitely hurt the market on Friday. But on Thursday, the Nasdaq and tech stocks made a high for the year. A lot people with big portfolios were protecting their profits. Buy this sell-off!
Pat Dorsey: Bin Laden will make people nervous. But Iran with nuclear weapons is really the bigger long-term threat. It will be a tragedy if bin Laden attacks again because people will probably be killed. However, if Iran gets nukes and launches them, and another country fires back, a decent piece of the world's oil will be off limits for a long, long time. There's a low probability of it happening, but if it does, the impact will be huge.
Last week Scott predicted the Nasdaq was going to gain 20 percent this year. Which stocks does he think will give the Nasdaq the biggest boost?
Scott Bleier: My fist pick is Intermagnetics General (IMGC). This company develops Magnetic Resonance Imaging (MRI) products, along with superconducting materials. It's in a huge cycle of replacing MRI products. I think this stock is going to $50. (Intermagnetics General closed on Friday at $37.99.)
Pat Dorsey: This is a good company with lots of free cash flow. It's a decent market to be in, but I think the replacement cycle is already built in.
Tobin Smith: I would like to see the stock pull back a bit, but overall this is the right place to be.
Scott Bleier: I also really like Trident Microsystems (TRID), which makes circuits for LCD TV, high definition TV, and digital televisions. If you don't have an LCD high-definition panel display in your home now, you will in the next 2 years. This stock is going higher. (Trident Microsystems closed on Friday at $21.60.)
Tobin Smith: I want it to pull back under $18, but I do like it.
Pat Dorsey: Too expensive for me.
Scott Bleier: Finally, investors need some exposure to the energy sector, and I like Global Industries (GLBL). This company builds drilling rigs and platforms for the oil and gas industry. The stock is going to $20. (Global Industries closed on Friday at $13.15.)
Pat Dorsey: Half of this company's revenue comes from Pemex, a Mexican oil company, and that doesn't excite me too much. Plus, it's expensive.
Tobin Smith: I fully agree. It is too expensive. I would much rather buy GlobalSantaFe (GSF), which is going to grow faster.
Gary B. and Joe B. each picked two small stocks they think are ready to make BIG gains.
Gary B. Smith: I really like the sporting goods company, K2 (KTO). It's the number one maker of skis in North America. The stock has a great chart. It was moving down, but just broke out. Now, there's positive momentum and the stock is heading to the mid-teens. (K2 closed on Friday at $11.17.)
Joe Battipaglia: The problem is that it is relying on paintball to save the company. I don't like it.
Joe Battipaglia: Skechers (SKX) is one to love. This footwear and apparel company is cheap and has growth potential. I own it. (Skechers closed on Friday at $17.09.)
Gary B. Smith: It's not a bad chart. The stock is on the verge of a breakout. Just wait for the stock to close above $18 before buying it.
Gary B. Smith: Another good one is deCODE genetics (DCGN), a biopharmaceutical company based in Iceland. The stock had been moving down, but just broke through a downtrend line. Now I think it's headed to the mid-teens. (deCODE genetics closed on Friday at $9.24.)
Joe Battipaglia: Gene mapping is very important and the company has done well in the fight against diabetes, but there are more bumps ahead. I don't really like this stock.
Joe Battipaglia: I'm betting on Take-Two Interactive Software (TTWO), which makes video games for Microsoft (MSFT), Sony (SNE), Nintendo, and personal computers. This whole industry is in transformation. New ways to use these products are coming out and I think Take-Two will seize the market. I own this stock and think it's a good value play. (Take-Two Interactive Software closed on Friday at $18.54.)
Gary B. Smith: Take-Two has been stuck in a downtrend and I would avoid it for now.
Gary B. Smith's prediction: Oil fears overblown! Prices fall below $50/barrel in a year
Joe Battipaglia's prediction: Economy slows down; Fed cuts rates by spring 2007
Tobin Smith's prediction: Aetna (AET) buys out Health Net (HNT) for 30 percent premium
(Tobin owns Health Net.)
Pat Dorsey's prediction: Activision (ATVI) makes gain of 30 percent in next year
(Pat owns Activision.)
Scott Bleier's prediction: Google (GOOG) gets screwed by porn investigation; falls 33 percent
Cavuto on Business
Neil Cavuto was joined by special guest, Vice President Dick Cheney; Jim Rogers, author of "Hot Commodities"; Ben Stein, author of "Yes, You Can Still Retire Comfortably"; Gregg Hymowitz, founder of Entrust Capital; Meredith Whitney, executive director at CIBC World Markets; Herman Cain, radio talk show host, and Gary Kaltbaum, president of Kaltbaum & Associates.
Neil Cavuto: A shocking report from America's realtors that nearly half of all first-time buyers used no-money-down loans to buy their homes last year. Now with mortgage rates rising and some prices cooling, many may owe more than their homes are actually worth. Trouble ahead Jim Rogers?
Jim Rogers: Absolutely. In many parts of the country there has been a bubble and it's popping now. Don't buy a second home in that part of the world. Sometimes the builders are lending people money to make the down payment. So they're in even deeper in the hole.
Ben Stein: In the neighborhood where I have a house out in the desert, there are seven times as many houses on the market now then there were this time last year.
Gregg Hymowitz: The bottom line is it's about interest rates. It's not only housing prices and homes. It's also housing stocks. I disagree with Jim though. I don't think it's a bubble. You're not going to see the popping of a bubble but you're also going to see a slow degradation of home prices.
Meredith Whitney: Housing prices are surely to soften and decline but if you look at the actual numbers, less than 5 percent of folks have less than 10 percent down on their homes. And the average equity in homes for most people is 56 percent. So you're looking at a lot of fat cats. Greenspan says what he's worried about is as housing prices decline, those people who owe more than they own. The fact is that's a very small number.
Neil Cavuto: And Herman Cain, I look at it this way. Forty-three percent of people who didn't put any money down into their homes wouldn't have been in those homes any other way. When my wife and I first tried to get a home, that down payment was a big deal. Now there are means to get over that.
Herman Cain: The people who get into these homes, who choose to get into these homes with no down payment, they were probably living paycheck to paycheck. And their biggest risk is not short-term changes in the housing market. These people who are buying homes with no down payment, their biggest risk is if they start to live credit card to credit card and how they manage their finances.
Gary Kaltbaum: Here's the other problem. They're getting these loans at inflated prices. They're buying quarter million dollar homes that were one fifty-four years ago. If we were at the beginning of the cycle, I wouldn't see such a problem. We're at the end of the cycle and that's where I think we could see a blow up. It's almost like buying a ton of stocks with no money down. There is risk.
Neil Cavuto: I don't assume we're at the end of a cycle.
Jim Rogers: Well, I do. Even if it is only 5 or 10 percent, listen to what Ben has said.
Gregg Hymowitz: I don't think you're going to see this rapid decline in prices. It costs more today to own or buy a home because interest rates are higher.
Ben Stein: There has never been a real estate collapse unless there is also a recession or other kinds of economic downturn. And I don't see that happening.
Herman Cain: We don't have a crisis. The housing market is not homogenous. It's regional. It's depends on the neighborhood.
More for Your Money
Neil Cavuto: The best stocks you've never heard of … Will they help you get more for your money? Gary, what do you like?
Gary Kaltbaum: I'm going with Tidewater (TDW). They have all these vessels that go out and help the explorers and with oil prices near seventy now, business is good. It's going much higher in the next year.
Herman Cain: I think Tidewater is good but I would proceed with caution. A militant group in Nigeria disrupted 10 percent of Nigerian oil so there's some risk associated with it.
Neil Cavuto: All right, Ben what do you like?
Ben Stein: I like Permian Basin Trust (PBT). I don't own it right now but I'm going to buy some Monday morning. It has an incredible dividend. It is to some extent depleting a little bit. But it's got roughly 12 percent return.
Gary Kaltbaum: I do like it. It does have a great dividend. But if I'm going to believe that oil prices are going much higher, I'd rather have something with a higher octane.
Neil Cavuto: Jim, what are you doing?
Jim Rogers: Saskatchewan Wheat Pool (SWP.TO) is a stock no one has heard about. It trades on the Canadian stock exchange. It was run by bureaucrats as a co-op for years, it got new management and is coming around.
Ben Stein: It is dependent on a continued rise in the wheat price. This is risky for the small investor.
Neil Cavuto: Herman, what are you doing?
Herman Cain: It's called Beazer Homes (BZH). It has a great P.E. ratio. And even though this housing market has cooled off, they just announced a 29 percent increase in earnings for their first fiscal quarter.
Jim Rogers: Things in cyclical industries always look great at the top. I have sold short housing stocks, not this one. And I'm also short Fannie Mae. So this is the top of this market and it's going to go down for years.
Exclusive Interview With Vice President Dick Cheney
Neil Cavuto: From Iran's nukes to the question of if oil companies gouged. I go one on one with Vice President Dick Cheney. We begin with Usama bin Laden's offer of a truce.
Would you or the administration ever entertain a truce with Al Qaeda?
Vice President Cheney: We don't negotiate with terrorists.
Neil Cavuto: What about that the promises, on the same tape he talks about a truce, that there will be follow-up attacks on our soil?
Cheney: Well, based on what we have seen him do, based on what we have seen the organization do, I don't think it's possible to negotiate any kind of a settlement with terrorists like this. Not only have they struck here in the United States, but we have had attacks all over the world in places like Madrid and Casablanca and Istanbul and Bali and Jakarta. This is not an organization that is ever going to sit down and sign a truce. I think you have to destroy them. It's the only way to deal with them.
Neil Cavuto: In the meantime, in the region, Iran sticking to its guns. Their nuclear program, whether for peace or other purposes, continues. Would the United States ever act unilaterally if the rest of the world doesn't help out on this?
Cheney: Well, this is an international problem, and we have emphasized the importance, that it's not just a U.S. problem. In fact, if the Iranians develop nuclear weapons, and especially in light of the new government — Mr. Ahmadinejad is the newly elected president and, by all accounts, deemed even by his fellows in the region to be a pretty strange duck — that that would be of concern for everybody. And I think the important thing here, one of the important things, is that this has been approached on an international basis. Our friends in Europe — the Brits, the French and the Germans, the E.U. — have been very actively involved in attempting to deal with this problem.
Neil Cavuto: But the Chinese and the Russians, as you know, sir, have not. At least, in taking it to the Security Council, they have maybe shown cold feet lately. I guess what I'm asking is, would the United States, if there is division in the ranks of the major powers, or those, even, members of the Security Council, ever do what it did in Iraq and act unilaterally?
Cheney: I think it would be a mistake to go back and try to predict what might or might not happen, based on what happened in some other country in the past.
Neil Cavuto: A lot of people say this is the year we're going to get a market crash. Do you buy that?
Cheney: I don't, but I'm not in the business of predicting markets. I think the thing that I'm struck by, as I look back, for example, at '05, is, I think the economy is doing very well. I think we, oftentimes, you know, end up focused on, well, what about this problem, or what about that problem, and hypothetical scenarios. But the bottom line is, our economy is doing extraordinarily well. It's the envy of the world. We have got high growth, low inflation, low unemployment, very high productivity.
Neil Cavuto: And, finally, on energy prices, sir, we had a huge spike this summer. Then things came down. There was a lot of talk that energy companies were gouging us. We have a prominent host on this network who said that. What do you think?
Cheney: Well, markets work. And they work in the energy business, just as they do in other parts of the economy. And one of our great strengths as a nation is that we do let markets work most of the time. Occasionally, we tamper at the edges. But the fact of the matter is, we're twice as efficient today as we were 25 years ago, in terms of the use of energy. We use only half as much energy per unit of output as we did in 1980.
Neil Cavuto: But you don't think oil companies were gouging us or taking advantage...
Cheney: Every time oil prices go up, people start yelling gouging. And, then, there are investigations. And it's very rare that anybody ever finds major — that — have that happening. What I do wish is, right now, I wish we had, for example, ANWR in production. That would be another million barrels a day that the United States would have domestically produced. We have tried repeatedly, for years now, to get that. We have been unsuccessful. It has been blocked, primarily by Democrats in the United States Senate, most recently. It has passed the House. And we need to continue to work at that. But people worry, for example, about the Iranian situation and the possibility of oil price spikes, if there's a confrontation and sanctions, for example, were to be imposed on Iran. We would be a lot better off if we had that extra million barrels a day in production now. The country would be safer. Our energy supplies would be more secure. Our prices would probably be more stable. It's important that we do such things as bring that production online.
FOX on the Spots
Meredith: Will take "more than a village" to elect Hillary now.
Herman: Hillary's "plantation" remark hurts all Democrats.
Ben: Big oil risks all, charges less than bottled water!
Jim: Hey GOP! Cut cap gains taxes and win big this year.
Gregg: Forget tax cuts; focus on the deficit!
Neil Cavuto: And my fox on spot is about wiretapping. The administration just got a big boost in its push to continue doing so from none other than Usama bin Laden. Heightened terror concerns likely will have Dems running for cover, which makes a fellow named Dick Cheney very happy.
Forbes on FOX
In Focus: Democracy in Iraq: Best Weapon Against Iranian Nukes
Elizabeth MacDonald, senior editor: For decades we've been appeasing the status quo in the Middle East and all we've gotten in return is murderous, thieving mullahs who live in splendor while their people live in squalor. If you introduce the idea that you can hold your government accountable, then that may crack open that repressive society. And that's what democracy is all about.
Quentin Hardy, Silicon Valley bureau chief: The results of the Iraqi elections are in and they appear to be legit. The number one party is Shiite and theocratic like Iran. The number two party that won was Kurdish and pro-Iranian. So you have a pro-Iranian democracy growing there. The Iranians are striving for a nuclear bomb. I don't see how democracy in Iraq slows them down at all.
Steve Forbes, editor-in-chief: In Iraq they are anti-Iranian. But Iran sees nuclear weapons as their safety blanket. Not only against the west and Israel but also as a shield to oppress their own people. When they get the bomb they are going to go on a murderous rampage inside. It's going to make Tiananmen Square look like a picnic. These guys are out for blood.
Dennis Kneale, managing editor: We keep talking about democracy but let me point out that we weren't invited into Iraq. It wasn't democracy we were pursuing. We were trying to get rid of a dangerous dictator. I'm glad millions of people voted in the elections but that is not what Iran fears. They fear our U.S. tanks and U.S. troops right on their doorstep and I think that's a better defense against them than democracy.
Victoria Barret, staff writer: I think what is interesting about the Middle East is that they have a majority youth population. I think that's our real opportunity. There's a disconnect between what the youth want and what their radical leaders want. We need to take advantage of that with democracy and with American culture. This is in large part, how we conquered communism. Let's bring Internet cafes to Baghdad as fast as we're building roads.
Jim Michaels, editorial vice president: It doesn't matter what the young people want. Nobody's asking them. You've got an oppressive autocracy, secret police and a powerful ideology. The more pressure you put on them from the outside the more you strengthen their hand internally. Victory in Iraq is close at hand, but it's not going to help us with the Iranian problem.
Elizabeth MacDonald: These mullahs have been living in splendor for decades and blaming the West for all their society ills. The problem with Jim's argument is that 40 percent of the population is under the age of 14. They still have a gross domestic product that is less than Brazil. We need to inject the idea into that society that you can hold your government responsible for the evils that they are doing. They are murdering people right and left, they are ripping off their population. Democracy is the way to go. The idea of free expression is the way to go.
Steve Forbes: The Iranians want freedom, they live under an oppressive regime. But as we've seen in North Korea, it doesn't mean that the regime is going to change. The way to change it is with severe economic sanctions. Iran is dependant on imported gasoline. They don't have the refinery capacity inside Iran. Ultimately we may have to bomb those facilities.
Elizabeth MacDonald: You can't just sanction an idea or an ideology or a cause. You can't just take up arms against an idea or an ideology or a cause. We're dealing with the way these people think. If you change the way they think and show them that they can hold their governments accountable, maybe there's a chance for change.
Victoria Barret: We don't just want to be the bully that blows through the Middle East bombing places. That's absurd. People don't remember but South Africa use to have nukes. They got rid of them. Peace can work and democracy is a big part of that.
Dennis Kneale: Jim said it doesn't matter what young people want. Jim couldn't be more wrong. Young people produced Tiananmen Square, which changed China. Young people were involved in taking down the Berlin wall. We should be flooding Iran with U.S. products. That is the way to win in Iran.
Jim Michaels: Tanks and secret police trump the urge for democracy every time.
Quentin Hardy: Here's a horrible truth. We've talked about South Africa, but India, Israel, France, Great Britain and the United States are all democracies and they all have nuclear weapons. I'm not so sure there is a connection here.
Elizabeth MacDonald: We're talking about a situation in Iran where these mullahs are sitting on a powder keg of resentment. The students just took up protests again in November. If you can make that a positive force for change in Iran you might have a chance. I don't think sanctions and military will work.
Jim Michaels: Don't' forget, it was the young people who brought Khomeini to power in the first place.
Steve Forbes: Yearnings alone aren't going to do it. You need pressure from the outside. These mullahs aren't going to give it up. They're going to try and oppress inside. Ultimately, they'll be overthrown, but it's going to take help from the outside like military pressure.
Flipside: Forcing Wal-Mart to Provide Healthcare Is Bad for Workers!
Steve Forbes: What this means ultimately is a lower standard of living and higher unemployment, especially among young people. If you don't have a job that's not going to give a good healthcare benefit. Wal-Mart is not stingy with healthcare benefits. And if you look at Germany and France they have twice the unemployment of the U.S. and among young people it's three times the unemployment. Wal-Mart's healthcare plan is not as bad as union activists portray it.
Lea Goldman, staff writer: This is defiantly an anti Wal-Mart bill. Maryland is saying don't dump your healthcare problems on us. The bulk of Wal-Mart employees can't afford healthcare so they go to the Medicaid system and that ends up in the state's lap. The state of Maryland is saying we can't afford it. Legally, this move is debatable, but this was an act of desperation and it's something we are going to see other states pick up.
Jim Michaels: This is scary to me. Beyond what Steve said about unemployment, the untold story is that the trade unions pushed this through the legislature to punish Wal-Mart. They have a vendetta against Wal-Mart. If you can allow special interest to use the law to punish somebody they don't like, the whole rule of law falls apart. This is scary.
Quentin Hardy: I think punishing people for pushing their workers onto Medicaid may be ok. But besides that, right now we place below Bosnia in life expectancy and Cuba does better on infant mortality. Meanwhile healthcare costs per worker have doubled since 2000. The current system sucks. If getting business more involved makes things better, I'm all for it.
Mike Ozanian, senior editor: The main thing here is blatant. That is politicians confiscating money from Wal-Mart to buy votes. They sell to voters by saying, “you don't have to pay for healthcare, we'll just take it from Wal-Mart”. They're buying votes with Wal-Mart's money.
Rich Karlgaard, publisher: Maryland is just one state. One of the great strengths of this country is that we have 50 states that compete for business. This is a good economic move for the neighboring states of Virginia and Delaware. The damage that Maryland does will be contained.
Steve Forbes: There are 30 other states the AFL-CIO is going to push this thing in. They start by targeting Wal-Mart and its 10,000 employees, and then they bring it down to 1,000, then to 100 then to 1. It's a real way to get socialized medicine.
Jim Michaels: Don't forget that this bill was written so that it only affected Wal-Mart. There are thousands of other companies that are not giving healthcare and aren't touched by this. Some of these companies are Wal-Mart's competitors.
Lea Goldman: The reason that this affects Wal-Mart and not Northrop Grumman, one of the state's largest employers, is because Northrop Grumman pays a larger percent of health care cost than Wal-Mart does. That's why it doesn't affect other companies.
Mike Ozanian: They go after Wal-Mart because that is where the money is. Wal-Mart does $11 billion in profits. That's where the money is, that's why they go after Wal-Mart.
Lea Goldman: Mike, you don't want the companies to pay for the healthcare and you don't want the state to pay. Who's going to pay for their healthcare?
Rich Karlgaard: Do you know why the south is the fastest growing region in the U.S.? It's because they compete for business, they turn back the unions. Maryland is just going to shoot itself.
Be$t of the Be$t
Rich Karlgaard: A Silicon Valley billionaire once told me, buy Intel (INTC) on the dips. Intel just dipped because it had a bad quarter and missed its numbers, but the record of this company is that it is extremely well managed and it's in the right technology zone.
Dennis Kneale: Rich liked this stock before it dropped. Advanced Micro Devices came out and said our sales are up almost 50 percent, the same quarter that Intel did badly. I think Intel's problems may belong to Intel.
Rich Karlgaard: Intel is a solid company. You're going to ride it up and ride it down as with all technology companies.
Victoria Barret: I like Costco (COST). Costco treats employees well with great benefits, it treats its customers well with low priced, high quality goods. It's a company that will do well while Wal-Mart deals with all their healthcare issues.
Mike Ozanian: Costco is dealing with competitors like BJs and Sam's Club who are eating away at Costco's profit margins. I like Altria (MO). They've got cigarettes, coffee and cookies, how can you go wrong? This company is well run because management uses the huge cash that this company generates to buy back stock and pay a very rich dividend of $3.20 a share.
Rich Karlgaard: If we ever got meaningful litigation reform in this country I would say bet the ranch on Altria. The fact is there are risks that you can't quantify out there because of tobacco exposure and junk food.
Mike Ozanian: They can't kill this company because the politicians use the taxes from the cigarettes to fund their programs.
Dennis Kneale: I like Disney (DIS). Content is king and Disney has a lot of it. Their controversial CEO, Michael Eisner stepped aside, neutralizing critics. In comes Bob Iger who is a damn good manager. I believe in this company. Now it's in talks to buy Pixar, which is a fantastic deal although I'm not sure that they should trust Steve Jobs.
Victoria Barret: If Disney buys Pixar, which they might, Disney's stock will tank because Pixar's great animation artists are going to walk out the door and Disney will of course overpay.
Makers & Breakers
• Gold Kist (GKIS)
Chris Mayer, editor "Captial & Crisis": MAKER
This is a chicken stock. This is a nice contrarian play on the avian bird flu fear. It's the third largest chicken producer in the U.S. It cranks out 14 million birds a week. The stock has fallen from $21 to $14. I think it's heading back up.
David Asman, host: You thing the stock can go up 50 percent in one year to $21. (Friday's close $14.37)
Elizabeth MacDonald: BREAKER
I don't think the avian bird flu has played out yet. I think that this is too risky of a stock.
Jim Michaels: MAKER
Here's a good little company knocked on its back from this avian flu panic. Six months from now the panic is forgotten.
• White Mountains Insurance (WTM)
Chris Mayer: MAKER
Hurricanes have hammered this stock. It's down from its high of $711 to around $550 today. Warren Buffet owns it, they'll get their money back.
David Asman: You think it can surpass its 52-week high and go to $770 in a year. (Friday's close $546.60)
Jim Michaels: BREAKER
I think I'd rather buy the parent company, Berkshire Hathaway if you're going to buy an expensive stock.
Elizabeth MacDonald: MAKER
I think that this is a good stock. All their earnings numbers are going up. Cash flow is solid. Return on capital is looking pretty good. White mountains can put you in the black.
Our "Cashin' In"crew this week:
• Wayne Rogers, Wayne Rogers & Company
• Jonathan Hoenig, Capitialistpig Asset Management
• Jonas Max Ferris, MAXfunds.com
• Dagen McDowell, FOX Business News
• John Rutledge, Rutledge Capital
• Dave Nelson, DC Nelson Asset Management
• Mike Norman, Talk Show Host – BIZRADIO Network
Stock Smarts: $100 Oil Is Good?
A nuclear standoff with Iran threatens to send oil prices skyrocketing; some predicting $100 a barrel oil. But could that actually be a blessing in disguise for America and the market?
Dagen McDowell, FOX Business News: $100 oil could be a good thing and would be a good thing if it means that we are getting tough with Iran and keeping the company from developing nuclear weapons. Not only the US, but the world needs to take a hard line with Iran to make sure it's not a nuclear power. It's an avowed enemy of the west.
Terry Keenan: We need to be hit in the pocketbook to realize that this is a huge threat?
Dagen McDowell: Yes. We need sacrifice in this country. We need people to understand that if that's what it takes to make this country safe and secure in the long run, then so be it. Shut up about $4 gas.
Dave Nelson, DC Nelson Asset Management: Just look at the map. Dagen is right. 40 percent of the world's exported oil travels through the Strait of Hormuz. Imagine what would happen if there was a disruption there.
John Rutledge, Rutledge Capital: We should do whatever it takes to keep them from having nuclear capability. I think that's what's going to happen. I think one government or the other will take it out, if it turned out to be the issue. If it didn't, though…if we did have $100 oil, this economy would live through $100 oil. The reason why I think this may be good for America is because we need to have a wake-up call here. We need to find a way to use less oil, less gas, less coal, do more conservation, use alternatives, and bring in more drilling. They're doing that exactly in China right now. They're shutting down coalmines and drilling for more oil and building nuclear plants. We need to wake up. Energy is very scarce. It's not going to go away.
Terry Keenan: Wayne, could this economy tolerate $100 oil?
Wayne Rogers, Wayne Rogers & Company: You know, the point is that everybody knows this is true. We're talking about the obvious here. Yes, we have to have a wake-up call. Yes, we have to pay more for it. Yes, you have to economize. Yes, you have to find alternative sources. We all know that already. What is the cure for what this is now? The problem is that our basic fundamental policy in the Middle East is bankrupt. That's the problem. You've got to remember that Iraq and Iran fought each other less than 15 years ago. You have got to recognize that the way to cure the Middle East is with the balance of power, not by isolating those people and shutting them off and making them a total enemy of the west.
Jonathan Hoenig, Capitalistpig Asset Management: What about bombing them, Wayne? They are our enemy. Dagen is right. Iranians hate Americans. They say 'death to America,' like we used to say, 'go Bears,' here in Chicago. They think the Holocaust never happened. These are crazy people. We can beat Iran. Get the maps out, make the targets. We give them a deadline.
Wayne Rogers: That is so dumb. You are driving Iraq and Iran together as a monolithic enemy. That is stupid. They used to fight each other. Divide and conquer. Don't be dumb. Don't drive your enemy together.
Jonas Max Ferris, MAXfunds.com: What's dumb is that Jonathan's talking about another military action. Iran is actually preparing for an economic battle with the United States. Just this week, they started moving their money, their foreign reserves, out of European countries and other banks where we might freeze their assets, like we did with the '79 revolution. They're preparing for that. They want OPEC to cut production soon. They're preparing for an oil war with us. They have oil reserves in excess of the United States now, because oil is so high. We have to have an economic battle with them and make oil expensive here, so we can lower demand below what the world supply is, so we can get back in control. They are in control right now.
Dagen McDowell: One weapon the west does have with Iran is that they are net importers of gasoline. They need gasoline from outside of the country to feed the cars that the Iranian people drive. That gives the west at least some leverage.
Terry Keenan: Yet as they rattle their sabers, oil has gone up $10 a gallon in the last couple of weeks. That money flows right into Iran.
Dave Nelson: It's true, but what's even more bothersome is that we're talking about trying to engineer a regime change and hoping that the Iranian people oust their leaders with a little help from their friends. It didn't work in the past with Cuba, and I doubt the world is going to sit and wait for a diplomatic solution if the Iranian nuclear program goes hot.
Terry Keenan: So what's the next thing we should look for, John, in terms of oil prices and in terms of our response to Iran?
John Rutledge: In terms of response, there are a very small number of facilities in Northern Iran that are actually in question. Those would be targeted by western governments, if it became necessary. Regarding oil, there are 50 million decent people in Iran. They have a bad government. Many of them are trying to get rid of this government. Don't hate Iranians. Hate this government, if you want to. And I think we need to get very busy here, bringing in other sources of energy. And we do need to worry about the things that Wayne is talking about. These people, in this part of the world -- it's not good if they're all on one team, but they're all not our enemies either. The solution is to raise people's living standards in that part of the world so that they behave better.
Terry Keenan: These young Iranians are looking at the Indians and the Chinese on their borders having a much better quality of life. Will that eventually affect what is going on in Iran, Jonathan?
Jonathan Hoenig: I hope so, Terry. There can't be any prosperity in a religious, crazy, Islamic theocracy. It's never going to happen. And the people there are brutalized. So, that's the problem with negotiating. That's the problem with the UN. They treat this terrible dictatorship, like Iran, the same as they treat a real democracy. Any negotiation helps these mullahs. It didn't work with Hitler in the '30s. Let's get tough.
Dave Nelson: How do you negotiate with someone who is willing to sacrifice its own people? You can't negotiate with that.
Jonas Max Ferris: You can't negotiate with someone whose 2.5 million barrels of oil, that they sell every day, is so critical to American and European economies.
Jonathan Hoenig: I'm not worried about paying $4 for gas. I'm worried about some mullah going to Nirvana and taking Grand Central Station with him.
Terry Keenan: Wayne, what are you worried about?
Wayne Rogers: I think Jonathan is right. You are dealing with a tribal nation and a theocracy. You cannot make the world safe for democracy by going over and imposing a westernized concept on people who have lived 1,000 years under this government. If you can't do that, recognize that and deal with it. In other words, those countries are going to fight each other. Let them fight each other. I'm for the good, old USA. That's who I care about. I don't care about whether they're democracies or not. Let them go to Hell. As long as we get what we want out of it, let them fight each other. And we should promote that. Divided we conquer.
Best Bets: $Lick Pick$
The stocks that could get a boost from the high price of oil.
• Jonathan's Slick Pick: PrimeWest Energy (PWI)
Friday's close: $32.30
52-wk High: $32.57
52-wk Low: $22.00
Jonathan Hoenig: Commodity prices are on the rise, and I think they're in the zone right now. We're really playing gold more than energy right now, but this thing is going to move like natural gas and crude oil. Natural gas has been a laggard and crude oil is off to the races again. PWI, with its huge yield, is a stock that's going to benefit from higher energy prices, come Hell or high water.
John Rutledge: You know, I like the dividend strategy. It wouldn't be helped by a dividend tax cut extension, but other than the fact that I like pools better than individuals, I think it's a fine bet on oil prices.
• Dave's Slick Pick: Cal Dive International (CDIS)
Friday's close: $44.33
52-wk High: $44.61
52-wk Low: $19.76
Dave Nelson: Sure, oil prices are going higher. We see it every day. But we own and recommend Cal Dive. This is one of the fastest growing companies in the oil service sector. We tend to focus on estimate revisions and positive earnings surprises. This company has got both. You want to own it before February, when they report.
Wayne Rogers: I think it's a terrific stock. Listen, it's already doubled in the last few months. I don't know how much more it's got in it, but it's certainly been a terrific stock. What is too expensive? I don't know the answer to that. People say something like, 'this stock is too expensive,' and it goes up another 30-40 percent. I'm not capable of making that decision. I'm not that smart, but it's a hell of a stock.
• Wayne's Slick Pick: Oil Service HOLDRS (OIH)
Friday's close: $151.75
52-wk High: $151.75
52-wk Low: $84.16
Wayne Rogers: HOLDRS has about 18 different companies in it, most of which are in the oil service business, like Halliburton (HAL), Baker Hughes (BHI), and those kinds of companies. They constitute between 5-10 percent of the total fund and it's a bet on the whole thing. I've owned that for over a year. It's doubled in the last 15 months. I'm still holding it, and like Jonathan and I always talk, I've got a stop-loss in there and if it hits it, it hits it. In the meantime, it's running.
Dave Nelson: What I don't like about it is that while it's in the right sector, you're doomed to mediocrity. You can own the best companies in the sector and the worst companies in the sector. I think it should focus more on the good ones.
John's Slick Pick: Peabody Energy (BTU)
Friday's close: $89.25
52-wk High: $90.20
52-wk Low: $39.35
John Rutledge: I sometimes like mediocrity, if I make money every day. What I like about Wayne's HOLDRS is the fact that it's in oil like real estate. It's location, location, location. Peabody is the one I like. I've made a lot of money in the last year, playing on the house's money. Coal is the new oil. We have big trouble, I know, in coal mining accidents, but coal is going to be the source of the hydrogen for fuel cells. Coal mining capacity is shutting down around the world, because of accidents and pollution. I think coal will outpace oil prices in the next year.
Jonathan Hoenig: You want to be long in a bull market, and you've made money in anything in the energy market, just like in the '90's you made money in anything tech related. John is right. These coal stocks are hot. The stock has actually rallied after the terrible accident. I wish I owned them because they've been white-hot, but I certainly wouldn't fight them now. In a bull market, every ship goes up.
Question: "A bunch of tech companies reported great earnings last week, but their stocks still went down. Why?"
Wayne Rogers: They didn't hit their numbers. They were projected to be higher. In fact, it's the first time in three years that Intel (INTC) modified their growth rate numbers to single digits. That tells you that they're saying that in the future, the bloom is off the rose with these companies. These things are not going to be what they were in the last three years.
Terry Keenan: Single-digit growth, Jonas, is not what investors want.
Jonas Max Ferris: If you owned General Electric (GE), you'd be really psyched if you grew as fast as Yahoo! (YHOO), but if you're Yahoo! or Google (GOOG), and you're only growing, let's say, 20 percent, the stock is going to collapse 50 percent, because they are expecting massive growth. That's the real story; when these things stop growing at these meteoric rates, you can get really killed as an investor, even though the numbers look good on paper.
Dagen McDowell: Sometimes, Jonas, it's not the past quarter. We already know how business was during that quarter. It's the forecast, or the future, that is how stocks are often priced.
Terry Keenan: Is there a bigger problem here, Jonathan? I mean, we've seen lots of disappointments. The market has not been reacting well to these numbers.
Jonathan Hoenig: I don't think you want to buy a lot of these dips in a lot of these names. I mean, there are some areas of brightness in tech. Hewlett-Packard (HPQ) has been strong. I actually think the worst is probably over for Microsoft (MSFT). If you've owned Apple (AAPL) or Motorola (MOT), these stocks that have had these huge run-ups… I'm winning the Challenge and I'm all in cash. I want to see the dust settle before I start putting big money to work in the market.
Terry Keenan: So you're not nibbling at these techs at all?
Jonathan Hoenig: I'm not nibbling.
Question: "Does Jonathan still like Scottish Power (SPI)? I bought shares at $31 and I'm wondering if now is the time to sell."
Jonathan Hoenig: The Scots were very good to me, Terry. I talked about these foreign utilities for a year. I wish I still owned it. I think Scottish really has some juice left in it. We've moved on. We made money on the trade, but I do think some of the Brazilian, Latin American utilities and Scottish are the best of the bunch right now.
Dagen McDowell: But Jonathan, if this person still owns this stock, they might want to hang onto it. The company just replaced its CEO and that has renewed speculation that maybe it will get sold.
Jonas Max Ferris: I'm virtually out of all my utilities, but I'm moving into telecoms. That's like a utility. Go to a European company like Vodafone. You'll do better than these already-up utility, power company types.
Wayne Rogers: I'm like Jonathan. I've done really well in some of these foreign utilities; I think this is a winner. I think he picked a winner to start with. I'd just let the stock run and let the market take me out. It's been terrific.
Face-Off: Homes vs. Health Care!
They were among the hottest bets last year, but which one is the better bet this year, housing or heath care?
• Mike Likes Housing: Thornburg Mortgage (TMA)
Friday's close: $26.32
52-wk High: $31.18
52-wk Low: $22.27
Mike Norman, talk show host, BIZRADIO Network: Terry, I'm sticking with housing, and here's why. I don't think we're going to see a big drop in home prices. There's an issue of affordability, but I think interest rates are going to start to trend down again. I like one company, Thornburg Mortgage (TMA). They issue mortgages for single-family residences. I think as soon as rates start to come down, and we already saw a little hint of this recently, rates dropped a little bit and mortgage applications took off. I like this company. (Mike owns shares of TMA.)
Jonas Max Ferris: But isn't their income from the adjustable-rate mortgages. And if the interest rates go down, doesn't their income go down, and therefore their dividend payouts might go down, which might tank the stock?
Mike Norman: Exactly, Jonas, but that has happened. If you look at this stock, as with any of these mortgage REITs, they've come down enormously, so I'm taking a contrarian bet here.
• Jonas Likes Health Care: Health Care Select (XLV)
Friday's close: $31.97
52-wk High: $33.11
52-wk Low: $29.09
Jonas Max Ferris: I still think health care is going to whip housing's butt in 2006, because drug stocks are still cheap. I'm going with an ETF, which is a health care SPIDER, one of the cheapest ways to play health care stocks. The reason is that when people are worried about the economy, the guaranteed earnings of most health care companies are going to be appealing. The dividend rate is appealing when interest rates go down, like you just said is going to happen.
Terry Keenan: You're both in agreement. You both think the economy is going to slow down?
Mike Norman: The only thing I have a problem with, is that there is pressure on capping prices for these drug companies. You still have Merck (MRK) and Vioxx. With these HMOs, which are some of the components of this index, costs are rising through the roof. They're going to have to get a handle on that. That's why I'm a little bit cautious. But it is a formidable pick.
Terry Keenan: Seniors are trying to figure out this prescription drug program. Is that going to help your stocks?
Jonas Max Ferris: When they figure it out, they're going to start consuming more and more drugs because the government's picking up the tab. That's why the health care companies make so much money.
Mike Norman: My mother called me up the other day saying, 'I can't figure this thing out. Can you look at it for me?' I'm probably worse off than she is, looking at that.
Cashin' In Challenge
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