Brenda Buttner was joined by: Gary B. Smith, RealMoney.com columnist; Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, founder and chairman of ChangeWave Research; Scott Bleier, president of HybridInvestors.com; and Adam Lashinsky, senior writer for Fortune magazine.
Trading Pit
Big week ahead: The U.N. deadline for Saddam is up on Monday. The president's State of the Union, which many think will be a call to arms against Iraq, is on Tuesday.
And stocks are suffering. Last week was a brutal one for the markets-especially Friday. We had strong start to the year, but those gains have been wiped out. Only the Nasdaq, which is barely higher, is in the black since January first. The Dow and S&P are now in the red for 2003.
Adam said the stock market cannot bounce back while war worries persist. He added that other than the economic stimulus package, there was no good news, so there was no reason for the gain of 8-9 percent. He believes that until there is a resolution-which won’t come for another 3-4 weeks-the market will not head higher.
Tobin thinks a war with Iraq will be bad for stocks in the short term. He said stocks are going to pullback even further. He explained that in the first week of January, people thought that we were going to go in to Iraq and clean house. But now that the situation has become more complex, a resolution is not as clear-cut. So investors need to be prepared for their stocks to pullback, but also must be ready to buy within the next 60 days.
Pat said the market will pullback and then come back strong due to the many uncertainties that are weighing on stocks. He advised investors to pick out quality stocks and put together their “buy list” because the long-term picture is not that grim.
Gary B. looked at his charts and noticed that the last two weeks have been bad. The Dow is down almost 8 percent in 10 days. This has happened only 10 times since 1929. The Dow had stayed between 8300-8900, but on Friday, it broke below 8300. Due to this downward move, he thinks the path of least resistance is down. There will be a buying opportunity, but until the war situation is over, the market will fall further down.
Scott agreed that the bears are in charge. He said the market will keep going lower because two weeks ago investors finally realized that war is coming. The market was on the verge of breaking out, but now investors have to be on the defensive and buy strong yielding stocks because these stocks will go up when all this is over.
Stock X-Change
Tobin, Scott and Adam stayed on to pick stocks that will boost your bottom line if you buy them before they report their earnings this week.
Tobin selected Sony (SNE), which reports on Wednesday, because he thinks the company will report better than expected earnings. Sony is winning the home entertainment battle and the company has finally found how to make computers and TV’s work together. He predicted the stock will get a pop from its earnings report and go to $45-46. (Sony closed on Friday at $41.78.) Adam and Scott like the stock, but both think it will not move higher.
Adam said Wendy’s (WEN) is set for some "biggie-sized" earnings. The third largest fast food chain reports earnings on Friday, but Adam said to buy the stock now because it is the class act of its business, doesn’t discount, has solid management and has been doing well. Tobin was skeptical on the stock. Scott said it’s a good buy right now.
Scott thinks investors should move their money into Pulte Homes (PHM). He picked the stock, which reports earnings on Tuesday, because it makes great products and has room to grow. He said it’s headed to $60. (Pulte Homes closed on Friday at $51.37.) Adam does not like the company due to an overzealous promotional campaign. Toby said Pulte Homes will beat expected earnings, but he doesn’t think the stock will go up.
Chartman
Gary B. and Pat came back and suited up for the Stock Super Bowl. Here's how it works: Clorox (CLX)-a company from Oakland-represented the Raiders and Outback Steakhouse (OSI)-based in Tampa Bay-was chosen for the Buccaneers. From this, these two guys would determine the winner of the Super Bowl.
First they looked at Clorox. Choosing this stock to represent the Raiders is a bit of a contradiction since the team has a reputation as being dirty. Gary did not like its chart because the stock has gotten creamed lately and is holding on for dear life at a support level around $39. He thinks Clorox is headed to the low $30s.
The Raiders motto is "commitment to excellence". Pat doesn’t think Clorox lives up to this high standard, but overall, it isn’t too bad. He said the company has a lot of good brands, has had success with new products and is a very profitable company. But, Clorox relies very heavily on Wal-Mart (WMT) and he’d wait for the stock to hit the low $30s before buying.
Next the duo looked at Outback Steakhouse, based in Tampa Bay. Now Warren Sapp is certainly a steak eater, but the chart wasn’t exactly prime choice for Gary B. He said the stock has been working off the huge jump it made in October and November. However, if Clorox can hold on and break to $36, it’s going to $40 easily.
The Bucs are known for their defense, but Pat warned investors shouldn’t go on the offensive and buy Outback Steakhouse. He said the company is expanding aggressively, but most of its earnings growth is coming from additional stores, which is a very capital-intensive way to grow. A rise in beef prices can also hurt the company. Adding all this up, Pat thinks the stock is at a point where it can rise or fall $10.
So the Stock Super Bowl winner…What a surprise! Gary and Pat did not agree! Gary picked the Bucs and Outback Steakhouse and Pat chose the Raiders and Clorox.
Predictions
Tobin: Iraq send Dow to 7500; but then bounces back to 8500
Gary B: Dow dips to 7000 before year end
Pat: Genuine Parts (GPC) a safe place to make money
Adam: Northrop Grumman (NOC) disappoints; stock falls
Scott: Winter sends chill into Kohl's (KSS); down 20 percent by July
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