Recap of January 4: New Year, New Market?

Brenda Buttner and 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 Joe Battipaglia, chief investment officer of Ryan, Beck & Co.

Trading Pit

Everyone's asking if the market will break its losing streak and finally finish higher in 2003.

And that answer to that may rely on the S&P 500’s performance in January.  This is often a good barometer of how things go for stocks the rest of the year.  In fact, since 1950, the S&P 500's performance in January has accurately predicted the direction of the market 42 out of 52 times.

Nobody watches trends like this as closely as Gary B does, and he thinks it is absolutely critical that January gets off to a strong start.  He reasons that if the market can continue its upward momentum, people will believe it’s okay to start buying stocks again.  But if the market starts heading down, people will think this is going to be another down year and will get out of the market.

Tobin sees a lot of good news in January for the market.  He thinks there will be war with Iraq, but it will be quick and decisive, and will not happen until February.  Also in January there will be new Medicare and dividend plans, which will help stocks.

Pat disagrees with any correlation that if the S&P 500 is up in January, the market will follow and be up for the whole year. Right now he thinks the market is fairly valued and does not see any stocks that are big bargains.  Even though he is optimistic about the market’s performance this year, he wouldn’t put his life savings into the market.

Joe said investors must regain confidence and get back into the market.  To accomplish this, there must be a quick strike on Iraq and the tax package must get into place.  Then let the profit picture show itself to be positive.  Profits were down 20 percent two years ago and just about even last year.  If all goes well, Joe thinks profits can grow 12 percent this year.  He believes this growth, combined with the return of investor confidence, will make the market head higher.

Scott is bullish right now.  He said strategies that have worked in the past have not worked in the last 2 years, so he does not subscribe to the theory that January’s performance dictates how the market will finish for the year.  He does believe there will be a tremendous amount of trading opportunities this year.  He reminded investors they buy stocks to sell them, not to hold onto forever.

Gary B. then looked at his chart of the S&P’s performance in January of last year.  He said that it almost predicted the market’s movement for the whole year to a “T”.

Toby said that bonds are very overpriced now.  He added that if the S&P 500 gets to 1,400 (which it was at 2000) stocks would gain 7-8 percent.  And, if you add a 2 percent dividend, you’ll earn 10 percent a year.  To get 10 percent a year for the next 5-6 years in bonds, interest rates would have to drop 40 percent!

Scott concluded the segment by saying the market has been rallying on any good news and he sees a lot of good news going forward.

2002 Scoreboard

It was time for the very best and very worst calls from the Bulls & Bears in 2002.

First we took a look at the very best.

In November, Tobin said Sealed Air (SEE) would benefit from the Republicans victory in the election.  It hasn’t been even 2 months since he picked the stock and it's up an amazing 125 percent!  Toby advised investors not to get greedy and take their profits.

In the middle of July, Scot said WebMD (HLTH) would get healthy again. And it sure has, making a huge gain of 82 percent.  His prognosis: the stock is now fully valued.  He said WebMD could go higher, but he wouldn’t buy it until it pulled back to $7.  (WebMD closed on Friday at $8.91)

During September, Joe said housing stocks would lose 10-15 percent by year-end.  And two of the biggest homebuilding stocks-Toll Brothers (TOL) and KB Home (KBH) are both down as he predicted.  And he thinks investors should still be selling homebuilding stocks because these stocks are at their peak earnings.

In the middle of August, Pat said Human Genome (HGSI) was due to fall far and fast.  And the biotech company has suffered a devastating loss of 48 percent since that time.  Pat still does not like the stock and compares buying it to buying a lottery ticket.  He said if investors wanted to buy biotech companies, they should look to IDEC Pharmaceuticals (IDPH), Amgen (AMGN) or a biotech fund.

Way back in February, Gary B. said Amazon.com was priced to buy.  And was it ever, up 53 percent in almost a year.  He said its chart had just broken to new highs back then, so he was bullish.  But now he’s bearish on Amazon.com because it just recently broke below an uptrend it’s been in since July.

And then it was time for the very worst.

In the beginning of August Gary B. said the Dow had hit its low and would head to 10,000 by the end of the year.  But the Dow never got close to 10k, and closed the year at about the same level as it was when he made his prediction.  He explained that bear markets have furious rallies that eventually lead to even lower lows.  He has now totally changed direction and thinks there’s a good chance the Dow will revisit its October lows.

At the start of the year Scott said Tyco's (TYC) books were okay and the stock was a bargain.  Well, many scandals and indictments later, the stock is down 63 percent from when he made that call.  Scott admitted he was just dead wrong on this one.  He advised investors not to buy the stock even though the company just announced there’s no fraud in its books.

In March Joe said Honeywell would put some “Pow” in the Dow.  But it was more like some “Ow!”  He said the stock was heading to $50.  Instead it’s down 37 percent.  He thought a low interest rate environment would spark some recovery in capital spending which would help a stock like Honeywell.  This didn’t happen.  However, Joe does think capital spending will pick up this year, boosting Honeywell’s price from $24.75 (Friday’s close) to the $35 - $40 level.

In the middle of March Pat predicted the drop in Bristol-Myers' (BMY) price yelled, "Buy!"  But it turned out to be the beginning of a very bad run for the pharmaceutical company which headed much lower from there.  Pat admitted he was dead wrong on this one because he greatly underestimated the games Bristol-Myers' management was playing to pump up the numbers.

And lastly, at the end of April Tobin said Spider-Man would be a hero for video game maker, Activision.  Spider-Man was a blockbuster movie, but not for Activision (ATVI).  That stock has been halved since Toby’s call.  He said that sales started to slow, and when that happens, especially with growth stocks like this, you’ve got to sell.

Predictions

Tobin: Dow outperforms Nasdaq 100 by 50 percent in 2003

Gary B: Dow loses over 1,000 points by July 1

Scott: Wait for high dividend stocks to drop; then buy! Scott recommended NiSource (NI) and Con Ed (ED)

Pat: Biotech Gilead Sciences (GILD) a bio-blowup in 2003

Joe: Bank on Citigroup (C) and J.P. Morgan (JPM) in 2003