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 Adam Lashinsky, senior writer for Fortune magazine.
Trading Pit
From 1950 to 2000, if you invested every November 1st and sold at the end of April, you'd be up 4,159 percent! It’s unbelievable, but true. However, reverse that, and buy on May 1st and sell on Halloween, and you'd have gained just 17 percent in those 50 years.
Gary B. said the charts back this up as well. He charted the Dow back to 1997, and showed in that time, the Dow has been up every November - April, with the exception of November 2000 - May 2001.
Tobin thinks everything is falling into place for the market to head higher. It hit a bottom in July and tested that low in October. But, if the S&P 500 gets to 1,000, earnings will have to get better. If they don’t, it’s time to take profits.
Adam was asked about Microsoft’s (MSFT) antitrust case settlement that was approved on Friday. He said it is a good event for the market. But as for the buying in November theory, Adam stressed that the here and now is what is important, not history. He said the economy is not in great shape and warned that it is especially dangerous for the average investor to time this market.
Pat agreed with Adam, saying timing the market is silly. Pat added that there are plenty of cheap and expensive stocks right now, but buying them because it’s November is not a good strategy.
Scott disagreed with Pat and Adam and said the strategy of buying in November and selling at the end of April does work. Scott said one of the reasons it works is because mutual funds buy stocks until tax time and then sell them the end of their fiscal year, which is usually Halloween. He then referred back to the Microsoft ruling. He thinks that the ruling, combined with the tech rally for the past 3 weeks, can take the Nasdaq to 2,000.
Stock X-Change
Tobin, Scott, and Adam all picked stocks to buy in November and sell at the end of April.
Adam said even though he didn’t like the idea, he thinks Western Digital (WDC) is a good stock to buy. He said it’s inexpensive and is one of three disc drive companies that have survived. He thinks the stock can double. Tobin would buy the stock if it pulled back a dollar. Scott likes the stock too, but also thinks it’s a bit expensive.
Scott thinks ATI Technologies (ATYT) can go to $10 in the next six months. (It closed on Friday at $6.70). He likes this stock because along with NVIDIA (NVDA), it dominates the graphic chip and card making industry. NVIDIA had a huge gain on Friday, and he thinks ATI will follow. Tobin thinks the company needs one or two new contracts to do well. Adam thinks the company is going nowhere because PC sales have stalled.
Tobin said Steris (STE) was the stock to hold onto until the end of April. The company is a surgical support system, which means it helps hospitals and ambulances keeps their equipment clean and sterile. Tobin said this business is growing fast, and sees it going to $40 in six months. (Steris closed at $27.00 on Friday.) Scott thinks the stock will have a hard time breaking through $30. Adam likes the stock.
Chartman
Gary B. and Pat returned to look at two stocks that Gary B. says have such strong charts even Pat has to like them.
At the top of Gary B’s charts is Titan Corporation (TTN). He said it has recently had a beautiful breakout and pullback. The Chartman said Titan has a great looking chart, but warned if it closed below $12, get out. (Titan closed at $13.02 on Friday.)
Pat strongly disagreed. He admitted that the defense company is growing at a nice rate due to increased government spending on homeland security. But none of this really matters, because Titan displays every hallmark of a company to avoid. Titan has been very acquisitive over the past few years and is now selling off some investments that went bad. Plus, Arthur Andersen was its auditor until early this year, and it paid Andersen over $4 million in fees in 2001. That's a lot for a company that only made $14 million in operating income last year. Directors and officers are overpaid. Directors get paid $120K per year, plus the company pays $9,000 per director for "financial counseling services." The CEO was paid $1.3 million last year and was forgiven a $500,000 loan. Titan is also expensive, trading at 25 times 2002 earnings.
Gary said Advance PCS (ADVP) is also a stock that is a hit on the charts because it also made a great break above resistance. He thinks it can easily move back to its old highs in the $30s. (AdvancePCS closed on Friday at $25.99).
Pat liked this company better, but still didn’t totally endorse it. He said it has a lot of upside in the prescription business, but it has a big legal and regulatory risk. He advised to buy the stock on a big dip.
Predictions
Tobin: Republicans win back Senate; Dow rallies 500 pts
Adam: Dem's keep Senate & win House; market falls!
Scott: Bush overhauls economic team; market rallies!
Pat: Spit out that latte! Starbucks (SBUX) tanks 30 percent
Gary B: Don't shop for Supermarket stocks; they bomb!
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