Recap of Sat., August 17: Shakedown $treet!

Stock Smarts: Shakedown $treet!

Wall Street’s dirty little secrets have been forced out of the boardrooms and into the headlines. Is all the bad news now priced into the markets, paving the way for stocks to rise from here?

Jonas Max Ferris of thinks that the market can make a move higher from here. The bigger, billion dollar scandals are over and done with, but we will see several small-scale accounting problems and lesser scandals – the kinds of things that can’t totally drag a market down.

Dagen McDowell of Fox Business News says the stock market has more confidence. But the market needs to see sales and earnings from companies to really make a big move up. She also thinks tax loss selling from mutual funds will put pressure on the market later in the year.

Hilary Kramer of Montgomery Asset Management says we are going to be moving into a new phase of bad market news – going from scandals to bankruptcies like those we have seen in the airline industry. She says, there will certainly be volatility going forward – but there are specific opportunities out there, such as stocks within the regional banks and the pharmaceutical sector.

Wayne Rogers of Wayne Rogers & Co. says that we’ve had these scandals in the past, and we’ll have scandals again. What investors need to see are real earnings, not the CEOs signing off on the books. In terms of hitting a market bottom, he continues to stress that building a bottom is a process, and we are in that process right now.

Jonathan Hoenig of Capitalistpig Asset Management isn’t focusing on the scandals – he is focusing on what is going on in the market now. He credits those who were bullish recently, as the market has made a good move up. But he is going to keep sitting on his hands, as he would rather miss the initial move than be back into stocks too early. Investors still should look at bonds. And he says that sometimes the hardest trade is not trading at all, and having the courage to wait things out.

Perfect $10s?

Many stocks among the 500 biggest and most widely held companies in America are trading under or around $10 a share. Does that mean you should buy them? Some members of the panel took a look at three stocks that fit the bill.

Charles Schwab (SCH)
52-Week High: $19.00
52-Week Low: $7.51
8-16-02: $8.95

Hilary says to stay away from this stock – the discount brokerage sector is too crowded right now – and Schwab has falling revenues. Wayne does not like the stock – it’s probably priced too high right now. Jonathan says that traders can make money on a stock like this (as a $1 move is a 10% pick up). But he would rather go with a smaller company (a regional bank) for a financial play.

EMC Corp
52-Week High: $18.50
52-Week Low: $5.85
8-16-02: $7.19

Jonathan says that EMC is a trade – and not a long-term investment. Wayne thinks it is fully priced. Hilary owns EMC, but bought it when it was the only game in town. But now is resigned to hold it and hope for something to turn around years from now.

Oracle (ORCL)
52-Week High: $17.50
52-Week Low: $7.25
8-16-02: $10.39

Wayne owns Oracle, and he feels a little trapped in it. He certainly wouldn’t put new money into it – a company in search of growth. Jonathan again sees this as a trade. Hilary also owns Oracle (at a much higher price) and is holding on to what she has.

Mutual Fund Face-Off: New Be$t Thing?

Tired of looking for that one magic stock to beat the market? How about a mutual fund that bets on a specific sector that could charge ahead when we kick off a new market? Dagen and Jonas picked some possible winners.

Dagen – iShares Dow Jones US Consumer Non-Cyclical (IYK)
Year-to-Date (as of 8-16-02): UP 1.4%
Minimum Investment: $44.92 per share
Expenses: $6.00 a year

Jonas – Gabelli Global Telecommunications Fund (GABTX)
Year-to-Date (as of 8-16-02): DOWN 36.7%
Minimum Investment: $1,000
Expenses: $15.20 for every $1,000 invested

Money Mail

Wayne, Dagen and Jonathan capped off the show by answering some of your questions.

Question: "I own several hundred shares of US Air (U) and a little in United (UAL). Now that US Air is bankrupt, what should I do?"

Dagen: These are the two worst stocks in the worst sector. Get out now – the airlines are bad businesses.

Jonathan: These are almost too risky for trading purposes. But they are stocks for trading, not investing.

Wayne: Take your tax loss and go home. Get out.

Question: "What is a reasonable amount (percentage) to accept as a loss before giving up on a turn around?"

Jonathan: The old rule is 10%, but you really have to look at how volatile each specific stock is. You lso have to see how much a stock takes up in terms of your portfolio. If it is a lot, then the stop loss order should be smaller, say 5%. But 10-12% should be ok.

Dagen: Jonathan is right on.

Wayne: I would do it quicker than Jonathan.

Question: "I am thinking about buying Disney (DIS) stock and was wondering why it was so low?"

Wayne: I own some Disney, but wouldn’t buy more right now. I don’t see Eisner turning thing around. It’s a great franchise, but it will take a while for the stock to turn around.

Dagen: The only way the stock will come back is if Eisner gets the boot.

Jonathan: Not on my radar right now.


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