Stock Smarts: Saddam V$ Martha

Saddam Hussein and Martha Stewart - both have the potential to move the market south. Which is a bigger threat to your stocks: war with Iraq or CEOs behaving badly?

Wayne Rogers of Wayne Rogers & Co. says that the biggest threat is an international conflict. We’ve had lots of business scandals in the past -- Ivan Boesky and the savings and loan debacle -- for example, and we will continue to have business scandals, but war will impact oil prices and the market most. He says he has dipped back into stocks recently buying AIG (AIG), Citigroup (C) and Clorox (CLX).

Jonathan Hoenig of Capitalistpig Asset Management thinks that the government’s response to the business scandals could be what affects the market most.  He is very worried about the new business regulations  – and the “witch hunt” by Eliot Spitzer driving the market down. He still is ignoring the headlines and watching the market trends, trying to take advantage of the weak dollar, and looking to fixed incomes over equities

Dagen McDowell of Fox Business News says that the market has actually had a nice run up because of some of the actions that have been taken against the perpetrators of business scandals. She says to wait and buy stocks until they sell off in September.

Hilary Kramer of Montgomery Asset Management says oil prices are important to American business and an international conflict with Iraq could hurt prices (driving them up), that would in turn hurt business in America. She does like stocks going forward, mentioning pharmaceuticals.

Jonas Max Ferris of Maxfunds.com says that while oil prices might have an indirect effect on the markets, the business scandals are really going to be what hurts stock because so many companies have (and might still) disclose false earnings. So investors would be holding stock in companies that are really in bad shape. The bombs in accounting are worse than the bombs going off in Iraq. In terms of stocks, he likes cheap, out of favor sectors, like telecom.

Cash Count

Back on December 15, 2001, Hilary, Jonathan and Wayne each made a call on defense stocks. We took a look back to see how each as fared since the pick.

Hilary’s Cash Count:
Northrop Grumman
UP 23% since December 15, 2001

Jonathan’s Cash Count:
Elbit Systems (ESLT)
DOWN 9% since December 15, 2001

Wayne’s Cash Count:
United Technologies
DOWN 0.5% since December 15, 2001

Mutual Fund Face-Off: Best College Fund

What’s the best way to save for college? A mutual fund can help the cause. Dagen and Jonas picked a couple of funds they say make good choices when investing for your child’s college education.
Dagen – The Jensen Fund (JENSX)
Year-To-Date (as of 8-23-02): DOWN 7.7%
5-Year Average (as of 8-23-02): UP 10.0%
Minimum Investment: $1,000
Expenses: $9.50 a year

Jonas – Fidelity Global Balanced Fund (FGBLX)
Year-To-Date (as of 8-23-02): DOWN 2.5%
5-Year Average (as of 8-23-02): UP 4.1%
Minimum Investment: $2,500
Expenses: $12.50 for every $1,000 invested

Money Mail

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

Question: “I own 1,100 shares of AOL Time Warner (AOL) that I bought at $12.76. Should I hold for the long term or cash in?”

Dagen: If you are a long term investor, you can hang on, but it is going to take a few years to make it back to the $20 level. If you aren’t willing to wait then cut your losses.

Jonathan: Put a stop loss in, and let the stock do what it’s going to do.

Question: “What’s up with Biotech? Exchange traded funds like Biotech HLDR’s (BBH) and Biotech iShares (IBB) seem to be turning around.”

Jonathan: The problem with some of the exchange traded funds is that they focus so much on the big companies, like Amgen (AMGN). I would look at some of the smaller biotechs like Charles River Labs (CRL) and Trimeris (TRMS).

Dagen: The group could continue to rally into the fall.

Question: “I own a few thousand shares of Anheuser-Busch (BUD). It’s been doing well. Should I buy more, sell or just hold on?”

Dagen: There is nothing special about this stock, but it is certainly solid. Take some profits and hold on to some.

Jonathan: Looks good on the charts. Take some profits, and let the rest ride.

Question: “What is the difference between Berkshire Hathaway class A shares (BRKa) and Berkshire class B (BRKb), other than price?”
Jonathan: The B class shares have less voting rights than the A shares. But Berkshire is a good buy.

Dagen: It’s the best mutual fund out there.


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