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 Gary Kaltbaum, president of Investor’s Edge Partners.
Trading Pit
One thing is certain about Wall Street...it hates uncertainty.
And the uncertainty of a possible war with Iraq has been hanging over the market, taking its toll in a big way this year.
No one wants war, but could this actually be bullish for stocks because it means an end to the crisis one way or the other?
Tobin thinks war will cause stocks to run up. He advised to buy stocks now with short-term expectations.
Scott said that the market is rallying now, but he is concerned that the market will be too high when war starts and this rally will run out of gas.
Gary K. warned investors against making comparisons to the prior Gulf War, because two months before the fighting started last time, the market bottomed. He believes we’ll get a rally if we attack Iraq, unless the market is up big before then.
Gary B. charted the Dow since August of last year. He said we had a miserable start to 2003, which is unusual because January-March is usually a good time period for the market. Like Scott, Gary B. thinks that the rally has already started. Gary B. said the rally may go a little longer, but this is just another rally in a bear market. The Dow got a bounce because it got close enough to its October 2002 lows. He wouldn’t rush in to buy when the war starts. In fact, if the Dow goes up another 100-200 points early next week, he would look to sell—with or without war.
Pat said when bombs start falling there is going to be a sell-off and then a rally because there will be some resolution to the situation.
Stock X-Change
Tobin, Scott and Gary K. chose stocks that could take off if war starts with Iraq.
Gary K. said retail stocks are a horror show right now, but one that looks good is Lowe’s (LOW). He likes the stock because it reported strong earnings on its last earnings report. Tobin isn’t too thrilled with Lowe’s and said he doesn’t know if the stock can get above $42. (Lowe’s closed on Friday at $39.05.) Scott believes that if the market rallies, Lowe’s will too, but he likes Home Depot (HD) better.
Scott picked defense giant, General Dynamics, even though few sectors have been destroyed worse than the defense sector. General Dynamics (GD) is down 35 percent year to date, but it will earn $5 a share this year. (It closed on Friday at $52.67.) He said defense stocks have been sold on the anticipation of war, but he believes these stocks will benefit if war starts. Gary K. said General Dynamics has fallen hard and he would sell it on any bounce. Tobin agrees with Scott and thinks the stock could go to $60.
Tobin selected Emulex (ELX) because the tech stock pre-announced good quarterly earnings, and this removes the risk of it announcing bad news. He’s going to buy it the day the war starts and sell the day it stops going up. Tobin thinks Emulex will hit $25. (Friday’s close: $18.99.) Scott said that the stock is risky and does not think it will go as high as Tobin thinks it will. Gary K. doesn’t like this stock. He said Emulex has a lot of competition from QLogic (QLGC) and one bad announcement could really hurt it.
Chartman
Gary B. and Pat came back to look at three stocks that made great gains after the first Gulf War in 1991.
First up, Goodyear Tire (GT). In 1991, it was up an incredible 188 percent! Gary B. thinks good times may be back for Goodyear. It hit an all-time low in February, but is now building a base that it can grow on. He’d wait for a close above $4.50 to start buying. (Friday’s Close: $3.92.) Pat thinks the tire business is a horrible one. Goodyear has a lot of debt and a massive pension deficit, which may require some cash contributions in the next few years. He said run—not walk—away from this stock.
In 1991, Coca-Cola (KO) was up 75 percent. Gary B. made note that Warren Buffet said this stock inevitably always goes up. But Gary said the only thing inevitable about Coke is that it is headed to the $20s. (Friday’s Close: $39.90.) Pat said that Coca-Cola’s business is slowly improving and its growth is getting better. It is still a powerful brand, but is too dependent on soda and needs to branch out into the non-carbonated drink market.
After the Gulf War in 1991, Altria (MO)—which was known as Philip Morris—was up 60 percent. Gary B. said if you want to buy this stock, now’s the time, but be prepared to sell if it makes any move down. (Friday’s Close: $34.93.) Pat said even though 2002 was a tough year for Altria, it still generated a lot of cash flow. He feels it is a very healthy and profitable company and is currently priced cheaply. Additionally, it is gaining back some of its lost market share and pays a nice dividend.
Predictions
Tobin: War rally begins; Dow 8800 in one month!
Scott: The rally is now; stocks fall if war begins
Gary K: Dividend double-tax stays; hurts stock market
Gary B: Toll Brothers (TOL) & Ryland (RYL) lead home stocks lower
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