We are already battling terror and corporate crime. The next stop: Iraq. How do you make money in this war-weary market?

Charles Payne of Wall Street Strategies says we’ve been treading water – which is probably good news. If you have been conservative with your investments, you should stay that way. The one thing he fears is that people are going to start chasing performance in bonds and hitting a peak and getting burned. He thinks right now cash is the place to be.  He believes the country is in a transition period in terms of the economy (coming out of recession), and that equities will be attractive at the end of the year. He thinks that bonds are more of a trading vehicle (not an investment) right now.

Dagen McDowell of Fox Business News agrees that it might be too late to get in on the move the bond market has made; it might be worth it to check out a high grade corporate bonds (which she believes are not as risky as treasury bonds in this environment).  But, she says, in the end, diversification between stocks, bonds and cash is still the way to go.

Hilary Kramer of Montgomery Asset Management thinks even though the whisper on Wall Street says that rates will go down to 1.00%, you should stay clear of bonds. She says that dividend-yielding stocks are the most attractive to her right now.

Jonathan Hoenig of Capitalistpig Asset Management says that he goes where the action is, and right now the bond market is still where the action is – and there is plenty of money to be made there. Bonds he believes are just better than stocks right now. He’s also looking at getting back into some gold stocks.
Jonas Max Ferris of Maxfunds.com believes that interest rates will go higher, not lower as Hilary thinks.  He says we have to finance this war and we can’t do that with interest rates at 1%. He says the dollar will get weaker and investors need to diversify out of U.S. stocks and into foreign stocks and bonds right now.

War Win$

With a war against Iraq looming, what stocks will go up as we bring down Saddam? Some members of the panel offered up their picks.

Hilary’s War Win: Raytheon (RTN)
52-week high: $45.70
52-week low: $23.95
Friday’s close $35.35:

Hilary says this is a $35 stock that could go up to $45 with a war against Iraq. Jonathan does like the defense sector, but not Raytheon (he sees Northrop Grumman and Lockheed Martin as being more attractive). Charles has recommended this stock in the past, but says he has been largely disappointed with the way it’s reacted versus other stocks in the same sector like Northrop Grumman and even General Dynamics (GD).  He says on a technical basis those others look stronger, but on a fundamental level he agrees with Hilary that this stock should go higher if war with Iraq breaks out.

Charles’ War Win: Patterson – UTI Energy (PTEN)
52-week high: $34.60
52-week low: $11.06
Friday’s close $25.31:

This is a domestic oil drilling company that should benefit from war with Iraq.  Jonathan says that with the high price of oil he is concerned that stocks like Patterson haven’t been as strong as you would expect and he wonders why the oil stocks aren’t leading the way for equities (if not now, when?). Hilary thinks it’s a great pick.

Jonathan’s War Win: Putnam Master Intermediate Income Trust (PIM)
52-week high: $6.52
52-week low: $5.65
Friday’s close $6.40:

This is a bet on interest rates. Hilary thinks that this is a good place to run for cover in the short-term, but not for a long-term investment. Charles likes the fund as a hedge, but you need to keep an eye out for an interest rate rise so that you don’t get burned. 

Mutual Fund Face-Off: Fund $urvivors

Forget about Usama, Saddam and Martha. Dagen and Jonas each picked a fund that ignored the bad news and made positive moves over the past year. They’ve been up in a down market, but which winning fund has what it takes to keep on beating the odds?
Dagen – Columbia Strategic Value Fund (CSVFX)
Past 12-months (as of 9-13-02): UP 2.7%
Minimum Investment: $1,000
Expenses: $11.30 a year

Jonas – James Market Neutral Fund (JAMNX)
Past 12-months (as of 9-13-02): UP 8.9%
Minimum Investment: $2,000
Expenses: $20.30 for every $1,000 invested

Money Mail

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

Question: “Do defense stocks do better during a build up to war or when we are at war? Should I sell my Lockheed-Martin (LMT) and Northrop Grumman (NOC) if we attack Iraq?”

Jonathan: I have been wrong about the defense sector for a while. I’m not rushing to buy these stocks, but if you own these stocks – hold on to them.  I would call them a hold and I would use a stop loss on them to protect profits.

Dagen: Hold ‘em if you’ve got ‘em. We are going to be pouring money into defense.

Question: “Why would Martha Stewart, a former stock broker, be foolish enough to say she relied on a ‘verbal’ stop/loss when ‘written’ is the norm?”

Dagen: A verbal stop/loss is very unusual – they are always documented. And this is why so many people are having trouble believing Martha’s story. And Martha’s not only a former broker she’s the head of a publicly traded company and she’s on the board of the New York Stock Exchange. She ought to know better.

Jonathan: A stop/loss order is a great way to work your stocks. But Martha’s story does seem far-fetched.

Question: “Is there any reason to buy American Airlines (AMR)?”

Jonathan: I can’t find a lot of reasons to buy this stock. The whole sector is weak.

Dagen: The airline stocks have been and probably always will be bad long-term investments. As a whole, the airline business is just bad – no cost controls, a lot of competition and very low margins.

Question: “Will AT&T (T) and Lucent (LU) ever go up in my lifetime?”
Dagen: Even if you have a hundred years to invest, these stocks are still not a good bet right here. The telecom industry is in a pathetic situation. It’s a group you want to stay away from.

Jonathan: I can’t see much value is these stocks right now.


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