Stock Smarts: Betting On War?

Uncertainty – it’s what the stock market hates the most. A week ago, war with Iraq seemed like a sure bet. But now that Saddam Hussein has offered to let weapons inspectors back into his country, international support is wavering again.

So will America still go to war with Iraq?

Hilary Kramer of Montgomery Asset Management says we will be at war very soon, as President Bush has thrown down the gauntlet with his talk of taking out the “axis of evil.” And in the long run, this will help the stock market. And right now, there are still opportunities out there with seemingly sick companies.

Dagen McDowell of Fox Business News also sees war in the future, and agrees that ultimately it will help the market to recover.  Americans have so many unanswered questions about the war (When will it happen? How long will it last?), that it is impossible for the market to sustain any kind of rally now.

Jonas Max Ferris of Maxfunds.com says he’s not as concerned about going to war as he is about going to war alone and having to foot the bill.  Going it alone would cost a “fortune” and hurt the economy and the stock market.

Wayne Rogers of Wayne Rogers & Co. believes we are going to war, but he is most concerned with what happens after Saddam Hussein is ousted.  If we don’t have a definite plan for a post-Saddam Iraq, then he believes we will be in trouble and so will the markets.  He took advantage of the summer rally, but has now hedged his positions in stocks. Right now, he is looking at short-term Treasuries and cash.
Jonathan Hoenig of Capitalistpig Asset Management doesn’t know if we are going to war, but he does know that the trend in stocks is still down. He just doesn’t see the appeal of investing in equities. He says the bull market is still in the bonds.
War Bets

If we go to war, where should you put your money? Some members of the panel placed their bets.

Hilary says we are going to war!
Hilary’s War Pick:
Raytheon (RTN)
52-week high: $45.70
52-week low: $28.50
Friday’s close (9-20-02): $33.70

Hilary says Raytheon covers all the bases of the defense sector, including homeland security. This is a great pick for the long haul. Jonathan thinks Raytheon is lagging behind the rest of the defense sector right now. Wayne doesn’t like the pick. He thinks that all the defense stocks are fully priced right now.

Wayne thinks we are going to war!
Wayne’s War Pick:
Short-term Treasuries
– which can be bought at www.treasurydirect.gov

Wayne’s entire investment strategy right now is not to take risk in such a risky environment.

Jonathan’s not sure whether we are going to war but says he’s scared either way!
Jonathan’s Pick:
Putnam Master International Income (PIM)
52-week high: $6.52
52-week low: $5.65
Friday’s close (9-20-02): $6.26

Jonathan is still sticking with bonds, and his is a bet on interest rates. You really need to think like a banker, or an “aggressive saver.” Hilary thinks that we need to be well diversified, and is still not convinced that buying bonds here is a good idea.

Mutual Fund Face-Off: New vs. Old

They’re supposed to do the same thing – but one is old and one is new. Which “international” mutual fund is a better bet?  Dagen sticks with the old, and Jonas goes for the new:
Dagen – Oakmark International Fund (OAKIX)
Since Inception (1992) UP 9.9% (annualized)
Minimum Investment: $1,000
Expenses: $13.00 a year

Jonas – Pictet International Small Companies Fund (PISRX)
Since Inception (3-4-02) DOWN 10.1%
Minimum Investment: $2,500
Expenses: $14.50 for every $1,000 invested

Money Mail

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

Question: “Wasn’t Tyco (TYC) investigated by the SEC a couple of years ago? And didn’t the SEC say the books were clean? Why?”

Dagen: It seems like the SEC messed up big time. There was an investigation, and there was nothing that came from it. But the SEC is not the only one to blame – the company’s board (which was oblivious to the fraud) and the analysts who were pumping Tyco up are also at fault.

Jonathan: Another example of trusting the market. You should only trust the charts -- when the stock went from $57 to $37, you would have known something was up.

Wayne: This also tells you that analysts (a lot of the time) don’t know what they are doing.

Question: “What are your short and long-term price targets on AOL Time Warner (AOL)?”

Wayne: This is a company that can’t be turned around quickly – a short-term target would be $15, and a long-term price would be $30, but only after at least three years.

Jonathan: AOL is still a low-probability trade.

Dagen: This stock is maybe worth $20 a share, but you are going to have to wait a while.

Question: “I want to buy some dividend yielding stocks. How secure are the dividends? Will they keep coming?”

Dagen: Dividends aren’t a sure thing.  They can change.

Jonathan:  Maybe look at a REIT.


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