Recap of Sat., Sept. 28: Bottoms Up?

Stock Smarts: Bottoms Up?

On July 23, 2002, the Dow closed at 7702 – its lowest level since 1998. This past Tuesday (9-24-02), the Dow rocked back to 7683 – a new four-year low. Was that Tuesday close a bottom, or is there more damage to come?

Dagen McDowell of Fox Business News says that the market is going up from this point – slowly but surely. With so much selling recently, a lot of bad news has been factored in. But the way to make money in the long run is to be in stocks. You should be thinking about wading in – not necessarily jumping right in with everything you have.

Jonathan Hoenig of Capitalistpig Asset Management says that the biggest trend from the third quarter was that stocks went down, and bonds went up. And he doesn’t see this trend changing anytime soon. He thinks investors sometimes look at the market with blinders on.  They just don’t see that bonds are where the action is because they don’t realize that you can make money in other places besides equities.

Jonas Max Ferris of says it’s all about relative value, and stocks at this level show some value. Most of the returns in bonds came because of lower rates, and rates will eventually go up.  Now is the time to take a contrarian view and buy lower priced stocks.

Gary Kaltbaum of thinks that we have not hit the bottom, and when we do, it will come in a “whoosh” to the downside like we saw in July. There was no volume in the past rally, showing no conviction. We are in a bear market that could last years – with many “mini” bull markets. There will be winners in sectors and in selected individual stocks in the short - term.

Hilary Kramer of Montgomery Asset Management still thinks that in the long run the Dow will rally, getting back to that 10,000 level. But stocks are still going to run down in the near future.

Stock Up!

So which stocks have bottomed and are ready to head back up? Some members of the panel offered their picks.

Hilary’s Bottom Buy:
Costco (COST)

52-week high: $46.90
52-week low: $31.00
Friday’s close (9-27-02): $33.92

Hilary thinks that Costco is a great company – the “warehouse grocery” sector is growing. Jonathan also thinks it’s a great company, but not a great stock. Gary says there is overhead resistance in the stock and he wouldn’t be a buyer.

Gary’s Bottom Buy:
AutoZone (AZO)
52-week high: $84.50
52-week low: $44.89
Friday’s close (9-27-02): $79.99

The company has accelerating earnings and revenues, and the stock is “beautiful” relative to the market. Hilary thinks it’s a gutsy play. Still wary of stocks, Jonathan wouldn’t rush into this one.

Jonathan’s Bottom Buy:
Ishares 20 Year Trust (TLT)
52-week high: $90.94
52-week low: $81.32
Friday’s close (9-27-02): $90.04

You have to look for the best plays out there, and that still means the bond market. This is a play of 20-year government bonds, which are difficult to buy. Hilary says to be careful with bonds – as rising interest rate would kill those investments. Gary says bonds are great right now.

Mutual Fund Face-Off: Best Bargain Fund

Some mutual fund managers make money buying stocks that have gotten “whacked.” Which fund could help you make some money? Dagen and Jonas picked a couple of funds that specialize in bottom feeding.
Dagen – Longleaf Partners Fund (LLPFX)
Year-to-date (since 9-27-02): DOWN 10.4%
10-year average: UP 16.0% (annualized)
Minimum Investment: $10,000
Expenses: $9.40 a year

Jonas – Homestead Value Fund (HOVLX)
Year-to-date (since 9-27-02): DOWN 13.2%
10-year average: UP 11.0% (annualized)
Minimum Investment: $500
Expenses: $14.50 for every $1,000 invested

Money Mail

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

Question: “Is there any reason to hold onto Microsoft (MSFT)? Bill Gates is selling, it pays no dividend and it’s still expensive.”

Dagen: Bill Gates isn’t selling all of his shares, and neither should this investor. It’s still the biggest software company. And once spending in IT resumes, Micosoft will be ok.

Jonathan: I don’t like the stock. Just because it’s a great company, doesn’t mean you own the stock. Better places to put your money. Big potential for downside.

Question: “This last year has me worried. Is now the right time for a newcomer to invest, or should I wait until the good times come back again.”

Jonathan: The first place to start is getting your debt paid off. Get three to six months of living expenses at hand. You’ll be well ahead of the game.

Dagen: Now is a good time to be on the sidelines.

Question: “What do you think of United Parcel Service (UPS) long and short-term?”

Jonathan: I like this stock a lot, but I’m not rushing to buy it. Hold it if you have it.

Dagen: One short-term negative is a possible price war with FedEx, but it’s still a solid investment.

Question: “Companies keep paying to settle SEC probes. Dynegy (DYN) just paid $3 million to get rid of its troubles. Who gets that money?”

Dagen: Sometimes investors get some of this money. But usually it goes to the government.
Question: I have $100,000 to invest. It’s my life savings. What should I do to keep from losing it?”

Jonathan: Buy some gold coins and get some government insured CDs.


If you are interested in receiving a transcript of the show, please call 888-443-6988.