DISCLAIMER: THE FOLLOWING "Cost of Freedom Recap" CONTAINS STRONG OPINIONS WHICH ARE NOT A REFLECTION OF THE OPINIONS OF FOX NEWS AND SHOULD NOT BE RELIED UPON AS INVESTMENT ADVICE WHEN MAKING PERSONAL INVESTMENT DECISIONS. IT IS FOX NEWS' POLICY THAT CONTRIBUTORS DISCLOSE POSITIONS THEY HOLD IN STOCKS THEY DISCUSS, THOUGH POSITIONS MAY CHANGE. READERS OF "Cost of Freedom Recap" MUST TAKE RESPONSIBILITY FOR THEIR OWN INVESTMENT DECISIONS.
Bulls & Bears
This past week's Bulls & Bears:
• Gary B. Smith, Exemplar Capital managing partner
• Tobin Smith, ChangeWave Research editor
• Scott Bleier, HybridInvestors.com president
• Pat Dorsey, Morningstar.com director of stock research
• Danielle Hughes, Divine Capital Markets president
• Tom Adkins, Re/Max Fairlawn agent
Trading Pit: State of the Stock Market
Tuesday, President Bush will deliver the State of the Union, and Wall Street will be listening very closely—especially after Friday's big day. The Dow was just shy of a triple digit gain. And has now completely wiped out the previous Friday's horrible sell off.
What is the state of the stock market?
Tobin Smith: The stock market is healthy! What I really like about this market is that it goes forward two steps, back a step, forward two steps, back a step, that's a healthy market, not a "Viagra" market. Good news is coming up and is getting rewarded. On Friday, oil was at $65 and the Dow went up 97 points. I cannot be more excited! We have a healthy market. Bush is going to help us again. And if you are not investing in stocks right now, you're making a big mistake.
Danielle Hughes: The stock market is like a turtle running. We've got other things against us: higher interest rates and terrible energy costs. We have huge ships coming in from China, filled with products, leaving empty. That's put a real drag on certain parts of the economy. I still think we are going to do very well and the market will make gains, but I believe we're like a turtle running.
Gary B. Smith: I don't think this market is at all like turtle. And I live in Maryland where we love turtles! We really had a chance to tank. We sprinted up the first part of the year, broke out well past 11K, then dropped back, but the market just kind of hung in there. I think the Dow will go back above 11K and then rip higher. I'm still holding on to my 25 percent plus year.
Pat Dorsey: I'm certainly not in the plus 25 percent year category. The market's healthy, earnings are pretty strong, but evaluations aren't real cheap. They're just about average for the past several decades. So it's going be a fine year—up like 5 or 8 percent—but not rip-roaring.
Scott Bleier: The market is dynamic. And semiconductor stocks, the bedrock of speculative and technology activity, have really broken out, and that signifies that the market is very healthy. Nasdaq is going to go up 20 percent this year and the Dow will gain 10-15 percent. The market is very healthy.
With the President's State of the Union address coming up, Gary B. picked the best stocks that will keep our union strong.
Gary B. Smith: Building and construction is going on like crazy and steel is behind that. I really like U.S. Steel (X). The stock "digested" its fourth quarter gain. Then, broke out and I see it going to $65. (U.S. Steel closed on Friday at $58.73.)
Danielle Hughes: The main thing that worries me about this stock is labor in the U.S. and China. America is going to have a hard time competing with China over the course of the next ten years. There's a lot of consolidation in the industry and I don't think this is a long-term play.
Gary B. Smith: Next on my list is the Chicago Mercantile Exchange (CME). "The Merc", as its also known, looked like it was dead, but has picked up in the last few months. Next stop: $500! (Chicago Mercantile Exchange closed on Friday at $401.64.)
Danielle Hughes: The stock is trading at a high multiple. Again, there is consolidation in the industry. I have liked the exchanges over time, but I don't like this one right now.
Gary B. Smith: Finally, I'm going with leather goods and accessories maker Coach (COH). The stock was in a slump and it looked like consumers were going away, but the U.S. economy improved. Now, Coach is in great shape and should break its all-time high of $36.84. (Coach closed on Friday at $35.91.)
But Brenda pointed out that a lot of Coach's success is based on Japanese sales.
Danielle Hughes: It has done well in Japan. Sales there are up 21 percent. The brand is fantastic. This is a great pick.
Homes or Stocks: Toby, Scott, Pat, and Tom Adkins each picked the best place for your money right now.
Tom Adkins: Housing is the best place for your money. There's no doubt about it. Real estate's raw appreciation alone is much greater than the stock market. Plus, you can leverage it.
Tobin Smith: If you are going to buy a home as an investment, you're going to rent it to someone. Even if you make money, the stress from renters isn't worth the money.
Scott Bleier: Housing is going through a correction and consolidation after years of significant gains. The stock market has gone through that consolidation and is now is going to head higher. Stocks will outperform housing this year.
Pat Dorsey: There's value in homes. There's value in stocks. However, there's more in the stock market. To Tom's point, leverage can bite you just like it can help you.
Tobin Smith: Cypress Semiconductor (CY) is a good stock to bet on because I think solar energy is a super investment right now. This is a great way to play it. (Cypress Semiconductor closed on Friday at $16.75.)
Pat Dorsey: This is a terrible company with awful returns on capital. The only good thing I can say is that it's not overpriced.
Pat Dorsey: I really like Johnson & Johnson (JNJ). It passed on buying out Guidant (GDT) this week. I love that is doesn't over pay and it spends money wisely. (Johnson & Johnson closed on Friday at $58.71.)
Scott Bleier: This is a great company, but the stock is going nowhere. The action is in smaller cap names.
Scott Bleier: My pick is FileNet (FILE), which makes software that businesses use to manage data. We've been waiting for companies to spend money on enterprise software. Now, they're spending. This will be a big year for FileNet and I own it. (FileNet closed on Friday at $28.08.)
Tobin Smith: Corporations are spending money in this area. I agree this will do well.
Pat Dorsey's prediction: Walgreens (WAG) up 20 percent in 2006 from prescription drug plan
Scott Bleier's prediction: New IPO boom coming! Bear Stearns (BSC) up 20 percent
Gary B. Smith's prediction: Pixar revitalizes Disney (DIS); stock gains 25 percent this year
Danielle Hughes' prediction: Semiconductor equipment stocks are about to explode!
(Dani recommended Novellus-NVLS, Powerwave-PWAV, & Semiconductor HOLDRs-SMH. She owns all three.)
Tobin Smith's prediction: Nektar Therapeutics (NKTR) up 50 percent by end of year
(Tobin owns this stock.)
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Cavuto on Business
Neil Cavuto was joined by Jim Rogers, author of "Hot Commodities"; Gregg Hymowitz, Entrust Capital founder; Charles Payne, CEO of Wall Street Strategies; Meredith Whitney, executive director at CIBC World Markets; Bob Froehlich, chairman of Investor Strategy at Scudder Investments; Bob Beckel, Democratic strategist, and Gary Kaltbaum, president of Kaltbaum & Associates.
Neil Cavuto: The one weapon America has to stop Iran right now? Some say it's drilling in Alaska's Arctic National Wildlife Refuge (ANWR) making America less dependent on foreign oil. Bob Froehlich what do you say?
Bob Froehlich: I say absolutely we need to do that. We're not talking about taking over the whole wildlife refuge. We are talking about using less than 1 percent of it. And this area has the greatest potential of anyplace in the United States for oil. I think we have to drill here.
Gregg Hymowitz: Drilling in ANWR will not help us with Iran. It will take 10 years to get this thing operational, and the amount of oil we can get out of it is relatively insignificant. It's not going to solve the problem. It's only a band-aid. What we need are new renewable sources of energy.
Neil Cavuto: A million barrels a day is not a band-aid.
Charles Payne: Some people think you can get up to two million barrels a day out of ANWR. We're talking about 10 percent of U.S. demand.
Jim Rogers: We should certainly start drilling ANWR. You are right; it's going to take ten years. So if we don't start drilling now, what are we going to do? Wait another five years? Then it will take fifteen years. We should also have nuclear power. And we should be drilling off the coast of Florida and off the coast of California. Is it going to happen? No, but it should happen. When oil is $150 a barrel, then we'll start doing something, but then it will be far, far, far too late.
Bob Beckel: Drilling in ANWR is the most ridiculous ongoing argument. It slows down core pieces of legislation because they put it on legislation every year, and it then gets filibustered, and we don't get anything done. Here's a suggestion. We could get nuclear power plants up. Democrats are willing to talk about nuclear power. It's an alternative we ought to have. ANWR is 10 years down the road, and it's a trickle.
Meredith Whitney: I agree with everyone in that it will take ten years to get any meaningful oil production out of ANWR, but that's a supply issue. We really have to talk about a demand issue, and curb our dependence, which makes us politically vulnerable because we depend on foreign oil. Whether it's Iran or Venezuela, we have to know that we make ourselves politically vulnerable by being reliant on them for oil.
Bob Beckel: We could start saving tomorrow by increasing CAFE standards — increasing mileage on cars. It could all be done in a week.
Gregg Hymowitz: Drilling ANWR doesn't move the needle in Iran. So we have to talk about how we solve the Iranian problem. It's not ANWR.
Neil Cavuto: We don't get oil directly from Iran. They factor into the world supply, but what would happen if Iran's oil were taken off the world market altogether? What's the fallout for the U.S.?
Jim Rogers: If Iran's oil is taken off the market, the price of oil goes to a hundred dollars next week. That's a huge problem for our economy and for the world.
Charles Payne: It's a bigger problem for Iran than it is for us though. Yeah, everyone's going to get hurt, but it would be a Pyrrhic victory at best for Iran. They need this oil. Ultimately we are going to have to take out these nuclear facilities.
Jim Rogers: We are soon going to have an arc of people who hate us from Pakistan to Egypt.
Charles Payne: We already have it. Just look at the election results from Bolivia to Palestine — everywhere. You say it would take ten years to get oil out of ANWR. Well, it will take ten years for Iran to get a nuke, so we do have time to negotiate this. But if they don't come to the table, then ultimately we will have to do something.
Bob Beckel: We have a moral responsibility to take out the Iranian nuclear facilities. We are there. We are in a ridiculous war in which we have now made the Iranians friends with the Iraqis – even God couldn't do that — and now the Iranians are going to be controlling Iraq. I would take out those nuclear facilities in a New York minute. I think we have a moral responsibility. Israel can't do this now. These guys are serious.
Jim Rogers: Suppose Iran took out our nuclear facilities. What would you say?
Meredith Whitney: You know very well that's an act of war. And most importantly, if we do anything to destabilize Iran they control the Gulf of Hormuz, which is 40 percent of all oil exports globally, that destabilizes the United States economy – cripples the U.S. economy.
Neil Cavuto: Well I tend to think that Iran needs the world more than the world needs Iran, and Iran doesn't want to overstep its authority.
Bob Froehlich: Not only does Iran need the world more than anyone else, but also China needs Iran, and they are an important driver of the world. This thing is so interconnected. That's the part of the global economy that we sometimes forget. You can't pick out any one piece and say you are going to do something with it and not have a ripple effect. I think we all have a lot on the table, and I think China has as much, if not more, on the table than we do.
Head to Head
Neil Cavuto: We will spend close to $4 billion in taxpayer money to keep the United States Congress running this year. Are we getting our money's worth?
Gary Kaltbaum: No. The problem is there is no accountability. I love all the outrage over the last couple of weeks over the bribery/lobbying scandals. Right now, the people who are writing legislation are the ones directly benefiting from it, and until that is fixed, there will be no accountability.
Gregg Hymowitz: I think it is very easy to bash Congress. Yet we all know this is the greatest place in the world to live, and I think the greatest government that the world has ever seen. Yes, it is probably not run as efficiently as it should be. Yes, there's corruption at many levels, but there is accountability. You can always vote people out.
Charles Payne: It seems like we are a ‘me first' society and Congress represents that. Everyone who goes to Congress represents just his or her district. Between inefficiency and ‘pork' we are talking a $100 million wasted. The attitude is not: ‘What can I do for my country?' It's: ‘What can I do for my district?' And we keep voting those same people in.
Gregg Hymowitz: But that's the brilliance of what the framers created, right? The Senate represents the states, the House represents individual people and small districts, and the President represents the nation. That's the beauty of what the framers created.
Meredith Whitney: I don't think that the framers ever had in mind these ‘lifers' in the Senate and the House who are making six figures in perpetuity and don't drive home any type of efficiencies in their government. Why shouldn't we be demanding higher standards? If this were a public company, all of these guys would be out on the street.
Neil Cavuto: Yes, but what's the alternative.
Jim Rogers: There are alternatives. We could have a Parliamentary system, but those are sometimes as bad as our three-branch system, but with technology being what it is, the alternative is very simple. Don't send Congress to Washington. Make them stay in their districts and make them vote from there. If the local barber were keeping an eye on these guys or they had to go down to their local school to cast their votes, you wouldn't have 500 lobbyists standing there fraternizing with them.
Neil Cavuto: I would welcome the Congressman who tells me; ‘I didn't bring anything home to the district. I didn't build any new bridges, highways or schools.' I would welcome that.
Jim Rogers: And he'd get two votes.
Gary Kaltbaum: They are beholden to the voters, and I understand that. But the problem is that over the last ten years, earmarked projects are up tenfold. That has increased the lobbying business and when you have so much of that money in the system, it becomes corrupt and something's got to change.
Meredith Whitney: They need term limits.
More for Your Money
Neil Cavuto: Now for some companies that are not anything like Congress. These are lean run corporations our gang says you should invest in now.
Gary Kaltbaum: Darden Restaurants (DRI) run a lean, clean operation. Profits come down to the bottom line. They don't pay themselves a ridiculous amount of money. They are very community minded. I love the company and the food. Darden closed Friday at $41.03.
Bob Froehlich: I think the food is good, but that doesn't make the stock good. My concern is that Darden's restaurants, like Red Lobster and Olive Garden, are in the mid-priced range, and I think the high and low end will do well, but the mid-range is at greatest risk if we have a spike in oil.
Neil Cavuto: So what do you like?
Bob Froehlich: I like Merrill Lynch, and I own the stock. It's also run lean and mean. And right now, we are at the end of the interest rate cycle, and that bodes well for financial services stocks. And I think the demographics of this country show that we are eventually going to see the savings rate go up, and I think 2006 will be another boom for mergers and acquisitions, which is the sweet spot for Merrill. I think this company is firing on all cylinders. Merrill Lynch closed Friday at $74.72
Jim Rogers: I like the company, and I do business with them. But buying financial stocks in 2006? This is the only place in the economy where there are excesses. These guys are all making too much money, and when the bear market comes again, and it will come again probably this year or next, they're all going to collapse.
Charles Payne: I like Marvell Technology (MRVL). It's a super duper tech company. The CEO is only making half a million a year. Marvell's revenue per employee is over twice that of its competitors and gross margins have gone down. This company is tremendously well run. Marvell closed Friday at $70.64.
Gregg Hymowitz: It's a very expensive stock. No organic growth. All the growth is coming from acquisitions.
Neil Cavuto: So Gregg, what do you like?
Gregg Hymowitz: A company we own and we like is Methanex (MEOH) — six times free cash flow. It's the leading producer of methanol in the world, and we think methanol prices are trending higher. Methanex closed Friday at $20.82.
Gary Kaltbaum: I like it, but my only concern is that it has had pretty inconsistent earnings growth over the last year or so, but pricing is strong, and I think the stock is going to go higher from here.
FOX on the Spots
Charles: Bush scores with State of the Union; stocks rise!
Gregg: Bush's State of the Union a bust; stocks don't care
Meredith: Investors return to stocks as home prices fall!
Jim: Days of discount airfares are over; buy airlines!
Bob: Steelers win and so does Heinz, up 14 percent in one year!
Neil: Hamas will shed violent past to seek peaceful future
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Forbes on FOX
Flipside: No. 1 Threat: Communism in America's Backyard!
Neil Weinberg, senior editor: We're getting 26 percent of our oil from Latin America. We have these dictators who are taking over. They're rabidly anti-American and they're rabidly socialistic.
Elizabeth MacDonald, senior editor: This is crazy, paranoid behavior. We've had these dictators in South America for years but they've always come and gone. The issue with Venezuela and oil imports is that Venezuela and these countries need us more than we need them. Venezuela's oil is high in sulfur so a lot of refineries around the world can't refine that oil. What happens if they cut off their oil exports to us? They'd have to ship it half way around the world to China and spend a lot of money on shipping costs.
Jim Michaels, editorial vice president: They'll ship the oil to China but that won't matter because we'll get the oil from somewhere else. The real problem is that these people can be a breeding ground for Al Qaeda. Iran is already playing footsy with Chavez, the leader of Venezuela. There's no question that some of these Muslim extremists have footholds in Latin America. We must never forget the Cuban Missile Crisis, when we had missiles pointed right at our cities. Not because Castro could do it, but because he allowed himself to be a bridge for our enemies.
Quentin Hardy, Silicon Valley bureau chief: I don't think Iran will be shipping missiles to Cuba. How about Hamas? They were democratically elected and that guy in Bolivia was too. We wanted it, we have to roll with it.
Steve Forbes, editor-in-chief: It's not communism that is a threat in Latin America. It's the fact that groups like Al Qaeda are cozying up to them. In terms of saving Latin America, it's not about putting them in the hands of the International Monetary Fund, which gives them poison cool aid prescriptions on the economy. It's sending these people who want to do something to places like Ireland and the Baltic states who have done it right by cutting taxes and using sound monetary policies. Then you're going to get countries that can prosper there. None of them are doing it.
John Rutledge, Forbes contributor: What's really going on in South America has nothing to do with communism. It's people that are really poor and now they have televisions on and they're watching our reality shows. Now they can see that we're really not as intelligent or as attractive as they thought, and we don't work as hard as they work. So they want some of that.
Jim Michaels: Every one of the past Latin American dictators began as a populist. But once they get elected, no more elections, no more populism. They become dictators and they stay in power with anti-American politics.
Neil Weinberg: Part of this problem is that it's right on our doorstep. If these problems grow and people become more disenfranchised in Latin America they are going to be coming across our border. Think about it, we're getting a quarter of our oil from this region and we rely on unstable places like Saudi Arabia to get the rest.
John Rutledge: This is a great story for investors because those folks in South America either want to move their bodies here or our capital there. Either way that goes, the capital goes up. This is a good story for stock prices.
Elizabeth MacDonald: I think there is a real fear about al-Qaeda and terrorists. But how do you deal with this problem?
Steve Forbes: In terms of Latin America itself, it's not a threat. It is the al-Qaedas of the world that are a threat, like Iraq and Iran.
Quentin Hardy: The more we talk about invading these countries and using repressive measures against them, the better response these dictators get from their people. We should encourage democracy and the exchange of ideas.
Steve Forbes: The best thing for Latin America is to blow up the International Monetary Fund and have free market economics.
In Focus: Extend Tax Cuts: Priority One for Bush's State of the Union?
Mike Ozanian, senior editor: The tax cuts have lead to a record amount of tax collections by the federal government. Our military is drastically under funded. We need more equipment, we need better equipment, we need better healthcare for our military when they return home. Military spending is only 4 percent of GDP. The only way to get sufficient revenue to fund our military and defeat the terrorists is to keep taxes low and to cut them again.
Bill Baldwin, editor: Bush has actually raised your taxes. Not just the money that comes out of your paycheck but the amount of spending he's running up on your IOUs. I have another plan. Let's raise the tax on carbon! If we had a giant tax on carbon your gas would cost a lot more. We could also extend the dividend tax cut, which I support.
Steve Forbes: You don't need any more taxes! The tax cuts have made it possible for this economy to grow. If we want more revenue we need to cut taxes more, allow people to do more and guess what? Washington makes out.
Victoria Barret, associate editor: I think the big problem we have is our dependence of fuel. 60 percent of our oil is coming from abroad. Hugely more than it has ever been. We have a long-term problem. So maybe a tax on fuel is the answer. Dividend tax cuts and capital gains tax cuts are short-term issues, although they do have a positive effect on the market. But President Bush has to think bigger for the State of the Union.
Quentin Hardy: I don't really think the State of the Union is about tax cuts. It's about bigger and broader things. How about a return to principles and behaviors? How about a Congress that isn't in the pockets of lobbyists? Or a President who doesn't overstep his boundary to spy on people? How about using the veto to cut down on excess spending.
Jim Michaels: The fact is that these tax rate reductions create more government revenues. If you raise taxes you tank the economy.
Quentin Hardy: I think we have a Congress that won't stop spending and a President who hasn't vetoed a spending bill in 5 years.
Steve Forbes: The way to stop spending is not by tanking the economy so people don't have more money to play with.
Mike Ozanian: Wall Street invests and the stock markets go up and down based on expectations. We've just had 10 straight quarters of double-digit growth for corporate America. That's a record going back almost 30 years. And stock prices have hardly moved because Wall Street is nervous that these tax cuts won't be extended.
Victoria Barret: That's only a little part of what the market is worried about. These taxes are important though.
Bill Baldwin: I don't want to tank the economy. I want to tank SUVs.
Steve Forbes: If you want integrity in Washington, start with the tax code. That's where half of the lobbing and corruption takes place.
Informer: Best Retirement Funds
Lea Goldman, staff writer: I'm not just thinking long-term, I'm thinking long, long-term. I'm of the demographic that's 30 to 40 years out from retirement. Therefore, I can take on a level of risk that my older colleagues might not be able to. I'm recommending SSgA Emerging Markets (SSEMX). This fund invests in emerging markets like Russia, China, Korea and Brazil. I love the mix and I love the sectors.
Bill Baldwin: This is the hooligans and dictators fund. I believe a great deal in the emergence of economies, like in China, Russia and other places. I think there is going to be a great amount of wealth creation. It's not going to go to outsiders like you and me though. It's going to go to insiders.
Mike Ozanian: The results of Lea's fund have been great. But what bothers me is I don't know if I want to invest all my retirement money with people like Chavez and Harry Belafonte. I'd go with Stratton Growth (STRGX). It's had a very consistent performance, both in up stock markets and in down stock markets.
David Asman, Host: The problem is the fund is based around one stock picker. If he goes what happens?
Mike Ozanian: That's true, if he leaves, all my past performances are out the window.
Victoria Barret: I'm with Lea. I too can take on more risk than some of my colleagues. We can also benefit from their desire to retire rich and healthy. I like T. Rowe Price Health Sciences (PRHSX) because they are invested in health insurance and great biotech companies like Genentech. You get the risk of pharmaceuticals but you also get the booming health insurance business.
Elizabeth MacDonald: I don't like this one. This has a tiny microscopic 5-year total return of 4 percent. You may do better with a CD from a bank. I think there are better funds out there, like Muhlenkamp Fund (MUHLX). It has a16 percent total annual return. This is run by a very smart veteran stock picker. There's no load — no money up front — to get in.
Lea Goldman: I've got to pass on this one. It's got a huge dollop of real estate and finance costs that could present a risk to exposure of high interest rates down the line.
Bill Baldwin: I have a fund that a young person like Lea can buy and it will last until she's 100. It's been around that long already, Vanguard Wellington Fund (VWELX). It's kind of boring. It's balanced between stocks and bonds. But you're not going to panic and sell it after a crash because the crash won't be so bad there.
Mike Ozanian: The low fee is great, but it's too big. It's like betting on the elephant to win the Kentucky Derby.
Makers & Breakers
• Standard Microsystems (SMSC)
Jordan Kimmel, Magnet Investment Group: MAKER
They make some of the hottest new microchips for the high-speed communications business. We're looking for the highest revenue growth, the fastest acceleration of profit margins and cash in the bottom line. This may look expensive to some people in trailing numbers but it really looks fantastic to me.
David Asman: You say it can go up to $40 in one year (Friday's close: $32.65)
John Rutledge: BREAKER
This is a $300 million company with a $700 million market cap. It's just too small and volatile. I like the sector and think communication equipment and high-end chips are good, but I'd stay away from this stock.
Lea Goldman: MAKER
This stock isn't too small for me. I like it because it's in consumer electronics and that sector is growing rapidly. It's also growing like wildfire without any debt.
• Komag (KOMG)
Jordan Kimmel: MAKER
Komag is in the really interesting business of disk drives. But it's not only for computers anymore, it's for all kinds of applications.
David Asman: You say it can go up to $60 in one year (Friday's close: $47.53)
Lea Goldman: BREAKER
The number one malfunction component of computers is disk drives. That's why people are moving to flash memory like the iPod Nano.
John Rutledge: MAKER
I like it. They can sell more because the old one broke. Disk drives will be around for a long time. It's a billion and a half market cap. It's a bit small, but it's a great company in a hot sector. They're at 100 percent capacity and they're building more. I think this company will do fine but beware, it's a small company.
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Our “Cashin’ In” crew this week:
• Wayne Rogers, Wayne Rogers & Company
• Jonathan Hoenig, Capitialistpig Asset Management
• Jonas Max Ferris, MAXfunds.com
• Dagen McDowell, FOX Business News
• Steve Malzberg, Syndicated Radio Host
Stock Smarts: Union Di$a$ter?
Are labor unions enemy number one for the stock market and your money? Labor unions still pack a lot of power in many U.S. companies, especially autos and airlines -- two industries where many of those stocks are in the tank. Jonathan, are these labor unions bad news for the entire market?
Jonathan Hoenig, Capitalistpig Asset Management: Well they’ve been terrible for those stocks, Terry. The market never lies. I think you have to be crazy to invest in a stock that’s in a heavily unionized industry. Unions are bad for the economy and they are bad for workers. Is it any coincidence that all these major financial crises are at heavily unionized firms? They force higher wages than the market would otherwise allow, and basically crater any company where they’re involved. I don’t blame Wal-Mart (WMT) for wanting to keep out the unions, because unions kill the stocks and they kill the economy too.
Terry Keenan: Steve, they’ve been the backbone of American industry for decades.
Steve Malzberg, Syndicated Radio Host: Absolutely, and I couldn’t agree more. Look at General Motors (GM). Everybody knows, by now, that they lost and spent more on their union benefits over the years, than they did making cars. That is insanity. Only 8 percent of the private sector is unionized at this point. If the union members knew what the unions were doing with their money, when it came to political events and political spending; they would opt out. The unions would be down to like 2-3 percent of the people.
Terry Keenan: Wayne, you’re a card-carrying union member, do you see a role for unions going forward, in the 21st century?
Wayne Rogers, Wayne Rogers & Company: We wouldn’t have a middle class today if unions hadn’t existed. You talk about the automobile companies and the airline companies, how about the fat cats that are enjoying the big salaries at the top? They entered into collective bargaining. They didn’t have to do that. They’re being paid outrageously. You get guys like Dennis Kozlowski at Tyco (TYC); they’re not union and he’s stealing money. The pension plan in my guild (Screen Actor’s Guild) is very healthy. The pension plans in those company-run pensions are not very healthy.
Jonathan Hoenig: You know what? It’s the fat cats who invented the Model-T Ford; are the ones who come up with the innovations. The truth is the assembly line worker’s productivity is very low.
Terry Keenan: But the American car companies aren’t innovating right now. Japan has a very expensive labor force, but Toyota (TM) can make $10 billion a year, because they are selling cars that people want.
Steve Malzberg: It’s your line of thought, Wayne. Sure, maybe the unions got us to a certain point, but now they’re obsolete. They’re not helping anyone. Not the workers, not the economy and not the stock market.
Wayne Rogers: Excuse me! You don’t know what you’re talking about. My own guild pays me a very nice pension. It is a very healthy pension plan. Are those pension plans that are run by those fat cats up there very healthy? No!
Steve Malzberg: Let’s talk about what the unions do with their pension plans. They control over $6 trillion in the market and use it to blackmail companies and other people to support political agendas on the left.
Jonas Max Ferris, MAXfunds.com: Unions are not the reason why GM and the airlines are not on the edge. Unions are not a positive for the economy like they might have been a hundred years ago, but they’re not the reason why these companies are failing. There are companies like Harley Davidson (HDI) and Southwest Airlines (LUV) that are unionized and are doing very well. The bottom line is that these failing companies do not make products people want. The president said it last week.
Dagen McDowell, FOX Business News: Harley Davidson is the exception to the rule. Unions stifle hard work. I can say that because I worked in a union shop. They took money out of my paycheck and gave me nothing in return. What’s up with a policy like, “last hired/first fired?” That’s a really great incentive for hard work.
Jonas Max Ferris: Unions are not why you go out of business. You go out of business because your products are not being sold at a premium price and you don’t make good products. That’s what ruins almost every business; not energy costs or union contracts. Like Jonathan said, no one in America has invented a Model-T in a while.
Dagen McDowell: Union shops cannot compete with non-union companies because the employees have no incentive to work.
Jonas Max Ferris: Why is Southwest successful? Why is Harley Davidson successful? They both have unions.
Steve Malzberg: The top 100 companies to work for and the 100 top companies from a business standpoint are non-union companies. These are companies where the employee has incentive to get ahead, to do better, and will be rewarded for doing so.
Terry Keenan: Jonathan, would you ever invest in a company that is heavily unionized?
Jonathan Hoenig: Well, “ever” is a long time, Terry. I think, ultimately, that the unions do their members a disservice. Just because you were a steel worker, making good money in the 1960s, doesn’t mean you can be a steel worker making good money in the new millennium. Business changes. I think unions give their members a false sense of complacency that they will be taken care of them for life. It never happens.
Terry Keenan: Well, it has for a while, except with some of these bankruptcies. Wayne, would you invest in a heavily unionized company?
Wayne Rogers: Yes, I certainly would. I own some stock in Harley Davidson. I think it’s a wonderful company. As Jonas pointed out, the Japanese automobile companies are also heavily unionized, and they are successful. They’re outselling our companies. GM is a failure of management. It is not a failure because of the unions.
Terry Keenan: One reason GM has these problems is because it has more retirees than new workers. And they’re not selling cars. If they were hiring thousands of people, their pension plan wouldn’t be in trouble.
Dagen McDowell: That’s true, Terry. Look at the United States. Unions are declining as part of the work force, but you look overseas, into Europe -- countries like Germany -- their unemployment rates are through the roof, and that’s largely because of it. Companies don’t want to do business in those countries because of the stranglehold of the unions.
Steve Malzberg: Can we get back for a little bit to the political side of the unions here? Did you know that the largest education union in the country spends $65 million giving to left-wing organizations like Jesse Jackson, gay rights groups, etc.
Jonas Max Ferris: What does that have to do with me not wanting to buy a Ford (F)? Someone tell me how the unions are making me not want to buy a Ford.
Steve Malzberg: I’m bringing a different angle in here right now.
Jonas Max Ferris: Well, we’re talking about the stock market and the stock price.
Steve Malzberg: You also have to keep in perspective what unions have become in this country and why they are unhealthy. They are not only unhealthy for the stock market, but in general, for the employee too.
Jonathan Hoenig: Right, and that’s when a company really craters. When it really gets unfair is when a union gets in a politician’s back pocket. That’s when the companies tank and that’s when the economy really suffers.
Wayne Rogers: Think of the teacher’s union. You mentioned that. They probably own more stocks in the stock market than most major companies. All of those unions that invest in pension plans are invested in the stock market. They are capitalists. You seem to paint them out as some left-wing group, and they’re not.
Jonathan Hoenig: So are many of the individual members of the union, Wayne. They have money, they have made investments, and they have political pull. Why can’t individuals invest in the stock market? Why do they need a union to do it for them?
Steve Malzberg: If they weren’t invested through the pension fund of their union, they would be investing in the stock market.
Best Bets: Union-Proof Stocks
Wayne, Jonathan and Jonas are back with the names that can make you money without bowing to labor unions.
Jonas’ Union-Proof Pick: Wal-Mart (WMT)
Friday's close: $45.84
52-wk High: $53.74
52-wk Low: $42.31
YTD Return: -2.1 percent
Jonas Max Ferris, MAXfunds.com: I could have picked some easy tech stock that doesn’t have union labor, but I picked Wal-Mart, because Wal-Mart is actually confronting unions, all throughout its history. They’re largely union-free.
Jonathan Hoenig, Capitalistpig Asset Management: How many times have you picked this?
Jonas Max Ferris: We’re talking union pressure here. Their competitors are often unionized, so they have a competitive advantage. This is a case where unions can actually hurt your competitors. I think Wal-Mart will keep winning against unions.
Jonathan Hoenig: This is Jonas’ MBA showing through here. Look at this stock. We’re trying to make money, here. This is the weakest retailer I could find. Look at Dress Barn (DBRN) or AnnTaylor (ANN). This is where the action is. You’ve talked about this stock before. This is a loser stock.
Jonas Max Ferris: I talked about this stock 2, 3, 4 years ago. It hasn’t gone anywhere yet, but it’s a good company to own starting this year.
Jonathan Hoenig: I’ll bet even Wayne wouldn’t own this.
Wayne Rogers, Wayne Rogers & Company: I’m with Jonathan on this one. I would definitely not own this stock. This stock has been in something like a three-year drop all the way down. It’s not a way to make money.
Wayne’s Union-Proof Pick: Wipro (WIT)
Friday’s close: $14.27
52-wk High: $14.40
52-wk Low: $8.80
YTD Return: +19.4 percent
Wayne Rogers: I like Wipro. It’s an outsourcing company in India. There are no labor unions over there. People are continuing to outsource. Their earnings were up this year and their revenue was up over 25 percent. Earnings were up over 15 percent. This company is growing. It’s doing well and the stock is doing well. This is how you can make money.
Terry Keenan: Do you own it, Wayne?
Wayne Rogers: I do. I definitely own it. I’ve owned it for over a year.
Jonathan Hoenig: You’re barking up the right tree here. Outsourcing is hot. India is hot. Foreign markets still outperform the U.S. I wonder if the gravy has been sopped up here, because some of those India funds are trading at big premiums to their net asset value.
Terry Keenan: You think the Indian story has been played out a little too much?
Jonathan Hoenig: Wayne’s been on the right side of the trade and I wouldn’t stand in front of this train right now. It’s steaming down the track.
Jonas Max Ferris: If more and more jobs go to India, won’t they eventually unionize? I don’t know how union-proof this is for the long haul. Maybe not now, but some day? I don’t know.
Wayne Rogers: They may unionize in the future, but they’re not right now. Right now it’s good. No union.
Jonathan’s Union-Proof Pick: streetTRACKS Gold (GLD)
Friday's close: $55.63
52-wk High: $56.60
52-wk Low: $41.02
YTD Return: +7.9 percent
Jonathan Hoenig: I’m going back to gold, Terry. GLD is an exchange-traded fund. It’s a streetTRACKS gold fund. This isn’t a company. This is buying gold. Gold has no union, no debts, no legacy costs, and no liabilities.
Jonas Max Ferris: But, Jonathan, that’s a fantasy. There are mining laws. There are unions.
Jonathan Hoenig: This is not a mining company, Jonas. This is like buying gold.
Jonas Max Ferris: But Jonathan, where does the price of gold come from? Tell me one thing; if they got rid of all environmental laws, all mining laws, all the unions and all the mines broke up, wouldn’t the price of gold plummet because of the increased supply?
Jonathan Hoenig: What if?
Jonas Max Ferris: That’s not union-proof. That’s my point.
Jonathan Hoenig: I have to make money. I live in the here and now. Precious metals like gold to palladium are doing well. Copper is hitting all-time highs. Zinc is doing well. This is where the action is.
Jonas Max Ferris: I dare you to put it in the Challenge portfolio. I dare you.
Jonathan Hoenig: I just might.
Wayne Rogers: I happen to like it. I think Jonathan is right. All of the natural resources, oil, gas, precious metals, steel, even the refined ones have done well. I don’t know how you can knock this. You can say, “Oh yeah, you can’t get it out of the ground, unless you have workers who dig it up.” That’s fine. But that has nothing to do with the refined product. Jonathan is right. He’s buying bullion. That’s essentially it.
Terry Keenan: And you like that better than the gold miners, then?
Wayne Rogers: I do.
Jonas Max Ferris: It’s not union-proof.
Question: "With the announcement of major job cuts from Ford (F), is there now a buying opportunity for the stock?" - Sandra Adams, Colorado Springs, CO
Jonathan Hoeing, Capitalistpig Asset Management: This isn’t a buying opportunity for me. I’d rather buy Nissan, Toyota or General Motors, Honda Motor Company or Volvo in Europe. Everyone is in this stock. It’s a big hedge fund play. It’s very volatile. I just think it’s a low probability trade right now. I’d rather buy a Ford preferred or a Ford bond than Ford common right now. Let this one die on the vine. It’s not for me.
Wayne Rogers, Wayne Rogers & Company: I think you’re better off buying a Ford automobile! At this price all the fundamentals say, stay away! I don’t see anything exciting in the chart right now. So I don’t know where you go with this. It’s not for me.
Dagen McDowell, FOX Business News: The problem is that this company needs to figure out how to make really hot cars that Americans want to buy. Plus, Americans have already overdosed on new cars in the past four years. So in the short-term, this stock is not a buy.
Question: "What is going on with General Electric (GE)? The stock has started off the year badly. Is it possibly a bargain right now?" - Jerry Peyton, Ooltewah, TN
Wayne Rogers: I own this. They took a big ride down in their insurance group and NBC is not performing well. They’ve got to find some way to turn this thing around. That’s a big shift and it’s hard to do. Even though earnings were up, they weren’t at the growth level they use to be.
Jonathan Hoeing: Wayne, wasn’t this one of the things you said you should have sold but didn’t because of its tax bite?
Wayne Rogers: I’m at that edge right now. There was a time, around 3 years ago, when GE was selling at around $55 a share. It’s had a low around $20, it’s back around $30. I don’t see it going anywhere but I’m not selling.
Dagen McDowell: Capital gains tax is only 15 percent Wayne. Get out now!
Question: "How do you see Saks (SKS) doing as a high-end retailer in the future?" - Jimmy Lawler, Arvada, CO
Dagen McDowell: Saks has to figure out how to get people like me back in the store. I’m a shopaholic. But they need to get people like me in there, paying full price, not combing through the bargain racks. They’ve gotten new management and maybe they can do it. There’s probably more upside left in this stock even though it is already up a lot this year.
Jonathan Hoeing: Isn’t Saks for old ladies? My mom shops there. It’s not hip anymore.
Dagen McDowell: That’s the problem. That’s the image they’ve developed over the last several years.
Wayne Rogers: The problem with Saks is in the corporate structure. They’re trying to sell Parisian right now. They’ve sold off part of it. Saks is too volatile in its structure right now to be a good buy.
What Does Wall Street Want to Hear From the President?
What does Wall Street need to hear from the president during Tuesday's State of the Union for a stock rally in 2006? Wayne and Jonathan are back with their thoughts.
Jonathan Hoeing, Capitalistpig Asset Management: Well he should abolish the Securities and Exchange Commission. It’s not going to happen, but the market would love it. Regulation is killing this economy and this stock market, whether it is Sarbanes-Oxley or any of the number of hedge fund regulations that have been submitted lately. It’s going to cost me $100,000 to fill out a bunch of forms that some government bureaucrat will never read. Let’s get rid of the S.E.C. and let the free market work. I’m telling you that the U.S. market will once again be the hottest market on earth.
Wayne Rogers, Wayne Rogers & Company: The S.E.C. is so far down on the agenda. What the public wants to hear is how we get out of Iraq. That’s the problem. We’ve got to find a way to settle this situation and get out. That’s the best message he could give the American people.
Jonathan Hoeing: Let’s say we’re getting out of Iraq and getting into Iran. If the President sends bombers over Iran, we’re going to see the market at 11,000 very quickly. And we’re going to see a much safer America, when those crazy Mullahs don’t have nukes.