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.
Reminder: We'll be back at our regular day and time next week. The Cost of Freedom will start Saturday at 10 a.m. ET with "Bulls & Bears."
Bulls & Bears
Brenda was joined by: Gary B. Smith, columnist for RealMoney.com; Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, editor ChangeWave Investing; Scott Bleier, president of HybridInvestors.com; and Rob Stein, managing partner of Astor Asset Management.
Trading Pit: Democrats vs. Investors?
President Bush is still working hard to sell his Social Security plan. He wants to let you invest part of that money in the stock market. But Democrats are pulling out all the stops to derail the plan.
The question is, why? This might be a clue. According to polls, more investors tend to be Republican.
Are Democrats determined to prevent Social Security money from going into stocks?
Gary B. Smith: Yes. Democrats know they're best at playing the role of Mommy and Daddy. When people invest in the market, they become independent and need less government. This is exactly what the Dems don't want!
Rob Stein: I’m not sure that Dems are trying to prevent people from investing in the stock market. What they’re basically saying is that this isn’t a sure thing. And there’s a lot of Republicans who also don’t want to see people putting a lot of their Social Security money into the stock market. In any event, I’m not being a Democrat or Republican, I’m just being opened minded to good ideas. I think the tax cuts were a good idea, but retirement accounts are a bad idea.
Tobin Smith: If you’re smart enough to make your own money, aren’t you smart enough to invest it? The fundamental issue with many Democrats is that most feel the stock market is risky and that President Bush’s plan is a Republican plot to make capitalism take over the world.
Scott Bleier: The Democrats have a big grudge match against the Republicans. Everyone knows it. Everyone also knows that President Bush is having a tough time getting support for his Social Security reform. So Democrats are hitting Republicans any chance they get. But the big issue with Social Security private accounts — that no one is talking about — is that money will have to made up if we go to these accounts. And that is going to make more debt. Dems don’t want to do it.
Pat Dorsey: I dispute that more investors are Republican. During the 1990s, the percentage of Americans owning stocks jumped from 23 percent to 50 percent, however, party affiliations basically stayed the same. I agree with Scott that it’s a grudge match. This is more of a political issue than economic one. We’re arguing about $100 billion deficit in Social Security that won’t be a problem for another 30 years instead of a $500 billion trade deficit.
Forget the Kentucky Derby ... we have the "Bulls & Bears" Stock Derby!
Scott: I’m betting on American Express (AXP). AmEx has been a steady blue-chip stock, but now it’s morphing into a growth company. The company’s worldwide presence is getting bigger, in part because the card is now offered through a multitude of banks. More cards mean a lot more revenue. (American Express closed on Friday at $53.00.)
Tobin: I don’t like it.
Pat: American Express is a wonderful company and a wonderful business. It’s been a great brand name for many years and can charge more for its credit card than anyone else. I’d like to see the stock get a little cheaper, but it’s pretty good here.
Tobin: I like retailer Urban Outfitters (URBN), a clothing company that caters to teenagers and young people. It’s been a retail success story and should have tremendous growth in its stores. Plus, Urban Outfitters is in a niche that’s hard to compete against. (Urban Outfitters closed on Friday at $46.11.)
Pat: The growth is there, but all fashion retailers blow up eventually because they miss a trend.
Scott: A trendy boutique that caters to teenagers? It will build a lot of stores and then it won’t be hot anymore.
Pat: It’s all about salt! My pick is Compass Minerals (CMP), which is one of the largest producers of road salt in the U.S. I like that it has a lot of cash and pays a 4½ percent yield. (Compass Minerals closed on Friday at $24.60.)
Tobin: You have to have the patience of Pat Dorsey to stick with this company.
Scott: It’s a good stock, especially if you want a dividend.
A Battle Royale: Gary B. vs. Rob Stein.
Rob: My first pick is Goldman Sachs (GS). It’s a leader in the investment banking industry and is doing well this year. Plus, Goldman Sachs is increasing its activity in mergers and acquisitions. I own it. (Goldman Sachs closed on Friday at $104.68.)
Gary B: Goldman Sachs has struggled and will continue to struggle. Taking a look at the chart, the stock broke through a support area around $107, bounced against a line of resistance at $113, and then moved sideways. Stocks usually move down from a sideways move. Avoid this stock.
Rob: I also like computer company, Dell (DELL), another leader in its industry. Dell is getting into the server business, which is a little more lucrative. It also has a great ability to get into a business, perform efficiently, increase profit and dominate the brand. (Dell closed on Friday at $37.15.)
Gary B: I don’t hate it or love it, but why buy now? The stock has been going down for a while; stuck in a downtrend over the past few months. The time to buy it is once Dell moves above this downtrend. Then it would be showing strength.
Gary B: Rob should really be looking at Sina (SINA), a Chinese Internet company. The chart looks perfect. It broke through a downtrend line, paused, moved back up, and broke over a small downtrend line. The stock looks set to hit its all-time high of $55 again in six months. (Sina closed on Friday at $28.06.)
Rob: In the past this company’s been in trouble and last week when it reported a big drop off in earnings. I don’t like it.
Tobin's prediction: Housing bubble about to burst; speculators get burned first!
Rob's prediction: Oil has topped out! Good for market; bad for oil stocks
Gary B's prediction: It's a "Scott" market! Stocks rise 5 percent, but then fizzle out
Scott's prediction: Martha (MSO) up 30 percent when bracelet comes off in 90 days
Pat's Prediction: Hewitt (HEW) a human resources hit; going up 33 percent
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Cavuto on Business
Neil Cavuto was joined by Gregg Hymowitz, founder of Entrust Capital; Jim Rogers, president of JimRogers.com; Meredith Whitney, executive director at CIBC World Markets; Charles Payne, CEO of Wall Street Strategies; Herman Cain, president of T.H.E. New Voice; Leigh Gallagher, senior editor at SmartMoney Magazine.
Neil Cavuto: Could Alan Greenspan really be the Darth Vader of the stock market by going too far when it comes to raising interest rates? Or is he the reason stocks have rebounded recently?
Jim Rogers: Neil, listen. Greenspan is incompetent. He has rarely been right about anything. He'll go down in history as the worst Central Banker in history.
Gregg Hymowitz: But you've been on this show a year now saying he should be raising interest rates, so you're not disagreeing with what he's doing now, right?
Jim Rogers: Calm yourself.
Gregg Hymowitz: I'm very calm. Wait till I get excited. You'll see that in a second.
Jim Rogers: Interest rates should be a lot higher. That's part of the problem.
Gregg Hymowitz: So he's doing the right thing.
Jim Rogers: Yes, but he did the wrong thing all along. The market is taking interest rates back up. But that's not what's causing the market to go down. The market has other problems.
Meredith Whitney: Jim, I couldn't disagree with you more. He saved the market when he started cutting rates in 2001. He saved us through 2002 and 2003. And right now I think he's being incredibly generous.
Charles Payne: We fell off after 2001.
Meredith Whitney: That's right and he cut rates.
Charles Payne: He cut rates because he had raised them too high. I disagree with Jim in the sense that he is scaring the heck out of the stock market. Everyone is afraid about the Fed and that's spooking the heck out of the market.
Herman Cain: Neil, they are forgetting, it is not Alan Greenspan's job to drive up the stock market. It's his job to maintain price stability.
Leigh Gallagher: I agree with Herman. In other countries all the Central Banker worries about is inflation. And that is what he's doing. Inflation is a big concern right now. Greenspan basically made the call that containing inflation is more important than spurring growth.
Neil Cavuto: But I think what Jim is saying is that he's been late with that.
Leigh Gallagher: He's been measured.
Jim Rogers: Look, we should've never had the bubble. He caused the bubble. He has now caused another bubble in consumption and in housing.
Gregg Hymowitz: Herman has it partially right. The Fed's mission is not only to control prices but also full employment. This is one of the reasons I think the market has been schizophrenic lately. Are we really more concerned about inflation or are we starting to fear growth? The economy does seem to be slowing down a bit, and I think there's an issue of whether or not you want to be stepping on the breaks here.
Charles Payne: And Gregg, you have to admit it's troublesome for the market to be afraid of good news. And that's one of the big conundrums that we're all facing right now.
Herman Cain: The stock market is not the engine. The businesses are the engine. It's like a car. And his job is to make sure the engine is tuned and the tires have air.
Charles Payne: But the problem is he's putting up these big two-foot speed bumps so businesses can't grow.
Jim Rogers: Do you want to just ruin the currency so the value of the U.S. dollar is worthless?
Charles Payne: You want the currency to be stronger than it is right now?
Jim Rogers: I want a sound currency.
Charles Payne: The weak currency is the only thing that saved the economy in the last two years.
Jim Rogers: But who wants a weak currency? I like stability in a currency. Everybody does.
Leigh Gallagher: The dollar would be a lot weaker right now if interest rates were lower. That's the one positive thing that raising interest rates helps.
Neil Cavuto: Leigh, why is it everyone in the financial press worships at this guy's altar?
Leigh Gallagher: I don't think that's the case at all.
Neil Cavuto: I'm not saying he's not a fine man. But I remember his days at Townsend-Greenspan when he got every single recession prediction wrong and every single bull market wrong. Yet we seem to worship him. And I don't understand why.
Leigh Gallagher: I don't think that's the case at all. I have to disagree with you there.
Neil Cavuto: I beg to differ.
Gregg Hymowitz: He's gotten us through some difficult times. You have to give the guy credit where credit's due. He navigated us through the Long-Term Capital Management debacle. He navigated us through a lot of America's crises.
Jim Rogers: And he caused the bubble.
Gregg Hymowitz: I know you think he caused the bubble. He navigated us through, to a certain extent, economic downturn by lowering interest rates pretty aggressively. He navigated us after 9/11. So the guy has done a lot of positive things.
Jim Rogers: Neil, you are right. Even in his private days at Townsend & Greenspan he never got it right.
Gregg Hymowitz: You say he should be raising rates and he is raising rates, so why are you criticizing the guy when he's doing exactly what you say he should be doing?
Jim Rogers: Rates are going up whether he's there or not.
Gregg Hymowitz: Do you wants rates to go up or not?
Jim Rogers: Yes. Rates have to be higher.
Meredith Whitney: What's happening now is we're raising rates in a measured basis. And what you're going to see in Europe is they're going to have to cut rates.
Herman Cain: She's absolutely right. They're looking at the wrong thing. His job is not to focus on the stock market. Secondly, Alan Greenspan is surrounded by a lot of people who look at a lot of dynamics and factors before those decisions are made. We need to get rid of the politicians who are keeping the stock market from growing because they won't get serious about the tax code.
Jim Rogers: You're right. We need to get rid of the Central Bank. They're no smarter than you or me. They're just bureaucrats.
Charles Payne: The irony though that no one has really brought up is Greenspan and his legacy. To raise rates eight times in a row like this is unheard of. Seems like he's intimidated to do what Jim wants him to do, which is to come with a sledge hammer.
Gregg Hymowitz: Why should he come out with a sledge hammer?
Charles Payne: When we start to do fifty basis rate hikes, that's a sledge hammer.
Neil Cavuto: We had a good employment report, despite all those rate hikes.
Charles Payne: Absolutely. The economy is doing really well. We have really small pockets of inflation.
More for Your Money
Neil Cavuto: Forget the threat of more interest rate hikes. These stocks could win either way so you can get more for your money. Charles... you're up first. What stock laughs in the face rate hikes?
Charles Payne: I really love Wrigley's (WWY). It's one of those, with inflation, deflation, recession, it's just a fool proof company. They just took over LifeSaver's and Altoids. They could raise prices a nickel and their balance sheet would jump through the roof.
Jim Rogers: There's no doubt they've been a spectacular company. But there's a difference between a company and a stock. This thing is very expensive. Why would you be buying one of the most expensive companies in the stock market?
Charles Payne: Jim, sometimes a stock is expensive because it’s supposed to be expensive.
Gregg Hymowitz: What's the valuation?
Jim Rogers: It's over thirty times earnings. It's an all-time high.
Gregg Hymowitz: Sounds like he's got you.
Neil Cavuto: All right. Leigh, what do you like?
Leigh Gallagher: First of all, I really like Wrigley. This company is on fire, especially in Asia. But one stock I really like, anytime you're looking at an inflationary environment, is discount retailers like Costco (COST). These days you'd be hard pressed to find anyone who doesn't shop there.
Charles Payne: I feel bad saying this because you just came to my defense for Wrigley's, but the last earnings report for Costco was a little troublesome. They seem to be over reliant here on fuel costs. I've been a big fan for years, but I think they're going to run into trouble.
Neil Cavuto: Herman, what do you like?
Herman Cain: I like UPS (UPS). The global marketplace is a fact of life, and it's called logistics. UPS is very aggressive in developing their logistics around the world. And when you consider the impact that China's going to have, logistics is something that's going to be a stabilizing force.
Neil Cavuto: Leigh, you don't buy it, right?
Leigh Gallagher: Well, it's just that ... talk about a company that's extremely reliant on fuel prices: that's a huge issue with UPS right now. A company that is cheaper right now, which I've talked about on the show again and again, is FedEx.
Jim Rogers: Leigh, FedEx has fuel costs as well.
Leigh Gallagher: I know. But right now, it happens to be a better buy.
Neil Cavuto: Are the multiples the same?
Leigh Gallagher: FedEx is slightly cheaper right now.
Neil Cavuto: All right. Gregg?
Gregg Hymowitz: One of our largest holdings for a long time has been SBS Broadcasting (SBTV). It's a TV company in Scandinavia. They are market share leaders in Holland, Hungary and Sweden -- great management team and great balance sheet.
Jim Rogers: Why do you keep doing this? They're near their all-time highs. They're very expensive.
Gregg Hymowitz: Their all-time highs are around the '60's. The stock trades in the '40's.
Jim Rogers: It's at an over 5-year high. That's pretty high if you ask me.
Gregg Hymowitz: That's not high.
Jim Rogers: It is.
Gregg Hymowitz: No, it's not. The stock traded at 60 a couple of years ago.
Jim Rogers: Let's calm down.
Gregg Hymowitz: Balderdash.
Jim Rogers: Sweden, the Netherlands, those countries don't have much growth.
Gregg Hymowitz: They're taking market share. They don't need to have much growth.
Neil Cavuto: Ok, we're one step away from saying: “I'm rubber; you're glue.”
Cost of Freedom
Neil Cavuto: Does Wall Street think the Republicans are going to lose big to the Democrats in the mid-term elections? In President Clinton's first term he tried to sell an unpopular healthcare reform package. He didn't back down and it cost his party big in the 1994 mid-term elections. Flash forward to present day, and it's President Bush trying to sell a currently unpopular plan to reform Social Security. Charles, will lightning strike twice?
Charles Payne: It is striking twice. This is a big wake-up call. Yes the stock market is treating the Republicans like they're going to lose. Bush is not a lame duck right now. They're treating him like a dead duck.
Gregg Hymowitz: The market is being totally consistent. It's going down because the Republicans are still in power. I want to dispel this myth that the Republicans are good for the equity markets. Since the day Al Gore conceded, the equity markets as measured by the S&P, are down 7.5 percent. If you've been investing in the stock market since George Bush took over, you have made...
Charles Payne: So I guess we can forget about 9/11 and the bubble bursting.
Gregg Hymowitz: See, that's the beautiful thing. You always want to blame something else. You haven't made a penny since George Bush took over.
Charles Payne: The day after the election, the market took off last year.
Jim Rogers: Gregg, most of that is total clap trap and you know it. Yes, the market hasn't done well but it has nothing to do with the Republicans or the Democrats. It's because of earnings and interest rates.
Gregg Hymowitz: The fiscal irresponsibility of this administration is causing many of the problems we have, including the fall in the equity prices.
Herman Cain: First of all, I don't think the stock market looks that far ahead, meaning the mid-term elections that they're going to factor it in. Secondly, we have a volatile stock market and you have politics, which is also volatile. One volatile entity isn't going to factor in another entity as volatile as politics.
Meredith Whitney: Tactically there was an error made in choosing Social Security. There's no gas behind the agenda, as a result there's nothing to be gained with Bush spending all this time to promote it. He should have chosen tort reform.
Jim Rogers: Herman is right. The market is not looking at November 2006. The market is looking at November 2005.
Herman Cain: We don't have a bad economy. We've had 14 quarters of positive GDP growth.
FOX on the Spots
Charles Payne: Summer rally sends Dow to 10,800
Meredith Whitney: Bush rattles regulators to save stocks!
Herman Cain: Dems find out voters are not as dumb as they think!
Gregg Hymowitz: Paula Abdul gets voted off "American Idol"
Jim Rogers: Bush visits country of Georgia; so should your money.
Neil Cavuto: Britain's Prime Minister Tony Blair. Sure he won a third term but he won't complete it. His party's been humbled, and he himself will step down in a couple of years, so that Gordon Grown -- his chancellor of the Exchequer -- can succeed him.
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Forbes on FOX
In Flipside: There Is No Housing Bubble!
Steve Forbes, editor-in-chief: Nationwide there is no bubble. One proof of that is the fact that we are discussing this question. Although, there are localized bubbles in places like parts of Florida. There's a gap between prices of a good house in L.A. or a good house in the heartland of America. That will be arbitrage.
Quentin Hardy, Silicon Valley bureau chief: Well, we'll say there's a bubble in San Diego, Los Angeles, San Francisco, New York, and maybe Washington, D.C. and Chicago. Now that really is a lot of the country that is in a bubble, right? And by the way, we were discussing whether stocks were in a bubble in 1999. They were!
Elizabeth MacDonald, senior editor: We're talking about hard assets. Not stocks with fake earnings behind them. I think there is a bubble in Boston and New York and Los Angeles. I think that first time home buyers are being iced out in those markets. But you know what, no one is factoring in the impact of immigration on the housing market. Immigrants are coming in and buying houses. But no one can really get a grip on how much immigration is impacting the housing market.
Lea Goldman, staff writer: Of course there is a housing bubble. In the cities that we're citing, the Bostons, the San Fransiscos the Miamis, they represent an aggregate of almost half of the nation's property wealth value. So of course they surpass the Abilenes and the other small-town communities. Now keep in mind that over the past couple of years there's been a potent combustible brew of low interest rates, rising speculation and easy credit.
Jim Michaels, editorial vice president: It's interesting when you are talking about these hot markets like Manhattan and San Francisco and San Diego. Don't you realize that a huge amount of wealth is being created in this country. The affluent class of people is growing by leaps and bounds. They all want to buy a trophy house and there are a limited amount of trophy houses. Naturally, the prices of trophy houses and properties are going to go sky-high. It's not a bubble if there are plenty of buyers willing to pay. Bubbles come when all the pessimists have given up. There will be a bubble when everyone agrees that housing prices are only going up. There is no bubble now.
Bill Baldwin, editor: There is a bubble. Twenty-three percent of all homes bought last year were bought by people who aren't going to live in them. They're speculators, they're flippers. And the only thing they had to go on, is knowing that the prices would continue to go up 20 percent a year, which is what they've been doing for the past three years. That is a bubble.
Steve Forbes: Between 1998 and 2004 median prices of existing homes went up about 50 percent. You've got to get away from the coast where there is a lot of speculative activity. The other thing to keep in mind is that housing prices really started to go up when the capital gains taxed was changed in 1998, exempting housing from capital gains. Lowering taxes gets higher values.
Elizabeth MacDonald: The tax code is helping home buyers shelter gains. That's not fake profits, that's hard money coming in the door in the form of tax refunds. But there is another interesting point regarding how interest rates are going to effect the housing market. If interest rates rose by 100 basis points, it would still be below the average of the last 30 years. And remember, the Treasury Department just announced they are may start re-issuing 30-year treasury bonds. That's going to take the heat off of short-term interest rates and I think mortgage rates.
Bill Baldwin: I have bad news. If you buy a house for $1,000,000 and you sell it for $800,000, you can't deduct the $200,000.
Steve Forbes: If you have a gain to offset it, sure you can. Households today are more liquid than they've ever been before. Even if you take out the value of housing, add up what people own in stocks, bonds and insurance policies and you have $26 trillion in liquid assets.
Jim Michaels: Bill, you're talking about 23 percent are speculators. I don't know where you're getting that figure from. I've heard 5 percent. The banks are being very careful to match mortgages to household income. There are not stupid. They're not putting their name on paper that's going to blow up in their face.
David Asman, host: Should we be buying houses or shouldn't we?
Quentin Hardy: You shouldn't be buying houses anywhere near the coast because those are highly valued and over stretched. If you get caught on these things you're stuck in these houses. You can't flip them.
Elizabeth MacDonald: You don't treat it like an investment. You treat it like you are going to live in the property. That's the point. Four-fifths of buyers are buying these houses to live in them because the transaction costs are so onerous that it is really difficult to flip.
Steve Forbes: Quentin's point of the illiquidity of housing is why you're not going to get a big crash nationwide because people know that you can't quickly unload. When you buy it you have it.
David Asman: So if you have a chance to be in cash or real estate, you'd say real estate?
Steve Forbes: Only if you are going to use it. If you think you are going to make a lot of money at it, forget it.
In Focus: Are Stocks on Sale or Too Expensive to Buy?
Dennis Kneale, managing editor: The market can never be too cheap, but I think that stocks are cheap right now. The markets are guided by a balance of fear versus hope. And for all of this year, fear has far outweighed hope. We're worried about oil prices, we're worried about interest rates, we're worried about a housing bubble. All of these problems are totally manageable and investors will soon realize this. And once the hope starts to outweigh the fear, you're going to see stocks start to go up.
Neil Weinberg, senior editor: Stocks are not cheap right now. Look at Warren Buffet. He's sitting on $43 billion. This is a guy who has beaten the S&P by double and he's saying that there is nothing out there to buy. Right now stocks are trading at about 19 or 20 times earnings for the coming year, which is not really expensive or cheap. But we've already had a pretty good run-up.
Steve Forbes: No one is perfect forever. Warren Buffet has lost several hundred million dollars betting against the dollar. In terms of the stock market, it is cheap. Price per earnings ratios are low relative to interest rates. There is a lot of liquidity out there. We are in a period of climbing walls of worry, typical of a bull market. Everyone is worried about what is out there. That is a sign to buy.
Elizabeth MacDonald: Here's what's happening. When you talk about the market trading at 19 times earnings, you're talking about a figure that is based on a fake performing number that companies come up with on their own. It includes things like gains from employee's pension funds, it doesn't include stock options, it doesn't include restructuring charges. If they used those numbers then the market would be trading at 38 times earnings. That's pretty high.
Jim Michaels: Cheap or expensive, I don't know how you define that. You used to say 10 times earnings was all a stock was worth, now you say 19. The important thing is there are plenty of good stocks around that you can buy and have a good expectation of making money over the next four or five years. Also, the market has gone through five years of consolidation after the terrible bubble in the late 1990s. It's had time to work out the excesses and earnings have grown. I think all the pressures are on the upside.
Neil Weinberg: Yeah, we've worked out a lot of problems in the market but we've already had two great years. And, typically, in bull markets, you see most of the gains in the first 18 months.
Jim Michaels: Where's this bull market? The market has been flat now for 18 months. It's been in the narrowest range I've seen it in the past 20 or 30 years.
Elizabeth MacDonald: The DOW has flirted with the 10,000 level about 24 times since 1999, so yes, we are in a thin trading zone. But besides the war and terrorism, the real problem is with structural deficits in this country. We need permanent Social Security reform and permanent tax cuts.
Steve Forbes: This is a perfect example of climbing that wall of worry, Elizabeth has laid it all out. America has never been more liquid. Companies have cash and individuals have cash. If the FED gets its act together the stock market is going to go up about 1,000 points.
Dennis Kneale: It takes only 1,000 CEOs to change this. The 1,000 CEOs of the 1,000 biggest companies are worried right now. They need to start taking risks again and start leading this economy.
Elizabeth MacDonald: You're ignoring the fact that people are scared that we face gigantic tax increases or benefits cuts in Social Security. That's going to freak people out.
Dennis Kneale: That's more reason to invest in stocks so you have something to offset that.
The Informer: Best Bargain Buys
Mike Ozanian, senior editor: I like Delphi (DPH), the auto parts maker. They make electrical equipment for cars. The stock is down 60 percent this year. It's a scandal ridden company. They've had some gigantic accounting issues. But they threw out the old executives and brought in the new. The stock trades at a 90 percent discount to sales.
Lea Goldman: This stock is terrible. First off, it's tied to and at the mercy of GM. This is a company that is not doing well. This is one of the most cut throat industries you can find. Margins are slimmer than slim. I'd pass.
Mike Ozanian: They have $900 million in the bank. I think they'll be alright.
Lea Goldman: I have a small company called Journal Register (JRC). This is like the local yokel newspaper company. This is a great little company. Newspaper companies have been beaten up this year. This one was taken along for the ride undeservedly. This company has great customer loyalty. It's moving into affluent areas with good advertising.
Mike Ozanian: Affluent areas like Albany and upstate New York? I don't know, this is the only company I've seen lately that adds money to profits by not paying taxes somehow.
Lea Goldman: Even if you do deduct any additions of tax they do really, really well.
Dennis Kneale: I like Jacuzzi (JJZ). Very seldom does the brand become the thing. Jacuzzi is the hot tub company. The stock is at $9 a share and has been flat for a year. I think this summer people are going to stop driving because of gasoline prices and they are going to buy hot tubs.
Bill Baldwin: I love hot tubs, but I have to throw cold water on this stock. Dennis' idea of a cheap stock is one that is in single digits. I like Seaboard Corporation (SEB), it's a leading piglet, flower milling and ocean shipping company. Last quarter they paid a nice $0.75 dividend which was well covered by $54 in earnings.
Dennis Kneale: This stock is selling about $1,100 a share. Here's a rule of investing: never buy a single share of stock that costs the same as a high definition TV set. Get the high definition TV set instead!
Makers and Breakers
• VeriSign (VRSN)
Bill Martin, editor and co-founder of FindProfit.com: MAKER
These guys have cleaned house and have a great group of internet and wireless assets. 10-20 percent growers. The real kicker here is that they are the global leader in mobile contents. So ring tones, games, applications, they've literally been growing that business 50 percent sequentially.
David Asman: Your 12-month target price is $35. (Friday's close: $28.35)
Mike Ozanian: BREAKER
I'm a breaker. I'm no expert in technology. But what makes me nervous is that a lot of their clients are troubled companies tainted by alleged scandals like Bank of America, Eastman Kodak and AT&T. I don't know. That makes me nervous.
Jim Michaels: MAKER
I'd love to have Bank of America, Eastman Kodak and AT&T as my clients. I think this company is well positioned. Internet purchasing is growing like crazy. This is a company with real sales, real earnings and solid growth and it's right at a good sweet spot.
• Liberty Media International (LBTYA)
Bill Martin: MAKER
John Malone is at it again. He's actually taken the reins of this Liberty Media spin off. This is their international cable assets, including Japan, Europe and South America. They've got the largest footprint globally of cable assets. The stock trades at a discount to its U.S. peers. We think it has a superior growth profile.
David Asman: By the way, John Malone owns a lot of News Corp stock which is our parent company. You think it can go to $52.50 in 12 months. (Friday's close: $43.23)
Jim Michaels: BREAKER
I'm going to hold off on this one. The stock hasn't been around long enough to establish a record. I'm a little uneasy about cultural nationalism in these countries with an American company. I'm going to pass.
Mike Ozanian: MAKER
I realize this company doesn't have a long track record but they've got John Malone. He's a ruthless genius. I'd put my money on him.
Bill Martin: John Malone has picked up $5 million of this stock just recently.
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Stock Smarts: Bipolar Market!
A bipolar stock market, but does Wall Street finally have the right medication to set new all-time highs? We’ve had some big down days, huge up days and more down days. But this past week, the markets seemed to sort of want to go up, and that’s the first time that has happened in a while.
So what do we make of this?
Danielle Hughes, Divine Capital Markets: We have had a lot of reversals lately. And I think I remained bullish throughout. Earnings season has been fantastic. We have really seen some great things in the job report that came out on Friday, May 6. I continue to look forward and see this market volatility as being a real good thing for the market because it is increased participation.
Terry Keenan: What do you make of this market Wayne?
Wayne Rogers, Wayne Rogers & Company: I got killed in a couple of stocks that had great earnings. PetroKazakhstan (PKZ) doubled the earnings and their revenue, and yet the stock was cut in half. The same thing happened with Tessera Technologies (TSRA). Some of the stocks that I have been involved in the past have just gotten murdered, although the earnings have been spectacular. I'm at a loss sometimes. You do fundamental analysis and sometimes it just doesn't work. You think you understand it and it is not there. The economy as a whole is very solid.
Terry Keenan: What do you make of it all, Jonathan?
Jonathan Hoenig, Capitalistpig Asset Management: I think this is a market you need patience for. As Wayne pointed out, this is not a “growth stock” driven market. It is a deal-driven market. M&A (mergers and acquisitions) and venture capital funds are having a big effect on what's happening in the market right now. I have had a lot of luck with utilities. A lot of the benefit there has been the big dividend yield. I am not short stocks right now, but more of a flat outlook is really benefiting investors whether they’re owning dividend stocks or selling calls; more of an income-type strategy seems to be working.
Terry Keenan: Kudos to Jonathan on the utilities call, but that is not necessarily a good sign for the rest of the market when utilities are leading the way.
Gary Kaltbaum, Kaltbaum & Associates: Short term, I am happy about the fact we finally saw some accumulation by the big boys this week after four months of just nauseating action. But that said, I think Wayne said it best. There have been so many blowups in this market that continue on a daily basis. That is not the sign of a big, grand bull market. I think you still have to be very patient and I just don’t think there’s a lot of upside here. Maybe a couple more percent, but then we’re back to that nauseating, Prozac trading range-type market and you have to take your time and learn a lesson from what we’ve seen over the last few months.
Dagen McDowell, FOX Business News: But there is upside in the short run. It looks like so much bad news has been factored into the market. Stocks are ready to move up. When General Motors’ (GM) and Ford Motor’s (F) bonds were downgraded to junk this past week, you would have thought a couple of weeks ago that the market would have had a much nastier reaction to that. And we just didn’t see it. A lot of worries are already factored in; whether it be the economy, oil, GM, Ford, you name it, it’s factored in.
Jonas Max Ferris, MAXfunds.com: Kirk Kerkorian wants to own GM, why can’t we? First of all, I think GM is a decent deal right now. I will go on the record saying that. I think the market can go up about 5 percent. It’s not going to be crazy this year, but bonds are yielding so little that stocks are the best game in town now. As for what’s going on in the bipolar market, I think investors are really waiting for something big to crack. They don’t know why. When are rates going to go crazy up, when is real estate going to tank, and when is GM going bankrupt? When is Ford going to stop buying our debt? And I don't think any of the events are going to happen. Everyone has been waiting for the disaster and eventually there won’t be a disaster. Everyone will then say ‘eh, forget the disaster, let’s buy stocks.’
Gary Kaltbaum: Let me say one thing. I think you have to be very careful about saying ‘the market shrugged off GM’s news.’ That can have some major repercussions going forward for the cost of capital for a lot of companies out there, which will hurt earnings. That is something that has to be watched very closely. I would be real careful about going there.
Dagen McDowell: I didn't say they shrugged it off. I said it was already factored in.
Terry Keenan: We had the bomb going off at the British consulate in New York and markets shrugged that off as well.
Wayne Rogers: There is always the threat of a terrorist attack at any time. I don’t know how much of that can be factored into the market. These are things that are unknown. You can’t just say, ‘I can predict this’ and so stocks are going to do this and that.’ There’s no way in the world to know those things. You have oil prices that are juggling up and down, above and below $50 a barrel.
Jonathan Hoenig: Wayne, just say it. ‘This is a market of stocks, not a stock market.” We have gone a minute into the show and you haven't said it.
Wayne Rogers: Correct.
Jonathan Hoenig: This is the time to stay that.
Wayne Rogers: I’ve been saying it so much that I didn't want to repeat myself. I'm going to say something else, too, by the way. About a year ago, Jonathan talked about this time as being very close to what we saw in the 70's. He’s been absolutely right about that.
Jonathan Hoenig: Well gold isn’t going to $800 yet, unfortunately. Terry, people want the quick gains, but I have found this to be an environment where patience is your best payoff; sitting on stocks and trying to keep the winners and sell the losers. Tech has been ice cold. Some of our panelists are still fishing in those waters.
Terry Keenan: Are you fishing there Dani?
Danielle Hughes: I tend to think that you have to go with the stuff that's down. You have to find value for yourself, and if you’re a long-term investor, IBM (IBM) is a good deal right now. There are some really good picks in the tech market.
Jonathan Hoenig: Why IBM? It's the weakest of the bunch.
Danielle Hughes: IBM is not going to $0. That is when you buy the stock if you are in it for the long term. There’s no question about that.
Gary Kaltbaum: The only value that matters is what the market thinks, not somebody's opinion, so be careful, especially with tech. They talked about stock by stock. I think it's sector by sector.
Terry Keenan: Where are you fishing then, Gary?
Gary Kaltbaum: Side by side right now, medical group is acting great. Utilities are still in good shape. Oil probably has another wave up. But tech is still dead and there is a whole host of other sectors that is going no place fast right now, so you need to be in the right places more than ever at this juncture.
Terry Keenan: You are shaking your head, Dagen.
Dagen McDowell: Oil is crazy overvalued right here. I know everyone is wringing their hands about oil prices.
Terry Keenan: If you want a barrel of oil, you have to pay $51.
Dagen McDowell: Oil wouldn't be so high if the economy globally wasn't doing OK. Broadly speaking, the whole market can go up, frankly, as long as the Fed gets done raising interest rates.
Jonas Max Ferris: There was a time when if you wanted bandwidth you had to pay a lot of money. Then it tanked in price and all the companies that were making money selling it went out of business. It is not like fuel oil is really going to be expensive always either. That’s why I think people are waiting for it to crack.
Wayne Rogers: Let me ask you something. Do you think we should be looking, therefore, for asset plays rather than earnings plays?
Jonas Max Ferris: I think you can be in stocks and conservatively make 5 percent and a lot of those companies have assets like drug companies, like GM and other companies. I don't think it's that dangerous of an environment like everyone says it is.
Terry Keenan: Wayne, what are you looking for; asset plays or earnings plays? In the oil patch, these companies are minting money, but the market doesn't seem to respect those earnings numbers.
Wayne Rogers: It’s not just the earnings numbers. They will have an enormous amount of cash and they have to do something with it. At some point in time it has to pay off. Therefore, I am still in some of the oil stocks like PetroChina (PTR). We talked about that, and I have retained some of my positions in those stocks: Exxon Mobil (XOM) and ChevronTexaco (CVX) and I think at some point in time that cash has to be utilized.
Question: “What sectors are going to be the leaders in the stock market over the next few years?”
Wayne Rogers, Wayne Rogers & Company: I don't know. I haven't the vaguest idea where the leadership is coming from. If I had to pick something, I would say probably in the health care sector. Other than that, I have no idea. I cannot figure out what the heck is going on here. Remember the crystal ball I had a couple of years ago? It broke.
Dagen McDowell, FOX Business News: Wayne hit the nail on the head. Health care. This is an area and the valuations, broadly speaking, on this sector are very reasonable compared to other areas of the market, like oil, for example. Also, these companies tend to be fairly stable when the economy is not doing so well. And then you look ahead and you have an aging population. The long-term fundamentals look fabulous.
Terry Keenan: And you have the healthcare fund in the Cashin’ In Challenge.
Dagen McDowell: Exactly. But that one hasn't done that well so far this year. But I would still hang onto it.
Terry Keenan: Jonathan, do you see leadership in health care?
Jonathan Hoeing, Capitalistpig Asset Management: Not health care. I know Eli Lily (LLY) and Bristol-Myers Squibb (BMY). I wouldn't short those stocks. Terry, where do you think I'm finding leadership?
Terry Keenan: Utilities and foreign utilities.
Jonathan Hoenig: I am in love with utilities. As long as everyone pays the gas and water and electric bills, I'm doing OK. I find myself in a winning position in what I think is a very strong trade; utilities. I am sticking with it.
Dagen McDowell: You've got to get out more.
Question: “I bought Wendy’s (WEN) back at $27. Do I take my profits now or hold this one for a long time?”
Dagen McDowell: Clearly the ‘finger in the chili’ incident did not hurt the stock. It is up about 15 percent in the last month. So take some of your money out of this stock, maybe half to lock in profit. Hold onto the rest. Just recently two private investment firms bought pretty big stakes in this company. Maybe they can force Wendy's to shake things up and spin off some of the struggling units like Baja Fresh. That means the stock would be worth a lot more.
Question: “What does the crew think about Sirius (SIRI)?”
Jonathan Hoenig, Capitalistpig Asset Management: I think the herd is running rampant in this stock, Terry. Everyone I know has either been in it or wants to get in it. I think the first harvest of gains is gone from this one. I love ‘Baba Booey” (from Howard Stern’s show) as much as everyone else, but I don't think Howard Stern is going to be the big boost that the stock needs. I would probably rather own Shaw Communications (SJR) than Sirius right now. It is just not on my plate.
Wayne Rogers: Long term, yes. Short term, no. Obviously both XM Satellite (XMSR) and Sirius are great long-term plays. But you have to be very patient. There is no point in entering that market right now. I agree with Jonathan on that. Short term, I don't think it will be there.
Question: “I’m looking for a fund that invests in small-cap stocks. Any thoughts?”
Dagen McDowell: I don't love it, but if you don't own a small cap fund, your portfolio can't be hurt having one. It’s hard to find a good one that isn't closed or massively bloated. Check out the Vanguard Explorer Fund (VEXPX) and the Excelsior Small Cap Fund (UMLCX). Those are two funds worth taking a look at.
Question: “What is going on with PetroKazakhstan (PKZ)? Does Wayne still like the stock?”
Wayne Rogers: I got stopped out at $39.50. Jonathan and I have talked about this a number of times. You put in a stop order, you make up your mind, I’m going to stay with that stop, I don’t care what happens. If the stock goes below that and triggers that, you are out because you made the decision in advance. I got stopped out of the stock. The stock is now down in the low $20's. Do I think it is a solid company? It’s a terrific company. There are political problems in Kazakhstan just like in all of the foreign countries where there is no police, no legal system, nothing to redress a grievance that you have, but ultimately that is a good company. Huge reserves. Yes, it’s good company.
Terry Keenan: When would you get in again?
Wayne Rogers: I would watch this stock and I am somebody who would tease this thing in here.
Jonathan Hoenig: You would tease it? Did you say you would tease this stock?
Wayne Rogers: Tease it means I'm going to sneak it into Jonathan. I'm not going to plunge in. OK?
"Cashin' In" Challenge
Check out the $10,000 "Cashin’ In" Challenge at: www.foxnews.com/challenge
Best Bets: "I Do" Stocks!
It is spring. Love is in the air. Even the runaway bride has returned home, but if you have been left at the altar when it comes to investing, it’s time to get serious with these stocks.
Jonathan says "I do" to: Veolia (VE)
Friday’s close: $38.23
(Jonathan owns shares of VE)
Jonathan Hoenig, Capitalistpig Asset Management: I am betting on water. I love all the utility stocks. People will pay their water bill first and over 110 customers get them from Veolia. It is a French water company.
Terry Keenan: Finding love in Paris.
Jonathan Hoenig: I love utilities. Another I own is Aqua America (WTR). I love this whole sector. We are a big player there. VE is the biggest of the bunch and I think one of the best right now. I wouldn't stand it up if that is what you are asking.
Danielle Hughes, Divine Capital Markets: It is such a huge company and takes a whole quarter to read the entire filing. It trades in the Euronext, but here in the US it trades so thinly. It is kind of risky because it is so thin here.
Wayne says "I do" to: Leucadia (LUK)
Friday’s close: $35.15
(Wayne owns share so LUK)
Wayne Rogers, Wayne Rogers & Company: I love Leucadia (LUK). I am a maverick in this group. I like all the stocks that everybody else has picked, but I think Leucadia, washed through this thing with SBC Communications (SBC) and their investment and they are so special, those guys. I have talked about them in the past. I think that Ian Cumming and Joe Steinberg are just brilliant managers.
Terry Keenan: A stock you would buy without a pre-nup.
Wayne Rogers: Yes. And I would stay with them. Marry them. They are good guys.
Gary Kaltbaum, Kaltbaum & Associates: I first want to say I think Wayne is an absolute mench. It is hard to come on TV with stocks that didn't do so well, let alone your successes, so bless you, my friend.
Gary says "I do" to: CVS (CVS)
Friday’s close: $53.67
Gary Kaltbaum: CVS drugstore. It’s acting well. It’s in a great group, consistent earnings and revenue growth. I stay with it. It's going higher.
Danielle Hughes, Divine Capital Markets: I would rather own Walgreen's (WAG) because they like their shareholders better and have a buy back going on. In this space, I like Walgreen’s better.
Danielle says "I do" to: Central European Distribution Co. (CEDC)
Friday’s close: $37.00
Danielle Hughes: I like (CEC), the number one producer and distributor of beverages in Poland. A great company. I love the company and have followed it since it was $5. I think it is a great growth stock.
Jonathan Hoenig: I don’t hate it, but we own Hungarian Telephone & Cable (HTC) and Magyar Tavkozlesi (MTA) in Eastern Europe, but don't you think this one has come too far, too fast, Dani?
Danielle Hughes: It has great expansion effort in Eastern and Western Europe going forward and I like the management.
Stock of the Week
Last week’s pick from Price Headley was Electronic Arts (ERTS). For the week of May 2-6, ERTS went down 4.5 percent.
John Curran says Pfizer (PFE) is what the doctor ordered. Gary says it makes him drowsy, but Jonas wants some of the medicine.
John Curran, former investment editor of “Fortune”: This is a comeback story. Great company, great name, but the stock has been in the doghouse. In 2004 it was up near $40 a share. It tumbled down to below $25 and is now coming back a little bit. Big investors like a cheap stock in the weird environment. They’re going into it. It’s a safe company.
Terry Keenan: They just lost two of the biggest drugs.
John Curran: They have a pipeline loaded with stuff for osteoporosis, diabetes, and they are looking very good in terms of the future.
Terry Keenan: Jonathan hated this one a couple of years ago. He was right. And I think you hate it now, too, right Gary?
Gary Kaltbaum, Kaltbaum & Associates: That would be a hate. When I bet on a stock, I want to bet on the strongest stock in a group and this is the weakest. Find me the fastest and the strongest, not the weakest name, just like the Kentucky Derby. Their growth rate is nominal. Nothing I like about it right now.
John Curran: The Florida heat getting to you. This is the cheapest, not the weakest.
Jonas Max Ferris, MAXfunds.com: This whole sector bottomed out last year. It’s coming back. Merck (MRK) is up 35 percent from the bottom. This one is next.
Gary Kaltbaum: I will let the market decide what's cheap.
Terry Keenan: Do you see any cheap ones out there, Gary?
Gary Kaltbaum: All I can tell you is Abbot Laboratories (ABT), Baxter (BAX), Johnson & Johnson (JNJ)… There are many other names that are acting much better that the market likes better. I’d rather go with them.