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May 6, 7: Guest Todd Eberhard

TSC Staff

Participants on May 6 included host Brenda Buttner, Dave Kansas, Gary B. Smith, Adam Lashinsky, and guest Todd Eberhard. The transcript is unedited, and phonetic spellings are indicated with (ph).

BRENDA BUTTNER, HOST: Hi, everyone, I'm Brenda Buttner and you are connected to "TheStreet.com." Down Dow again this week. Where to from here? Let's get the Word on the Street.

With us from TheStreet.com, Editor-in-Chief Dave Kansas, Silicon Valley columnist Adam Lashinsky, senior writer Dagen McDowell, in Washington, our "Chartman" Gary B. Smith. Also joining us here in New York, Todd Eberhard, president of Eberhard Investment Associates, a New York based money management firm with $800 million in assets under management.

Welcome all.

First topic: What now for the Dow? Through all the big selloffs and rallies, the blue chips have really been treading water this year; the Dow closing Friday about midway between its high and low for the year.

So looking forward, Dave Kansas, in the year 2000, 9000 Dow or 12,000?

DAVID KANSAS, EDITOR-IN-CHIEF: I think we're going to start moving closer to 9000 before we even start thinking about 12,000. Volume is dropping off in the market. More fears about inflation, more fears about interest rates. I just think we're in for a time very long, hot summer in New York. It's interesting. It's getting hotter earlier...

ADAM LASHINSKY, SILICON VALLEY COLUMNIST: By the minute.

KANSAS: ... by the minute.

BUTTNER: Summer has started.

KANSAS: And I think, in a way, it's symbolic to what we're dealing with. This market is really confusing a lot of people. A lot of people are just kind of saying, "I'm going to stand back. I don't want to get involved." And that's not a way to get to 12000. That's a way to kind of drift and bleed to 9000.

BUTTNER: Now that's -- one person who is not confused, the "Chartman." Gary, what do the charts say?

GARY B. SMITH, "CHARTMAN": Totally confused.

BUTTNER: Oh, at least you admit it. All right, tell me...

SMITH: No, no, no.

BUTTNER: ... what does it say for the Dow?

SMITH: Well, I'll tell you, it's saying exactly what Dave is saying. You know, right now, you have a chart that is just moving sideways. It moves up a lot, it moves down a lot, and now it's moving sideways. It's not treading water. I think it's more thrashing in the water right now. I'm with Dave, though. I think 12,000, it would be a huge, huge stretch. I mean, something would have to change dramatically. I think 9000 is a lot more likely. I think you saw the volume tail off this whole past week with both the Nasdaq and the Dow. I'm with Dave.

LASHINSKY: There's something neither of you convinced me about and that is the interest rate environment we've known about, Dave, but why the volume trail off? The volume going way down is more of a recent phenomenon, isn't it?

DAGEN MCDOWELL, SENIOR WRITER, THESTREET.COM: I can tell you.

LASHINSKY: All right, why?

MCDOWELL: People are tired of the volatility. They get tired of being in the market and getting thrown around just like Gary said. So they, you know, they stay out of the market.

KANSAS: They're not tired of volatility when it's going up.

TODD EBERHARD, EBERHARD INVESTMENT ASSOCIATES: Yeah, when it's going up volatility, only when it's going down.

MCDOWELL: Are they going to cash?

(CROSSTALK)

KANSAS: I think people are losing money. People have been torched. It hasn't happened for a long time and they're a little bit singed and they don't want to get back into the market.

BUTTNER: Todd, are you singed and where are you putting your money?

EBERHARD: I'm not singed. I'm feeling pretty good about the whole thing. But I think you're right partially about that where people are singed. But on the other side, investors have very short memory cycles. And I've got to tell you something, when the rates go up, if they do, 50 basis points on the 16th, people are going to start thinking again, "Maybe we do get back into this because maybe the bad stuff's over."

LASHINSKY: Inflation's under control in other words.

EBERHARD: Or getting that way, or getting that way.

BUTTNER: Well, you know, here -- but here's what I don't get about the Fed, OK? Bad number, big bad number on Wednesday, market plummets. Bad number today, market goes up.

EBERHARD: What's wrong with that? I understand that -- I don't take issue with that.

KANSAS: What do we do right now? We talked about the issue of volume. Where are you in terms of cash and investment? Where are you?

EBERHARD: We are right now and have been over the last three and four months heading more towards cash and been sitting in a cash position. We are now starting to go a little bit the other way and starting to use some of the cash and bleed in slowly but slowly...

BUTTNER: Gary, go ahead.

SMITH: I have a question for Todd. Did you just say that you think if the Fed raises -- let's just say they raise 50 basis points.

EBERHARD: Which is what I do think.

SMITH: Do you think we could go up from there?

EBERHARD: Oh, I will tell you this. If they raise 50 basis points on the 16th vs. a 25 basis point raise, I'll tell you, I think we'll have short-term and I think an hour or two on a down part and then we should have a rally, which is somewhat of a relief rally.

MCDOWELL: But what if that move doesn't cool off the economy?

EBERHARD: That's a different issue.

MCDOWELL: And it can get really nasty come June.

LASHINSKY: Yeah, but Dagen, you don't know if it cools off the economy right away.

MCDOWELL: Right, you don't know asset. What if it doesn't?

BUTTNER: Gary, you've been a bull and a bear; it just depends on the day. Where are you now?

(CROSSTALK)

LASHINSKY: It depends what the shark says, Brenda.

SMITH: I'm just flopping around.

LASHINSKY: I'm defending you, Gary.

BUTTNER: Where are you now, though?

EBERHARD: Yeah, and when Adam's defending you, it's a big problem.

BUTTNER: You know what I am, Brenda? I'll be very honest with you. I have not made one trade in the last three days. I've been totally out because you know what? I can't figure the darn thing out. You know, I'm with, you know, what Dave and people were saying earlier. I'm one of those people that are contributing to the volume going down by just being on the sidelines until I can get a feel for this.

KANSAS: Todd's doing the same thing. What's the trigger for getting back in there?

EBERHARD: That's the question.

BUTTNER: Right.

EBERHARD: You haven't done a trade in three days. I've done trades in the last few days and I've done a decent amount of trades in the last three days.

LASHINSKY: But not compared to what you were doing in November of last year.

EBERHARD: Absolutely not, because I think the issue is -- and we get back to the bottom line. It is a confusing market right now. It's a questionable market because there's a lot of stuff coming out PPI, CPI, the Fed meeting itself. And I was saying before that 70% of the FOMC members were voting or put their vote in March, that they wanted a 50 basis point increase and it didn't happen. That's why I do think it's going to happen and I think when it's out of the way, it's like cutting off the bad limb. And when that's done, we should get some relief rally here.

SMITH: But how long do you think that rally will last, though?

EBERHARD: Look, if I -- at this point, if we get it for four hours, it's a big day. I mean...

SMITH: It's a trend.

EBERHARD: Exactly. You've got to look at the chart. You tell me.

BUTTNER: Dave?

KANSAS: I'm just wondering. When you talk about putting money to work, are there specific areas you're going into? I mean, technology's been so crazy. Some people talk about going back to Old Economy stocks. What are you guys bleeding into?

EBERHARD: We hate the Old Economy, New Economy concept. I really do like, though, using that term, Older Economy stocks. I think Procter & Gamble at this level, believe it or not, is not a bad buy.

BUTTNER: Down like 40% so far this year.

EBERHARD: That's right. But it hit down on the earnings, it down on all these other numbers, and it stayed there, and now it's coming back up slowly. But I still believe people have to brush their teeth...

KANSAS: So you like Procter & Gamble?

EBERHARD: We do, yeah, we have Procter & Gamble in position.

BUTTNER: Good grooming. All right, the final word for Word on the Street. Todd Eberhard, from Eberhard Investment Associates, thanks for being with us.

EBERHARD: Pleasure.

BUTTNER: And after this, Microsoft. There probably isn't a big company out there with a more uncertain future, but wait until you hear what the Chartman has to say about the stock.

That's next on "TheStreet.com."

BUTTNER: Welcome back.

You want to know the best stock for the next 10 years? Just ask the Chartman. Gary B. Smith is back with us as his Adam Lashinsky, Mr. Fundamental, here in the studio.

A real pleasure, Adam.

Neither own the stocks that are mentioned in this segment. OK, fellows, lay it on the line. One stock to buy and hold for 10 years.

Gary, that's a long time.

SMITH: That'd be an eternity for me. Microsoft is my...

LASHINSKY: I'm glad you said that.

SMITH: Microsoft is my one stock. And I -- you know, Adam knows the fundamentals and details. Heck, everyone knows the fundamentals and details. And, you know, a couple of weeks ago, we talked about Microsoft, I wouldn't touch it. But for a 10-year time horizon, this is one beautiful chart.

What you want to do with a long-term chart is use a weekly or even a monthly chart. Here, I went all the way back, you know, 10 plus years or so with Microsoft and you can see it hugs that trend line beautifully. It just never wavers. Even with all the problems it's had lately, it just stays right in that trend line. In fact, if you want to get into Microsoft looking at that long-term trend line, right now is the time to buy Microsoft. I love this chart for the long term.

BUTTNER: Adam, of course, Gary probably doesn't know that the company is embroiled in one of the most bitter, protracted legal battles in corporate history.

SMITH: I've not heard anything about that, no.

BUTTNER: It may be split in two. What are the fundamentals say about holding the stock and buying?

LASHINSKY: Well, yeah, we're going to send him some newspaper clips about that, Brenda.

Gary, 10 years is a very, very long time for a software company. Gary, we don't even know where this company's going to be in two years let alone 10 years. So still, of course, Microsoft has $21 billion in cash, it's got a great deal of brains in the form of Gates and Ballmer, and it's got a huge customer base, and that's all very good for it. But Gary, if there's one instance where I have absolutely no faith in charting -- I like the way you can tell us where moves are going to go, but 10 years? Please tell me how you can say that 10 years of past will predict 10 years of the future in this volatile industry.

SMITH: Was that...

LASHINSKY: It's a question.

SMITH: ... a rhetorical question?

BUTTNER: Go ahead, Gary, defend yourself here.

SMITH: All right, well, I'll give you the theory. Look, if you're using a daily chart, in a sense, you can somewhat say from past actions, breakouts, trends, what it's going to do a little bit into the future. Well, same theory with the long-term chart. If you're using a monthly or a weekly chart or even a quarterly chart, you can get some kind of sense of where there's support and where there's resistance, where there's trend. Look, am I 100% certain where Microsoft is going to be in 10 years? Absolutely not. But let's face it. We don't know where any company or anything's going to be in 10 years. I'm just taking my best shot with a long-term chart.

BUTTNER: OK, Adam, what's your best shot. What's the company to own?

LASHINSKY: My pick is Texas Instruments. I predict, by the way, that over the next decade, they'll change their name away from this horrible name, Texas Instruments. The company makes digital signal processors, which are the chips that go into communications devices. And they are the microprocessor of the next decade. That means TI is the Intel of the next decade. This company owns its own chip-making plants, which means that when supplies are tight, Texas Instruments will prosper.

Finally, it gets royalties on every memory chip made, and it owns a big stake in micro and technology, which is the leading memory chip maker in North America. It's very expensive right now but this is one for the decade.

BUTTNER: Gary, it is pretty pricey, although it has been hit in this tough market. What's the chart say?

SMITH: Well, what the chart is saying, this is a good contrast to the Microsoft chart. You know, the great thing about the Microsoft chart was it hugged that trend line. One of the problems is whenever you look at a chart is you like to look what the general growth of the company is, not the company. But the chart normally establishes some kind of trend.

Here, Texas Instruments was making a beautiful trend upwards. I'm not saying there's anything wrong with it. But then it went almost parabolic straight up. When you see a chart that's parabolic straight up, usually that means it has a lot of exposure to the down side. It can go parabolic straight down until it picks up its normal trend. It'd be very odd for Texas Instruments or any company to establish a trend that almost went straight up off its former trend line than this.

I think, look, Adam might be right. I didn't understand a darn thing he said about the fundamentals. I think this would be very risky play versus something like Microsoft, which his very, very steady over the last few years.

LASHINSKY: Gary, the chart did the things that it did because Texas Instruments has been a go-go stock. And this is an instance where the fundamentals say a huge company for the future, period.

SMITH: Well, you know what happens to go-go stocks. We've seen that this year, so maybe there'll be a little bit of pull back and people will have a chance to get in.

LASHINSKY: Fair enough.

BUTTNER: Hurts on the way down. All right, Gary and Adam, thanks. Stay where you are, though, because after this break, you both are joining Dave Kansas in the hot seat. We look back at your past predictions. Did they come true or were you just plain wrong? Right after this.

BUTTNER: We're back.

Who was right, who was wrong? We keep track of all the predictions about stocks in the market, and it's time for the TSC scoreboard. Dave, Adam and Gary B. are back with us. All right, Gary goes first. In March, you really liked the Internet sector. Here's what you said about the Merrill Lynch Internet Holders Trust, which is also know by its ticker symbol, HHH.

SMITH: HHH is the place to be. Moves up another 30% by the end of the year.

BUTTNER: Good thing we got that on tape, because here's what the HHH has actually done since your prediction. It's fallen nearly 35%. Now out of four dollar signs on the Brenda rating scale, what do you think you deserve?

SMITH: I did -- a negative four dollars signs.

BUTTNER: OK. I just can't kick a guy when he's down, though, so I'm going to give you a rating of one dollar sign just for effort. Now as for the Internet stocks, though, seriously, Gary, where's HHH going from here?

SMITH: Well, just one comment. That, heck, was pathetic. I mean, that was just terrible...

BUTTNER: That's why I love Gary.

SMITH: Let's not sugarcoat it. That was just awful. You know, the one mistake I made on that was the darn thing -- What I did was I guessed. I thought it was going to make a new high, and from there, it should have broke out and go. And I guessed. It made a double top and it collapsed. That was terrible.

BUTTNER: And from here?

SMITH: Where it goes from -- Well, you know, like the Nasdaq, in fact, you know, all last week, the HHH, they rallied but on low volume. So like a lot of the Internet stocks, like a lot of the Nasdaq stocks, I think HHH is headed back down probably to about the 100 level would be my guess.

BUTTNER: OK, here's one that came out a little better for you. In February, you threw some cold water on a very hot sector. You said that the VA Linux and companies like it would not see their 1999 highs again. And you were right. Take a look. The story's the same with Linux-based Red Hat, Cobalt Networks and others in the industry. Now I know when credit is due, and for this one, you get the full four dollar signs. But more important, is there any hope for these stocks? Where are they headed?

SMITH: Well, you know, that's really almost -- I hate to say this -- a fundamental question. Chart wise, I mean, these things are just -- I guess there may be a bottom fisher special. I mean, I wouldn't put any money there in hopes that they are going to make it back, but you know, a lot of times these things just, you know, they gain a little bit of momentum. Someone sees it, they're going to buy. Maybe they gain 20, 30% because they're so volatile, but boy, I just think it's a risky play. I certainly still would not play here.

BUTTNER: OK. Your turn, Dave. First the good news. A great call back in January when you said that drug companies would turn in a terrific first quarter. They did across the board and for that you earn top honors of four dollar signs. But the question is: Should investors be buying these now after the run up?

KANSAS: I still think it's a good place to be if you're worried about the market. These are steady growers, big names. It seems to be where a lot of people are hiding in this volatile market, so I don't see why you would want to go away from that.

BUTTNER: All right. Of course, not all of your calls were home runs. The next one from back in April, you said the Nasdaq would bottom out before hitting the 4000 mark. Within two weeks, the Nasdaq had not only fallen through the 4000 mark, it hasn't been back since. Sorry, Dave, just one dollar sign. And that's for having the guts to try because it's tough. You know, predicting the Nasdaq is tough, but you want to give it another shot?

KANSAS: Well, I've had a few readers respond to that particular prediction of the Nasdaq.

LASHINSKY: Thanking you, no doubt.

KANSAS: Oh, yeah. I think the Nasdaq, I think we'll be happy to hit 4000 by the 4th of July. That's where I think we're headed if we can get any upper momentum. But again, I think technology stocks are in for a tough summer.

BUTTNER: Yeah, all right. On to you, Adam. Back in January, Dell Computer was trading at about 37. You said that the bad news was over and it would hit 70 this year. Now for a while, it looked like you nailed that one. By March, the stock was nearing 60 but has since dropped off, closing Friday just under 50. Now I can't say you were wrong because you've still got some months to go, so you get three dollar signs. Still though, do you think Dell's going to 70 by the end of the year?

LASHINSKY: Yeah, actually, the second half of the year, when everything will pick up -- tech stocks -- Dell alike probably shouldn't be a problem.

BUTTNER: All right, OK. And last one, and just so you guys don't think the only predictions we save are the ones you get wrong, listen to what Adam had to say back in April.

LASHINSKY: Alta Vista, I don't think it'll happen. I think it will get delayed or pulled and that will cause the entire IPO window to go shut at least for a little while.

BUTTNER: That's what he said and that's exactly what happened. Worth of four big ones for sure.

Now can you tell us what it's going to take to turn the IPO market around?

LASHINSKY: I don't think the IPO market, as we used to know it, in other words, any little company without a business plan will turn around in the next year or so. IPOs will continue to happen, good companies; they already have. And then as the market improves, more will.

BUTTNER: But it's just not an automatic spike on the first day.

LASHINSKY: Game over.

BUTTNER: All right. And everybody stay where you are because this game isn't over. Now you get to give us some brand new predictions.

That's next, so don't go away.

BUTTNER: Welcome back.

Time for predictions.

OK, up first, Dave, what's going to happen?

KANSAS: Michael Armstrong, AT&T chieftain, gone before the end of the year.

LASHINSKY: Wow.

KANSAS: That stock has been in trouble, I'm telling you right now.

BUTTNER: Trouble? It's down like 20% since its earnings report this week.

KANSAS: I mean, he's got no idea what to do. A lot of flashy things, tracking stock, maybe another tracking stock somewhere in the wind. But it's a company that's got too many legacy problems. He's gone before the end of the year.

LASHINSKY: You are so right.

SMITH: Wouldn't that cost them a fortune, though, Dave?

KANSAS: I'm sure he has some contracts.

LASHINSKY: They can afford it.

KANSAS: I'm sure, yeah, but I mean, a little bit of money to get rid of somebody who's not doing the job is sometimes a good investment.

SMITH: I'd like to be his son.

BUTTNER: What's the chart say, Gary?

SMITH: On AT&T?

BUTTNER: Yes.

SMITH: Neutral. How's that?

BUTTNER: Neutral, all right, OK.

SMITH: Like everything else.

BUTTNER: Hedging again. Gary B., your prediction?

SMITH: I'm not going to hedge on this one, you know. Earlier in the show, I got accused, in fact, I raised my hand and said I was a flip-flopper. You know, one week I'm bull, the next week I'm bear. Now I'm bear again, I'm afraid. Just this whole move last week, last few days on the Nasdaq on the low volume just look so bearish to me. I can just -- I not only see it as going down, I see it as gapping down one day.

I mean, what is the good news on the horizon? I see Nasdaq 3000. I'm going back to my prediction of a couple of weeks ago.

LASHINSKY: I'm saving up for my prediction where the good news is coming. Dave, is he wrong or right?

KANSAS: Oh, I think unfortunately, Gary has a good chance to be right. I think -- I don't like it when Gary's right because we have to deal with that for most of the rest of the week, but I mean, this could be a case where the charts back him up.

BUTTNER: You know what? The Chartman has a prerogative to change his mind. That is very clear.

(CROSSTALK)

Adam, what's your prediction?

LASHINSKY: OK, Brenda, we're going to see a rise in tech stocks this coming week because of the H&Q conference in San Francisco, still one of the premiere tech conferences. It will be illusory, however. Those same stocks go right back down after the conference is over.

BUTTNER: Because you said it's pretty much dead money in tech for the next couple of months.

LASHINSKY: Right. But people always get excited around these conferences.

KANSAS: So lighten up? People should lighten up if those stocks start jumping?

LASHINSKY: Take your profits.

SMITH: I would.

BUTTNER: Sell into the rally.

SMITH: I think that's a good prediction.

BUTTNER: All right. Now it's your turn at home to weigh in. Just log onto TheStreet.com Web site and go to our TV page. You can rate these predictions and send us a question or a comment.

Hey, thanks for joining us. We'll see you here again next week. Until then, we hope you invest wisely.

END

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