Aug. 28, 29: Guest Ken Schapiro

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Participants on Aug. 28 included host Brenda Buttner, Jim Cramer, Herb Greenberg, Dave Kansas and guest Kenneth Schapiro. The transcript is unedited and phonetic spellings are indicated with a (ph).

BRENDA BUTTNER, HOST, THESTREET.COM:

Hi, everyone, I'm Brenda Buttner and you are connected to THESTREET.COM.

We're here to help you make your own investing decisions. It's time now for Stock Drill.

Our guest stock picker today is Ken Schapiro. As president of Condor Capital Management he controls over $250 million in assets. Ken's firm has positions on all the stocks on the Drill today. They are Charles Schwab (SCH), IBM (IBM) and American Power Conversion (APCC).

Joining us from THESTREET.COM, Jim Cramer who also manages a hedge fund, and senior columnist Herb Greenberg. A quick note of disclosure, Herb does not own any of these stocks and Jim's firm is long on IBM.

Thanks so much for joining us.

KENNETH SCHAPIRO, PRESIDENT, CONDOR CAPITAL:

Thanks, Brenda.

BUTTNER:

Biggest online broker, Charles Schwab, a little pricey still isn't it?

SCHAPIRO:

You know the interesting part about this stock is we like it because of the strategy we like to call clicks and mortar, they (AUDIO GAP). In the clicks area, it's because they can go. People can go and they have access to information. They can get that information. They can trade and it's reliable.

In the mortar area they can go to the branch, they can go to the branch. They can talk to people. And they raise over 50 percent of their assets actually in the branch. David Pottruck has been awesome at reinventing the company. He could blow up the company...

JIM CRAMER, THESTREET.COM:

Ken listen...

SCHAPIRO:

.... again...

CRAMER:

.... this week was an ugly week for these stocks. This -- Ameritrade (AMTD) got hammered last week. The -- E*Trade (EGRP) got hammered. Why should I buy the Schwab? That's the only one that's still hanging up there. Why not buy the cheaper ones?

SCHAPIRO:

The interesting thing, Jim, is is that just like I said, they have an advice business too. They're going to go off to -- after the big full-service commission brokers in offering help and advice. They have a program called adviser source where they refer business to people like myself.

In addition to that, they offer help and advice in the branch.

HERB GREENBERG, THESTREET.COM:

It sounds like they're getting to be a full-service broker here pretty soon if they keep going in two different directions. I guess you could see where that's good news. But, you know, there could be some concern that they sort of lose that edge that they once had.

SCHAPIRO:

I don't think that they're going to lose that edge and David Pottruck is smart enough. He's already blown up the company and reinvented it once. He will do it again if he has to. There has been some rumors where he will actually come out with a different brand...

CRAMER:

Why does he charge so much versus the other guys?

SCHAPIRO:

Well, you know he may actually come out with a different brand to go after those other guys. I think that would be a smart move.

BUTTNER:

No chance they're rethink their pricing structure though?

SCHAPIRO:

I think that they will rethink their pricing structure. I'm not surprised if that happens. But I think that it's going to be with a different brand.

BUTTNER:

OK. IMB -- Big Blue. The world's biggest computer company. Why do you like it?

SCHAPIRO:

We like to like -- we like it because of what we call the three Gs, which is Gerstner, it's because it's growth at a reasonable price, and its global services. People will go out and buy IBM products no matter what because they're going to offer a liability in a global enterprise-wide platform.

Jim, I know that you own the company.

CRAMER:

I happen to think that IBM -- I bought some this week. There was a competing network had some reporter go on and say that there was a downgrade by Soundview (ph) which was totally untrue, created great opportunity. When reporters make those kinds of stupid mistakes, I do like to jump on it...

GREENBERG:

You're a trader. Why would you buy -- this stock has come so long. You know you bought the stock, where when it was $12 or something like that. Where is it now? What's the price right now?

SCHAPIRO:

One hundred and twenty two...

GREENBERG:

One hundred and twenty two and so the question is how can you actually say that this is a buy at $122 when it has come so far?

BUTTNER:

It's up a 1,000 percent since 1993...

CRAMER:

Hey, you know...

SCHAPIRO:

It's 26 off of next year's numbers. That's pretty reasonable.

CRAMER:

In a market where there -- where every stock trades at 50 -- Schwab is fifty times -- they're resisting it. It's actually cheap. You know this is one of the cheapest stocks on the Dow Jones average right now.

SCHAPIRO:

That's right.

GREENBERG:

So, the reality here is, though somehow, you know -- why is it this company always seems to pull it out? And yet they're...

CRAMER:

Because...

GREENBERG:

.... what, what?

CRAMER:

Maybe because they're good Herb.

(LAUGHTER)

SCHAPIRO:

You know, Gerstner's not afraid. There was the IBM of the past. They had to do it themselves. The Gerstner today -- he's going to go out, he's going to joint venture, he's going to buy other people. He's going to do what it takes to win.

BUTTNER:

OK, number three -- American Power Conversion. These are the folks who make the devices that basically protect your computer from power surges and that type of thing.

SCHAPIRO:

Yes, we like to say it's the low-tech, high-tech in the high-tech business. The interesting part here is it's Y2K, it's -- the uncertainty in the power grid, you know with deregulation and power, obviously people have more uncertainty. They're going to be buying this stuff. The company is selling at 17 times next year's numbers. It only has a $4 billion market cap. So, it's going to start going on the radar screen with a lot larger...

GREENBERG:

Sounds like a fabulous story. You're talking about things I can plug my computer into for surge protectors and things like that. But you know what, their inventories are high. These are things that people don't want to talk about. Balance sheet issues, high inventories, high receivables. This suggests to you that the company's stuffing the channel maybe...

CRAMER:

Who? When?

GREENBERG:

... if they come out with new products -- wait a second -- if they come out with new products, can they get this other inventory out of there fast enough? And the company just talks it away.

BUTTNER:

Well, they're just cutting costs as well and they're cutting staff.

SCHAPIRO:

You know, they're been very, very good at beating their numbers. They've done that pretty consistently the last several quarters.

CRAMER:

Yes, they're...

SCHAPIRO:

They're very good at branding their business too. You know, in that business, no one else has been that successful at offering a good brand. With a good brand you're going to get excess profits. That's why we like this company going forward.

CRAMER:

How about this week that just passed. The stock was what -- started the week at $21? Goes down to $17 -- opportunity, mistake. What was wrong? Why were they selling?

SCHAPIRO:

Buying opportunity Jim.

CRAMER:

Why were they selling it?

SCHAPIRO:

I don't know why they were selling it. We were buying it.

GREENBERG:

They were selling it because they were concerned about the balance sheet, Jim.

BUTTNER:

They've also been very aggressive internationally. How important is global growth to them?

SCHAPIRO:

I think global growth is very important, because obviously the power grid becomes more uncertain in the international market. So, as those get better with e-commerce, you are going to see more need for these types of products.

CRAMER:

Herb is right. This company had a checkered history.

SCHAPIRO:

Definitely.

CRAMER:

Is that all past?

SCHAPIRO:

I think it is.

BUTTNER:

OK, Ken Schapiro of Condor Capital Management, thanks for doing the Drill today.

And we will track your stock picks and update our viewers when we return.

Herb and Jim, thank you as always. And we will see you later in the show, but up next -- is it too much of a gamble to own stock in MGM Grand? Find out what the charts say when Chartman makes his appearance right after this break.

BUTTNER:

Welcome back. Charts and graphs -- a bit boring? Not if they make you money. And technical analysts, or chartists, watch the charts carefully to try to do exactly that.

Well, here's THESTREET's Chartman. He's Gary B. Smith, who trades for a living from his home using the charting method. Gary joins us from Washington, D.C.

And with us as well in San Francisco, our Silicon Valley columnist Adam Lashinsky. He reports on companies on a much more fundamental level. Quick note, Gary and Adam do not own any of the stocks in this segment.

Gary, let's get right down to basics. Tell us what you look for in a chart that makes you say this is a buy. Give us an example of a chart you like.

GARY B. SMITH, CHARTMAN, THESTREET.COM:

Brenda, I sure will. And I want to talk about it in the context of history repeating itself, and specifically gaming is back. You know, Brenda, first it was the '70s that made a comeback, then it was these gaming stocks. I mean, next you know some one like Cher is going to be popular again.

(LAUGHTER)

Let me tell you a little bit about this great chart of MGG. It has the three things I look for in a super chart and I think everyone should look for. Number one is it has a great up trend. That's pretty clear on this one.

Number two, it's had a great breakout firm resistance. And that's two great things.

Number three, it's clearly above its 50-day moving average. This stock is very strong and says to me buy MGM (MGG).

BUTTNER:

Adam, I've got to tell you I've done some field research on this stock and they've got some pretty good properties out there, don't they?

ADAM LASHINSKY, THESTREET.COM:

Yes, Gary and Brenda, this is an instance where Gary's chart and the reality actually are in agreement with each other.

(LAUGHTER)

And they agree on one...

(LAUGHTER)

SMITH:

The one time!

BUTTNER:

Mark this down...

LASHINSKY:

MGM Grand essentially once was a one property stock. The MGM Grand Hotel in Las Vegas. Now it's more than that. It's also the New York, New York property in Vegas and the MGM Grand Detroit, in that newly legalized gambling city where MGM Grand has a head start on the competition.

It also benefited last week from the California Supreme Court's ruling that makes it a little bit more difficult for Indian reservation casinos to make money.

Now Gary, it's this company has $100 million in quarterly cash flow on $300 million in revenues. That's almost as good as a Silicon Valley technology company.

And lastly Kirk Kerkorian, the famed investor who is the controlling shareholder of MGM Grand, is slowly gobbling back shares of the company. He's already taken back $12 million. The company is going to buy back $5 million more. That always helps get the stock moving a little bit.

BUTTNER:

OK, Gary, give us a bad chart. Why doesn't online information network, CNET (CNET) look good to you?

SMITH:

OK, if you flip everything you saw about MGM around, what do you get? You get CNET. This is -- this is the kind of stock you look at Brenda and you nauseous, to be honest with you. It's clearly in a down trend. Just the opposite of MGG, it's broke downward from congestion, and it's clearly below its 50-day moving average. It you're going to buy CNET, you're going to have to wait a long time to see any profits on this stock.

BUTTNER:

Adam, what do you think?

LASHINSKY:

Well, the problem is Gary, in fact you just showed a chart of CNET, but in reality what you showed was a chart of the entire Internet sector. CNET is a high profile Internet company. Internet stocks are down. CNET is down.

What the chart won't tell you is that this is a company whose revenues are doubling year over year. It was profitable until very recently. I'm going to get to that. And it also owns chunks of other high-profile Internet companies, like Beyond.com (BYND) and Vignette (VIGN). Now it's doing a $100 million marketing campaign that axed its profitability and scared Wall Street because they had a company that was making money on its hands.

But what they're doing is building their brand awareness. It's the place for both geeks and unsophisticated technology investors to go. And come Christmas, when people are going to be buying a lot of computers, and when investors get excited again about e-commerce and net stocks, if the net sector pops, so will CNET and Gary, the chart won't tell you that.

SMITH:

Well, Adam, here's the difference between a fundamentalist and a chartist. You say all these great things about CNET are going to happen. I'm looking at the chart. It looks terrible right now. I say, why put $1.00 of your money there?

LASHINSKY:

Gary, I hate to say this, but time will tell, won't it?

(LAUGHTER)

BUTTNER:

Absolutely. OK, Gary and Adam, thanks so much for the lesson.

SMITH:

Thanks, Brenda.

LASHINSKY:

Thanks, Brenda.

BUTTNER:

And we will see you both again next week.

LASHINSKY:

OK.

BUTTNER:

And up next, reach for the beach used to mean a summer swoon for the stock market. But this year it's been sunny on the shore and on the street. Is the forecast just as good for the fall?

We will get The Word on THESTREET next.

BUTTNER:

Welcome back. Well no question, you've got to know the word on THESTREET if you want to have an edge there. So, let's get it right now.

Back with us from THESTREET.COM Jim Cramer and Herb Greenberg and also joining us THESTREET.COM's Editor-in-Chief, Dave Kansas. OK, gentlemen, first topic.

What a week huh? The Dow closed Friday down about 100 points. But over all, it's been an uncharacteristically strong August. Since the beginning of the month, the Dow is up about four percent. The last two years August has been awful thought -- down 14 percent in 1998, and seven percent the year before.

In fact August has been rough sledding for most of the decade, but stocks have usually bounced back after Labor Day. So, now that it looks like this month is going to be a winner, are we setting ourselves up for a fall, come fall? What do you think, Jim?

CRAMER:

No, Brenda. You've got the Fed out of the way. Last week hiked rates last time for the year. You have got to buy them. Got to stay long right till the end.

BUTTNER:

Everybody is already looking to October for another...

CRAMER:

Well, they're fools because this is a good opportunity...

(LAUGHTER)

DAVE KANSAS, THESTREET.COM, EDITOR-IN-CHIEF:

Does that mean, Jim, that we're not -- we're going to go up from here to the end of the year, or you think it's sideways?

(LAUGHTER)

I mean, it's...

CRAMER:

You don't want to go, you don't want to go...

(LAUGHTER)

CRAMER:

.... no, no. I mean...

KANSAS:

It's like you said, sure the Feds out of the way. People are in a little bit earlier than before...

CRAMER:

I said -- I happen to think that things are in good shape. I hate it to be just so bullish, but it's in my character sometimes.

(LAUGHTER)

GREENBERG:

I think I agree with you that I think they're going to see some little bit of -- people are going to be speculating between now and the end of October about what the Fed is going to do, Jim. And I don't care what you say, that's going to happen. It's going to affect the stocks and you're going to be surprised and you're going to be writing some of these columns, telling us how it takes your breath away.

CRAMER:

Ooh, I'm gonna be real scared!

(LAUGHTER)

BUTTNER:

That's definitely the case. The market is it's own worst enemy. If people continue to spend their paper gains. I mean people think they're richer because the stock market is going up and Alan Greenspan is obviously looking at that.

CRAMER:

We had a massive correction. We had a massive correction this summer. Have we all forgotten it? Things really got hammered.

Net stocks still hammered. A lot of damage was done. I think it's OK.

BUTTNER:

Next subject -- trading online. It's a growing trend but there is still a huge untapped market out there. A recent FOX NEWS opinion dynamics poll shows that only seven percent of Internet users have conducted a trade online. And it's getting easier and cheaper than ever to point, click and trade.

A number of services now offer an evening trading. But just because you can trade after hours, does that mean you should?

Herb?

GREENBERG:

Well, you know, I want to be cautionary here as...

(LAUGHTER)

CRAMER:

Shocker, Herb, shocker.

(LAUGHTER)

BUTTNER:

Oh, my gosh.

GREENBERG:

This is a free country, and if you understand the risks, why not? And I think it's the issue of the risks. You know, Jim has talked about them on the television show in the past, and I think the reality is you know, your chances are you are going to lose to guys like him and some of the other pros, but hey, go with it.

KANSAS:

I think later in the day, the other issue too is liquidity. I mean there are not that many people around. There is a little information void, black out. It's a much rougher, wilder time. If you want to feel like you want to trade when you get home and have supper, and you want to get online and trade you can, but the risks are higher. There is less liquidity.

CRAMER:

But THESTREET.COM broke the story this -- just this past week, which said point blank, that all these after hours exchanges are going to merge. If they do that I look for an explosion. It's not going to be Monday night football. It's going to be Monday night stock trading.

(LAUGHTER)

BUTTNER:

Not much vol -- lot's of volatility. Not much volume. I mean, why wouldn't people just wait until the next morning? They know that people like you are out there who will eat them for lunch...

CRAMER:

Because this is an addiction. They're all -- let me tell you something. We're in the wide world of money. We are about to have an explosion in trading because it's just much more exciting than watching whatever that -- than watching whatever they were watching before hand.

GREENBERG:

But that's again -- we're getting down to the old casino thought. This is -- you're starting to talk like this is like a casino, this is gambling. That's what you're talking about...

CRAMER:

You lose. In this game, a lot of people have won.

GREENBERG:

And a lot of people will lose and it's going to be those people who are there doing this, not understanding the risks.

KANSAS:

We could begin to get more and more people involved but I still think -- certainly in the early months, if not longer, it's going to we pretty tough in there. A lot of liquidity problems.

BUTTNER:

All right, well, when we come back, the moment of truth: predictions.

And not only that, but we find out just how on the money past predictions have been right after this.

BUTTNER:

Welcome back. Well, this is the part of the show where we usually get predictions from our panel about what's on the horizon in the stock market.

But first we're going to tally up the TSC scoreboard and look back at some recent predictions to find out how they're doing.

Jim, let's start with you. Well, back on July 24th you said that Pepsi (PEP) would go up and Coke (KO) go down. Since then Coke is down slightly. And Pepsi is down about 10 percent.

How do you feel about the colas now?

CRAMER:

Let's put this in the mistake category. Both of these two companies are doing crummy. I thought that Pepsi would be able to do better because Coke was doing worse. Coke is brining them both down.

I blew out of my Pepsi. I took a loss. I made a mistake.

BUTTNER:

All right, a man who admits he makes a mistake. And three weeks ago you said that bank stocks were heading south this month. Those stocks were actually ticking up a bit. But Bank One's (ONE) slide last month hurt the whole group and now the sector is way off its August highs. Is banking still an area to avoid?

CRAMER:

Bank One made me look good...

(LAUGHTER)

... you can always count on those guys, thank you!

I still think this is a bad area to invest. There is just no -- there's no momentum here. None.

BUTTNER:

OK, Herb, on July 31st you said Just For Feet (FEET) was going to get trampled. But since then it's up fractionally. Your sources still want you to walk away from Just For Feet?

GREENBERG:

Just For Feet has just reported some more bad news last week. The stock may be hanging in there but they still think it will be trampled way lower.

BUTTNER:

All right. And also on July 24th you said that Starbuck's (SBUX) stock would continue to suffer despite abandoning its Internet strategy. In fact, it's down about eight percent since then.

GREENBERG:

Uh, huh.

BUTTNER:

Is the worst over though? That's the real question.

GREENBERG:

For the stock perhaps in the short term. Some of the sources say they think the company's best days have passed it by.

BUTTNER:

OK. And Dave, you're not off the hook either. Last week you predicted that market volatility through Labor Day. So far you've been pretty accurate, but we've got another week to go and we will check out your forecast then.

But for now, what's your prediction looking ahead?

KANSAS:

More volatility...

(LAUGHTER)

... I think that more and more people are coming back and...

CRAMER:

Gutsy!

KANSAS:

.... more and more -- and meaningful too, right? But there's going to be much more volatility.

BUTTNER:

OK, Jim. Go out on a limb.

CRAMER:

All right oil, about to collapse. Venezuela -- a renegade nation. Lot of trouble. Ten percent decline in GDP. One thing they've got to do, is they've got to pump out the oil. They're going to violate the OPEC agreements. Oil is coming down -- opportunity.

BUTTNER:

Herb.

GREENBERG:

Net2Phone (NTOP), one of last week's really big winners. My sources believe it will be one of this year's big losers.

BUTTNER:

Why is that?

GREENBERG:

Because Net2Phone is sort of just a new IPO that has come out and is...

CRAMER:

That is the hottest thing I've ever seen, Herb.

GREENBERG:

It's what -- Internet -- yes, Internet telephoning. That's what it is.

CRAMER:

You used it this week!

BUTTNER:

Would have doubled your money...

GREENBERG:

Pardon...

BUTTNER:

You would have doubled your money this week.

GREENBERG:

Yes, you used it this week. I used it this week too. Couldn't understand what the guy on the other side of the...

CRAMER:

My partner said I sounded like Elmo on it.

(LAUGHTER)

My other guy said I sounded like Barry White. And you know, everybody sounds like Marlon Brando on the thing...

BUTTNER:

They're...

(LAUGHTER)

GREENBERG:

Bottom line, they have lots of competition and the price advantage isn't that great. And that's what's going to end up -- you know this is a hot story and that's what it is.

BUTTNER:

OK, we will be watching those predictions and you can let us know what you think about them by visiting us at thestreet.com/tv. As you just saw, we will keep track of their accuracy.

There is also a place on that page to send us your comments about the show. So, just point and click to let us know what you think, and while you're at the computer you can check out our website at THESTREET.COM.

Jim, Herb, myself and many others write everyday to tell you what you need to know to make your own decisions when investing.

And that does it for this edition of THESTREET.COM. We will see you here again the same time next week. Until then, we hope you invest wisely.

END

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