David Gaffen chatted on AOL's MarketTalk, hosted by Sage, on Thursday, June 21 at 11 a.m. EDT.
Live from New York, N.Y., please welcome
, markets reporter,
. Dave can answer questions about the markets and investing.
Thanks for being here. I'm happy to answer all your questions.
How long until Palm gets to the $10 range?
You might be waiting quite a while for this. With the entire market depressed, asking this stock to double is a bit of a tall order. If consumer spending holds up, it might do reasonably well, better than, say, some of the cell-phone makers, but $10 is far away.
Many depressed internet-related issues are doing reverse splits to raise their share price out of the penny zone. Is this an action investors should be wary of?
I'd be wary of the stocks and the companies themselves, rather than the splits.
Generally, these splits signal that a company is desperate, and trying to maintain a stock price that will garner some institutional support, but often by that point, the company is already in dire shape.
wrote a story about this a couple days ago, which should be checked out.
Overall, the stocks are probably to be avoided. It's rare a company doing reverse splits gets back on its feet for good.
GX, What's up with that company?
Like a lot of telecom companies, these folks spent way too much money on laying cable, sort of like the Internet companies buying up property to grab "market share" before there was a need for the product, or before railroads became highly traveled, there was a lot of overbuilding there too.
So there's not much to hinge on with regard to this now.
Is LU going down the drain or just going thru tough times? Would you buy at these levels?
Lucent's not in good shape, being another telecom company that was ruined by problems with its customers and bad management decisions. It's hard to fathom that this company would go away, but when you say "tough times," you could be talking about a few more years.
I can't recommend specific stocks, because that's prohibited here. But as with most investment decisions, this is one where you'll have to have some patience, if you're inclined to buy the stock.
When do you think the next rate cut will happen?
The Fed is likely to cut rates by 25 basis points at next week's meeting, which runs two days -- June 26 and 27. That'll take the fed funds rate to 3.75%.
After that, it's unclear whether they'll be doing much more in the way of interest rate cuts.
The Fed's done some massive rate-slashing -- and that needs time to be felt in the economy.
Some problems, like telecom overcapacity, cannot be resolved with these rate cuts. Those businesses will be retrenching for several more years.
What's your best pick for 12 months out. One that you can not change? Thanks.
Ok, so you're asking me to pick one investment, and you're telling me I cannot change it for 12 months, right? I have to hold it or bust, right?
It's a good thing these games aren't the ones people usually play when they're investing. As always, and I'm going to sound boring, I tend to believe in diversification, and that's stocks, bonds, and cash.
Right now, large-cap stocks look like they're in the midst of retrenchment, while value and small-caps are in somewhat better shape. These trends tend to reverse every 15 years or so.
Given what we know about the recent performance of big-cap tech from 1993 to early 2000, it's something to think about. So I'm cautious, and I never operate under a one-year horizon.
Do you think Microsoft will be kind of flat from now on -- just kind of dead money? Thanks
Boy, MSFT sure is a Teflon stock, isn't it? From April to now, Cisco is up a lousy $3. Sun is up $1.50. Dell is down and many others are down.
Meanwhile, MSFT has tacked on $20 to its price. It might be that this has something to do with anticipation of the end of the Justice Department's suit, as well as anticipation of XP, but it's really gone a long way.
It's become a bit of a cyclical play, but it's still a strong company. At this point, I can see where your caution comes from. The stock has come a long way.
Are depressed stocks like MOT, CPQ, and WCOM, at good value points?
It's at this point that you have to consider whether a stock is a good value just because the price is nowhere near where it was earlier.
MOT's all-time high is $39.75 -- now it's at $13.97, which gives it a P/E ratio based on 2002 earnings of 31, which still strikes me as high, though I have to admit I don't know the historicals with MOT. But thinking about it, those earnings estimates are likely to turn out slightly optimistic. And then where are you?
Ultimately, that's got to be considered.
Same goes for WCOM. Its all-time high is $48.01 and now it's at $14.92.
OK, so that's cheaper. But cheaper doesn't mean cheap. At least its P/E is low -- about 11, so that's not quite as expensive based on that quick and easy valuation.
If the company, which was a solid performer for a long time, can continue to grow, then perhaps that's not bad.
CPQ is at a P/E of 15.9 based on 2002 earnings. Not so expensive anymore.
But the desire to jump in and out of technology is one that a person needs to be cautious about at all times. I tend to look at things with a longer horizon; if the cheaper stocks fit your portfolio, that's understandable, but the quick gains just aren't likely to happen anymore.
How many people out there were savvy enough to buy in late April and sell three weeks ago? It's just not that easy. I know I couldn't do it.
Do you think EXDS is ripe for some bottom fishing with dollars one can afford to lose?
With all due respect, if they're dollars "one can afford to lose," then go to Atlantic City or Las Vegas, whichever one is closer. The Harrah's in Joliet, Ill., is nice too.
I'm not much in favor of investing based on expectations for a miracle.
The goal here is to ultimately preserve, and augment, capital. If they're dollars you can afford to lose, why not "lose 'em" in a company that's making money and has an actual P/E?
I see your thinking in terms of the fact that it's down 42% today, but that doesn't mean it'll recover.
Do you think investors need to alter investment strategies as the complexion of the market changes?
Absolutely. Like the guy said, "When the facts change, I change my opinion."
The current dogma in the market revolves around thinking big-cap tech is going to regain the earlier growth levels it had experienced.
It also revolves around the notion that stocks that were once at $80 are cheap now because they're at beat the market. That doesn't mean you give up and throw it all in an index fund, but be aware of fundamental changes that take place over time -- and by time, I mean 15 years.
I'd have been stupid five years ago to tell you not to invest in big-cap technology, when people were going nuts throwing money at Internet and infrastructure names.
And for you to ignore it would have been foolish. It was a great opportunity that made a lot of people a lot of money, and if you managed to hang onto those gains, good. That's good news.
But that doesn't mean the situation is the same anymore. It certainly isn't.
It's hard to tell where this market is going right now. If you're looking for emerging ideas, don't force it. This is a period of retrenchment. Preserve capital.
Keep money in bonds, always. And some cash. Diversify your holdings.
It sounds silly, but it would have helped in late 2000. Just because you made 55% in 1999 and your neighbor made 114%, you're not a chump.
What the 1995-early 2000 era did was make people think this was easy. It's not. It's darned difficult. As many people are figuring out. Balance your holdings out, and keep an eye on your decisions. If you're holding long term, don't hold it blindly. Check that out too. I'm not preaching ignorance.
I'm just preaching common sense, I suppose. Thanks.
The current dogma in the market revolves around thinking big-cap tech is going to regain the earlier growth levels it had experienced. It also revolves around the notion that stocks that were once at $80 are cheap now because they're at $7.
That is just not the case. Ultimately, most people are not going to beat the market.
Thank you for joining us today Dave! We have been speaking with Dave Gaffen, senior markets reporter,