Dec. 4,5: Guest Henry Blodget

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Participants on Dec. 4 included host Brenda Buttner, Jim Cramer, Herb Greenberg, Gary B. Smith, Adam Lashinsky, Dave Kansas, and guest Henry Blodget. 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 decisions when investing in the stock market.

So, let's do that by getting "The Word on TheStreet."

With us from

TheStreet.com

Web site, Jim Cramer, who also managers the Cramer Berkowitz Hedge Fund,

TheStreet's

Editor-in-Chief Dave Kansas and senior columnist Herb Greenberg.

Also joining us, Henry Blodget, senior Internet and e-commerce analyst at Merrill Lynch. First topic, the market, and will this be a December to remember? Well, it certainly was a week to remember -- huge gains for all three major averages. The rally fueled the Nasdaq and S&P to all-time highs, and the Dow just a few points shy of its record.

The question of course is: Can this last?

Now, Jim you are always very animated, but I've never seen you happier than today. What do you think?

JIM CRAMER, THESTREET.COM:

Let me tell you something. I'm not going to equivocate -- the answer is yes. And any selloff is a gift and I would hope that any of the viewers take advantage of it because this rally is the most powerful I've ever seen in my 20 years of trading.

BUTTNER:

How much of this was panic-buying by funds who were just trying to beat their benchmarks?

CRAMER:

Honestly, I think that so much of it was that we are in a benign interest-rate environment and the earnings are coming through particularly for technology, that you can't think of a reason not to be in and they're going to take the money away from the managers who think that they shouldn't be in.

BUTTNER:

Herb, jump in there now -- cautionary.

HERB GREENBERG, THESTREET.COM:

The -- cautionary...

(LAUGHTER)

... I'm thinking about, I'm thinking we're talking, but I will tell you something. There is a great saying about these Santa Claus rallies they call it. And you probably hate hearing these things, but historically...

CRAMER:

Yes, Grinch. What Grinch?

GREENBERG:

... historically -- no, I'm not going to be a Grinch. If Santa Claus should fail to call, bears may come to Broad and Wall and right now it looks like this is off to a roaring start. But it is early for these rallies. These rallies usually occur at the end of the month.

BUTTNER:

Henry, a lot of this is right in your sector. The Internets are running like crazy. What do you think? How long can they go?

HENRY BLODGET, SENIOR ANALYST, MERRILL LYNCH:

They've been red hot. We think that a lot -- over the next year or so we're going to see a migration out of the consumer sector, and into infrastructure and business to business. But the consumer stocks sure have been hot.

We think they could continue for another couple of weeks.

DAVE KANSAS, THESTREET.COM:

And, Jim, why do you think -- or Henry -- the stocks are -- there are so many buyers right now,. But it seems to me that you can't go up 300 points every day. You can't -- you say it's going to be a gift, but at a certain point, up 20, 30% every year five, six years in a row, it just can't keep going like this.

CRAMER:

This is not a coin flip and we're not trying to figure out when it's going to be heads and when it's going to tails. As long as the earnings stay strong, as long as rates stay low, you're going to be in a benign environment where people are going to have to own stocks.

If you change either one of those two in the equation, then I think we're going have to deal with a different reality. We have a good reality here. Let's face it, own up to it, and invest in it.

BUTTNER:

What ever happened to Y2K jitters? It's like Y2K jubilation now. Is that -- is that going to be a factor at all?

GREENBERG:

It depends on the company.

(LAUGHTER)

Some companies, one company in particular said last week -- SFX (ph). So, you know.

CRAMER:

I bought IBM this week because I think IBM was worried about Y2K and I think it's passed them. I think it's a great opportunity. I'm very long it. And I think that the companies that identified Y2K as a problem have now dealt with it and it will become an opportunity to beginning in January.

BLODGET:

Everyone is looking right through it. Jan. 2 is less than a month away.

BUTTNER:

All right next topic, B2B -- not a rap group. I'm talking about companies that sell their services to other companies. And the hottest stocks in that group have been the ones that do their business on the Web. Just look at Ariba (ARBA:Nasdaq), Commerce One (CMRC:Nasdaq) and VerticalNet (VERT:Nasdaq). Those are three of the biggest which have gone public just this year with amazing results.

Herb, B2B clearly has the buzz, but is it really a place to put an investor's money? Do you just ignore B2B's buzz?

GREENBERG:

It depends on the company. The trader's money -- I suspect it's the latest fad, but it's one of the great fads that has so much going for it in terms of fundamentals how, because this is where the companies are going to make it go. But, is it Oracle (ORCL:Nasdaq) or is it Scient (SCNT:Nasdaq), two very different strategies, all in the same marketplace?

CRAMER:

My question is why are you putting "or" in there? It's a really a conjunctive here -- it's "and." And the reason it's "and" is because the market is exploding.

This week there was some postings in our message boards which have become a fabulous place to go. BEA (BEAS:Nasdaq) was talked about very positively on our message boards. I bought the stock after reading -- people who are using the product and saying it's great. And I caught a Goldman Sachs buy recommendation, and I caught 25 points, 25 of the 50 that were available this week, because they are a leader in B2B.

And I am not going to look through it and say when is it going to end when it's just begun. It's too early to look through it.

BLODGET:

It's just begun.

BUTTNER:

What about business consumers though? Do you just completely abandon that sector?

BLODGET:

Five years ago, no one was ever going to buy anything on the Net. You couldn't advertise on the Net. The last five years, $500 billion of market capitalization has been created in business to consumer Internet companies.

GREENBERG:

But, I have to tell you something...

BUTTNER:

But...

BLODGET:

The next five years, business is likely to be 10 times the size. It should create at least $500 billion of market cap. We only have about 20 to 30 now. Long way to go.

GREENBERG:

But the trick for the investor is going to be trying to determine whether which of these are the real companies in that space...

BLODGET:

True...

GREENBERG:

... and a lot of the frauds that are going to be out there. And I think that's, you know...

CRAMER:

Well, that's we're writing about. I mean, I think you're absolutely right. I think he's right. There's a lot of companies that are going to claim to be B2B. It will up to guys like Henry to say listen, that's not B -- that is not a real maker of value or this company is a value maker. And we're going to be lured into some false ones, but I don't think they're going to hurt you more than the good ones are going to make you money.

BLODGET:

With this opened-ended upside, you have to put the risk in context. If you get one stock in your portfolio that is 10X, you can have nine that go zero, and you make money.

KANSAS:

Well, that's exactly it. I mean when you're looking at this kind of growth, you've got to get 10 or 20 -- you've got to diversify the risk, I think. Because you're going to have a lot of winners. If you go from 20 bill to 500 bill, I mean you're going to have a couple of good stocks in that mix.

BUTTNER:

All right, and that's the last word for "Word on TheStreet" this week, but Henry Blodget will be back a bit later in the program. And we will look at some of his past stock picks and a couple new ones as well. And Jim and Herb will be here too, putting Henry in the hot seat.

But up next, do you want a hot stock? The Chartman has one for you. But what are the chances you will get burned? We will explain right after this.

BUTTNER:

Welcome back.

It's ticker symbol, H-O-T -- HOT -- might suggest this stock will ignite your portfolio. Let's find out what The Chartman has to say.

He's Gary B. Smith, who trades for a living from his home using the charting method.

Gary joins us from Washington, D.C.

With us as well in San Francisco, our Silicon Valley columnist Adam Lashinsky who, unlike Gary B., actually cares about a company's fundamental.

(LAUGHTER)

GARY B. SMITH, CHARTMAN, THESTREET.COM:

I care too. I don't admit it.

(LAUGHTER)

BUTTNER:

Gary and Adam...

(LAUGHTER)

Not that much. Gary and Adam do not own any of the stocks in this segment.

First up, HOT -- at least that's the ticker. Gary, can your chart take the temperature of Starwood Hotels (HOT:NYSE)?

SMITH:

Yes, they're -- there's one I bet a lot of these Internet companies -- they already have it in price. They just don't have it in name. Here's one that's the opposite way. It has it in name, but not in price. But it's not hot. I would say though it is at least warm now.

What's happened is -- the good news is it broke a long-term down trend. It moved up smartly, and now it's just gone into a little congestion, a little sideways move. So, right now you would almost have to be bullish on this stock. But I would not do anything, though, unless it made one more move up and out of that congestion.

Then I would say you could buy hot and really make a nice run with it.

BUTTNER:

Hmm, Adam this has not been a favorite on Wall Street. Starwood has disappointed repeatedly. Management troubles. What do the fundamentals say?

ADAM LASHINSKY, THESTREET.COM:

Well, the fundamentals say a company that's going to move up over the longer term, and of course, Gary, that has really nothing to do with what the chart says.

Here let's talk about what the company is -- Starwood is Sheraton, and Westin and W and other quality hotels. But yes, as Brenda said it has disappointed and furthermore the CEO of this company, Barry Sternlicht, isn't well-liked. He makes some questionable investments, he's had high level defections; that's never a good thing. But the company has delivered for customers.

I've been traveling a little bit more than I would like to have been recently. I've stayed at some of these hotels. They're clicking on all cylinders. They're really just doing great.

The stock, according to a Merrill Lynch, sum of parts analysis, that's looking at all the different assets, comparing it to their competitors, and saying what the whole company is worth, is easily $32 but that's over the long term, and it doesn't matter what happens in the next few days or weeks.

SMITH:

Adam, let me ask you, let me ask you a question. A fundamental analysis side, I guess you like this stock OK. Would you buy the stock right now?

LASHINSKY:

If you -- as you know I wouldn't be an investor Gary, but I were yes, I would buy it and...

SMITH:

Why -- here's my question...

LASHINSKY:

... assume that it would go up.

SMITH:

Why not use technical analysis and wait for the opportune moment to buy, which I would say it just has to move up a little, then you know it's safe to buy.

LASHINSKY:

Fair question, and it gets to who we're talking to. If you've got time to be tweaking and tuning and getting in and out of the market frequently, you raise a good point.

SMITH:

OK.

BUTTNER:

All right, next, Inprise (INPR:Nasdaq) computer software and service company. Gary, big climb for the stock recently. Does it have legs?

SMITH:

Oh, it's -- you know this is silly. It's making some of the Internet, even those B2B look like they're -- look like they're hot for crying out loud.

I mean Starwood Hotels, this thing has gone up like 300%. And that's been all well and good if you've been in. If you haven't been in, I would say it is far too risky now. Maybe the stock goes up to 11. Then it's going to run into resistance, and I think the thing is dead.

If you are making an investment in INPR right now, I think you're taking a huge, huge risk.

BUTTNER:

Adam, a lot of chatter about the stock on the Internet. Do the fundamentals agree with the chart here, that Inprise won't likely go much higher?

LASHINSKY:

The fundamentals agree with the chart to the extent that they say about as little as the chart says about this stock, which puts Gary and me in agreement here.

This is the former Borland, the company that makes software tools for software developers, very techie, geeky stuff, that imploded after having an epic battle with Microsoft (MSFT:Nasdaq). The stock spike is really a message board phenomenon, a lot of rumors going about this company, including a true one that it's getting involved in Linux products and will be valued like other Linux companies the free operating system.

But that doesn't really say anything about the fundamental value.

I talked to management a couple of times last week. They hope to be profitable by the end of next year. They are not giving out sales projections. So, you can't really do fundamental analysis on this. I guess in this instance, the chart is just as good a barometer.

(LAUGHTER)

SMITH:

Now, you're -- you want to be a technician now, right.

(LAUGHTER)

BUTTNER:

That was very grudging, Gary, I would say.

SMITH:

Yes.

BUTTNER:

All right, thanks as always. And we will see you next week.

But coming up, Yahoo! (YHOO:Nasdaq) was just one of three stocks from Henry Blodget -- up big since he was last on this show. What's on his holiday shopping list this time around?

We will find out right after this break. Stay with us.

BUTTNER:

Welcome back. Time to check on the TSC scoreboard. Henry Blodget from Merrill Lynch is back along with

TheStreetcom's

Jim Cramer and Herb Greenberg.

Well, when Henry was with us last summer, Amazon.com (AMZN:Nasdaq) led his list of picks. He didn't win over this group, but a look at the stock's performance shows that this was clearly at least a very big short-term winner.

Henry, with such a run-up in just four months, do you still think it's a buy? Are you buying now?

BLODGET:

Long term, Amazon's a buy. We think they will win in the e-tailing category. We do think though that there will be a lot of popping of the balloon in terms of the enthusiasm after Christmas and that will probably result in a setback of...

GREENBERG:

Henry, not only is this company not making any money which we all know, but now you've got a sequential decline in revenues. Where's the sizzle now?

BLODGET:

Long term, this is still...

GREENBERG:

Long term. I'm sick of hearing long term.

BUTTNER:

Oh, come on, you are Mr. Long Term.

(LAUGHTER)

GREENBERG:

No!

BLODGET:

This is one of the fastest growing companies in history. Wal-Mart (WMT:NYSE) was small way back in the 1960s. It's now worth $250 billion. Amazon's market cap is only $25 billion. There is a long way to go long term. Smart management team. They will win.

BUTTNER:

OK. AOL (AOL:NYSE) was the second stock that you liked. A nice more there as well. What are your thoughts now?

BLODGET:

AOL, again, we really like it long term. We think actually AOL should hold up very well in the first quarter. So, this is a stock that we would still buy today and we think they're going a great job. So...

CRAMER:

I'm very long on America Online, Henry. You've been very instrumental in helping me be that way. I'm hearing that there are some big announcements involving Wal-Mart. Are you hearing about that for next week?

BLODGET:

Certainly hearing a lot of speculation to that extent. We don't know anything in particular but there are a lot of things that they could do.

BUTTNER:

OK, and the third stock that Henry picked last time is on his list again in another round of "Stock Drill."

The two stocks Henry likes -- Yahoo! (YHOO:Nasdaq) and DoubleClick (DCLK:Nasdaq). He owns shares in Yahoo!. Jim is long both of those stocks. And Herb does not have any positions.

OK, Yahoo!, undisputed leader of Internet portals, but trading about 250. I mean is it very vulnerable to any disappointment?

BLODGET:

We don't think there will be any disappointment, so we're not really worried about disappointment, but clearly this is a volatile stock. All these charts look like EKGs, so...

BUTTNER:

Right.

BLODGET:

... at some point it will probably come in. But again, a long term, this company is ideally positioned internationally. International will be one of the biggrowth waves over the next couple of years.

So, we would own it.

CRAMER:

Henry, you have been most instrumental in the game of Wall Street, of raising price targets. I've got a Dec. 2 report right here, written when the stock was at 212. Now, that's hopelessly out of date. That's 40 points out of date. Raise your price target. Will you do it? Will you do it next week?

BLODGET:

Not next week. We've had a good run here. We don't want try to throw gasoline on the fire at this point. But long term we do think that Yahoo! goes far.

BUTTNER:

So, 250 for how long?

CRAMER:

Where does it go to?

BLODGET:

Where does it go to? We think it will trade 250, 300 here. It just crossed 250. It could certainly go higher the next couple of weeks. But again, in the first quarter, there is a lot less to talk about. You've got a big summer coming on. That's not exciting for a lot of the e-commerce and advertising-related stocks. So, we expect to see a sag then.

GREENBERG:

Henry, the big story at Yahoo! is e-tailing and that it really wants to get into that space. I'm just curious. This has less to do with Yahoo! than it does Amazon. Does that hurt Amazon?

BLODGET:

I think if Yahoo! can take the eyeballs away from Amazon, if people start going to Yahoo! first, to start looking for things, and then they shop at merchants and then cut Amazon out of the loop, sure Amazon loses a little bit.

But on the other hand, Amazon has 20% of people who are online going to its site every month. They're hardly vulnerable.

BUTTNER:

OK. DoubleClick -- very interesting -- they're an Internet advertising channel, a very interesting business model. But they're piling on debt. They're still far from making money. Why do you like it?

BLODGET:

Well, we think DoubleClick really isn't that far from making money if you look at their core business right now. A lot of the losses are going into investing for the future. And I know that's -- you can be cynical about that. You can say it won't work, but Yahoo! was doing that at one point, and it worked beautifully.

So, this is a company that again is very well positioned internationally. They're very well positioned for database targeting. And...

GREENBERG:

Henry...

BLODGET:

... that's important.

GREENBERG:

... DoubleClick -- one issue -- they do have competition. And CMGI (CMGI:Nasdaq) is out there as a big...

BUTTNER:

Right.

GREENBERG:

... competitor. The impact?

BLODGET:

CMGI is a big competitor. Always take it seriously. They've aggregated a lot of different companies. They do at this point have integration challenges. You have to put together a lot of management teams. We also think the data business will be a business that's dominated by one major player. DoubleClick has a great asset in Abacus. If they can successfully use that data to target advertising, it will be hard to compete with.

GREENBERG:

They've still got to -- go ahead, I'm sorry.

CRAMER:

A lot of our readers are retail readers. Now, I don't want to disparage -- Herb and I've actually had a debate about this at times. When a stock announces a split in this market, it goes up big. There have been rumors that DoubleClick was going to announce a split on Friday. It didn't and the stock got hit.

I mean, first of all does it matter and secondly, have you heard anything about this?

BLODGET:

Haven't heard a thing about it. Wouldn't be surprised. The stock is up there are $170 times...

CRAMER:

They have historically done it, right?

BLODGET:

Absolutely. Haven't heard a thing about it. Does it matter long term? We don't think so. If you play it correctly short term, sure you get a nice bonus, but we wouldn't base a trading decision on that.

BUTTNER:

Aren't you concerned that they're so dependent on a few Web sites. I mean AltaVista makes up what half of last year's revenues?

BLODGET:

AltaVista makes up a lot of their media revenue which is their advertising -- DoubleClick is a very complicated company. So, spend some time looking at it.

But AltaVista makes up a significant percentage of one line of their revenue. But they're gross profit actually, it's a much smaller percentage because it's very low margin. And really the business that you want to focus on with DoubleClick is the advertising targeting business which is their database business. That's the business that everybody wants to own.

BUTTNER:

So 170 right now, your target?

BLODGET:

Yes -- 225.

BUTTNER:

All right. OK. And that's it for Stock Drill. Henry Blodget, thanks for being with us again. And we will keep an eye on Yahoo! and DoubleClick on their progress when you visit us next.

But when we come back, Christmas can only be a good thing for retailers, right? Not so fast. You need to hear predictions up next.

BUTTNER:

Welcome back. Predictions. What's going to happen and how will it make money for you?

Jim, what have you got?

CRAMER:

This was the toughest week for me ever to do predictions because I had so many stocks that I wanted to talk about that I thought were going higher -- I don't care. I was thinking about IBM (IBM:NYSE). I was thinking about going back to Intel (INTC:Nasdaq). I think Microsoft is going higher.

But the easiest one for me was talking about America Online. This stock sees 100 before the winter is over.

BUTTNER:

And where is it right now?

CRAMER:

It's at 80, 78. I don't know what the heck it's doing at 78 and not higher.

BUTTNER:

All right. Herb.

GREENBERG:

I think it's going to be a disastrous holiday season for the main-line department stores like the Federated (FD:NYSE) chain, Penneys (JCP:NYSE) and Sears (S:NYSE). Lots of sales at the end of this holiday season.

BUTTNER:

The discounters really coming in there. All right, Dave.

KANSAS:

Great Christmas for the Internet stocks, the DOT at 1028, going to go 1200 before the year is over.

CRAMER:

That's a big move.

BUTTNER:

OK, all right. And if you want to track the DOT index and find out what stocks are in there, there is a link to it on our Web site on thestreet.com/tv.

While you're there, you can also write the predictions you just heard and send us any other comments or suggestions. Plus, at our Web site you will find stories and columns from all of us here and dozens of others who write to help you make your own decisions when investing in the stock market.

And that does it for this edition of "TheStreet.com." We will see you throughout the week on our Web site. And then back here, same time next weekend.

Until then, we hope you invest wisely.

END

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