Feb. 12, 13: Guest Christopher Baggini

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Participants on Feb. 12 included host Brenda Buttner, Jim Cramer, Herb Greenberg, Adam Lashinsky, Gary B. Smith, Dagen McDowell, Joe Bousquin, Jonathan Hoenig and guest Christopher Baggini. The transcript is unedited, and phonetic spellings are indicated with a (ph).

BRENDA BUTTNER, HOST:

Up next, information you need to make your own decisions in the stock market. They're supposed to be the blue-chips. But if you've been investing in them this year, you're just plain blue. Is it time for you to lose your

Dow

dogs after another painful week?

Plus, if you acted on a prediction made on this show six weeks ago, you'd be in the money. Biotech is booming. What's the best way to cash in now? Find out.

All that, and a new round of "Predictions" from Cramer and company. But first, the headlines with "Fox News Live."

BUTTNER:

Hi, everyone. I'm Brenda Buttner. And you are connected to "TheStreet.com." We're here to help you make your own investing decisions.

Boy, rough end to the week on Wall Street. In fact, it was just a bad week overall for the Dow. What's going on? Let's get the "Word on the Street."

With us from

TheStreet.com

, Senior Columnist Herb Greenberg, in San Francisco, Silicon Valley columnist Adam Lashinsky, and in Chicago, a new contributor to the show and

TheStreet.com

Web site, Jonathan Hoenig. He's known as the Capitalist Pig. And that's what he calls his business too. Jonathan is portfolio manager at

Capitalist Pig Asset Management

.

And also here in New York, Christopher Baggini. He is portfolio manager of the $250 million

Ark Capital Growth

fund.

Welcome everybody.

Well, first topic, the Dow. Frankly, it's been a dog this year, especially when compared to the

Nasdaq

. In fact, after a major selloff Friday, the Dow is now officially in a correction, down more than 10% from its January highs.

Herb, you know, why don't we forget about all those old basic blue-chips? They're not the story these days.

HERB GREENBERG, SENIOR COLUMNIST:

Well, they aren't the story. But it also depends on how you define blue-chip. You know, you're not just talking about these 30 Dow stocks. There are a bunch of other stocks out there.

And I know a guy who runs a blue-chip fund. I was talking to him today. Hey, he owns

Motorola

. He owns

Nokia

. He owns

Disney

. Those are blue-chip companies.

Does he own

International Paper

? No, it's out of there. Does he own

Chevron

? No. If the top line isn't growing, the bottom line isn't growing. He doesn't care about those kinds of companies.

ADAM LASHINSKY, SILICON VALLEY COLUMNIST:

But Herb, say one thing for the Dow, which is that the risk is going to be a lot less than being in the Nasdaq. And isn't that good for some investors to have some exposure to these boring, predictable, solid companies?

BUTTNER:

I don't know...

JONATHAN HOENIG, PORTFOLIO MANAGER, CAPITALIST PIG ASSET MANAGEMENT:

They'll head even lower if you ask me. I mean, I don't know. Guys, the trend has obviously changed here. I think the Dow is leading the rest of the indices lower.

I mean, take a look at what we saw yesterday. And take a look at what we've seen all throughout 2000 altogether. The Nasdaq and IPO market is like the only thing that's been moving. I think the Dow is telling a story, and it's for the weakness to come.

GREENBERG:

But you keep -- Jonathan, Jonathan, you keep talking about Dow, Dow, Dow. Forget it. Wait a minute, we're talking about a broader market of stocks.

BUTTNER:

Well, truly it is more than just a Dow. It's just a handful of stocks that are up, even on the Nasdaq...

CHRISTOPHER BAGGINI, THE ARK FUNDS:

That's right.

BUTTNER:

... most of them are down.

BAGGINI:

Well, you can make the case that the part of the Dow that's been going down is the old economy. And the Nasdaq, which is being pushed 60% or more by technology stocks, is a totally different market now than the Dow is.

HOENIG:

We're in an environment of rising interest rates. I mean, take a look at what's happening in some of the other markets, commodity prices...

BUTTNER:

But that doesn't matter anymore, Jonathan, does it?

HOENIG:

... I think it does...

BUTTNER:

I mean, the market shrugs off of that.

GREENBERG:

... Well, wait a minute.

HOENIG:

... Insiders are selling out of these companies as fast as they can. I think the Dow is telling the story, and the Nasdaq doesn't look pretty.

GREENBERG:

You know, it's interesting, you talk about rising interest rates. And we went through this rate increase suddenly. And suddenly, nobody cared much anymore.

BUTTNER:

Nobody cares about that. Nobody cares about bonds.

GREENBERG:

But now suddenly I'm hearing, wait, we've got economic indicators coming out this week and people are going to start getting all upset and worried about that.

HOENIG:

Absolutely.

BUTTNER:

Adam, give me one reason why I should invest in anything but tech.

(LAUGHTER)

LASHINSKY:

It depends how much you like your stock portfolio being able to go down, say, 20% in a week when there's a bad week for technology. If you can't stomach that, that's a very good reason to own things other than tech.

BUTTNER:

All right, well put. Next topic, one close to your heart. Internet hackers, they halted business on several big-name Web sites last week,

Yahoo!

and

eBay

among them.

The sites are back up. But are cyberterrorists still a big problem for those of us who own shares in the dot-coms? Adam, how big of a problem is this?

LASHINSKY:

Well, Brenda, you know, I'm the son of an economist. So I'm going to give you an "on the one hand and on the other hand" answer.

BUTTNER:

We're used to that now.

LASHINSKY:

On the one hand, from a business perspective, this just wasn't a big deal for any of the companies that were hacked in terms of them making their quarters, getting their revenues, etc. On the other hand, what the event served to highlight is that these are risky technology companies. They're relying on a new system that's only been used for a few years.

And these things will happen. They'll get repaired. But maybe they'll happen again. I think a lot of newer investors in the market forget that we're dealing with volatile issues here.

BUTTNER:

Jonathan, how do you play this? If you hear word that there has been a cyberattack, do you sell that site and buy the insurance companies, buy the security companies?

HOENIG:

You know, Brenda, I don't think so. I think the market has essentially already priced in these hacks. And they've proved to be no big deal. I think what to me is more interesting on the dot-com side is the lockups that have been ending. I mean, so many of the insiders are bailing out of these dot-com companies. To me, that's more of an indication of a trouble signal, rather than Internet hacks.

GREENBERG:

Well, wait a minute. I think some of these people are probably trying to make some money off these stocks just because they've been -- they've got their net worth tied up in them, Jonathan.

HOENIG:

Well, I think they'd better hurry because I think what we...

(CROSSTALK)

GREENBERG:

Jonathan, Jonathan, the Internet is not going away, buddy.

HOENIG:

Yeah, the Internet is not going away but...

BUTTNER:

Oh, my gosh, Herb saying this? Wait a minute, let's get this down on the record.

(LAUGHTER)

HOENIG:

Herb, the Internet is just a fad like color TV is, so I've been told...

(LAUGHTER)

HOENIG:

... But in all honesty, I think valuations will contract. I mean, every time a Net site gets hacked into, the perfect picture that's built around these stocks gets a little more blurry.

BUTTNER:

Are you worried about this?

BAGGINI:

No, not really. I think it's more feed for the fodder. We're just talking about the Nasdaq. And we're talking about big-cap tech stocks, companies like

Cisco

and

Nortel Networks

.

These are companies that are going to benefit from all this. They're actually supplying all the picks and shovels and the security guards too. So I think you ought to keep with those guys.

BUTTNER:

All right, it did, Adam, it did hit though pretty much across the board. Who do you think -- what kind of sector is most vulnerable to this? We had the e-commerce sites hit. We had content providers.

LASHINSKY:

Well, you know, a good point that was made earlier is that these are -- the dot-coms are stocks when they're running well that are priced for perfection. So a pure play does extremely well on the upside for being a pure play in the Internet. And it's going to be the most vulnerable when it only has one thing, that's online business, if they were to get hacked and damaged.

BUTTNER:

OK, that's it. You get the final "Word on the Street." Christopher, thanks for joining us...

BAGGINI:

My pleasure.

BUTTNER:

... Chris Baggini from the Ark Capital Growth fund.

But up next, are you invested in biotech? I bet you wish you were. A prediction on this show on New Year's Eve would have made you some real money in that sizzling sector. The biotech boom when "TheStreet.com" returns.

BUTTNER:

Welcome back.

Well, if you saw our show on New Year's, you heard Herb Greenberg make this prediction.

GREENBERG:

I believe there will be an incredible boom in biotech stocks.

BUTTNER:

So far, there's no question Herb's been right. Since January, that sector is up 31% compared to a loss in the

S&P 500

of more than 5 1/2%.

But there are so many biotech companies out there it's hard to know which stocks to ride. If you want a pro to do the work for you, a fund is the way to go. But which one? That's today's "Mutual Fund Face-Off."

And here with two different views on investing in biotech funds, from

TheStreet.com

, mutual funds writers Dagen McDowell and Joe Bousquin.

Welcome, both of you.

OK, well, Dagen, you like

Fidelity Select Biotech

fund. That fund is up 136% over the last 12 months.

DAGEN MCDOWELL, MUTUAL FUND WRITER:

That's right.

BUTTNER:

Great return. But there are other funds that are doing just about the same. So why choose this one?

MCDOWELL:

If you want to buy biotech, you buy a biotech fund rather than a broad health care fund because you don't want to end up owning HMO stocks if you want to own biotech stocks.

JOE BOUSQUIN, MUTUAL FUND WRITER:

Yeah, but you know, Dagen, as the sector goes, so goes that fund. There's very little diversification if biotech, God forbid like Herb says, doesn't go...

BUTTNER:

But how important...

MCDOWELL:

But Joe...

BUTTNER:

... is Fidelity though to this? I mean, Fidelity's research bench must be key to this.

MCDOWELL:

... Fidelity has over 200 equity analysts. And certainly, this fund draws from that heavy bench of talent.

And this fund has also been around for over 14 years. So you really can't argue with this track record.

BOUSQUIN:

This is true. But for most of those 14 years, it was the only game in town. It didn't have a lot of competition in its early years. In the last few years, a lot of good funds have come out in the sector.

MCDOWELL:

But still, if you look, I mean, if you look at what this fund owns, Joe, it owns like the larger, more established names. But it also will give you exposure to some of the aggressive plays.

BUTTNER:

Joe, you`ve got to admit, it's tough to argue with the numbers. One-, three-, five-year, it's No. 1 in its category.

BOUSQUIN:

This is true. But like I said, there hadn't been that much competition in the early years. And now they've got competition coming their way, or came their way. Just over a year ago,

Janus

launched their own health care/biotech fund. It's called Janus (INAUDIBLE)...

BUTTNER:

Well, let's go through the main problems with this one. It's very focused. You prefer more diversified.

BOUSQUIN:

That's right, because in my view, biotech is really a small subsector of the health care sector.

MCDOWELL:

In your view, Joe? Since when are you a biotech analyst? I mean, this segment is about biotech...

(CROSSTALK)

BUTTNER:

OK, now you prefer...

BOUSQUIN:

... area there. I mean, come on.

BUTTNER:

... You prefer

Janus Global Life Sciences

. And that fund is up 123% over the last 12 months. But what can you get there that you can't get from Fidelity? I mean, this fund has been around for a year and change, Joe.

BOUSQUIN:

Well, what you're going to get with this fund, Brenda, is you're going to get biotech. But you're not going to get a bio-wreck because this fund has a very broad mandate within the health care sector. It can go anywhere. And you can bet that with Janus driving behind the wheel, they're going to go for the growth area. Right now, that means biotech. The fund has been loading up on biotech over the last year.

MCDOWELL:

But it's, one, it's still not a pure play. Two, it owns a much smaller number of stocks than that Fidelity fund, about half of what the Fidelity fund owns. And...

BOUSQUIN:

And...

MCDOWELL:

... it's too young. It's only been around a year.

BOUSQUIN:

... And that's going to help it when biotech goes down because then they won't have that broad exposure. It's not going to fall as much as the Fidelity Select Biotech.

MCDOWELL:

So you say. So you say.

BUTTNER:

Well, well, yes. But all of these need a warning label, don't they? I mean, this sector goes from boom to bust. Right now it's boom, but very quickly goes down to bust. I mean, if you're looking just at the numbers, you really have to be wary that it could be going down again.

BOUSQUIN:

That's right. But...

MCDOWELL:

Then maybe you don't want to be in that sector at all if you're really, really that risk-averse.

BUTTNER:

I don't know. I've got to tell you, Dagen, I really go with Joe on this one. I think that you should choose a manager, if you're going to go with a mutual fund, you choose a manager who knows how to get in and out of that sector.

BOUSQUIN:

That's right. Tom Malley (ph)...

MCDOWELL:

But in the...

BOUSQUIN:

... Tom Malley was...

BUTTNER:

OK...

BOUSQUIN:

... He majored in molecular biology.

MCDOWELL:

That's right.

BUTTNER:

We will continue this...

(LAUGHTER)

BUTTNER:

... I'm sure, after the show. (INAUDIBLE) Dagen and Joe, thanks for joining us.

But for those of you at home, the face-off continues. Log on to

TheStreet.com

Web site for more on these two biotech funds. You can even vote for the fund that you like best. But up next, those little

Palm Pilots

are everywhere these days. I love mine. Will investing in their maker make you money? Get the goods from "Chartman" when we come back.

BUTTNER:

Welcome back. Time for the "Top Hits."

What are the most requested stocks in Silicon Valley? We'll hear not only from our ace Silicon Valley reporter, but you know "Chartman" has to chime in too.

And there he is, "Chartman" Gary B. Smith. He trades for a living from his home using the charting method. Gary joins us from Washington, D.C., as always.

And of course in San Francisco, our Silicon Valley columnist Adam Lashinsky. Gary and Adam do not own either stock in this segment.

OK, fellas, last week we talked about the two stocks that Gary is asked most about, which were

JDSU

and

VerticalNet

.

Your turn, Adam. What's No. 1?

GARY B. SMITH, "CHARTMAN":

Yeah, don't take a long time, Adam.

(LAUGHTER)

LASHINSKY:

Gosh, it's fun going first. We're going to talk about

3Com

because a lot of people want to know how to play 3Com in light of the

Palm

IPO that's coming up. So lately, 3Com has been moving up.

That's really been a function of the Cisco effect. Cisco reported another great quarter. The networking industry moves up.

But it's no secret that the real juice to 3Com's stock lately has been the upcoming IPO of Palm. Palm already in a year's time has added $8 billion of value to 3Com.

So what you should look for before the IPO and then after it when 3Com distributes those shares of Palm to 3Com shareholders is for the stock to move up more. If the underwriters were to raise the price just $10, it could mean $16 a share to 3Com shareholders.

BUTTNER:

Gary, well, the fundamentals do say that this stock should go up. Is the chart pretty clear, too?

SMITH:

Yeah, Adam stole my notes, I think.

BUTTNER:

That's OK. When you both agree, that's good.

SMITH:

Yeah, on this one, this is a little kind of a charting lesson if you will. A lot of times when stocks move sideways after a big run-up, that usually marks the halfway point of the move.

So in this case, 3Com moved up since July about 25 points or so. It then moved sideways. It broke out about 50 or so, which would seem to be that the stock is going to go to 65, 75, 85 even.

So if you put the numbers together, you start to say, "Hey, wait a second." If Adam is saying another 16 points and I'm saying in the 75 range to be conservative, it matches up almost precisely.

I'm not saying this is a great buy-and-hold stock. But from what Adam is saying and what my chart is saying, this could be a nice trade.

BUTTNER:

And Gary, by when? When do you think that 75?

SMITH:

Adam, when is the IPO supposed to come out?

LASHINSKY:

In the next several weeks.

SMITH:

Yeah, so I would say 75 then probably within the next month.

BUTTNER:

So definitely a trade, not necessarily an investment.

LASHINSKY:

It can keep going up after that, and likely will in the aftermarket.

BUTTNER:

OK, Adam...

SMITH:

I cannot guarantee anything after $75.

BUTTNER:

... Adam, next up, an old tech former favorite that has fallen on some rough times. This stock used to seem like a sure thing. But no wonder investors are asking you about it now.

LASHINSKY:

Yeah, everybody wants to talk about

Dell

. And in the near term, I see more malaise with Dell.

This is a modified version of the cockroach theory. You know, where there's one cockroach, there's another. Where there's one bad Dell quarter, there's another.

So in the short term, you want to talk to someone like Gary B. or to Jim Cramer. They've got the handle on the short term.

In the longer term with Dell, no matter what the Gartner Group said in its study last week, Windows 2000 is going to be a benefit to Dell. They're also going to benefit from new products like their Web hosting services that they're going to be introducing, major revenue drivers for Dell.

Lastly, this company has about $1 billion in unrealized gains in its investment portfolio. I think Dell will get to the point where they start to realize those gains on a regular, predictable basis. And Wall Street can start to factor it in.

Finally, the stock is finally trading close to its growth rate. It's at 38 times forward earnings. That means that with more growth from Dell, the stock could start to run again.

BUTTNER:

OK, Gary, Adam is talking long term...

SMITH:

Would you buy right here, Adam?

LASHINSKY:

I don't buy stocks, Gary. Tell me what the chart says.

BUTTNER:

Absolutely. And Gary, he is looking to the long term. What does the chart say?

SMITH:

Oh, long term, forget about that...

BUTTNER:

Spoken like a true trader.

SMITH:

... I'm right here in the center of politics. I'll tell you what this chart reminds me of. If this was the presidential race, this would be the Orrin Hatch of candidates right now...

(LAUGHTER)

SMITH:

... It's fine. It's upstanding. It's an also-ran. I don't know why you would even look at Dell right now. Adam summed it up. He's learning very well. It's in this ugly congestion. It's just moving sideways. It's no longer the prettiest girl at the prom.

I would say you'd be much better to look for a 3Com, take your 15 or 20 points, and then look for the next big winner. Right now Dell is dead money, and I would say put your money elsewhere until it becomes strong again, as Adam suggests.

BUTTNER:

Amazing, Gary, a singer and a political analyst too.

(LAUGHTER)

SMITH:

I've got it all.

LASHINSKY:

Great.

(CROSSTALK)

BUTTNER:

OK, guys, thanks a lot. We'll see you both in just a few minutes for "Predictions." What does Cramer see happening in the market? Don't go anywhere. You're going to want to hear this.

BUTTNER:

Welcome back. Well, we're moving across three time zones today to get "Predictions."

Rejoining us from

TheStreet.com

, Herb Greenberg; in Washington, Gary B. Smith; San Francisco, Adam Lashinsky; and in Chicago, the Capitalist Pig, Jonathan Hoenig.

Herb, first stop. What's up?

GREENBERG:

Brenda, there's a company called

Lernout & Hauspie

. They make a voice-recognition software. Their stock added $1 billion in value this week because they introduced a prototype of like a Palm Pilot that could listen to your voice and respond to it. Palm Pilots can hardly write.

My sources say this technology doesn't really work. That stock is going to take a hit.

BUTTNER:

You've been on this one for a long time.

GREENBERG:

Yes.

BUTTNER:

OK, Adam?

LASHINSKY:

B2C, or business-to-consumer, Net IPOs are going to be duds for the next six months. It's about infrastructure, and it's about business-to-business, not B2C.

BUTTNER:

OK, and Gary.

SMITH:

Building on this biotech theme,

Merrill Lynch

has these neat things called these HOLDRs. They're essentially proxies for certain parts of the segment.

The hottest one for the rest of the year is going to be the biotech one,

BBH

. That is going to keep moving up.

BUTTNER:

But you know, these are only sold in round blocks, in 100 shares. That's about $18,000 a pop. I know it's pocket change for you. But that is an issue here.

SMITH:

Get a couple of friends together and buy one share I guess.

(LAUGHTER)

BUTTNER:

Right, investment club. All right, Jonathan.

HOENIG:

All right, guys, the Dow is going to hit 9000 sometime between September and October of this year...

(CROSSTALK)

LASHINSKY:

And then what? And then what?

SMITH:

No it's not. Nine thousand even or 9000 and change?

HOENIG:

I think 9000 and change. But I think we'll see the 9000 handle certainly...

BUTTNER:

OK...

HOENIG:

... 10,000 I think looks soft as butter, like a knife through butter.

BUTTNER:

All right. And here is Cramer.

JIM CRAMER, THE STREET.COM:

In the next few weeks,

Philip Morris

may receive a negative verdict in a major court suit in Florida. If they do, they will file for Chapter 11, and the stock will go higher, not lower.

BUTTNER:

And by the way, Jim does not have any position in Philip Morris.

Well, there they are. But you write the final word on these "Predictions." You can rate them by checking out our TV page on

TheStreet.com

Web site. Also, feel free to send us a question or a comment.

And while you're on the site, make sure to check out all the financial information that's available. With the click of your mouse,

TheStreet.com

has you covered from simple quotes to all the in-depth analysis of what is making this market move.

And thanks for joining us for this edition of "TheStreet.com." We'll see you here again next week. Until then, invest wisely.

END

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