July 17, 18: Guest Ken Schapiro

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The premiere of "TheStreet.com" on the Fox News Channel -- scheduled for July 17 and 18 -- did not air. Participants 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:

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

Time now for "Stock Drill."

Our guest stock picker today is Ken Shapiro from Condor Capital. He manages more than $250 million for investors. His firm invests in the stocks we'll be talking about today. They are Merk, AT&T and Xerox.

Also with us from TheStreet.com, Jim Cramer and Herb Greenberg.

Thanks so much for joining us.

KEN SCHAPIRO, MANAGER, CONDOR CAPITAL MANAGEMENT:

Thanks.

BUTTNER:

Ken, let's start off with mega drug-maker Merck. What do you like about it?

SCHAPIRO:

The interesting part about this stock, Brenda, is the Street has gotten everything negative into this stock. They think that legislation is terrible, that Clinton health care bill (ph) is going to put the pharmaceuticals out of business.

However, we like the stock here. They've got a tremendous Medco franchise that can really work in a regulated environment. In addition to that...

JAMES CRAMER, THESTREET.COM:

Did I hear you? I hear you on this, and I know you really like it and that's great. This stock has no momentum. It has no momentum because it's main cholesterol drug, under assault by Warner-Lambert, the arthritis drug, heavy competition from Monsanto.

How do I make money in the stock now? I know why it's bad. Tell me what is going to make it so good.

SCHAPIRO:

They got $5 billion from the AstraZeneca deal. I think they're going to out and license other products.

In addition to that, they got 31 new products in phase I, II and III...

CRAMER:

Is any one of them a billion-dollar drug?

SCHAPIRO:

Oh, there's several other (OFF-MIKE) products.

HERB GREENBERG, THESTREET.COM:

They have patents that are coming up for, you know, expiration, don't you? What do you have here? I mean, you've got to get this pipeline and this patent thing put together.

SCHAPIRO:

You know, they've got this substance P that's really going to work well in the depression area.

BUTTNER:

You know, Merck could be the greatest company around, but the industry is becoming the biggest political punching bag outside of Jesse Ventura. And if Medicare has drug benefits added, the prices of drugs are going to be put under the thumb of politicians. That can't be a good thing for any drug stock.

SCHAPIRO:

You know, the interesting thing is the Clinton bill puts it in so that there's no price controls. Merck can compete well in that environment. In fact, they've dominated Europe in just that type of environment.

GREENBERG:

You know, Ken, you paid 33 times earnings for this thing. Everything's got to go right at that point.

SCHAPIRO:

You know, that's the low end of the range in the pharmaceutical sector. (OFF-MIKE) company...

CRAMER:

You've got a point, and I've got to tell you this is -- I mean, I'm not (OFF-MIKE). You're not paying top dollar for Merck versus Pfizer.

SCHAPIRO:

Yes, Pfizer is at $60. This is at $25.

GREENBERG:

OK, but at this point, we're talking about everything - - you know, it's maybe at the low end, but what happens if everything goes wrong with price competition at the pipeline and everything else goes wrong?

SCHAPIRO:

There's a lot of -- a little more downside protection in Merck than the other categories.

BUTTNER:

All right.

Next up, number one long distance carrier, AT&T. Why are you bullish there?

SCHAPIRO:

It's mainly three different strategies: it's broad band, it's wireless and it's Armstrong. Broad band, they've created $100- billion franchise; wireless, they're at capacity, wait till they add more capacity; and I think Armstrong, he is the king.

CRAMER:

Yes, (OFF-MIKE), and it's funny. I'm sitting here listening to you and I'm thinking, "This is the first good news I've had in a couple of weeks. This stock has been in a downturn." Didn't they buy all these cable systems and refining city after city, going toward open access? How do I get around that? How come -- how can I stay long agency (ph) if I'm a shareholder?

SCHAPIRO:

I think you need a little bit longer time horizon, Jim. I think this stock is going to pay off. I think it's like IBM, it's in the second, third inning. You're going to see this stock double and triple in the next few years.

CRAMER:

Do they have enough money to be able to develop all those cable properties? And these cable operators didn't put any money into them.

BUTTNER:

And upgrade them.

SCHAPIRO:

The advantage that AT&T has is that they can borrow much cheaper than their cable counterparts. You know, their interest rate costs are around eight to nine percent versus the cable companies who are borrowing money at 11 and 12 percent.

(CROSSTALK)

CRAMER

: ... feel a little better...

BUTTNER:

What about -- you know, it seems like their going into all these new businesses, but they're kind of abandoning their core, long-distance business. You really need to improve markets there, don't they?

GREENBERG:

Well, what about the locals? You know, you have the locals coming in there, local -- what about local competition?

BUTTNER:

Sure.

GREENBERG:

Everybody thinks they have it made.

BUTTNER:

It's true.

SCHAPIRO:

Well, they bought a few CLECs. You know, they bought one last year. I think that they're going to benefit from that, going forward.

CRAMER:

They have a local strategy.

(CROSSTALK)

GREENBERG:

... a local strategy, but...

CRAMER:

To me the local strategy is in a little disarray.

GREENBERG:

Well, we're talking about cable link and ...

SCHAPIRO:

You know, with the cable link the early indications have been very good.

BUTTNER:

Next stop, and last one: Xerox. Best known, of course, for it's copying machines. What do you like?

SCHAPIRO:

Just what you said, it's the brand, it's Xerox. It's like Kleenex. The shift to digital is happening. Anytime you put a digital copier in an environment, the usage goes up 30 to 40 percent. That's why they like...

GREENBERG:

Such an image issue. It is such an image issue.

You know, people don't even know they have digital copiers. How did they get the message out?

SCHAPIRO:

You know, the interesting thing there is in the laser market where they've gone downscale with their brand name, they've captured 15 percent of the market share against HP, and HP's only competition in their copier market is this thing called a mopier. What kind of name is a mopier?

GREENBERG:

Well, you still have -- you have tepid growth here. This is not a company that's growing by leaps and bounds. I mean, revenue growth is in the single digits, I think. I think their earnings growth is in the teens. The thing's trading at -- what? -- 30 times earnings?

BUTTNER:

Lots of weakness overseas as well.

SCHAPIRO:

It's 20 times next year's numbers and it's 20 p.e. The growth overseas, the deal is there; obviously overseas growth is bad. Overseas growth has been bad for many companies. But when that overseas growth continues to go upside, they're going to go to the brand names, it's going to be something like a Xerox.

CRAMER:

That makes some sense to me, makes some sense to me. You know, this stock is not expensive versus the others that we talked about.

SCHAPIRO:

No, it's a cheap stock. That's why we're buying it here.

GREENBERG:

Yes, cheap stock, and of course it can always be a cheap stock for a long time.

BUTTNER:

See, that's the thing. Can it just get cheaper? I mean, that's what you have to ask about these kinds of stocks, don't you?

CRAMER:

If it gets cheaper, you buy more of this type of stock.

BUTTNER:

Really?

CRAMER:

Yes. The Xerox (OFF-MIKE). Yes, I think -- I'm on Ken's same page on this. I just was worried about Latin -- Latin America's a little weak. But I figured that after the second quarter, this could be a good time to get in.

BUTTNER:

You know, the thing that bugs me about this stock is that I didn't realize, but Xerox developed the fax machine, they developed the first personal computer. They have such problems in execution. You never think of Xerox when you think of those products.

SCHAPIRO:

Yes, the best thing is, is they actually developed the Windows product and Apple stole it and Bill Gates stole it from Apple.

BUTTNER:

So what does that say?

SCHAPIRO:

Well, that was Xerox the old, now we have...

CRAMER:

Those were clowns. They threw the clowns out. There's new guys.

BUTTNER:

OK.

CRAMER:

Those guys are history.

BUTTNER:

All right.

SCHAPIRO:

They stole the CFL from IBM, the guy's real smart.

GREENBERG:

Yes, he is a smart guy.

BUTTNER:

Guys, that's about all the time we've got.

Ken Schapiro from Condor Capital Management, thanks so much for doing a Drill.

You guys stick around. We've got more for you. See you later in the show.

But after this, more people than ever are using America Online, yet AOL stock is way off its all-time highs. Is that about the change? We'll take a look when TheStreet.com returns.

(COMMERCIAL BREAK)

BUTTNER:

Welcome back. Earnings surprise? Who cares. Profit outlook? Doesn't matter -- at least that's the word from some investors who think the chart tells all. They think they look at graphs of the stock's performance when deciding when to buy or sell.

Well, meet TheStreet's chartman. He is also known as Gary B. Smith. He trades for a living from his home, using the charting method. Gary joins us from Washington, D.C. And with us as well as Silicon Valley columnist Adam Lashinsky, who reports on companies on a more fundamental level.

Gentlemen, thanks so much for joining us.

GARY B. SMITH, THESTREET.COM:

Thank you, Brenda.

BUTTNER:

Well, Gary, let's start out with Internet service provider AOL. What do you think of it?

SMITH:

AOL -- Brenda, here's a story. Elvis has returned to the building.

(LAUGHTER)

The king is back. And I know you love Elvis.

BUTTNER:

I do.

SMITH:

I think you're going to like this stock. I wrote the stock off. That long-term downward trend line looked unbeatable to the upside. I never thought it was going to peek back up. I was very bearish on the stock. Once is broke back up, though, I went from being bearish on AOL to being bullish on AOL. It's broken back up. It's above the 50-day moving average. I think in a short amount of time, AOL's going to get back to its old highs. I like the stock.

BUTTNER:

Adam, to quote Gary: Is AOL A-OK?

ADAM LASHINSKY, THE STREET.COM:

Well, Brenda and Gary, what the chart isn't telling you about the king is that it really never left the throne. And that's why some of my sources are more bearish on this stock.

Right now, at $130 billion in market cap, AOL is still worth about $7,600 per subscriber. That's more than its historical rate, around $2,000.

It's facing big competition from the likes of Excite at home and Roadrunner and others, and that has to do with broadband -- the super- fast way of getting Internet access. That runs against AOL's history of providing dial-up access through the telephones, and they're not exactly clear where they're going on broadband just yet.

SMITH:

Adam, I think all that's been taken into consideration. That's why you had that long-term downtrend -- cable -- every -- all the competition. It's all been taken into consideration and investors and traders have said: Hey look, it's time to turn the trend around. That's what the chart says. The trend is -- it's going back up, Adam.

LASHINSKY:

The one thing the chart still hasn't told you, Gary, also is that AOL's facing a new kind of competition in Europe from the so-called "free ISPs."

BUTTNER:

Right.

LASHINSKY:

Now, even though they're not free, that means that AOL's going to have a tougher time getting that revenue in Europe, which is a major contributor to its growth. So, I don't know if the chart sees that yet, Gary.

SMITH:

Well...

BUTTNER:

Number two, gentlemen: Internet auctioneer eBay -- it's a pretty messy chart, isn't it Gary?

SMITH:

Well, I tell you what. You don't look at the chart and say eBay. You look at the chart and say, "Oy vey."

(LAUGHTER)

Because that's how an investor in eBay must feel. Now, this is the opposite story of AOL; that eBay had a long-term upward trend line. Once that was broken, oh -- that's it for the stock. It just kept going down and down. And you know, the last couple of days I thought you know, it might have found some support. Boom -- that was broken through.

I tell you, I think I'm going to sign on to the eBay site pretty soon. You're going to find people bidding all right. They're going to be bidding $50 for eBay stock.

BUTTNER:

Yes, you can sign onto the site if it's working, Adam. The site outage is a big -- quite a problem.

SMITH:

Exactly.

LASHINSKY:

All right, I'm going to give you 750 million reasons why eBay's still got a good future ahead of it. That's its $750 million in cash and marketable securities that it had at the end of its -- sorry, after it did its recent gonzo secondary offering. So eBay's going to be able to surprise some people by what they do with their strategy and with all this money they're going to go out and they're going to do new things.

They also have an extremely loyal user base, despite the outages, which has a lot to do with their shareholders as well. A lot of those people are the same people.

Lastly, you think of eBay as having revolutionized auctions. What they're also going to revolutionize is all sorts of ways where people can sell things person-to-person. Think about what newspaper classifieds are. They're person-to-person options. I see eBay moving in that direction in numerous regional markets, which they're not doing yet.

SMITH:

Adam -- Adam, 700 million users -- if only all of them decided to buy the stock I think you would see the thing go back up. That isn't the case though.

BUTTNER:

OK, guys. Thanks so much. And after this break, Microsoft will start off next week trading at an all-time high. So should you be lining up if the software giant offers a new stock? We'll get the word on TheStreet up next.

(COMMERCIAL BREAK)

BUTTNER:

You know, we all want the word on the street, so let's get it. TheStreet.com Jim Cramer and Herb Greenberg joining us again. And also joining us, TheStreet.com's editor-in-chief Dave Kansas. Guys, thanks for being back.

You know, the loudest word on the street Friday was easily Microsoft. Talk of a new Internet tracking stock helped to push shares to an all-time high. A new issue would certainly bring Microsoft more cash, but would it do the same for investors? What's the bottom line, gentlemen?

CRAMER:

Well, I'm going to reveal myself as being completely long on Microsoft. This was still one more terrific thing that Gates has done. The only thing I was disturbed about was that a year ago Gates told us that the .coms were history; that it was all just a big craze. Now he wants a part of it. But that said, he's got more revenues in .com than almost every real .com. And all I can tell you is is that this has huge, huge value for the shareholders.

GREENBERG:

Wait a second, Jim. This is -- this is called a tracking stock and I never fully understood what a tracking stock was. And I remember reading you when you said these tracking stocks were creations of Wall Street and no...

(CROSSTALK)

BUTTNER

: Yes, what's behind it?

CRAMER:

Oh -- consistency's the hobgoblin of Herb.

(LAUGHTER)

When it's Microsoft doing it it works. Those were crummy companies!

No, Microsoft has a very -- you raise a good point. For most companies, it is artifice. It just so happens that Microsoft needs to do acquisitions. It doesn't want to ruin its stock. This stock would be something that every .com in the world would love to have -- a little Microsoft.com stock.

DAVE KANSAS, EDITOR-IN-CHIEF:

And the key here, Herb, is that Microsoft, like Jim says, can do this right because they do just about everything right.

CRAMER:

It's a management issue.

KANSAS:

It's a bit of a management issue, and Bill Gates, if he can figure out how to do a tracking stock, it's going to be great for this company and great for the shareholders.

CRAMER:

This is not GM doing a tracking stock.

BUTTNER:

You are much too optimistic. I feel so sorry for Bill Gates. They threw a party and he didn't get invited. He doesn't get the Net, Jim. He didn't get it back then. He's a visionary on everything.

(CROSSTALK)

CRAMER:

... he can go buy the Net.

(LAUGHTER)

(CROSSTALK)

CRAMER:

... just go and buy it. No, come on. I think he's got a decent net strategy, though I like AOL and I like Yahoo's Net strategy more, but this guy's made a very big come from behind move on there.

KANSAS:

And he's dedicated to -- he's devoted to this space. I mean, he's stuck with it through some tough times and the money central and some other things coming along.

CRAMER

: Mr. Softy.

KANSAS:

Mr. Softy.

BUTTNER:

All right. Next topic. Fidelity's Magellan Fund crossed the $100 billion mark. You know that Bill Gates and Magellan are equal value? Can you believe that? Last week -- at the same time, there are reports came that its manager dumped America On Line -- that's what you heard from all the headlines and all the news reports. But they were somewhat misleading, those reports. All we actually know is that AOL is no longer in Magellan's top 10. A lot of investors move when Magellan moves. They watch Bob Stansky. He's a great tech picker. Should they?

KANSAS:

No, I don't think you can follow money managers, because information flow is too slow. By the time you hear it, it's usually coming from people who are trying to truck in rumors, trying to get in and our of positions with information that isn't necessarily accurate. The information is too slow. You could follow the style of someone like Stansky, but you can't follow his stock picks.

GREENBERG:

Well, you know, you can follow the coattails in, and you never know when they're going to be going out. You're going to be the last one to know in any of these things. You have to still know why you buy a stock. I don't care if it's Magellan or if it's something you read in the paper or hear this guy say, you still have to know what you're buying.

CRAMER:

You know something? I took advantage of this. When the story broke that Fidelity had been so-called "selling," we don't really know. It just might have reduced its holdings or the stock went down.

BUTTNER:

Exactly. That's the point.

CRAMER:

The stock got hit. It got hit for four points. I was there -- standing there buying it because I said: Well, you know, I don't know whether Fidelity's coming or going? I don't know why they did what they did. I like the stock. They created an opportunity for me.

KANSAS:

That's the point. That is the point is that the information flow is not very good in this area. It's a rumor -- you can take it...

(CROSSTALK)

CRAMER:

The guys buying today with me.

BUTTNER:

You know what, twice a year -- that's the only time that mutual funds have to tell you what their holdings are. (OFF-MIKE) on that information.

GREENBERG:

Let me ask you one question, though. If you heard that when the numbers do come out that they're out of a stock, what do you do?

CRAMER:

If I find out that they're out of a stock, next week I'd be a buyer anyway because AOL's a good stock. That's what I care about. I don't really care. Fidelity's not the arbiter of this market. I think if -- I've seen Fidelity sell good stocks and sell bad stocks.

GREENBERG:

They have a huge gain, so if they get out...

CRAMER:

You've got to go with what you like. AOL I like. I think it's got good prospects. It's the stock got hit last week because of Fidelity selling, that's an opportunity to me.

BUTTNER:

Jump in whenever you can. All right, finally -- Coke's profits fell by more than 20 percent last quarter. It's had a very rough streak of product recalls and PR blunders. But every time we hear analysts say that this is good because now the bad news is over. Herb, when it bad news really bad news?

GREENBERG:

Bad news is bad news if you don't have brand and if you have technological obsolescence which -- Coke has a brand; it does not have technological obsolescence. The only question there right now is the CEO and whether he is executing...

CRAMER:

I think I'm hearing Herb Greenberg like a stock.

BUTTNER:

Oh, my God -- news flash.

CRAMER:

Let me tell you -- I look at the quarter this -- you know, look at this: Here's what they said about why the quarter wasn't any good: bad smelling Coke; severe flooding in one region; early monsoons in another. It said unrest and economic weakness...

GREENBERG:

That's execution. That's execution.

CRAMER:

What world...

(CROSSTALK)

BUTTNER:

That's execution.

GREENBERG:

That's execution. They can always -- let me tell you something.

CRAMER:

What, they're blaming the weather?

GREENBERG:

They can get rid of the CEO...

CRAMER:

It was too cold?

GREENBERG:

They can get rid of the CEO and you still have a fabulous brand. And you're reacting to this little thing you pull out of your pocket. That's a short-term issue, because Jim Cramer's looking at the short-term as a trader but you're an investor.

CRAMER:

Here's the chart short short-term and here's the chart long-term. And here's these guys -- these guys have the Buffett problem. They're fact. Buffett says it's OK. They can do whatever they want.

BUTTNER:

All right, weigh-in for 40 seconds.

KANSAS:

Well, I'm going to tell you right now, there's no fear of risk anymore. That's bad for Coke.

BUTTNER:

OK. All right guys. We got to take a break. But after this one notable stock closed at just about seven this week, one of our panelists says that's about seven points too high.

We'll get that and other predictions when TheStreet.com, returns.

(COMMERCIAL BREAK)

BUTTNER:

Welcome back. Well, this is the part of the show where we put our panel on the spot and we get predictions for next week.

Jim, what's going to happen next week, and what does it mean to us?

CRAMER:

All right. Two stocks -- Novellus and AMAT, both in the semiconductor equipment area. Both in the 70s. Foot race to 100, my money is on Novellus at 75 getting there before AMAT, which is 78, going to 100. Take Novellus. You don't even need the points.

BUTTNER:

OK. Herb.

GREENBERG:

Iridium files for bankruptcy. Iridium, seven bucks, goes to zero. They call it a bagel on Wall Street.

BUTTNER:

They've been on the verge for a while. OK. Dave. Last word.

KANSAS:

Microsoft reports next week great earnings and the market's going to be surprised, stocks will jump.

BUTTNER:

OK, guys. And if you're keeping score at home, here's a summary of the predictions. Jim says Novellus is going to hit the century mark and it will get there before Applied Materials. Herb thinks Iridium shareholders are out of luck and that the stock will be worthless soon.

And finally, Dave says Microsoft comes in with strong earnings and drives the markets higher next week.

And I'm guessing you at home have some opinions on those forecasts. Well, you can rate our predictions by visiting us at thestreet.com/tv. We'll be keeping track of the accuracy of the predictions as well as what you thought of them.

And while you're pointing and clicking, check out our web site at thestreet.com. Jim, Herb, Dave, myself and many others write every day to tell you what you need to know to make money in this market.

Well, that's it for this edition of TheStreet.com. See you here next week. Until then, we hope you invest wisely.

END

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