Oct 2, 3: Guest Peter Green - TheStreet

Oct 2, 3: Guest Peter Green

Participants on Oct. 2 included host Brenda Buttner, Jim Cramer, Herb Greenberg, Dave Kansas and guest Peter Green.
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Participants on Oct. 2 included host Brenda Buttner, Jim Cramer, Herb Greenberg, Dave Kansas, Dan Colarusso, Gary B. Smith, Jeff Berkowitz and guest Peter Green. 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 investment decisions. The first up, the Stock Drill.

Our guest stock picker today is Peter Green, a technical strategist at Gruntal. Drug maker Elan (ELN:NYSE) and International Game Technology (IGT:NYSE) top his list of favorite stocks. But IBM (IBM:NYSE) is one he thinks investors should bet against.

Peter does not have a position in any of these stocks.

Also here, our resident doubting Thomases, so you can decide for yourself how to play these stocks. From

TheStreet.com

, Senior Columnist Herb Greenberg and editor Dan Colarusso. Neither Herb nor Dan owns any of the stocks in today's Drill.

Thanks so much for joining us, gentlemen.

Well, first up, pharmaceutical company Elan. There are a lot of promising drugs in the pipeline, but investors seem much more focused on the fact that the government took a big look at their books.

Why do you like it?

PETER GREEN, Gruntal Strategist:

I like it for several reasons. One, the drug group, after a third rate hike typically for the year, outperforms the S&P 500 by 19%. Also, on absolute basis. Elan right now, we think, can double its revenues by 2003.

HERB GREENBERG, TheStreet.com:

Here's the deal with Elan. The company may have gotten the SEC off its back on the one hand, but this company has a history of what are known as related party transactions where they do these deals with little companies and the little companies end up getting an investment from Elan. And then they turn around and then they basically buy products from Elan, or buy licensing rights from Elan. That money goes right to Elan, and seriously has raised questions about, you know, the quality of those earnings and what really will be those earnings going forward.

GREEN:

And I can see your concern but the market participants obviously feel different. The stock has acted, on a relative strength basis, extremely well during this market decline. If you follow technicals, it's above its 200-day moving average and that means the demand is greater than the supply.

DAN COLARUSSO, TheStreet.com:

But aren't there more -- but isn't there a better drug stock that you can get. I mean Elan is a biotech company essentially. They have a big paying drug, and I mean what's the proof that this company can get this drug approved, that it is safe, and that it will actually have, like, strong sales?

GREEN:

Well, they have five big drugs in the product pipeline for the next three years. We think we will get approval on at least half of them. We feel the company can do extremely well. We think the company can earn about a buck seventy-five in three years from the current level of run, $1.33. It looks very bullish to us.

BUTTNER:

Well, not surprisingly Jim Cramer has some thoughts on this stock. Let's hear what he has to say.

JIM CRAMER, TheStreet.com:

Elan, last week all the drug stocks exploded. Some of them were up as much as 10% in the last session. This stock did nothing. Is there something the matter with Elan or can we buy it for a catch-up next week?

BUTTNER:

Peter.

GREEN:

He sounds like a silent investor on this one.

(LAUGHTER)

So...

BUTTNER:

Well, it's a good point though. A lot of the drug stocks were up on Friday and this one was just flat.

GREEN:

Yes, but the stock was up...

GREENBERG:

Well, you're...

GREEN:

... the last two days in a row. The stock looks very strong through it.

BUTTNER:

OK, if you gamble you know IGT. It's the number one designer of slot machines. Why do you like it?

GREEN:

I like it for several reasons. One, the stock is buying back their shares. They had 92 million outstanding of the last quarter. And this year we look -- this quarter we look for 87 million outstanding. So obviously the company likes the stock.

GREENBERG:

The company likes the stock, but here's the deal. They may see something cheap. Companies like stocks. They buy it back. Doesn't always mean the stock is going up. With the IGT, the big question is, it makes slot machines. It's a commodity business and one of the big issues here is their market share in some casinos, especially Mandalay Bay in Las Vegas. Its market share is typically 75%. It's fallen to 60%. Williams has come in. Has 25% because the video games are a bigger deal.

You know, this is something that has some investors concerned, that you know, where is the sizzle here.

GREEN:

The sizzle will in March when in California they will likely have a referendum on gambling on Indian casinos. We think IGT will get at least two-thirds of a 45,000-slot delivery order. That will be huge for the company. The company sells at less than 10 times the 2000 earnings. We think it can earn $2.

COLARUSSO:

How does it differentiate itself from other slot machine companies? I mean what is going to set these guys apart?

GREEN:

It doesn't, it doesn't...

COLARUSSO:

I mean little old ladies with their cups of quarters, I mean they don't really make a difference. I mean casinos...

GREEN:

It doesn't matter. It's a cheap stock. The stock is acting very well. We think the stock can go to 25 1/2. I mean what's the big deal with a disk-drive manufacturer? What separates Seagate (SEG:NYSE) from Quantum?

And -- is there a big difference? No, but the stock's cheap. We want to buy value when the market is distressed here.

BUTTNER:

And let's hear from Cramer.

CRAMER:

IGT -- earnings are supposed to be down for the next year. How can I buy a stock that isn't going to make the earnings estimates and the earnings are going to be lower next year? What makes this stock exciting? I think it's a dog.

(LAUGHTER)

BUTTNER:

Two years...

COLARUSSO:

He looks good, he looks good.

BUTTNER:

.... he doesn't mince words.

But two years is a long time in a trader's time horizon.

GREEN:

Well, that's true, but like I said we really want to buy value in this market.

GREENBERG:

Look, you're looking at this thing as a technical stock right? You're looking at it technically.

GREEN:

Well, I'm looking at it on value. It's one of the cheapest stocks going on the New York Stock Exchange.

BUTTNER:

OK. Now you think that investors...

GREEN:

And they're still the market leader, clearly.

BUTTNER:

Peter, you think that investors should short or bet against IBM. Big Blue took a big hit on Friday. You think there's still some room to move south?

GREEN:

Yes, we had a short sale on this Wednesday of this week. We think the stock acts poorly on Friday. Closed down 3 1/4 while other stocks in the computer area did rather well. We also think that the earnings surprises of the last two quarters have actually been coming down on a percentage basis. We think now analysts are coming to grips to the fact that hardware sales may be a little light.

COLARUSSO:

How long do we want to stay short in this? I mean we have lost 10% over the last few weeks. Where do we -- where do we get back in?

GREEN:

I think about 107 to 200, daily moving average.

BUTTNER:

OK. Peter Green from Gruntal, thanks for doing the drill.

GREEN:

My pleasure.

BUTTNER:

And of course we will be watching the stocks that you picked, Elan and IGT, and the one you panned, IBM.

Herb and Dan, thanks as well. We will see you both a little bit later. But up next: Is it going to be another rocky October? Find out what the charts say. Chartman puts the S&P 500 and the Nasdaq to the technical test.

And later, Jim Cramer, with his take on which way the market is headed. You will want to hear this.

CRAMER:

I fully expect that I will come in here and see the Dow Jones Average down 500 points.

But take heart, Jim says there is a way to make a drop like that work to your advantage. He will fill us in coming up on "TheStreet.com."

BUTTNER:

Welcome back.

You know anyone can look at one stock at a time and make an educated guess as to where it's headed. But who dares to look at hundreds of stocks at the same time? Who else but Chartman?

He is 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 in San Francisco, our Silicon Valley Adam Lashinsky, who reports on companies on a much more fundamental level.

Hey, guys.

GARY B. SMITH, Chartman, TheStreet.com:

Hey, Brenda.

ADAM LASHINSKY, TheStreet.com:

Hey, Brenda.

BUTTNER:

So, you want to mix things up today, huh?

SMITH:

I think so.

(LAUGHTER)

BUTTNER:

OK, let's just forget single stocks and take on the whole market.

SMITH:

I'm ready.

BUTTNER:

Gary, October is here and history tells us that could mean trouble. What does the chart say about the S&P 500?

SMITH:

Well, you know, I tell you Brenda, they just don't make scary Octobers like they used to. You know back in my day -- I grew up in the '70s. Everything was scary back then. I mean they -- they had leisure suits for crying out loud.

(LAUGHTER)

So, I know scary and I will tell you I don't think for the S&P, the October time period is going to be that scary. Look, we already have started drifting down. That happened on Friday. Earlier in the week was bad. We're going to drift down, but here's what's going to happen, I think we're going to drift down to the long-term upward trend line which coincides very nicely with where the S&P broke out previously.

I think we're going to go down maybe another 10% or so. It's going to feel scary. There might be some bad days here and there. Overall though, I think October is going to be fine.

BUTTNER:

Adam, certainly a lot of fundamentals out there that spell weakness though.

LASHINSKY:

Well, you know Gary, I think that everyone knows that I have an unfair job, because you look at some voodoo and I have to actually look at companies each week.

(LAUGHTER)

This week I had to look at 500 companies just for this part of the segment alone. No, seriously, Gary, I hate to be critical but I think that a technical approach to an index makes almost no sense in this case. The index is all about fundamentals. It's all about the economy. It's about interest rates. It's about trends in technology. So, with the S&P 500 index, already has been through a correction this year. It's down 10% -- about -- from its high.

Big companies are the most vulnerable whenever there are economic problems. And lastly, the part of the S&P 500 index -- and we're going to talk about it in a moment -- that hasn't had problems yet, is technology.

If there's problem in technology, there will be problems for the S&P 500. My sources are pretty bearish on this index.

BUTTNER:

OK, on to the Nasdaq. Gary, this chart is all over the place.

SMITH:

Yeah, this is what I call my Humpty-Dumpty chart, Brenda. A lot of people don't know the real story of Humpty-Dumpty. You know he led a very long and prosperous life. In fact, the whole Dumpty family made many contributions to the egg industry. He was not just born on that wall and he fell off.

Well, the Nasdaq is a lot like Humpty-Dumpty. It's led a very long and prosperous life. It's been going up. Right now it's sitting on that wall which is that short upward trend line. And if it falls off then it's going to be splatsville. Let's face it, the Nasdaq will probably go down 20% if that line is broken.

But here is the good news. No one has come along yet and pushed Humpty-Dumpty off the wall. So, until that happens, I think the Nasdaq is OK. It begs the question: Will some one come along and push it off? I think there might be a good shot of that unfortunately.

BUTTNER:

Adam, you have a bedtime story for us as well?

LASHINSKY:

No stories, but the Nasdaq composite is still way up, up about 25%. It's had a great year. We haven't felt any impact from Y2K yet in the best of those stocks.

And the Taiwan -- the aftershocks from the earthquake there, really haven't been felt yet. October often is ugly for technology stocks. If it is again this October, that 20% drop might not be so outrageous, Gary.

SMITH:

Adam, I appreciate you not being critical that one time. Thank you.

(LAUGHTER)

LASHINSKY:

For now.

BUTTNER:

OK, from leisure suits to nursery rhymes, where else but on Chartman.

Gary and Adam, thanks as always and we will see you again next week.

SMITH:

Thank you, Brenda.

LASHINSKY:

See you, Brenda.

BUTTNER:

But after this short break, Jim Cramer says the misses of October are taking aim at the market. What's his plan for surviving the attack?

Get the "Word on TheStreet" right after this.

BUTTNER:

And you can see there is why some people call October, "Rocktober" as far as the market is concerned.

And this month certainly didn't start out on an up note. The Dow losing about 65 points on Friday. Is the worst yet to come this month?

Jim Cramer and Jeff Berkowitz, partners at the Cramer Berkowitz hedge fund, think that a big single-day drop is going to happen. But they also have a plan on how you can avoid the missiles of October.

CRAMER:

Yeah, I always worry about October. It would be stupid not to worry. Every big drop in my career has occurred in October. So decide that it doesn't matter what's going to happen in October, and we're just going to play it like it's just another month, would be to defy all the history that I've seen.

JEFF BERKOWITZ, Cramer-Berkowitz Hedge Fund:

There's a lot of uncertainly there. Sure, you have to be concerned.

CRAMER:

I mean could it drop 500 points in a day? I think that we're planning as if, yeah, it's going to do that.

BERKOWITZ:

Everyone knows in October the leaves fall, the World Series happens, and the market is volatile and everyone is nervous in October.

We've had a big correction. Everyone is negative. Everyone is worried about the fourth quarter. They've been worried for three quarters.

CRAMER:

People are more negative now than I have seen anytime in the last year. Maybe as negative as I've seen in the last four or five years.

So, I mean there is an expectation that things are going to stink a lot.

BERKOWITZ:

But yet, I'm not ashamed to admit that I wouldn't take the bullish case. There is nothing wrong with saying I don't know. Let's play it close to the vest. I can guarantee volatility.

CRAMER:

If it gets back to 25 1/2, we'll buy 10, OK? But not until then.

We're professionals. We're going to have some cash on the sidelines. We've raised some cash. We're ready for this. You have a 401(k) payment. You're thinking about making it by rout by the first week of October, because that's just what you do.

No, hold it back. You make a contribution every year in the fall because you always think that that's when you -- it's a good opportunity. Wait, wait for the down 500. Two years ago when we had a down-500 day I was amazed at how many people had no money to invest because they had already committed their money.

And that was a crime and it was a great opportunity.

BERKOWITZ

: You've just got to be ready.

BUTTNER:

No question how Cramer feels, but here to give us another "Word on TheStreet" are three writers from our financial Web site: Senior Columnist Herb Greenberg, editor Dan Colarusso, and Editor-in-Chief Dave Kansas.

Dave, what impression are you getting from the street? Can you smell the fear out there?

DAVE KANSAS, TheStreet.com:

I smell a lot of fear. I think Cramer is articulating what a lot of people are thinking out there. There is a lot of concern that ooooh ... another bad October coming. It's not been the easiest of summers. There's been a lot of volatility, a lot of nervousness. But a lot times in investing, when everybody expects the thing, that thing doesn't happen.

GREENBERG:

You know, I just feel like the old Cramer -- ooooh -- you know that's how he always does that.

(LAUGHTER)

You know ... look, we've got a lot of things going on. We've got the rate hike or not to be coming up in this week. We have the end of the millennium. We have all these issues that could cause something, but it's so much -- it's so factored in already. Everybody is already expecting it.

What...

COLARUSSO:

Yes, you know a lot of the pain in these bad Octobers has really begun and really hit in September. And we just had the bottoms in October. And so it's kind of a 90% of investing is half mental. People get scared in October, but this -- this would be bad even if it were February because the fundamentals are so terrible this time around.

BUTTNER:

You know I really take issue with Cramer's advice. Holding your 401(k) contributions hostage just because we turn a page in the calendar seems too crazy to me. I mean that's...

GREENBERG:

Oh, come on, yeah...

BUTTNER:

... your crystal ball had better be in pretty good working order for that one.

GREENBERG:

You have a situation where the fundamentals are the bottom line. Remember he's a trader.

BUTTNER:

Yes.

GREENBERG:

Other people have to look at this with the long term in mind and what would happen if they had sold back in 1990 -- 1987?

BUTTNER:

1987.

KANSAS:

Or 1997.

(LAUGHTER)

GREENBERG:

You're right. You're right.

KANSAS:

The fact of the matter is, there is so much tension that's needed to time this with your 401(k) program. The idea of saying, oh, I'm going to hold a little bit here and try to time it. I mean, no one has been able to time it for decades. And for Cramer to kind of say that...

(LAUGHTER)

.... is crazy. I think people need to stick to the long-term game plan. If Cramer thinks he can do some little trick on the side, well let him try. But I don't think that's a game for everyone.

BUTTNER:

Right. And even the pros have had some trouble with that as well.

All right, time to take a break. But when we come back, find out how you can actually win when you lose money on an investment. Plus, predictions.

And a look back on one that proved to be truly golden, next on "TheStreet.com."

BUTTNER:

Welcome back. Well, before we get to the all important predictions from our group here, let's take a moment to check in with "TheStreet" 's scoreboard from past shows.

Now this wasn't exactly a prediction but, back in July, Jim Cramer gave us an inside look at his hedge fund and why he had to take a trading loss on a stock of an air conditioning company called York (YORK:Nasdaq).

CRAMER:

It's hot. Let's go buy air conditions. That's a quaint idea. You have to have it first. You just can't have it and expect to many money. We had no edge here. This is a mistake in trade. We need to see it get hotter. This guy needs it to be 100 degrees out to make any money.

We are in trouble...

(LAUGHTER) .... with this.

BUTTNER:

Well, here's a case of winning for losing. Jim did lose a point on each share that he owned but with a big drop Friday in York, on bad earnings news, he would have lost a whole lot more had he kept it. Jim says the lesson is know when to cut your losses.

Now, Dave, on to you. A big winner and a bit of a loser. First, on the last show you said that the Dow was going to dip below 10,000 during the trading week. It did go down, but not quite that far. You think it's still heading that way?

KANSAS: No. I think this was the week if it was going to knock down below 10,000 it was going to be this week. I was wrong. And I think the chance for the bears was this week.

BUTTNER:

OK. And here's your big winner though. A stunning prediction three weeks ago.

KANSAS:

I believe the Y2K thing, nobody is talking about is going to drive gold prices higher. So gold prices languishing for a decade...

(LAUGHTER)

.... time they're going higher.

BUTTNER:

Talk about out on a limb.

(LAUGHTER)

BUTTNER:

Well, Dave you certainly got the last laugh on us.

GREENBERG:

Right for the wrong reasons. Right for the wrong reason.

BUTTNER:

Since gold is up more than $50 an ounce. So, which way is it headed now, oh, great seer?

KANSAS:

Gold -- I think gold is still going to go higher still. I think there's -- not for the reasons I articulated.

(LAUGHTER)

But there is less selling from the central banks. That's the main thing.

BUTTNER:

OK. All right, now you have to live up to your success. What's your prediction for next week?

KANSAS:

My favorite contrarian indicator is Cramer. October is going to be a great month. He's all scared about October, missiles flying. We're going higher.

(LAUGHTER)

BUTTNER:

All right.

GREENBERG:

I'm waiting for more gold.

(LAUGHTER)

BUTTNER:

Herb, what's coming up?

GREENBERG:

Amazon.com's (AMZN:Nasdaq) new "zShops" is going to become an e-flop.

BUTTNER:

Why is that? Because of Wal-Mart (WMT:NYSE) or...

GREENBERG:

Because, because of other competition and because this thing is the most confusing thing I've ever tried to go on.

BUTTNER:

I don't know I went on it. I was pretty impressed.

GREENBERG:

Hey, look they take you in and they bait and switch you over to their auction site, if you put in...

COLARUSSO:

It becomes a flea market on the Net essentially and that's really no value added.

GREENBERG:

And I agree.

BUTTNER:

OK, Dan.

COLARUSSO:

This October voodoo is going to scare the retail investors. It's going to push down online brokerage stocks. And we're going to see volume continue to tighten up.

BUTTNER:

But you know last time it was -- it was the little guys who didn't sell, it was the big institutional traders.

COLARUSSO:

There's a lot of tech problems now. A lot of different factors. I think the individual is scared right now. They're thinking about that 500-point drop. And they don't want to be there.

BUTTNER:

OK, what about you? Which of those predictions do you think is most likely to come true?

You can let us know by visiting our Web site at TheStreet.com/tv. You can also leave us a question or comment about the show and tell us what else you would like to see on the program.

And we will see you again next week.

END

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