Sept. 11, 12: Guest Christopher Vroom

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Participants on Sept. 11 included host Brenda Buttner, Jim Cramer, Herb Greenberg, Dave Kansas and guest Christopher Vroom. 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

The Street.com

.

We're here to help you make you're own decisions when investing. Let's get right to it and do the Stock Drill.

Our guest stock picker today is Christopher Vroom, an analyst and partner at Thomas Weisel Partners. The stocks Chris likes -- Home Depot (HD), Staples (SPLS), which he owns himself, and eToys (ETYS).

And with us to ask Chris the tough questions so you can decide if you should like these stocks as well, from

TheStreet.com

: Senior Columnist Herb Greenberg, and in Chicago, our Silicon Valley columnist Adam Lashinsky. Neither Herb nor Adam owns any of these stocks.

Thanks so much for joining us.

CHRISTOPHER VROOM, THOMAS WEISEL PARTNERS:

Thank you.

BUTTNER:

First on your list is Home Depot. Of course, retail giant to the droves of do-it-yourselfers out there. Why do you like it?

VROOM:

Well, we like Home Depot for a number of reasons. First we think that, although the company has grown at such a dramatic pace over the last 20 years -- since the first store opened -- they have about the best growth prospects of any retailer over the next five to 10 years.

HERB GREENBERG, TheStreet.com:

Well, you know, I'm not going to be the guy who is going to sit here and take you to task on a company like Home Depot, because everybody knows it's a phenomenal company. However, the stock has come a very long way in a very short amount of time. And I think that you have to remember that this stock was dead money for Home for many years. Five years in the 1990s?

VROOM:

Three or four years.

GREENBERG:

And so the question is, it comes this far, everything seems to have to go right, otherwise, what happens here?

VROOM:

Well, it's certainly true that the stock has had a great run and it's also true that the stock had a flat period for actually two to three years between 1992 and '95. But that was a period of time when the returns at the company were declining.

I think the company did get a little bit off its game in putting up stores that weren't as productive as the old ones. I think that they lost a little bit of focus on the customer and they've come back with a vengeance. The new stores are doing phenomenally well. Returns are rising. Earnings growth is actually accelerating.

ADAM LASHINSKY, TheStreet.com:

Chris, Home Depot...

VROOM:

And for the first...

LASHINSKY:

... excuse me -- Home Depot is clearly clicking on all cylinders. It's at a 52-week high. You're not concerned about the Internet. You're not concerned about interest rates. If this stock comes unglued, Herb Greenberg is going to write a really nasty piece about you.

(LAUGHTER)

BUTTNER:

That's what you really have to be scared of.

LASHINSKY:

Isn't there anything you're scared of that you can say, you said it now?

VROOM:

OK, well I'm scared of a lot of things but not with Home Depot specifically. I think that the company has just had such terrific momentum in their core business, and I think that's going to continue well into next year. And, in fact, we think that the investor concern about the exposure of the company to interest rates is way overblown.

In fact, the history shows that Home Depot has just sailed through periods of time of fluctuating rates. And we think they will do so again.

BUTTNER:

Well, you really like the retailers. Office supply superstore Staples. Why do you like that one?

VROOM:

Similar to Home Depot, Staples, for example, has just a terrific market opportunity because they're a very small percentage of a $200 billion market. And they've got such terrific advantages relative to the small independent dealers.

GREENBERG:

But here's the deal -- unlike Home Depot, when it comes to Staples -- I've got Staples. I've got Office Depot (ODP). I've got OfficeMax (OMX), and they're all sort of -- to the consumer -- they're all sort of alike. So, you've got the twiddle dee, twiddle dum concept here. And you've got the fact that Office Depot is opening a ton more stores, that are going to -- almost irrational openings some analysts have called it...

BUTTNER:

And sales are soft for Office Depot as well.

VROOM:

Sales are soft for Office Depot. Staples is clearly outperforming the rest. We think that's going to continue. Staples' business momentum is terrific. And we think that's going to -- we think that's going to prove itself again in the third quarter and...

LASHINSKY:

Chris, excuse me -- explain to two things. First of all, why aren't you concerned about all the insider selling that's been going on? And secondly, what about the fact that Europe doesn't make any money? When will it?

VROOM:

We think Europe is going to make money in the year 2000, probably in the last year 2000. That's a very tough market to crack, and Staples has far and away the biggest lead in that business. So, we think that ultimately we will be the next growth leg for the company over the next three to five years.

LASHINSKY:

And the Quill founders dumping their shares?

VROOM:

The Quill family, which Staples -- Staples acquired Quill about a year ago, and that was completely expected. It was a planned sale. And we don't think it has any bearing on the core business. In fact, I talked to Tom Stemberg today and they're just knocking the cover of the ball (ph) in the core business.

BUTTNER:

OK, sorry -- got to go on. Online toy retailers, eToys, which saw a big pop on Friday.

VROOM:

Yes, eToys. I think investors understand that Christmas '99 is going to be a terrific season for all e-tailers. We think eToys is going to have about the best revenue growth over a year. And we think that that company is going to be a $10-15 billion business. So, we think it's the appropriate time to build positions today.

LASHINSKY:

Chris, we know we're not supposed to worry about Toysrus.com (TOY) anymore, but we do need to worry about Amazon.com (AMZN), about Disney (DIS), about Wal-Mart (WMT). What if they don't hit the $77 million in revenue in the December quarter that you're planning for them to hit?

VROOM:

Actually, we think they're going to beat the fourth quarter revenue number. We don't think that competition, particularly for a company like Amazon or Wal-Mart, should be dismissed. But we think that eToys has the focus on that kids customer that's going to enable it to stay ahead.

GREENBERG:

Enough of -- a enough of a focus to have this, you know, the old market value game. I hate to play it -- you have $6 billion in market cap for eToys and about $3.8 or $4 billion for Toys R Us. Is it really worth that much more than Toys R Us right now?

VROOM:

You know, our experience over the last 10 years is that the cheap retailers get cheaper and I think for the bricks and mortar guys who don't have the vision of the Internet, this is a terminal problem. And eToys, their productivity is so great, that even from here, we think that at best it will make money.

BUTTNER:

Christopher Vroom, from Thomas Weisel Partners. Thanks so much for doing the Drill. We will keep an eye on your picks to see how they do.

Herb and Adam, thanks as well. We will see Herb later in the show of course.

But up next, Adam goes head to head with Chartman over the future of Intel (INTC). And later, go into the trading pit with Jim Cramer. He says that you better know about a new group of stocks called the Red Hot Index.

JIM CRAMER, TheStreet.com:

We came up with these stocks, where we are very confident the companies are all doing very well. And now the question is: Can there be a situation where a company is doing incredibly well, but you don't want to own the stock? And the answer is: absolutely.

BUTTNER:

It's information you need before you make another investment. So, stay with us.

BUTTNER:

Welcome back. Well, do you spend time researching a company before investing?

There are some professionals called technical analysts, or chartists who think that's just a waste of time. So, how do they decide when and where to invest? Let's meet Chartman and find out.

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.

With us as well in Chicago, our Silicon Valley columnist Adam Lashinsky, who reports on companies on a more fundamental level.

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

Hey, guys.

GARY B. SMITH, TheStreet.com:

Hey Brenda.

LASHINSKY:

Hello.

BUTTNER:

Let's take a look at Intel. A couple of weeks ago on this show, Jim Cramer predicted that the chipmaker was head to a hundred.

What does your chart say?

SMITH:

Well, Brenda I have a question for you. Have you taken your kids yet to Disney World?

BUTTNER:

Of course. Of course.

SMITH:

Well, then you're probably familiar with the Tower of Terror there, one of my favorite rides. The Intel is a lot scarier than the Tower of Terror right now. But I will tell you, the thing about the Intel chart is, like the Tower of Terror, you just want to keep your seat belt fastened and ride the stock the whole way. I would be scared to death if I had Intel right now. But I wouldn't sell unless that bottom trend line is broken.

BUTTNER:

But Adam, Intel is already pretty pricey isn't it?

LASHINSKY:

It is. And you know, Brenda, the planets must be in alignment this weekend because Gary and I are in agreement not only on the call but also on the sentiment...

BUTTNER:

Oh, my gosh.

LASHINSKY:

... on this stock...

SMITH:

Sell, Intel. Forget what I said...

BUTTNER:

It makes me nervous...

(LAUGHTER)

LASHINSKY:

Intel already is up almost 50 percent year-to-date. That's a huge run for a mature big giant company like Intel.

Having said that, the third quarter is shaping up really well. The word in the Valley is that average selling prices for Intel's key microprocessors are moving up. If they move up and if Intel reports a terrific third quarter, the company does even better. The stock moves up more.

Lastly, investors are enthusiastic for chip stocks. Intel is the preeminent chip stock.

The interesting thing is that Intel is trading at a higher multiple to its forward earnings than it was in the last upcycle for chips. But then, the whole market is trading at a higher multiple. Intel is looking pretty good. It really would have been great to have been earlier though. Gary and I agree on this.

SMITH:

Yes, totally agree.

BUTTNER:

Number two chart -- drug maker Merck (MRK) -- Gary, a problem prescription?

SMITH:

Well, here's the thing with Merck. I don't know if you caught the recent announcement. It was kind of a strange one, Brenda. They came out with a new drug. Only this one doesn't cure ulcers. It gives you ulcers.

(LAUGHTER)

It's called -- it's called downtrendex. That's the -- and the problem with downtrendex is when a stock starts making lower higher and lower lows, it really does give you an ulcer. And what -- I don't see anything with this Merck chart. I know it's a great company, but I'm looking for the low $60s on Merck. I just -- I think the chart looks awful right now.

BUTTNER:

Dr. Gary doesn't like it, Adam. What about you?

LASHINSKY:

Well, Gary, of course the reason the stock -- the chart doesn't look good is that the company has got risks o' plenty right now. It has a migraine drug and a baldness drug that haven't done as well as they had hoped. It risks losing billions of dollars in sales from patent expirations. And it's hoping on its new painkiller Vioxx to its savior and that's still an unproven drug at the moment.

However, as Gary pointed out, Merck is a great company with a very good management. If you're uncertain, you probably want to be giving this management the benefit of the doubt.

And lastly, it's cheap for a growth stock, for a drug stock. It's trading right now just a little bit above the multiple for the S&P 500 index. When you get a chance to buy a stock like Merck, that means over the long term, it's looking real good. Over the near term, I don't see this being a real good performer.

SMITH:

So, Adam, you would do like I would then, as a trader, you would wait until the low $60s to get into Merck?

LASHINSKY:

Well, it -- yes, I think it could and of course this gets at the difference between us, Gary, in that I'm looking at the long term because investors want to get into companies that they can own for a while. No idea where it's going on the near term.

SMITH:

Right.

BUTTNER:

OK. Gentlemen, out of time. Thanks.

Gary, see you in a couple of minutes.

SMITH:

All right Brenda.

BUTTNER:

And Adam, we will check in with you again next week.

Up next, Jim Cramer's red hot stock index sizzles. How you can handle these high flying stocks without getting burned, when

TheStreet.com

returns.

BUTTNER:

Welcome back.

You no doubt use some kind of stock index to check out the market. You know, watch the Dow for blue chip stocks, and the Nasdaq for techs.

But our Jim Cramer has invented a new index that he says you absolutely have to know if you're going to invest successfully. Here's the Red Hot Index.

CRAMER:

We came up with an index of the 20 companies that we think best represent the greatest growth in the world. And I'm not just talking about the Internet or semi-conductors, but these are the 20 companies that we think have the greatest growth prospects right now -- not a year from now, not last week, not last month. Not 10 years ago like the Dow Jones Average, not five years ago like the Nasdaq. These are the red hottest companies.

And we do it not because we want to go own them. Because whether a company is red hot or not, it not nearly as important from my point of view, and the point of view of

TheStreet.com

, is whether the stock is a buy or not.

Everyone of these companies is red hot. Is the stock too hot is what we want to know. And every day we look at these and we know that the fundamentals of these twenty companies are just dynamite.

But maybe the dynamite is a little too hot to handle. They're just too hot. They're too hot to trade.

It isn't enough to know that a company is great. That won't necessarily produce a good stock. We almost make fun of the Red Hot Index internally because this is an index of companies that everybody loves too much.

People have -- mutual fund managers have crushes on these stocks. They can't buy enough. And I would like to have bought them before they went up 600%, or 700% or 800%. But they do sell off.

And when they sell off they sell off viciously and horribly. They look like derailed trains. And that's when I like to get in.

So, another 2500 Juniper because I'm looking at what most of the red hots are going it, with the exception of Red Hat (RHAT) -- look awful. These are rocket ships and got to be in training for them to get on them. You know, there is like a phenomenal G-force involved with these red hots.

I don't think you can just, you know, go and be an astronaut. They got to -- you got to say, OK, I've got to train for this. This is not for the squeamish. You things go wrong. This is a high stakes game. You know, I want to be on the next rocket ship absolutely, but I don't want the rocket ship to go bad on me.

And the way you do that is you learn about the companies.

BUTTNER:

And if those 20 stocks went buy too fast, you can find out all you need to know the Red Hot Index by going to our Web site at www.thestreet.com.

You can read Jim Cramer anytime at that address. And of course Jim will be back here in the studio next week.

But up next, your 401(k) may not be as secure as you think. Find out what you need to know and what Cramer has to say about that when we get The Word on TheStreet, next.

CRAMER:

People should actively manage their 401(k). If you let someone else handle it you're a fool. You should know everything that's about it. And you should make all the decisions for it.

BUTTNER:

Yes, imagine that. Jim does have an opinion. Taking control of your own 401(k). Do it yourself. You know he has a point.

Last week 100,000 current and former employees of a major bank filed a lawsuit against their employer, claiming they were charged excessive fees and given few investment choices in their firms 401(k) plan. Could this be happening to you?

Let's get The Word on TheStreet. Joining us:

TheStreet.com's

Senior Columnist Herb Greenberg, Editor-In-Chief Dave Kansas. And in Washington, Contributing Editor Gary B. Smith.

Herb -- you know I've got to watch my stocks. I've got to watch my mutual funds. Now you tell me I have got to watch my 401(k)?

GREENBERG:

You have got to watch everything when it comes to your money.

(LAUGHTER)

In fact, in this situation, you have got to look at the fine print. You have got to read the fine print. You cannot assume that the company is doing you a favor.

BUTTNER:

Gary, are you pouring over your fine print? What do you think about this?

SMITH:

Brenda, absolutely not. You know I tell you this is another thing...

(LAUGHTER)

... for the person in the big company to worry about. Now everyone is going to be throwing up their hands -- oh, my gosh, my 401(k) is mismanaged. It probably happens .0001 percent of the time.

(LAUGHTER)

You should be thankful of two things. There is a 401(k) and that there's a bull market. That's what you need to know.

BUTTNER:

Oh, Gary, you know, you are much more trusting than I am. Just leave it to the big company to take care of you. Yes. Actually, there are millions of dollars of misused funds out there. And your retirement is at stake. Why don't take a few minutes every month to look at your statement and make sure that money is getting invested?

SMITH:

We don't have an argument that you should look the things over. But what I'm saying is, I don't think you should worry about the - - like that lawsuit -- the fees and the choices that you have. They're pretty much given to you and if you don't like what that company has to offer, then you just leave that company.

KANSAS:

Oh, well, Gary, it's just so easy to just leave a company if you don't like their retirement program...

(LAUGHTER)

SMITH:

It worked for me, Dave.

KANSAS:

I mean that people should -- people should look at their investments in the 401(k) and I think -- and a company, they should have more than just what the company is brewing up in their own retirement program.

They should have a choice to go outside of that company if they want to. I think that's an important choice for the investor to have. I think it's not fair when a bank say, just says to their employees, well you're only going to get the home brew. And that's all we're going to give you.

BUTTNER:

Dave, I got to tell you though, I have been looking over the choices on

TheStreet.com

401(k) and I am not happy. And I really don't have much recourse, do I?

SMITH:

Yes, so what's she going to do, Dave?

(LAUGHTER)

KANSAS:

Well, I'm going to work to change that on Monday.

SMITH:

Right, right away.

KANSAS:

Absolutely.

GREENBERG:

What we're all going to do, is we're all going to get together as a group, as every employee should, we're going to come to you and we're going to tell you it's wrong and you will listen to us Dave, because that's what you're supposed to do.

KANSAS:

Absolutely.

BUTTNER:

The main problem actually is that you know, quick as a flash the money is taken out of your paycheck, but then it -- oftentimes there's a big lag period in between when it's actually invested. So, those couple of minutes that you actually do spend looking at your statement really is worthwhile, don't you think?

GREENBERG:

Yes. No, I think you should -- you have to take a look at this thing, and again I really can't stress enough: you can get your company to change the plan if you get enough people together and you really work at it.

BUTTNER:

OK. Gentlemen, time for predictions. Herb, you're up first. What's going to happen? Why do I care?

GREENBERG:

My sources say that Action Performance (ACTN) which makes Nascar licensed toy cars will not make it to earnings finish line as it goes forward here.

BUTTNER:

OK. Dave. KANSAS: Heard a lot of noise -- CBS (CBS), Viacom (VIA.B) merger, I think there's going to be another big media deal in the next few weeks.

BUTTNER:

OK. And Gary B.

SMITH:

OK, I have my own red hot. Now I don't own this stock, so I will be very up front about that, but Dell (DELL) returns to its former glory and pretty soon makes new all times highs.

BUTTNER:

All right. And you can let us know what you think about those predictions by visiting us at "TheStreet.com" TV and you can vote on the one you think will most likely come true.

There is also a place on that page to send us your comments about the show. We want to hear what you think and what else you would like to see on the program.

And you know that's just one part of the Web site. A lot more there to check out. Jim Cramer, Herb, Dave, Gary and myself and may others write every day to tell you what you need to know to make your own decisions when investing.

And that's it for this edition of "TheStreet.com." We will see you here again next week at the same time.

Until then, we hope you invest wisely.

END

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