"Tired of the system?" Aaron Task asked listeners of
"RealMoney" radio Friday. "Let me help you make it work for you."
Subbing for Jim Cramer, Task invited veteran hedge fund manager and
contributor Cody Willard to join him on the show. Task recalled that two weeks ago Willard announced he was switching his portfolio to only cash and
stock. It seems to have been a good strategy given the recent market retreat.
"What was it that got you so spooked?" Task asked Willard.
Willard explained that part of his worry was the froth in the commodities sector. The true craziness of metals prices was highlighted to him when a titanium company executive commented that the commodities market is "still a cyclical market," meaning that the prices were unlikely to stay high forever.
Talking about his long position in Microsoft stock, Willard said, "The risk/reward setup might just be the best setup I will see in my lifetime," with relatively low downside risk and huge potential on the upside.
"If the market collapsed, I still think Microsoft has only $2 to $3 downside," he said. And meanwhile, with most of Wall Street hating the stock, there is a lot of potential for upside surprise. Willard believes that the radically new operating system in the company's pipeline is undervalued, as is their overwhelming domination of the operating system business. He also said the company had many hidden assets.
"MSN is a very valuable asset," he said. But in general, he was "trading his trading for patience," and so keeping a large cash position.
"I sure like the market a lot more today than I did two weeks ago," said Willard. "But I am still concerned at some of the dislocations around the world. That type of stuff is scary," referring to some awful performance in some merging stock markets in the Middle East. He also said the possibility of an economic slowdown was higher now than at any time in the last four years.
"If the Fed were to re-liquefy things, that would have me bullish," said Willard, but he remained concerned.
Task reminded listeners to learn from the actions of pros like Willard. "You don't have to always be in the market," he said.
"Just when you think it's safe to get back in the water," said Task, along comes a scandal.
Task was referring to a story bubbling around Wall Street for the past two weeks that has investors rattled: Certain companies may have struck executives' stock options at the lowest possible price, when. doing so would have locked in instant profits to the grantees. Meanwhile, investors have been told only that the options were struck at-the-money, with no baked-in gains.
"It's illegal, it's immoral, its fraud," said Task. "Investors are wondering what is going to be the next shoe to drop."
is one such company to be implicated in the brouhaha. As are
, all of whom will be trying to explain what went on and why.
"Every day we go by without another company named, that's good for the market," said Task.
He also observed that a report released by Cowan showing the results of a study on options found no new examples of impropriety. That report may have a settling effect on the market, he said.
Friday's first caller asked Task and Willard about
"This stock has had a very serious fall," said Task. "Now's the time in the economic cycle you don't want to be in these kind of stocks, unless you can afford to lose the money. Just because it's low-priced doesn't mean it can't go lower."
Willard agreed that Conexant might make a suitable speculative investment, but commented that he hadn't owned it in a long time.
The next caller asked about
which has been implicated in the option backdating scandal.
"I still believe there is more upside than downside," said Willard, but he reminded listeners that backdating was "essentially stealing from shareholders."
Willard said the scandal was likely to have a dampening effect on the market and keep price/earnings multiples lower than they would be otherwise.
"This weighs on investor sentiment," added Task. "It may be the next scandal like Enron or WorldCom. Every day we go by without another name that's good for the market."
The next caller asked about
"The stock is currently trading right at its 200-day moving average, which is good from a technical analysis viewpoint," said Task.
Willard believes that the downside risk is likely limited to $5, whereas the upside is huge. He sees a triple-digit stock price for Apple by year-end.
The next caller wanted to know whether
recent slide was over. "Why is it holding here?" he asked.
Willard said, "I don't think it is necessarily holding here," he said. And he observed that the softness in the stock price is likely to continue before it turns around. "I expect to get bullish, just not yet," he said.
Task continued, "I like Google here in the $380 range because a lot of the froth is out of the market. People now understand that there are risks."
"I'm in the house of pain with
," said the next caller. "Could you give me some advice?"
The caller's losses provided a useful lesson for other listeners, according to Task. He said when buying a stock, investors should place a stop-loss order at a level below the purchase price to stem possible large losses. "That way you automatically get out when the price hits that level," he said
The next caller wanted to know the host's thoughts on
"H-P has done a lot and has had a huge run-up since the previous CEO, Carly Fiorina, was forced out," said Task. "Now they are eating
lunch." He also advised the caller to take some profits now and possibly reinvest in the stock on a pullback.
The last caller asked about
. She said, "I bought it at $80."
The stock traded at $66 during Friday's show.
"I don't think you don't want to buy more," said Task. "You want to put a stop-loss below its current level."
Aaron L. Task is the co-executive editor of TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships.
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