Paralyzing War Fears Govern the Market

Physician's Money DigestMarch31 2003
Volume 10
Issue 6

Iraq, it's the excuse for not doing anythingthese days. Iraq is why the market's down,the gas prices are higher, and the economy'sstagnant. You name it, and Iraq is the reason.Related to America's fears of war with Iraq arefears of terrorist repercussions. But why is thestrongest country on earth being takenapart internally by fear?



Why are the markets afraid of amadman who happens to be on Richest List, yet can't feed his ownpeople? Why are we afraid of terroristswho have to hide in caves? The terroristswere able to destroy the WorldTrade Center and part of the Pentagon,and kill approximately 3000people, but they got away with itbecause of our fears and narcissistic,nonchalant attitudes.

But now, 17 months after the attacksof September 11, we, the peopleof the United States, are helping theterrorists by infighting, fear, and paralysis.We should be asking ourselveswhy we're doing this. As a country, arewe in any more danger than we were at the startof World War II or during the Cold War? I don'tmean to minimize the reality of terrorism, butare things really that bad? I think not.


We're actually stronger and more determinedthan we appear. While the recent protestsfrom peaceniks and Hollywood types overshadowour determination, we as a people mustcome to a realization, that only we can solvethese new problems. We must movebeyond our own self-interests, towarda more noble cause.

Unfortunately, we have short-termmemories. Hitler should have beenstopped in 1938. If we forget thelessons of history, we will repeat themistakes of the past. To paraphrase afamous World War II Japanese admiral,terrorists have awoken a sleeping giant.We must get our hands dirty if we areto live in freedom and peace.


On the Street of Dreams, meanwhile,pessimism and fear rule. For themonth of February, the Dow dropped162 points, another 2.01%, to close at7891. The S&P fared about the same,but the Nasdaq actually rose, as smallercompanies and technology stocksenjoyed modest gains. For the year, the Nasdaqis up over 2.6%, compared to a 4.3% loss on theS&P 500. Some market pros point to stabilizationin revenues, while others see a bounce backin earnings as companies realize they will eventuallyhave to upgrade systems.


The rise has some money managers lookingat fallen angels (ie, those companies that weremarket leaders in the past, but are now in thedoghouse). According to an article in Tom McKissick, comanager of TCW GalieoLarge Cap Value Fund, likes Siebel Systems(SEBL). He lists a strong balance sheet, goodprofit margins, and no debt as some reasons tobe optimistic. The $4.40 share in cash does nothurt either. Siebel Systems' stock hit a high near$120 back in spring 2000.


Speaking of fallen angels, several utility/energystocks have seen nice bounces over the pastfew weeks on improving outlooks. Topping thelist of percentage movers since January 1 is energycompany Dynergy (DYN), which was up over65% through February 28 to $1.95 per share.DYN stock peaked near $60 in July 2000.Recently, DYN has cleaned up its balance sheet.DYN attempted to buy Enron back in 2001.Since then, liquidity concerns, allegations ofprice fixing during the California energy crisis,and a dividend suspension crushed the stock.

Similar problems affected the whole group. ElPaso (EP), a natural gas company, has seen itsstock on a real roller coaster lately. EP sold somemore assets and lowered its debt. Its stock hit alow of $3 earlier this year, jumpednearly 20% in January, and then fell5% in early February. It was higherthan $70 a few years back. WilliamCorp (WMB), another leadingenergy gas pipeline/energy tradingcompany also hurt by debt and theEnron trading fiasco, has sold someassets and improved its cash flowover the past few months. The companyalso settled legal problemswith the state of California. WMBwas under 80 cents last July, movedto over $2, and then fell to $1.36this past October.

Another financial angel, ProvidianFinancial (PVN), was upgradedto market perform by CIBCWorld Markets on February 7.Providian is a major credit cardissuer and service provider. PVN isup nicely from its low of $2.50 lastsummer, but is still way down fromits $67 high of October 2000.Following the upgrade by CIBCWorld Markets, Tom Brown, amoney manager with SecondCurve Capital, LLC, has beenaccumulating the stock, with a targetof $16 to $18 on the shares.Among other reasons for his optimism,Brown credits a new managementteam for improving its liquidityand reducing losses.


NewYork Post



Hulk, X-Men,


Christopher Byron of the did an interesting piecelast month on Marvel Enterprises(MVL), the comic book companythat has over 4700 characters in itslibrary. MVL had last summer's bigblockbuster movie hit, MVL recently had another hitmovie, , starring Ben Affleck,and has 3 other movies comingout shortly: andanother movie. MVLhas seen its stock run from $1.23two years ago to over $12.

The Motley Fool Web site( notes that Marvelexpects to earn between 64 centsand 69 cents this year, up from lastyear's estimates for 2003 of 54cents. Motley Fool reports thatMarvel-licensed consumer productssold more than $2 billion inmerchandise last year. They expectthe trend to continue. The companyrecently retired a substantialamount of debt, helping to add tothe increased optimism.

Motley Fool also has a list of 10stocks under $10 that have attractivesingle-digit price/earnings (P/E)ratios. I found a company calledJakks Pacific (JAKK), a toy company,trading less than book value ona forward P/E of 7 times. Anotherstock mentioned on the site, butabove $10, is the cruise line RoyalCaribbean (RCL), which has beenhit hard by the poor economy andfear of terrorism. However, afterearning $1.72 last year, the companymay do better, as vacationersstay closer to home.

The markets remain fixated onthe pending war with Iraq. Anygood news can only help investorand consumer sentiment.

Ernest Caponegro is aNew Jersey–based registered representative affiliated with First MontaukSecurities, member NASD/SIPC. He welcomesquestions or comments at 888-786-9507.Any opinions expressed are the author's and donot necessarily reflect the opinions of FirstMontauk Securities or those of its officers, directors,or affiliated registered representatives.

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