Oil: Speculation vs. Supply and Demand - Fast Money Recap (5/29/08)

Recap of Fast Money, Thursday May 29.

Oil drops: Hess (HES), Southwest Airlines (LUV), Ultrashort Oil and Gas ProShares (DUG)

Oil fell $4, the furthest in 2 months, even amid news supplies are being squeezed. Joe Terranova commented "the back of the board has fallen $13…I think this is a period for the market to test $120. And from there I’d like to see who shakes themselves out of the market if we break below $120." Terranova is short Hess and is long LUV and the Canadian dollar. Jeff Macke said oil didn't break down, but it did have a near-term top. Dan Fitzpatrick would not make too much of the drop, but would watch oil if it goes below $123. Najarian thinks the market will recover when oil drops below $120. Adami says bullish action in DUG last week predicted the top in oil this week.

Dell's Bells: Dell (DELL), Hewlett-Packard (HPQ)

Dell rose after hours on a strong quarter due to rising demand and lowered cost. Adami noted gross margins were thin, but praises Dell's management, and would take profits. Najarian says HPQ has better international exposure than Dell and prefers HPQ. Macke noted that the consumer is still buying computers in spite of the difficult economy.

Google's Coup: Google (GOOG) and Intel (INTC)

Google continues to dominate the internet as ComScore data indicates the company is winning in online advertising and has a 20% increase in internet presence year over year. Adami is concerned about INTC, which fell 1.4% on good tape, but he might consider buying the stock long-term.

Master Credit: Mastercard (MA), Visa (V), Lehman Brothers (LEH)

While news from MA is bullish, Adami would not buy the stock and says the easy money in MA is over. Najarian disagrees and likes MA as well as V on rising transaction fees overseas. Finerman pointed to problems with LEH as a sign that the credit crisis is far from over and she would buy financials low.

Happy Oligopoly: Joy Global (JOYG), Bucyrus (BUCY), Norfolk Southern (NSC), Burlington Northern Santa Fe (BNI), Union Pacific (UNP)

The largest oligopoly in the world is not comprised of Pepsi and Coke, but JOYG and BUCY. Joy's orders raced past $1 billion and the company raised guidance. Adami would buy JOYG and BUCY on a pullback. Najarian says the rails are booming along with coal and noted NSC is cheaper than BNI and UNP.

Merck's Perk: Merck (MRK)

Merck came out with good news about its medication Vioxx, and Adami would be long with a stop out below $36.50.

Interview with Bruce Smith, CEO Tesoro (TSO)

Bruce Smith believes the current price of oil is determined mainly by supply and demand, although it doesn't really impact his company. He says oil refiners are a good investment now, and those who are not buying are missing out. Given improved margins, TSO is producing large amounts of diesel fuel, Smith added. Finerman asked Smith about excess inventory, and Smith did not give details about how the company plans to deal with this issue.

Darden Restaurants (DRI), Kellogg (K), Starbucks (SBUX), Bob Evans (BOBE), Buffalo Wild Wings (BWLD)

Jon Najarian joined the show to discuss how some food stocks are thriving because they are effectively hedging food costs. The winners include DRI, K and SBUX. However, BOBE and BWLD are losing the hedging game, and Jon Najarian prefers to short these two stocks rather than being long the others.

Shotgun Marriage Mergers: Yahoo (YHOO), Microsoft (MSFT), Boston Scientific (BSX), Johnson & Johnson (JNJ), Hewlett-Packard (HPQ)

The group looked at trading three potential mergers. The first and most famous is the proposed deal between YHOO and MSFT. Yahoo's CEO is ready to listen, but MSFT might no longer be interested. Macke said Yahoo will end up either married or dead and would buy MSFT. JNJ and BSX have been fighting over Guidant, which is now facing a liability trial and product recalls. Finerman would buy BSX. The HPQ and Compaq merger was a success, but mainly for HPQ, since Compaq lost some of its visibility.

Trader Radar: Men's Wearhouse (MW) dropped Thursday on very high volume.

Speculators vs. Supply and Demand

The group discussed the controversy over whether rising oil prices are due mainly to speculators or supply and demand. Robert Hirsch, Senior Energy Advisor at Management Information Services Inc says the role of speculators has been greatly exaggerated. Production has hit a plateau and demand keeps surging in emerging market countries. Hirsch doesn't think that reserves will adequately alleviate the problem, and rising oil prices will spell major, inescapable problems.

Fast Messages: Dell, Microsoft, Amylin (AMLN), Chesapeake Energy (CHK)

Macke told one viewer that good news for Dell does not necessarily mean bullish good news for MSFT when it reports. Najarian would sell some July calls instead of looking for a sell point for AMLN. He also says he is bullish on CHK because of insider buying.

Final Trade: Macke: J. Crew (JCG), Adami: Tesoro, Finerman: (C), Najarian: Chesapeake Energy

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