Fast Money Recap - Oil Spoils Everything (6/6/08)

by: Miriam Metzinger

Recap of CNBC's Fast Money, Friday June 6.

Oil Spoils Everything: Oil Service HOLDRs (NYSEARCA:OIH), Chesapeake Energy (NYSE:CHK), Petrohawk (NYSE:HK)

Oil’s 8% jump on Friday sent the stock market into the worst loss since the “Shanghai Swoon” of 2007. Jeff Macke said the action reminded him of 1999, and said the market is a bubble based on oil prices which are “killing everything.” He would sell when a stock flies too high and buy when others panic. The biggest challenge, said Macke is trying to build a position now. Karen Finerman said her gut feeling is to shrink positions on both sides and to avoid selling puts. Guy Adami would stick with what works: natural gas, coal and railroads. Although Pete Najarian sees lows in financials as a buying opportunity, he would avoid rushing in and would protect long positions. He noted a decline in OIH at the end of the day was due to profit-taking. Najarian said he would buy CHK and HK on Monday without hesitation.

All Aboard: General Motors (NYSE:GM), CSX (NYSE:CSX), AMR (AMR)

With oil prices flying high, the only transportations stocks likely to go anywhere are rails, and Adami picks CXS. Adami said airline AMR has been a trade, and while high fuel costs will give the airline sector a needed reason to cut costs, Macke said the industry is in a brutal place. Adami noted GM auto sales were even worse than expected.

Retail Double Whammy: Wal-Mart (NYSE:WMT), Costco (NASDAQ:COST)

The retail sector was hit with the double whammy of high oil prices and a bad jobs number. The only two picks in the sector, according to Macke, are Wal-Mart and Costco.

On Speculation

After oil’s largest two-day gain in the history of the New York Mercantile Exchange, many wonder if speculators are to blame after all. Joe Terranova, chief investment strategist at Phoenix Investment Partners discussed unusual activity in oil; “We’re going up and we’re going up in the front. All the volume was in the first 3 months which is unusual.” Meanwhile the trading floors are becoming empty, and Terranova is concerned that there will be no one to take the other side of buy orders.

Banks Battered: Wachovia (NASDAQ:WB), Morgan Stanley (NYSE:MS), National City (NCC), Citigroup (NYSE:C), Lehman Brothers (LEH) and Goldman Sachs (NYSE:GS)

Oil prices hit financials hard, with Wachovia and Morgan Stanley leading the decline. NCC was hammered after a Wall Street Journal article declared its banking unit is “on probation.” Macke said financials are a trade for the brave. He would buy names like C, LEH and GS in scale and would get in before earnings and get out. Najarian thinks the sector is still too risky.

Pfizer Pfalters: Pfizer (NYSE:PFE), Pharmaceutical HOLDRs (NYSEARCA:PPH), Amylin (AMLN), Isis (ISIS), Novo Nordisk (NYSE:NVO), Celgene (NASDAQ:CELG),

Following Pfizer’s fall to an 11-year low on Thursday, the stock continued its downward dive due to safety concerns and its declining pipeline. Macke says PFE is “just death.” Najarian would avoid this “broken stock” and recommends Isis and Amylin for their diabetes treatments. Adami likes CELG. Finerman says the sector is too risky to play individual stocks and would buy PPH.

Tech at the Top: Dell (NASDAQ:DELL), IBM (NYSE:IBM), Cisco (NASDAQ:CSCO), National Semiconductor (NSM) Apple (NASDAQ:AAPL), Intel (NASDAQ:INTC)

Although the sector declined along with the rest of the market, the past week was all about tech with Dell and Cisco leading the way. Najarian likes Dell for its overseas business, and sees the drop in IBM as a buying opportunity. Apple is a buy ahead of the developers’ conference, he continued, and Najarian also likes NSM and CSCO. Adami says the fact INTC didn’t decline on news of an investigation by the Federal Trade Commission is evidence of the company’s strength. He thinks Intel looks good at $23.

Don’t Cry Over Spilled Stocks

Carter Worth, Chief Market Technician at Oppenheimer declared Friday’s market action was a “mess” but he urged investors not to drop out. Investors need to be bearish, although many have the impulse to be bullish. “Just sitting and letting things deteriorate is unacceptable,” Worth added, “take some action whether it’s writing calls against longs or do selective short selling. But investors have to do something.” He said some tech stocks look good and if there is one place to hide, it is in semiconductors.

Perfect Storm for Oil

Dennis Gartman said Morgan Staneley’s prediction oil would reach $150 by July 4th the hot situation in the Mideast created the “perfect storm” for oil’s jump. Gartman says he staying away from the oil trade and is doubling up on natural gas as a kind of hedge. The empty trading floors are responsible for illiquidity and Gartman thinks the government might decide to step in.

On Demand: Wisdomtree Dreyfus (NYSEARCA:BZF), Wisdomtree Trust (NYSEARCA:ICN), Halliburton (NYSE:HAL), Schlumberger (NYSE:SLB)

Oils record rise may be due to overseas events, such as increasing Middle East tensions and China’s ever-rising demand for the commodity. “China alone could be as big an oil consumer as the U.S. by 2020,” says Tim Seymour. Seymour is bullish on Russia and Brazil rather than on China but would have some downside protection because of Brazil’s reliance on commodities. He predicts emerging markets will raise interest rates to counter inflation and would invest in currencies through BZF and ICN. Seymour would buy HAL and SLB on Russian expansion.

Down on the Farm : Monsanto (NYSE:MON), DuPont (NYSE:DD), Agrium (NYSE:AGU)

North Dakota farmer Roger Neshem says Midwest flooding, which is creating the wettest spring since 1993, is causing planting delays which will lead to a severe supply crunch and higher corn prices. In the next few days, the extreme rains will spread to Western corn belt states. Neshem likes fertilizer stocks MON and DD.

Fast Fire: Yingli Green Energy (NYSE:YGE), Energy Conversion Devices (NYSE:ENR), NYSE Euronext (NYSE:NYX), J. Crew (JCG), Deere (NYSE:DE)

On May 14, Najarian thought YGE would start making money, but it has declined 30%. Najarian says the company is suffering from silicon costs, but still likes the sector, especially ENR. Finerman says she was wrong to recommend NYSE on May 1st. Macke said he would just buy J. Crew’s clothes and walk away after his May 29th recommendation was followed by a 7% drop in the stock. Instead of going to $100 a share as Adami predicted, Deere dropped 8%. However, Adami hasn’t cancelled his thesis that the stock will go higher, but added investors should stop out at $79.50.

Picks that Paid: Valero (NYSE:VLO), Dell, Nucor (NYSE:NUE), Borders (BGP)

In late May, Macke went out on a limb to recommend BGP and the stock is up 16%. Finerman made money buying oil refiners on the way up and has profited from the other side of the call as well. Her suggestion to sell July $45 Valero calls translated into a 47% gain. Adami successfully called a bottom in Dell on May 23rd; the stock has climbed 13% since. Najarian told viewers to keep an eye on Nucor on June 3rd because calls were up 60 cents late in the day while the stock was down 60 cents. Those who listened to Najarian made 80% in two days.

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