Merrill Raises Capital - Fast Money Recap (7/28/08

by: Joan Wickham

Recap of CNBC's Fast Money, Monday July 28.

Financials Lead the Way Down: Fannie Mae (FNM), Freddie Mac (FRE), Merrill Lynch (MER)

Financials moved to the downside Monday when Fannie Mae and Freddie Mac fell sharply. Fannie Mae slipped 11% to $10.31, while Freddie Mac dropped by 7% to $7.72.

Pete Najarian disagreed, saying neither Freddie nor Fannie turned financials around; it was Merrill Lynch. He added Merrill Lynch was up today before trading into negative territory, and that is when other financials, specifically Freddie and Fannie, “started to roll over.”

General Motors (NYSE:GM): Jeff Macke brought up General Motors, which closed down 8% to $11.00. He mentioned if an investor does not have a technical or fundamental reason for holding a company, they will sell it when fear overcomes the markets -- explaining the reason why General Motors keeps trading downward.

Citigroup (NYSE:C): Karen Finerman brought up Citigroup since it was down 7% to $17.43. She feels financials are value plays right now and that “one day it will be over,” meaning one day the financials will hit a bottom. She currently owns Citigroup.

Southwest Airlines (NYSE:LUV), Toyota Motors (NYSE:TM), General Motors (GM): Southwest and Toyota are both best of breed according to Macke. However, he feels these companies are operating in difficult environments. He also added he feels “Toyota is a much better short play than General Motors.”

Johnson & Johnson (NYSE:JNJ): Guy Adami said he is very bullish on Johnson & Johnson. He said, “I still like JNJ,” and see some upside potential left in the stock.

Verizon (NYSE:VZ), AT&T (NYSE:T): Ratigan discussed Verizon which traded higher after reporting its second-quarter earnings: 67 cents a share excluding one-time charges. This beat analysts' estimates by 2 cents a share. Verizon's strength came from its wireless business, which is where AT&T showed its strength. Ratigan questioned why both Verizon and AT&T closed down today.  Najarian began by stating he is still bullish on AT&T. He feels the company's wireless business will continue to grow as a result of strong demand for the iPhone.  Macke still disagrees with Najarian saying “AT&T is busted, Verizon is broken.”

Walter Industries (NYSE:WLT): Finerman pointed out that Walter Industries is up 4% after hours after beating second-quarter analysts' expectations by a wide margin -- the company earned $50.8 million, or 94 cents a share, while analysts' expected 57 cents a share.  Macke stated that while Najarian may be supporting the coal sector, he does not believe coal is this alternative energy solution we are all going to jump toward.

Sirius (NASDAQ:SIRI), XM Radio (XMSR): Ratigan mentioned that Sirius and XM Radio “finally got their approval” from the FCC to merge. Macke suggested investors stay away from the satellite companies. He said, “I like the idea of these companies,” but since the FCC took so long to approve the merger, the fundamentals deteriorated far too much. In addition, he believes dilution for both companies is by far the greatest reason to stay away from both Sirius and XM Radio.

Alcoa (NYSE:AA): When Ratigan brought up that Alcoa was the only Dow component up today, Adami likes Alcoa. He believes the company is trading at attractive levels where it could possibly be a buy-out candidate.

KKR:  Ratigan brought up how KKR announced it will go public. Dan Fannon, financial services analyst of Jefferies & Co. said while he does not cover KKR, he does not see it worthwhile for investors to buy into it. Finerman agreed and said she does not feel compelled to buy any shares of KKR when it becomes a publicly traded company in the NYSE.

Merrill Lynch (MER), XL Capital (NYSE:XL), Morgan Stanley (NYSE:MS), Lehman Brothers (LEH): Ratigan mentioned breaking news regarding Merrill Lynch. XL Capital is raising $2.5 billion to pay Security Capital and pay Merrill Lynch $500 million. After hours Merrill Lynch announced it has raised 8 ½ billion in capital. The result is a 20% dilution for shareholders. 320 million in new shares comes to market. Ratigan mentioned how the Merrill Lynch news did not seem to affect Morgan Stanley or Lehman Brothers after hours. Najarian said the news was “more company specific, which is perhaps why Morgan Stanley and Lehman Brothers were not affected after hours.” But he said “tomorrow will be interesting to see how people will take the Merrill news.” Charlie Gasparino, CNBC contributor, mentioned how John Thain, CEO of Merrill Lynch, may face credibility issues on Wall Street from changing his stance quite often.

Exxon-Mobil (NYSE:XOM), Chevron (NYSE:CVX): Najarian discussed oil companies such as Exxon-Mobil and Chevron, which will be reporting earnings soon. He mentioned that these companies, and others within the same industry, are trading down since news reports indicated lower production levels. Also, he suggested “if Exxon or Chevron get a pop,” sell into the rally. Adami was not convinced by Najarian. He said on a valuation basis, Exxon-Mobil is quite attractive, especially since it's down “about 20% from its highs.” At its current price, he believes the company is a buy.

Disney (NYSE:DIS), News Corporation (NASDAQ:NWS):  Anthony Diclemente, analyst of Lehman Brothers, came on the show and discussed Disney. He is bearish on the company, even though “the stock has held up much better than its peers like News Corporation and others in the same industry.” However, he does not feel Disney's stock selling at a premium to its peers is justifiable. Therefore, he said investors should stay away from this company.


Final Trade – Your First Move on Tuesday

Macke says buy Financial Select Sector SPDR (NYSEARCA:XLF) at down 4% or more.

Adami likes Becton Dickinson (NYSE:BDX).

Finnerman picks Transocean (NYSE:RIG).

Najarian would buy Financial Select Sector SPDR (XLF) at under $17.50.

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