Time for Biotech? - Fast Money Recap (07/29/08)

by: Joan Wickham

Recap of CNBC's Fast Money, Tuesday July 29.

Merrill Gets Out Ugly: Merrill Lynch (MER), Financial Select Sector SPDR (NYSEARCA:XLF)

“While Merrill has significantly diluted existing shareholders, we applaud this purging of assets as an attempt to cut its losses and focus on stabilizing its platform and righting the franchise toward growth,” Oppenheimer & Co. analyst Meredith Whitney wrote in a research note.

Meredith has been spot on in the whole space, says Guy Adami. I think we saw capitulation in Merrill today and I expect Merrill to trade much higher. From a short term trading perspective I agree with Adami, adds Sandler O'Neill securities analyst Jeffery Harte on Fast Money I’d buy Merrill as a trade. But I still have a hold on the stock long-term and I think there are still mortgage and credit problems to come. The Merrill news sent the entire sector higher. I don’t understand why it created such a huge run in banks, says Karen Finerman. I think it says there’s more bad news to come and I shorted the Financial Select Sector SPDR. The banks surged because Wall Street hates uncertainty, exclaims Jeff Macke. Even lousy news is better. There are only two ways to play banks, right now. 1) sit on the sidelines or 2) be a seller of rallies.

Oil Continues to Fall

On Tuesday, oil fell to its lowest level in nearly three months, extending a steep slide since mid-July on mounting evidence high prices and a souring economy are cutting into world energy demand. The drop coincided with a stronger U.S. dollar, which may have reduced the appeal of commodities to some investors playing the strong negative correlation between the markets in recent months, analysts said. I think the dollar will outperform the euro, says Guy Adami, believe it or not things are much worse in Europe than they are here. I’m still short the British pound, adds Karen Finerman, but that trade's done nothing, so far.

Alzheimer Drug Results: Wyeth (WYE), Elan (NYSE:ELN)

At 5pm, CNBC’s Pharmaceutical Reporter Mike Huckman presented just released data on an experimental Alzheimer’s drug from Wyeth and Elan. The results, he explained, are from a small mid-stage study but suggest the drug could potentially be a huge blockbuster.

US Steel (NYSE:X): shares rose dramatically Tuesday after the steel maker reported record second-quarter gains and predicted further growth in the third quarter.

In a note to investors, Goldman Sachs  analyst Aldo Mazzaferro wrote, “We expect significant positive performance from here on U.S. shares.” U.S. Steel is also included on Goldman Sachs’ “Conviction Buy” list. I think Letter X is still fair on a valuation basis, says Guy Adami.

What Will the Final Offer be? Genentech (Private:DNA)

With Roche is set to acquire Genentech which biotech is probably the next blockbuster? As Karen Finerman often says, the first offer is rarely the last offer. That’s what Genentech investors are betting; they’ve driven shares of the biotech above Roche's $89-per-share buyout offer. ”We believe Roche is attempting to capture Genentech's significant future growth on the cheap,” said Oppenheimer & Co. analyst Bret Holley in a note to investors. Some analysts predicted Roche's offer would have to climb to more than $100 per share to be acceptable to Genentech, and one pegged the stock's value at $120. Meanwhile, Robert W. Baird analyst Christopher Raymond says he also expects a higher offer from Roche with the $89 being an initial salvo in a negotiating process.

Whatever number they settle on, it appears Genetech is out of the game now. And that could leave as much as $50 billion looking for a new home with a sizable portion of that money mandated to stay in biotech.

Where to Look? Genzyme (GENZ), Gilead (NASDAQ:GILD), Celgene (NASDAQ:CELG)

Some of the dollars are going to start flowing downstream, says Christopher Raymond on Fast Money. I like Genzyme. They’ve got a very diversified portfolio. Also some of those dollars could go to Gilead, adds Pete Najarian. And keep your eye on Celgene, exclaims Guy Adami.

Should You Trade With Carl Icahn? Yahoo (NASDAQ:YHOO), Biogen (NASDAQ:BIIB), Blockbuster (BBI), Imclone (IMCL), Motorola (MOT)

Carl Icahn is a crafty predator who often secretly attacks his prey through the press - hurling criticisms until his target relents. Despite his 72 years of age this whale isn't afraid to get into the middle of a business brawl. Just weeks ago, Icahn blasted CEO Jerry Wang as Chief Yahoo and ultimately forced his way onto the Internet company's board. As a result, Icahn appears to be perfectly poised for his preferred method of kill; the break-up. It’s a technique he first learned in the 80’s as he tore out the prime cuts of underperforming companies. His most famous break-up -- RJR Nabisco -- netted him a cool $1.3 billion. Just the sight of him, sends other investors into a feeding frenzy because big profits are usually in his wake.  As of March 31st the following were Carl Icahn’s top 5 holdings; Biogen, Blockbuster, Imclone, Motorola and Yahoo!

The answer - This hasn’t been the best Carl year, observes Karen Finerman. Sometimes the most talented doctors have patients who die, adds Jeff Macke.

Colgate-Palmolive (NYSE:CL): The CEO of consumer staples giant Colgate-Palmolive predicted double-digit earnings per share growth for 2009. Colgate also said its second-quarter profit grew 19 percent as worldwide sales were strong and Colgate used price increases to offset rising commodity costs for corn, soybeans and oil. 

Hasbro (NASDAQ:HAS), Costco (NASDAQ:COST), Walmart (NYSE:WMT): I think if you want to play the consumer you’ve got to go boring, counters Jeff Macke. I’d look at Hasbro, Costco and Walmart.

Fast Money Mail

Question: A viewer writes, “How do you feel about Visa?”

I like Mastercard (NYSE:MA) better than I like Visa (NYSE:V), replies Guy Adami.

Question: A viewer asks, “Should I buy Apple (NASDAQ:AAPL) on the recent pullback?”

I still like it, says Pete Najarian. As long as Steven Jobs’ health is okay I think it’s a buy.

Question: A viewer writes, “Is the ag run over? Agrium (NYSE:AGU) is off almost 30 points. Is it dead with the demand destruction that’s been reported.

I don’t think it’s demand destruction, replies Karen Finerman. It is ridiculous valuations.


Final Trade – Your First Move on Wednesday

Macke recommends taking profits in Financial Select Sector SPDR (XLF).

Adami likes US Bancorp (NYSE:USB).

Finerman recommends shorting the iShares Dow Jones US Real Estate (NYSEARCA:IYR).

Najarian thinks that Wells Fargo (NYSE:WFC) is a buy.


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