Financials Downgraded - Fast Money Recap (8/15/08)

Recap of CNBC's Fast Money, Friday August 15.

Financial Idiosyncrasies - Goldman Sachs (GS)

The Dow edged higher on Friday, as oil dropped and fueled hopes of increased consumer spending and greater profit growth. However Goldman Sachs (GS) which was down over 7% relative to the 3% decline in the bank sector. “It seems to me the same thing happened last quarter,” says Guy Adami. Expectations were low and Goldman knocked the cover off the ball. At current levels I think it's a buy. I find the Goldman “thing” very curious, counters Karen Finerman. The Street believes they're best of breed but they're moving to the downside. The problem Goldman ran into is oil, explains Pete Najarian. They were pounding the table over oil going higher and that's giving traders pause. It's a volatile market, says Sandler O'Neill & Partners analyst Jeff Harte on Fast Money. I wouldn't over analyze a one week move in Goldman stock.

Oil Demand – General Motors (GM)

Oil Prices fell below $114 a barrel on Friday on growing concerns about demand in industrial nations and the stronger dollar. Oil tends to be cyclical, reminds Joe Terranova. Historically it bottoms in August and goes higher in Q3 and Q4. That bodes well for the overall energy sector. Momentum is pushing oil lower, counters Pete Najarian. I don't think the story is over but I wouldn't fight the momentum, either. As oil slides airlines and automakers rise. Both traded higher on hope of lower fuel prices. General Motors traded higher this week, explains Karen Finerman. But the General Motors bank debt is trading below 80 cents on the dollar. That says the debt market thinks General Motors could go under. The equity is misguided. I wouldn't touch General Motors or the airlines, says Joe Terranova. Airlines can be profitable with oil at $115, exclaims Pete Najarian.

Fears of a Global Slowdown - Rockwell Collins (COL), U.S. Steel (X), ArcelorMittal (MT)

I'd look at Rockwell Collins says Guy Adami, as a “down the road” play. I still think it has room on the upside. Steel stocks including U.S. Steel and ArcelorMittal are falling on fears of a global slowdown. When a stock is broken it's broken, says Guy Adami, and right now the Street is selling Letter X. You just have to wait on this one. I like Lockheed Martin.  That's a stock that works. “All that's happening in steel is speculative froth,” adds Joe Terranova. The fundamental story remains in tact.

Retail Rally - Both JC Penney (JCP), Abercrombie & Fitch (ANF)

The decline of oil spurred hopes that consumers will go shopping with the money they save at the pump and that view helped lift retailers' shares. Both JC Penney and Abercrombie & Fitch closed higher after beating Street estimates.  I thought the upside move in JC Penney was extremely impressive, says Karen Finerman. But the bar was very low. I've been telling you for the past month and a half to look at Target said Guy Adami. “I'd get long Target and short Wal-Mart.”

Downgrades for Financials - Goldman (GS), Lehman (LEH), Citibank (C), Morgan Stanley (MS)

This week there were a series of downgrades of banks and brokers. Merrill cut its ratings for Goldman, Lehman and Citibank while Fox-Pitt Kelton cut its estimates on Morgan Stanley citing further possible write-downs. And earlier in the month Sandler O'Neill & Partners analyst Jeff Harte cut his estimates for Merrill Lynch saying it’s recently disclosed asset sale and capital raising plans will dilute stock significantly and lead to a big loss during the third quarter. “Things have to get worse before they can get better,” says O'Neill. “Return has to get back in line with risk before cash gets back into the capital market.” To me the bank equities seem excessively buoyant, adds Karen Finerman. I agree wholeheartedly. “I think Lehman is going to be the one to own if you can look out three years,” replies O'Neill. “The trouble is right now investors don't know what their assets are in the near-term. I think big institutional money is staying away until they better understand their balance sheets. But long term I think buying Lehman in the teens is going to work out.”

Reporting Next Week - Hewlett Packard (HPQ), Dell (DELL)

Hewlett Packard is the final Dow component to report earnings next week. “The biggest announcement that HP probably has coming is their integration with EDS,” says FBR senior analyst Clay Sumner. “They haven’t closed that deal yet but we think they will close it shortly after they close the quarter.” Sumner will be listening to hear more about plans to move a percentage of EDS employees off-shore. “I think HP will probably accelerate those plans.” Also he’s looking for outlook for Q3 and the data point coming out of the Taiwan supply chain. “I would look for consumer printers to be a little soft… there’s some segment reorganization.” I like HP a lot for the longer term, says Sumner. But for the balance of the year I like Dell more. I think they will outperform. Joe Terranova, Pete Najarian and Guy Adami all agree. Short term Dell; long term Hewlett Packard. Hewlett-Packard looks a little more attractive to me, counters Karen Finerman.

Solar Stocks Shine – SunPower (SPWR), LDK (LDK), Hewlett-Packard (HPQ), IBM (IBM), Intel (INTC), Evergreen Solar (ESLR)

Despite a sharp decline in crude, solar stocks are still rallying. Is this the start of something new? Shares of SunPower soared as much as 20 percent to a three-month high on Friday, a day after the company announced a big deal to supply solar power to California utility PG&E Corp. LDK also landed an important contract this week, continued Pete Najarian. There are companies in solar that work. But if the space is too volatile you can also get exposure through Hewlett-Packard, IBM and Intel Big chip makers and technologies companies have jumped into this game. My trade is Evergreen Solar adds Guy Adami. Buy it now and when they announce a contract sell the rally.

Final Trade – Your First Move for Monday August 18.

Joe Terranova likes National-Oilwell Varco (NOV)

Guy Adami was the one with no pick today.

Karen Finerman likes Golar LNG (GLNG).

Pete Najarian likes Constellation Brands (STZ).

Seeking Alpha is not affiliated with CNBC, or Fast Money

 

Comments

[Ishortyou:]

the consumers are tired of dark age fossil fuel too much of a headache, pollyting, conflictive, expensive. Now they prefer new age technology electrical or hydrogen-water power, at least to drive a car.

2008 Aug 17 05:31 AM

[davanji:]

Ishortyou, you/we can't afford the alts you referenced.....not yet anyway. You might as well ride your bike if you have fallen out of love with fossil fuels. By the way, you do realize nat gas is a fossil fuel....don't you?

2008 Aug 17 11:47 PM

[Shiv Kapoor:]

"The problem Goldman ran into is oil, explains Pete Najarian.". Goldman called potential for a spike - up sharply & then back down. It did happen though not with quiet the vigor they forecast. The past few months their conviction lists have been cautious with tight stop losses. I doubt they will be badly burnt on an oil call. Besides, oil should decline a bit further (no more than $98 probably closer to $105) before the shorts cover and cause a rally back to $120/$125 range.

2008 Aug 19 05:41 AM