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Recap of CNBC's Fast Money, Tuesday August 19.

Financial Downgrades - Citigroup (NYSE:C), JP Morgan Chase (NYSE:JPM), Morgan Stanley (NYSE:MS), and Merrill Lynch (MER), Lehman Brothers (LEH)

After hours Tuesday Goldman Sachs cut its earnings outlooks for some of its major rivals, citing mounting write-downs on mortgages, a slowdown in overall activity, and legal expenses. Analysts led by William Tanona reduced third-quarter and full-year forecasts for Citigroup, JP Morgan Chase, Morgan Stanley, and Merrill Lynch. However the downgrade that really got the attention was Lehman Brothers. Lehman could lose $9.65 per share for the year, versus a prior forecast for a loss of $2.10 per share, the Goldman analysts said. Lehman may reduce its mortgage exposure in the third quarter by 20 percent, or $15 billion, which could lead to a $2.5 billion to $3.5 billion write-down, the analysts said. Its share-price target was cut to $22 from $40. The market is running scared of Lehman, says Pete Najarian. But they’re not running scared enough, adds Jeff Macke. I’m hoping that Goldman’s latest downgrade causes a panic in the Street so we can get over this idea that banks are cheap. “Goldman is making a guess like every other analyst is making a guess,” says Sanford C. Bernstein analyst Brad Hintz on Fast Money. “The issue with Lehman is that they have $60 billion of mortgage exposure and about half of that is in commercial mortgages.” Hinz, however, is optimistic long term. “Let’s just say that Lehman is going to survive. The Federal Reserve is not going to allow any brokerage firm to fail. When they decided to support Bear Stearns they grabbed the tiger by the tail.” Someday the credit crisis will be nothing more than an unhappy memory and Hinz believes on that day Lehman could look a lot like the company it was in the late '90's, “without a mortgage franchise and without a mortgage asset business but with a powerful fixed income franchise and powerful equity business.” I hope investors didn’t pile into Lehman because they saw it down on Tuesday, says Guy Adami. We haven’t reached capitulation, yet.

Financials drag down the DOW and the S&P – Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), Morgan Stanley (MS)

Bank of America and Wells Fargo are down more than 3% each. It seems to me that things have gotten much worse in the banks overall, says Karen Finerman. Financials are fine as trading vehicles as long as you have an exit plan but as a long term investment they’re terrible because you don’t know what you’re buying. If you want to play financials make sure you also buy puts for protection, counsels Pete Najarian.  If you’re looking for a play it’s worth noting that Brad Hintz has an outperform on Morgan Stanley “That’s because they’re exposure is the least of the group. But the space is “unforcastable” as this point. And that says let’s keep away from them… until they clean their balance sheets.”

Apple (NASDAQ:AAPL), Dell (NASDAQ:DELL) - Forget apple pie it’s Apple that America loves. According to a recent survey Apple outpaces its competitors in customer satisfaction. In fact, the gap between Apple and rival Dell is one of the widest margins ever seen. If you have a position in Apple, be careful, says Pete Najarian. At some point the stock will roll because investors will need to take profits from somewhere.

Hewlett Packard (NYSE:HPQ) - The world's biggest computer maker reported quarterly profit and revenue ahead of Wall Street targets on Tuesday due largely to strong international sales in its notebook computer and printer businesses. I love the numbers out of HP, says Pete Najarian. But 68% of their revenue comes from overseas. That makes me a little cautious.Also they haven’t closed their deal with EDS, adds Guy Adami. That should get priced in during the next quarter. If you look at Hewlett-Packard strictly on valuation it looks cheap.

Commodities Risk – Mosaic (NYSE:MOS), Potash (NYSE:POT), Agrium (NYSE:AGU)

Oil prices rose about 1.5 percent on Tuesday as part of a broad commodities rebound triggered by weakness in the U.S. dollar. Oil pulled back late in the session, says Guy Adami. I still think there’s room on the downside in this trade. Mosaic, Potash and Agrium all jumped after bank stocks took a hit. The trend is broken in commodities, exclaims Jeff Macke. If you’re gutsy and watch every tick you can try it on the long side but the risk / reward kind of stinks. Money started flowing into these stocks when investors got a little nervous about the dollar, adds Pete Najarian. It’s a trade but nothing more.  To the extent that the dollar continues to rally it will obliterate gold, adds Guy Adami. I think the important thing to watch is the short-term flow of funds out of this space, says Karen Finerman. The rotation out could outweigh everything else.

Home Depot (NYSE:HD) - Although Home Depot beat quarterly profit expectations its forecast raised concerns going forward and shares traded lower. We told you to get out before earnings, reminds Guy Adami. But on pull backs I think it’s a buy. But Home Depot stock is not going to take off like a scalded dog, adds Jeff Macke. And you should know I sold some of my Costco (NASDAQ:COST) on Tuesday.

Lockheed Martin (NYSE:LMT) - I think Lockheed Martin the best in the space, says Guy Adami. Some analysts say to sell the sector ahead of the election but I wouldn’t.

Expansion Plans LDK (NYSE:LDK), Applied Materials (NASDAQ:AMAT), Cypress (NASDAQ:CY) - Solar wafer maker LDK inked a deal worth $220 million on Tuesday in which Applied Materials will provide “precision wafering systems” supporting LDK’s expansion plans. I think it’s a sign of some legitimacy in the business, says Pete Najarian. I’d play it with Applied Materials or Cypress.

Final Trade – Your First Move for Wednesday August 20.

Jeff Macke would sell Costco (COST) because retail is just too hard.

Guy Adami recommends long Raytheon (NYSE:RTN).

Karen Finerman has no pick.

Pete Najarian thinks it’s time to buy some Merrill Lynch (MER) puts because the “whole financial thing is starting to look ugly.”.

 

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Source: Financial Downgrades Down Markets - Fast Money Recap (8/19/08)