Lehman Hangover - Fast Money Recap (9/9/08)

Recap of CNBC's Fast Money, Monday September 9.

Outlooks - FedEx (FDX), Texas Instruments (TXN)

Dylan Ratigan started the show by discussing FedEx, which raised its first-quarter earnings guidance for next year, and Texas Instruments, which narrowed its third-quarter outlook. Guy Adami said don't race out and buy FedEx, but if crude stays at current levels, "their headwinds will become tailwinds."

Hanging Over the Market – Lehman (LEH), Citigroup (C), Financial Select Sector SPDR (XLF)

Ratigan moved the conversation on to the general market action. Jeff Macke explained that the Lehman Brothers news was hanging over the market all day. The "Chart of the Day" was Lehman Brothers. The stock had a huge volume spike at midday, and shares finished sharply lower by 44%. Pete Najarian said the market is concerned about Lehman right now with all the activity in the put options. "The more the government has to be involved, the less healthy by definition the system is," Macke added. He pointed out that skepticism is running high and said it will remain a "trader's market." Karen Finerman mentioned that she sold her bullish option LEAPs on Citigroup today. Najarian told viewers that if you want to play the financials, use the Financial Select Sector SPDR. He also said he added to his put options position in Lehman Brothers today. Finerman said that Lehman needs to say something to Wall Street by Wednesday morning.

Funds and Commodities - Freeport-McMoRan (FCX), Potash (POT), AK Steel (AKS)

Ratigan switched to the material sector. Adami said the action today in commodity and material stocks was due to forced liquidations in some unknown hedge funds. He said that Freeport-McMoRan has value here. Najarian said don't be a hero right now in the agriculture names like Potash until they show some signs of recovery. Finerman pointed out that AK Steel has been cut in half, and she said the stock interests her here.

On to Technology - Apple (AAPL)

Next, the traders discussed the technology sector. Najarian said the catalyst for Apple will come next month with the iMacs. He was happy that Steve Jobs looked healthy at today's meeting. Macke said the board of Apple has a credibility problem and should have discussed Jobs' cancer issues earlier.
David Trone, senior analyst at Fox-Pitt & Kelton came to discuss Lehman Brothers. He mentioned speculation on the Street that the Fed would close the window to Lehman and let the stock go to zero. Trone said Lehman's best moves could be to conduct a fire sale of assets, take the investment bank private or divest itself from commercial and residential mortgages. However, Trone said he doesn't think that Lehman has enough time to pull off the last one.

Google TV - Google (GOOG)

Mike Steig, director of Google TV ads, joined the traders to discuss Google's new deal to sell TV advertising for NBC Universal. Steig said the impact on revenue for Google TV ad partners will be positive. "In times of uncertainty, ad buyers will spend less, not more. So if they can be certain that people are watching their program, the ad buyer will invest," he said. He told the traders that the Google's TV ad technology system has been built to fit all kinds of TV inventory. He explained that Google will make money on the deal as the broker in the process.

Technology Stock Trades - Research In Motion (RIMM), Oracle (ORCL), Microsoft (MSFT), Hewlett-Packard (HPQ)

Ratigan asked the traders to pick one name each that is worthy of a trade right now in the technology sector. Mack said to buy Research In Motion at $100 with a stop below $95. Adami said he likes Oracle ahead of its earnings report with a stop at any close below $18. "Buy Microsoft which is ridiculously cheap, with a stop at $25," added Finerman. Najarian recommended Hewlett-Packard with a stop at $44.

Tracking Money Flows

Charles Bidermam, CEO and founder of Trimtabs Investment Research, joined the traders to discuss the money flows he is seeing in the mutual fund world. Biderman said money is leaving U.S. equity funds along with the global equity funds to the tune of $50 billion over the last three months. "Companies are buying, but individuals are bailing," he added. Biderman explained that we have had $86 billion in outflows over the last 12 months, and the last time he saw such huge outflows was at the bottom in 2002. He said this is a tremendous buying opportunity in the markets because of the forced selling and liquidation in the hedge community.

Trader Radar - Pep Boys (PBY)

Shares of Pep Boys were among the most actively traded stocks on the NYSE today.

More Lehman

CNBC's Charlie Gasparino joined the trades to discuss Lehman Brothers. He said there's a 100% chance that in the next 24 hours we will hear from Lehman about its earnings. He said the smart money on Wall Street thinks Lehman CEO Dick Fuld is on the phone right now trying to work something out -- like a sale of the company or a sale of its mortgage portfolio. He said there's no doubt that Lehman will preannounce its earnings. "Lehman will give us some clarity," Gasparino added

Final Trade – Your First Move for Wednesday September 10.

Jeff Macke reiterated Research In Motion (RIMM) with a $95 stop.
Guy Adami picked McDonalds (MCD) because it was up on a terrible day.
Finerman likes Microsoft (MSFT).
Peter Najarian thinks Novartis (NVS) is a buy. He believes they will soon catch Johnson & Johnson (JNJ).

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Comments

[David White:]

POT: OPEC cut production by 500,000 barrels a day. It currently looks like Ike will strengthen again, but it will hit the Texas coast around Corpus Christi -- well south of the main oil infrastructure. Still the bulk of oil and gas in the Gulf has been shut in. Expect the US Petroleum Stocks report to reflect this today. It will actaully reflect the shut ins from Gustav, but that should give us a good idea what next weeks report is likely to be also. Oil is up slightly at this time. The Euro is down vs. the US Dollar. Grains are roughly even. Total publicly stated today that they believed $100/barrel oil was a stable price (i.e. oil is not likely to fall much further). The financials are still a problem for the market. However, the market seems likely to rebound today after its big losses yesterday. Further Lehman seems to be saying that they can survive. They are planning a number of sales to bolster their bottom cash position in order to pay for coming losses. The fact that they have a cogent plan is a good thing. The news that KDB is no longer considering investing in Lehman is old news. It brought the market down yesterday. Ditto AIG. All told these indicators seem to be neutral to up for POT and MOS. These two stocks have been battered recently. They seem to be relative bargains at their current prices. The analysts' 1 year target price for each is double or more the current value. This may be a great time to buy for the short term. They are each due to rebound. The health of the overall market may determine whether you want to keep them longer for the short term. However, if you are thinking long term, you probably won't go too far wrong at these prices.

2008 Sep 10 08:34 AM

[David White:]

POT: FCX announced today that it will defer 200,000 ounces of gold and 150M pounds of copper that were expected for 2008 delivery. This should prop up these commodity prices. Any upward movement in commodities (or cessation of downward movement) is generally good for POT and MOS. This is another positive indicator for grain futures and POT.

2008 Sep 10 08:44 AM

[David White:]

Cramer has said commodities stock may still have farther to tumble, especially because China has dried up. He was hedging his comment by saying that you have to believe all of these stocks growth was due to high commodities prices to believe that this will happen. I actually don't believe that. I know for certian that the figures with regard to China were skewed due to the Olympics. The government kept 1.5 million cars off the road in Beijing during the Olympics. It also effectively shut down many polluting factories during the Olympics. This curbed demand for coal, iron ore, etc. during this time. Further 2 earthquakes have left China with a lot of repair work. They will need commodity resources for this. I am looking for the numbers on China to bounce back soon. I do believe they are being hurt by the slow down to some extent, just not to the extent some analysts (such as Cramer) are now claiming.

I do believe the inflated valuations of commoditiy related stocks were due to high commodities prices to a large extent. However, these valuations are no longer inflated for many stocks. The food related stocks are a good example of this. Food is a staple. There will be high demand even in recessionary times. After Q3 results are reported, POT will have a PE of about 15 and MOS one of about 12. These are both substantially below their historic average values. Further after Q4 results these PE's will be substantially lower than that. Longer term the FPE of MOS is 4.5 and POT's FPE is 6.6 (yahoo finance). They both have very strong cash positions. In fact POT has been buying back stock to cancel it. Further CHK's CEO has been buying a lot of that stock, even though many have been predicting natural gas prices to go down. At the very least it would seem that POT and MOS are in for a short term bounce upward. TRA and CF have also been hit hard recently. They look like good values too.

2008 Sep 10 09:14 AM