Market Behaves Sanely - Fast Money Recap (10/14/08)

Recap of CNBC's Fast Money, Tuesday, October 14.

Market Behaves - Citigroup (C)

Dylan Ratigan said the US market "had the best day in weeks, because it didn't behave like an unadulterated lunatic." He said the big headline of the day was the US government's $250 billion plan to invest directly into banks. Karen Finerman said "the hope is that these top banks will take the money and start to lend." She mentioned some of the banks need to shore up their balance sheets. Jeff Macke said, "Every other stock besides the nine banks the government is throwing money at is a sell." He said he sold his Citigroup today and just about everything else. Ratigan explained that the three-month Libor got cheaper today. Tim Seymour said "the credit market's reaction was slightly better, but we're still at 200-basis points above normal borrowing costs."

Horrible and Positive Trades – PepsiCo (PEP), Sears Holdings (SHLD), Regions Financial (RF), Fifth Third Bancorp (FITB), National City (NCC), Freeport McMoRan (FCX), Western Digital (WDC), Arch Coal (ACI)

Macke pointed out that PepsiCo and Sears Holdings traded horribly today despite the new bank plan. He said "The government can't legislate … confidence." Pete Najarian mentioned that Regions Financial, Fifth Third Bancorp and National City all prospered because now the "good banks" have a lot of capital and could start spending it. Najarian says, "If you're a fast-money trader, this is your kind of market." He recommended that investors use derivates to their advantage - such as buying stock in Freeport McMoRan and selling at-the-money calls to collect the premium. Guy Adami told viewers the market is very volatile. He says, "Unless you're watching a stock like Western Digital all day long, the run is over before it begins." Macke says traders have two options in this market "do nothing or have the guts to get long days like yesterday." Ratigan began discussing the commodity complex. Adami said Freeport McMoRan is up 48% in three trading sessions and said that trade is probably over. Najarian said investors should look to deploy his options strategy of buying stock and selling calls on a commodity play like Arch Coal.

Bank Bailout - Bank of America (BAC), Wells Fargo (WFC), Citigroup (C), JP Morgan Chase (JPM), Goldman Sachs (GS), Morgan Stanley (MS), State Street (STT), Bank of New York (BK), Merrill Lynch (MER)

As we’ve been telling you, the government outlined three new initiatives to aid financial institutions amid this historic credit crunch. The most controversial aspect of the multi-part plan involves a $250 billion recapitalization, in which the government injects capital in exchange for an equity stake. In other words, the government is buying $250 billion in preferred stock from America’s largest banks and in the process is fundamentally changing the nation's historic hands-off relationship between government and the private sector. Under the plan, the US government would take preferred stock in Bank of America, Wells Fargo, Citigroup, JP Morgan Chase, Goldman Sachs, Morgan Stanley, State Street, Bank of New York, Merrill Lynch. Chris Mutasico, an analyst at Stifel Nicolaus, joined the crew to discuss the government's move to invest $250 billion in banks. He said, "It's a sad day when you have to bail out the banks, but it's a necessary move." He explained that just buying the distressed assets will take too long to shore up the banks' balance sheets. He says the government "can't be too punitive on the banks, because it would remove confidence from the system." Mutasico said that "over the next several days as earrings are reported we will see the banks start trading on fundamentals," which will take away their recent gains.

Guide Us - Intel (INTC), Genentech (DNA), CSX (CSX)

Ratigan moved the discussion to Intel, Genentech and CSX, which all reported weak guidance tonight. Adami said "Intel is at the lower end of its valuation at 11 times earnings." Najarian said. Genentech’s "Avastin numbers were outstanding. Seymour says "Intel couldn't be executing any better." Finerman said "it's all about the outlook; this quarter is irrelevant."

The Takeover State

The crew talked about the slippery slope of the government bailing out and nationalizing companies. Macke says "we're obviously becoming socialists." He said the only stocks you can own are the nine bank stocks the government is planning to invest in. Finerman said "she is concerned and the news isn't good for the dollar." Adami says an "inflation holocaust" could be the unforeseen event. Seymour says he doesn't feel very confident the auto sector bailout is going to work. Najarian says we will continue to see very volatile markets.

Trader Radar - Domino's Pizza (DPZ)

Shares of Domino's Pizza were among the most actively traded stocks in the NYSE today.

Trades for a Bear - Covance (CVD), Pharmaceutical Product Development (PPDI), Eli Lilly (LLY), Johnson & Johnson (JNJ), Merck (MRK)

Joe Terranova of Phoenix Investment Partners joined the gang to discuss how to trade a bear market.

1. Covance

• Best of breed company with limited exposure to slowing economy
• Business model geared toward reducing costs within the healthcare space
• Solid growth story
• Strong balance sheet
• Big Pharma is outsourcing R&D to reduce costs

2. Pharmaceutical Product Development

• Growth rate 18%
• P/E 23, DEBT less than 1%
• Clients include pharmaceutical, biotech, and medical device companies.

He said health care service companies like Covance and Pharmaceutical Product Development both have strong fundamentals and both were liquidated two days ago. He said these stocks are "global, cash-rich and have limited debt." Adami mentioned that Covance just signed a big deal with Eli Lilly. He says Covance is becoming a value play here." Najarian said, "If you want to stay conservative look at Johnson & Johnson, because they blew numbers away today." Finerman mentioned she owns some Johnson & Johnson and Merck.

Your First Move for Wednesday October 15th.

Jeff Macke recommends staying in cash.
Guy Adami recommends Tesoro (TSO).
Seymour said to sell the "20% bounce in Transocean (RIG).”
Karen Finerman recommends covering Simon Property Group (SPG).
Pete Najarian thinks United States Natural Gas Fund (UNG) is a buy.

Seeking Alpha is not affiliated with CNBC, or Fast Money.
 

Comments

[Evan Grey Owl:]

What then are the implications of TransOcean plans to relocate HQ to Switzerland and Cayman Islands?

2008 Oct 15 07:54 AM