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From evaluating a bank to investing in a retailer – how do the Fast Money pro’s do it?
When evaluating an investment bank take a close look at their trading volume, counsels Karen Finerman. Brokers can really make a fortune or lose their shirts from commissions. They need to make consistent profits from their trading desks. The ones who struggle in a volatile environment are the ones to avoid.
TRADING BROKERS
Metrics That Matter
- M&A Advisory Business
- Underwriting
- Trading
Goldman Sachs [GS
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]stands above all others, says Guy Adami. (He's a former Goldman guy)
Morgan Stanley [MS
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] too, adds Pete Najarian.
Be careful of the lack of transparency in the banks, adds Jeff Macke. The P/E values of most banks look cheap but you don't really know what their book value is. I think what you're really buying or selling is their reputation, so stick with best in breed.
TRADING RETAIL STOCKS
Metrics That Matter
- Same-Store Sales (A.K.A "Comps")
- Fashion Initiatives
- Execution
Usually on the first Thursday of every month the retailers release same-store-sales, which are essentially a report card for the sector, says Jeff Macke. Don’t own a retailer who’s missing their numbers.
Also, keep your eye on fashion initiatives, he says. If stores are crowded and you get a good feeling going into the store, their stock might be a buy. However, specialty retail is always a trade, he adds. Eventually the trend comes to an end.
TRADING DRUG STOCKS
Metrics That Matter
- Conferences & Clinical Test Trial Dates
- Current Roster Of Drugs
- Pipeline Of Future Drugs
It’s important to know these metrics says Pete Najarian because drugs sometimes hit stumbling blocks. Of course, other times they become multi-billion dollar blockbusters.
TRADING ENERGY & COMMODITY STOCKS
Metrics That Matter
- Price of the Commodity
- Beware Valuation
- Stocks are NOT a proxy play for the underlying commodity
Guy Adami feels the third point is extremely important. For example, he says if you’re bullish on gold don’t buy a mining company such as Newmont Mining [NEM
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] because you also get all kinds of corporate risks.
TRADING TAKEOVER TARGETS
Questions You Should Ask
- Are there "supervoting shares"?
- What state is the company incorporated in?
- Are there big shareholders who've been active in the past?
Stay away from companies incorporated in Pennsylvania, says Karen Finerman. They’re not shareholder friendly. By contrast, Delaware is extremely friendly. (You can find out the state of incorporation on the front of a “10-Q”)
TRADING DEALS "IN LIMBO"
Questions You Should Ask
- What kind of bidder is it? Corporate?
- Is it a "trophy property"?
- What leverage can the buyer use against the target?
Finerman says when you’re looking at the bidders, determine if they’re corporate bidders or some kind of LBO. I like corporate bidders best.
TRADING CHIP STOCKS
Metrics That Matter
- Global Demand
- Commoditization
- Gadgets
Gross margins are very important in this space, explains Guy Adami. Intel’s [INTC
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] margins are expected to go higher into next year and that makes it a buy.
TRADING SOFTWARE & VIDEOGAME STOCKS
Metrics That Matter
- Product Cycle Demand
Judge video games by the hardware release, says Jeff Macke. Typically Sony [SNE
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], Nintendo [NTDOY
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] and Microsoft [MSFT
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] lead on new consoles he explains. A few years after that, profit margins are strong on the new software titles.
TRADING GADGETS AND TELECOM
Metrics That Matter
- Product Cycle Demand
- Wireless Capacity
I always recommend investigating how much growth lies ahead for companies in this sector, says Pete Najarian. For example, Research In Motion [RIMM
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] looks attractive because they could explode when they get into China.
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Trader disclosure: On Nov. 19, 2007, the day this segment was taped, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Finerman's Firm Owns S&P 500 Options, Finerman's Firm Owns Russell 2000 Puts, Finerman's Firm Is Short (IWM), Finerman's Firm Is Short (MDY), Finerman's Firm Is Short (SPY), Finerman's Firm Is Short (IJR), Finerman's Firm Is Short (IYR), Finerman's Firm Owns (BIIB) Options, Finerman's Firm And Finerman Own (GS), Finerman's Firm Owns (HD) And (HD) Puts, Finerman Owns (HD), Finerman's Firm Owns (KSS), Finerman's Firm Is Short (LEH) And Owns (LEH) Puts, Finerman's Firm Is Short (LEN), Finerman's Firm Owns (LTD), Finerman's Firm Owns (MSFT) Options, Finerman's Firm Owns (TWX), Finerman's Firm Owns (YHOO), Finerman's Firm Owns (WMT), Finerman's Firm Owns (NDAQ), Finerman's Firm Owns (NYX), Finerman's Firm Owns (NMX) Options, Finerman's Firm Owns (BEAS) Options, Macke Owns (DIS), Macke Owns (YHOO), Najarian Owns (AMTD) Options, Najarian Owns (CSCO) Options, Najarian Owns (YHOO) Options, Najarian Owns (GOOG) Options
Data is a real-time snapshot *Data is delayed at least 15 minutes