GOLDMAN, JPMORGAN KNOCK STOCKS
The Dow fell by triple digits on Tuesday, led lower by financials, as worries about further losses stemming from the mortgage crisis moved back into the spotlight.
JPMORGAN, GOLDMAN WERE BEST IN 'BREED'
The news: Word that JPMorgan Chase had racked up $1.5 billion of losses so far this quarter on mortgage-linked assets sent the bank's stock down more than 8 percent and reflected deepening turmoil in credit markets.
Goldman Sachs shares also weighed on the financial sector after a number of analysts, including Oppenheimer & Co's Meredith Whitney and Deutsche Bank's Michael Mayo, cut their earnings estimates for the investment bank. The KBW index of bank shares fell sharply.
The plays: Wait for Goldman to hit $150, counsels Jeff Macke. At that level it’s a buy.
I think the trade in Goldman is ahead of their earnings, adds Guy Adami. But I don’t think it shakes out as a trade until September 10th or so. They report on the 18th.
The JP Morgan write-down didn’t seem that big to me, says Karen Finerman, but it made me think now everyone else has to re-price. On a related note Finerman is short banks, but doesn’t plan to cover those trades, at least not yet.
Fundamentally, I think many of the bank stocks are ahead of themselves, muses Pete Najarian. Look at the run in the Financial Select Sector SPDR as well as Wachovia and Morgan Stanley.
OIL HITS 14-WEEK LOW
The news: Oil fell to a 14-week low on Tuesday after government data showed the steepest decline in U.S. crude demand in 26 years, adding to mounting concerns about global consumption.
The plays: I think we’re getting close from a bounce back perspective, says Jeff Macke. You can trade these things like the other broken trend trades; from the long side. But in the end I think oil will go quite low because it’s unwinding a lot of speculative bets.
The airlines are scorching higher right now, says Pete Najarian, but I wouldn’t trade them. However if oil spikes and the airlines dip, I think airlines are a buy for a trade.
I think both Lockheed and Rockwell Collins are buys as “down the road” trades, adds Guy Adami.
GOLD CRUSH CONTINUES
The news: Gold tumbled to its weakest levels in almost eight months in volatile trade on Tuesday, losing its safe-haven appeal as investors shifted some of their money back to the U.S. dollar while oil further retreated from record highs.
The plays: The gold chart is horrifying. I’d rather be long the dollar, says Jeff Macke.
AFTER HOURS ACTION: APPLIED MATERIALS
The news: Applied Materials the No. 1 computer-chip equipment maker, posted a lower quarterly profit as revenue slid 28 percent. Applied, along with others in the chip equipment industry, have suffered from a glut of manufacturing capacity in the memory chip market.
New orders of $2.03 billion in the third quarter were down 11 percent from a year ago and decreased 16 percent from the second quarter, Applied said But the backlog at the end of the quarter was $4.74 billion, up from $4.59 billion at the end of the previous quarter.
The plays: I wouldn’t rush in, says Pete Najarian. But Applied Materials has exposure in the solar space which I like.
If AMAT switches their business around it could get interesting, says Guy Adami.
AFTER HOURS ACTION: NVIDIA
The news: Graphics chip maker Nvidia posted a second-quarter loss on Tuesday as a slump in global desktop PC sales hurt its business.
The plays: I wouldn’t rush in on the news, says Pete Najarian.
IS BIG PHARMA FINALLY BACK?
The news: Drugs have suffered the past year on generic competition and a slowing pipeline. But on Fast Money Eli LillyCEO John Lechleiter revealed he would consider acquisitions to help his company’s drug pipeline.
The plays: I think the trade is Amylin, says Pete Najaraian. They are Lilly’s partner in Byetta and they do have a strong pipeline.
Celegene looks great to me, says Guy Adami. And Gilead made a 52-week high!
NOT LOVIN’ IT
The news: McDonald's shares fell on Tuesday after UBS cut its rating on the world's largest fast-food chain to "neutral" from "buy" on valuation, citing flattening restaurant margins and shrinking currency gains.
The plays: It doesn’t stop me from wanting to own the stock, says Jeff Macke. $60 would be a decent level.
Darden, Yum!and Burger King are the names in the industry that I like, exclaims Pete Najarian.
The news: The USDA raised corn crop estimates as favorable weather helped the Midwest recover from flooding earlier in the season.
The plays: There was finally a counter trend rally in the ag names, says Jeff Macke. But I wouldn’t take a shot, even with a tight stop.
Goldman just took Deere of their Conviction Buy list, adds Guy Adami. I’d be careful.
ANALYZE THIS: APPLE TO RALLY 25%?
The news: Steve Jobs certainly has his fans. In a research note Tuesday Lehman analyst Ben Reitzes reiterated being “Overweight” of Apple and said Apple's momentum could build even as the economy weakens. He also thinks iPhone sales could exceed earlier estimates.
Why so bullish? Lehman analyst Ben Reitzes joined the panel to explain. Following are excerpts from the conversation.
"It looks like iPhone sales are going very well despite the economy," says Reitzes on Fast Money. "We surveyed the stores… and the 'build plans' out of Taiwan are supporting upwards of 8 million plus iPhones. The Street is only expecting 3.8 million. We think that creates upside cash flow and that’s the key to next year."
"Also Mac sales are starting to accelerate," adds Reitzes. "We think a bunch of new Macs could be launched within a month. You could even see sales accelerate into Christmas."
It should come as no surprise that Reitzes concludes with, "I think you should own Apple."
Jeff Macke has a very different perspective. He’s bearish on Apple because he thinks the company is growing products that have smaller margins and that could be a problem down the line.
On a related note, Reitzes wasn’t terribly excited by the new product roll out from Dell on Tuesday.
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Trader disclosure: On Aug 12, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (WMT), (COST), (MSFT), (UUP), Macke Is Short (TM); Adami Owns (AGU), (C), (BTU), (GS), (INTC), (NUE), (MSFT); Pete Najarian Owns (AAPL), (NVDA), (TSO), (AMLN), (HD); Pete Najarian Owns (CSCO) Calls; Finerman Owns (GS); Finerman's Firm Owns (GLNG), (JCP), (MSFT), (SUN), (TSO), (VLO); Finerman's Firm Is Short (WB), (XLF), (BBT), (COF), (IYR), (MDY), (SPY), (IWM), (IJR); Finerman's Firm Is Short British Pound; Finerman's Firm And Finerman Own (PDE); Finerman's Firm And Finerman Own (C) Leaps
Lehman Brothers And/Or Affiliate Has Received Investment Banking Compensation From (NTAP), (IBM), (JAVA) In Past 12 Mos.; Lehman Brothers And/Or Affiliates Owns 1% Or More Of (NTAP) As Of End Of Last Month; Lehman Brothers Has Received Non-Investment Banking Compensation From (NTAP), (AAPL), (DELL), (EMC), (IBM), (JAVA) Within Last 12 Mos.; (NTAP), (IBM), (JAVA) Is Or During Past 12 Mos. Has Been An Investment Banking Client Of Lehman Brothers And/Or Affiliate; (NTAP), (DELL), (EMC), (IBM), (JAVA) Is Or In Last 12 Mos. Has Been A Non-Investment Banking Client (Securities Related Services) Of Lehman Brothers