Halftime: Go Long Citi, Amex & Others In JPMorgan's Wake
Optimism prevailed on Wall Street Wednesday with the S&P finally breaking above the psychologically important 1,200 level.
Stronger than expected earnings from Intel and CSX powered the rally, however it’s the results from JPMorgan that may present the best trading opportunities.
Specifically, the Fast Money desk felt two areas of JPMorgan's business - investment banking revenue and consumer loans - presented solid trading ideas.
How should you be positioned now?
Instant Insights with the Fast Money traders
JPMorgan results suggest to me that credit quality is clearly improving, says Joe Terranova. (The bank showed lower loan loss reserves in their credit card business.) I think that bodes well for Citi . I’m long $4 May calls.
I also think Citi trades higher as they shed assets, says Anthony Scaramucci of Skybridge. As they get back to their core they’ll get back to a better risk management profile and long term profitability.
(*In the interest of full disclosure, Skybridge inked a deal to purchase assets from Citi. More on that below.)
I’d also play JPMorgan strength with a long position in American Express, adds Terranova. And with strength coming from JPMorgan’s investment banking and fixed-income trading I’d look at Morgan Stanley and Goldman Sachs, too.
Considering the positive things they’ve had to say about loan loss reserves, if you’re a risk taker look at a long position in Fannie and Freddie , counsels Brian Kelly of Kanundrum.
There is no way I’d get long Fannie and Freddie, counters Patty Edwards of Store house. There are far too many unknowns.
In the space I agree with Joe’s trade; I think the play is to buy a $4 call in Citi, says Jared Levy of Peak6. And if you’re looking to play BofA I’d look at the 20-18 collar in May, he counsels. That way you participate on the upside but limit the downside.
SELL INTEL HERE?
They say history repeats itself. If that’s the case you might think about shorting Intel because this stock does not have a good track record of holding on to gains post earnings. Take a look:
Intel Post-Earnings Release Since 2001
Opened Higher: 20 times
Turned & Finished Lower: 15 times
Average Change: -1.65%
Will this time be different?
I do think this time is different, says Joe Terranova. It seems to me the Street is underestimating the sector’s growth potential. But I think the better trade off Intel is long rivals Marvel, Teradyne and Lam Research.
ELSEWHERE IN TECH: BIDU?
Shares of Baidu rallied sharply on Tuesday hitting a new all time high. The move is particularly noteworthy because Baidu made these gains ahead of Google's earnings release Thursday afternoon.
What’s the trade?
I’m bullish Google, says Brian Kelly. I think Google story is a much bigger global story. Baidu at over 100 times earnings is a little rich for me.
I think the trade is long Yahoo!, says Joe Terranova. As far as I can see it’s under-owned.
TAKE YOUR POSITION: YUM
Fast food giant Yum! Brands reports earnings after the bell on Wednesday. According to estimates, the company should post earnings of 53-cents a share.
However, many investors will be more concerned with the company’s sales figures – especially those out of China.
A strong sales rebound would be a powerful sign that consumers are able to spend more on dining out -- even if it's just on value menu items.
What’s the trade?
In the space I’m much more bullish McDonalds, says Patty Edwards, and I like the dividends.
I’d play fast food with PTV, says Brian Kelly. They provide packaging.
Yum! Preview: Profit From Results
UPDATE: SKYBRIDGE PURCHASE OF CITI ASSETS
We’ve got the latest on a hot deal. As you may know, on Wednesday Skybridge Capital announced plans to buy a hedge fund business from Citigroup for $4.2 billion.
Terms of the deal were not disclosed.
The unit includes Citi's hedge fund business, hedge funds that it manages, and stakes in small hedge funds.
The deal marks another step in Citi's plan to shed assets. The unit had been languishing in Citi Holdings, the bank's repository for businesses that it is trying to sell or wind down.
”It was a fair deal for both parties and we’re very excited,” says Anthony Scaramucci of Skybridge Capital. “We think it’s a crown jewel and we’re excited to own it.”
What else must you know? Find out from Anthony Scaramucci of Skybridge Capital. Watch the video now.
> Citi Sells Hedge Funds Unit to Skybridge Capital
CALL THE CLOSE
Joe Terranova: I’d look at SWN or XCO for upside potential.
Brian Kelly: As long as Bernnake keeps rates low I’m a buyer.
Jared Levy: I’m a moderate buyer.
Patty Edwards: I’m a buyer.
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Trader disclosure: On Apr 14, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Kelly Owns (DHI), (MS), (GOOG), (IBM), (TXN), (S); Terranova Owns (AXP), (HES), (TER), (APA), (YHOO), (MOS), (SWN), (XCO); Terranova Is Short (LCC); Terranova Owns (C) Calls; Kelly Owns (FXE) Puts ; Kelly Owns (FRE); Adami Owns (INTC), (GS), (AGU), (MSFT), (NUE), (BTU), (C) ; Seymour Owns (BAC), (EEM), (F), (INTC), (LVS), (SBUX), (AA), ( BX), (MGM); Najarian Owns (BAC) Call Spread; Najarian Owns (C) Calls; Najarian Owns (FITB) Calls; Najarian Owns (LVS) Call Spread ; Najarian Owns (MOS) Call Spread; Najarian Owns (PCX); Najarian Owns (YHOO) Call Spread; Najarian Owns (YUM) Calls; Gartman Owns (DRI), (PNRA), (CMG); Cortes is Short (LVS) & (WYNN)
For Tim Seymour
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Kellys Firm Owns (BX)
Kellys Firm Owns (CCI)
Kellys Firm Owns (TLT)
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For Patty Edwards
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Edwards Owns (INTC) for Clients
Edwards Owns (GS) for Clients
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Edwards Owns (HD) For Clients
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