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Halftime Pt. 1: IBM, Goldman Weakness Generates Buys

Tuesday, 20 Jul 2010 | 1:16 PM ET

Both the Dow and S&P traded lower on Tuesday due to weak earnings from two heavyweights: IBM and Goldman Sachs.

But a down day doesn’t mean there aren’t opportunities.

The traders are closely watching the pullback not only in Goldman and IBM but the related names.

What’s worth buying on the pullback?

Instant Insights with the Fast Money traders

I think there’s opportunity in IBM itself, says Jon Najarian. For months, it’s been trading in a range, he explains. I’m a buyer around 123 and a seller at 130. Also, I l like Texas Instruments, Najarian adds. I don’t think it breaks to the upside but I do think we see a slow lift toward 27.

I also think IBM is attractive at 11 time forward earnings, says Patty Edwards. It’s the blue-ist of the blue chips. Elsewhere in tech, if I didn’t already own Intel , I’d look at that stock on the pullback, she says. Consumers are still spending on electronics and chips are still needed.

Fast Money Midday Market Check
The Fast Money traders share their market insight and midday trading advice.

When I look at IBM’s results I see revenue that wasn’t terrible, they just missed estimates, explains Brian Kelly. And they made money in the data center build-out, he adds. Two names I’d pick up on weakness are Emulex and QLogic . They make the parts that everything plugs into.

I agree that IBM is cheap and has good long-term fundamentals, adds Anthony Scaramuuci.

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GOLDMAN EARNINGS: RARE REVENUE MISS

As we mentioned above, Goldman said second-quarter net income fell 83 percent to $453 million because of lower trading revenues and a one-off charge for its settlement with the SEC.

Yet despite the rare miss, Goldman Sachs shares traded in the green Tuesday.

What should you make of it?

At about 1 times book I think Goldman is a buy, says Anthony Scaramuuci. It’s a premiere brand in financial services. I find the stock attractive over the next 6-12 months.

I think we’ve seen all the downside we're going to see now and I expect the stock gets back up to $181, says Stephen Weiss, author of “The Billion Dollar Mistake." (Hear more from Weiss. Watch the video above!)

I think finreg is still a weight on the stock, says Brian Kelly. Their business model will likely change. For me it’s a short at best.

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BROAD MARKETS

Looking at the market broadly I don't think it's the recent profit reports that are weighing down the S&P as a whole, adds Anthony Scaramucci.

Stocks aren’t moving because of macro-economic issues such as US tax concerns, a slow down in Europe and a potential slowdown in China.

Also the Fed stopped their MBS repurchase program and as a result there’s been a lack of liquidity in the market. That's what's created a ceiling on this market.

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TAKE YOUR POSITION: APPLE

Apple traded higher, ahead of the company’s earnings report Tuesday after the bell. Since late June shares are down on 10%.

Fundamentally you know the reasons to be bullish - limitless growth potential and huge margins in the Mac.

But looking at the charts did you know that Apple is now trading below its 20 and 50-day moving averages – a technically bearish sign?

What’s the trade?

I think it’s a great company and a great stock, says Patty Edwards. I think there’s potential for decent upside surprise after earnings.

I think they beat on the bottom line but don’t expect to hear positive guidance going forward, muses Jon Najarian. I think the stock could ease higher after earnings but not explode higher.

Fast Money EP wrote extensively about Apple and why billionaire investor David Einhorn finds it a value play. Click here to read Biggest Tech Stock Apple Still a Value: Einhorn, Investors


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TOPPING THE TAPE: STEEL NAMES

Amid a sea of red, investors bid steel names a higher, despite a weak earnings report from Steel Dynamics earlier Tuesday.

What must you know?

I think the pop in steel is coming from an upgrade of Schnitzer by UBS, muses Brian Kelly.



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Trader disclosure: On July 20, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Jon Najarian owns (IBM); Jon Najarian owns (TXN) calls spreads; Jon Najarian owns (WHR) and short calls; Jon Najarian owns (GS) and short calls; Scaramucci Owns (GS); Kelly owns (BP) puts; Kelly is short (GS)

For Patty Edwards
Edwards owns (AAPL) for clients
Edwards owns (BAC) for clients
Edwards owns (C) for clients
Edwards owns (INTC) for clients
Edwards owns (JNJ) for clients
Edwards owns (JPM) for clients
Edwards owns (MS) for clients
Edwards owns (PEP) for clients
Edwards owns (TXN) for clients
Edwards owns (WMT) for clients
Edwards owns (YHOO) for clients
Edwards owns the S&P500 for clients

For Anthony Scaramucci
SkyBridge Capital own (GS)

For Brian Kelly
Accounts managed by Kanundrum Capital own (TLT)
Accounts managed by Kanundrum Capital own (GME)
Accounts managed by Kanundrum Capital own (BIG)
Accounts managed by Kanundrum Capital own (NWL)
Accounts managed by Kanundrum Capital own Japanese Yen
Accounts managed by Kanundrum Capital are short (BA)
Accounts managed by Kanundrum Capital are short (USO)
Accounts managed by Kanundrum Capital are short (GLD)
Accounts managed by Kanundrum Capital are short Aussie Dollar
Accounts managed by Kanundrum Capital are short (AMZN)
Accounts managed by Kanundrum Capital are short (KMX)
Accounts managed by Kanundrum Capital are short (FXI)
Accounts managed by Kanundrum Capital are short (EWO)
Accounts managed by Kanundrum Capital are short (EWI)
Accounts managed by Kanundrum Capital are short (JOE)
Accounts managed by Kanundrum Capital are short (RSX)
Accounts managed by Kanundrum Capital are short (SLX)
Accounts managed by Kanundrum Capital are short (CSX)
Accounts managed by Kanundrum Capital are short (FCX)

CNBC.com with wires

  Price   Change %Change
DJIA
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S&P 500
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ELUX.B
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GS
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IBM
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INTC
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QLGC
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SU
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STLD
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TXN
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AAPL
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