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Trading Hewlett Packard: Earnings Vs Brewing Drama

Published: Friday, 19 Nov 2010 | 1:36 PM ET

Text Size

By: Lee Brodie
Producer

Halftime Report

* This post was updated to reflect late developments in the trial.

The Fast Money traders suggest keeping a close eye on Hewlett Packard [HPQ Loading... () ] which reports earnings after the close Monday.

The stock is down almost 20% this year in the wake of Mark Hurd's departure and its bidding way for 3PAR. However another drama is looming over the company - one which threatens to bump earnings right out of the spotlight.

(HPQ)

Loading... (%)

What Happened Now?

HP's new CEO, Leo Apotheker, has become a lighning rod for controversy since starting his job early November.

First the Street questioned Apotheker's track record after former employer SAP decided not to renew his contract when it expired some months ago.

Now, Apotheker has become ensared in a lawsuit filed by Oracle [ORCL Loading... () ] .

CEO Larry Ellison claims Apotheker was a key player in an "industrial espionage scheme" centered on stealing Oracle's software while Apotheker was working for SAP.

As you might imagine the situation has been acrimonious to say the least.

At one point, Oracle attorney David Boies threatened to track down Apothekar and force him to testify - however, HP refused to accept the subpoena on Apotheker's behalf.

In turn HP accused Oracle of harassing Apotheker.

As long as Apotheker didn't come within 100 miles of the Oakland federal courthouse while the trial was underway, Oracle couldn't compel him to testify.

From Bad To Worse

As bad as that sounds - it got worse.

Subsequently, Oracle threatened to play a videotaped deposition of Apotheker during their rebuttal case, which wrapped up Friday, if they were unable to serve him with a subpoena.

But they didn't - with attorney's saying Oracle had already proved Apotheker oversaw the scheme. Asked outside the courtroom why he did not play the deposition, Boies told reporters that it was two years old and "really didn't add anything."

HP reiterated its position that Apotheker had a "limited role in the matter." "Oracle's current stance is clear proof that they have been trying to harass Leo and interfere with his work at HP," a Friday statement read.

"Oracle had ample opportunity to question Leo in the two years after he gave a full-day deposition. Leo was never asked to give an additional deposition."

How should you position? What’s the trade?

I’m growing concerned that earnings will take a back seat to the company's management turmoil, says Joe Terranova. I had been bullish on the stock in the wake of Dell earnings -- but now I’m rethinking that. Instead, I’d step to the sidelines and let these developments play out.

Of course these developments could slap the stock but fundamentally I like HP long-term, counters Steve Grasso. I think the lawsuit is a lot of collateral noise. Look at the fundamentals – I’d sniff around at these levels.

What do you think? We want to know!

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TOPPING THE TAPE: TECH

Tech shares [XLK Loading... () ] topped the tape on Friday after Dell's [DELL Loading... () ] earning beat expectations. Adding to the tailwinds, Cisco 's [CSCO Loading... () ] board authorized a stock buyback up to $10 billion.

What’s the tech trade?

I’d rather stick with some of the newer tech names that are growing faster, says Patty Edwards. Dell, Microsoft, Cisco and Intel have all been a house of pain for me.

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CHART OF THE DAY: SALESFORCE.COM

Take a look at our chart of the day - cloud play Salesforce.com hit a new 52 week high Friday after beating on earnings and increasing its full year targets.

(CRM)

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What’s the trade?

I like the stock but sold calls so I’m being called away, says Jon Najarian. I’d reload if it pulls back to the lower $120’s.

Goldman raised its price target to $144, adds Joe Terranova.

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CONSUMER SHARES 2010 TOP PERFORMERS

Consumer discretionary [XLY Loading... () ] has been the best performing S&P sector this year- and the strength in the space continued Friday after Ann Taylor [ANN Loading... () ] and Foot Locker's [FL Loading... () ] both reported strong earnings.

On a related note, a slew of athletic apparel companies are making new 52 week highs Friday including Nike [NKE Loading... () ] .

What’s the trade?

I’d focus on the under-performers among the companies that have not reported earnings yet. Specifically I like JCrew [JCG Loading... () ] and I own it, says Patty Edwards.

I’m bullish Nike and I’m playing it with options spreads, adds Jon Najarian.

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CALL TO THE FLOOR: URANIUM ENERGY CORP

You’ve probably heard that uranium will likely be an important energy source in the future. But how important? Will mining need to be increased significantly to meet demand?

Find out from Uranium Energy Corp [UEC Loading... () ] CEO Amir Adnani. Watch the video now!

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CALL THE CLOSE

Patty Edwards: I’m a buyer of Coach [COH Loading... () ].

Jon Najarian: I think the turn in GM [GM Loading... () ] is impressive; if it holds I’m a buyer.

Joe Terranova: I’m a buyer of PCP [PCP Loading... () ].

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Trader disclosure: On November 19, 2010, the day this video was recorded, following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Terranova owns (UPL), (C), (CRM), (PEP), (VRTS), (OXY), (GS), (POT), (AAPL), (ORCL), (MCD), (NKE), (IBM); Jon Najarian owns (MS) short calls; Jon Najarian owns (ANN) short calls; Jon Najarian owns (DLTR) short calls; Jon Najarian owns (DG) short calls; Jon Najarian owns (WMT) short calls; Jon Najarian owns (CSCO) short calls; Jon Najarian owns (NKE) short calls; Jon Najarian owns (FSLR) short calls; Jon Najarian owns (LVS) short calls; Jon Najarian owns (WYNN) short calls; Jon Najarian owns (DF) call spreads; Jon Najarian owns (JOYG) call spreads; Grasso owns (ASTM), (BA), (BAC), (BWC), (C), (CSCO), (JPM), (LPX), (MOT), (MHY), (NDAQ), (PFE), (PRST)

For Joe Terranova
Terranova is chief market strategist of Virtus Investment Partners, LTD.
Virtus Investment Partners own more than 1% of (ABAX)
Virtus Investment Partners own more than 1% of (ALK)
Virtus Investment Partners own more than 1% of (AMKR)
Virtus Investment Partners own more than 1% of (CASS)
Virtus Investment Partners own more than 1% of (CMS)
Virtus Investment Partners own more than 1% of (CSC)
Virtus Investment Partners own more than 1% of (CSVI)
Virtus Investment Partners own more than 1% of (FCFS)
Virtus Investment Partners own more than 1% of (IGE)
Virtus Investment Partners own more than 1% of (LDR)
Virtus Investment Partners own more than 1% of (LPHI)
Virtus Investment Partners own more than 1% of (MGRC)
Virtus Investment Partners own more than 1% of (NRCI)
Virtus Investment Partners own more than 1% of (DBV)
Virtus Investment Partners own more than 1% of (XLB)
Virtus Investment Partners own more than 1% of (XLP)
Virtus Investment Partners own more than 1% of (XLY)
Virtus Investment Partners own more than 1% of (XLF)
Virtus Investment Partners own more than 1% of (XLI)
Virtus Investment Partners own more than 1% of (XLU)
Virtus Investment Partners own more than 1% of (SOA)
Virtus Investment Partners own more than 1% of (SUBK)
Virtus Investment Partners own more than 1% of (WDFC)
Virtus Investment Partners own more than 1% of (WMB)
Virtus Investment Partners own more than 1% of (YDNT)
Virtus Investment Partners own more than 1% of (DRYS)

For Patty Edwards
Edwards owns (FL) for clients
Edwards owns (GLD) for clients
Edwards owns (HPQ) for clients
Edwards owns (NKE) for clients
Edwards owns (SPX) for clients
Edwards owns (SH) for clients
Edwards owns (TTM) for clients

For Steve Grasso:
Stuart Frankel & Co and it’s partners own (AAPL)
Stuart Frankel & Co and it’s partners own (CSCO)
Stuart Frankel & Co and it’s partners own (CUBA)
Stuart Frankel & Co and it’s partners own (GERN)
Stuart Frankel & Co and it’s partners own (HSPO)
Stuart Frankel & Co and it’s partners own (NWS.A)
Stuart Frankel & Co and it’s partners own (NYX)
Stuart Frankel & Co and it’s partners own (PDE)
Stuart Frankel & Co and it’s partners own (PFE)
Stuart Frankel & Co and it’s partners own (PRST)
Stuart Frankel & Co and it’s partners own (RDC)
Stuart Frankel & Co and it’s partners own (TLM)
Stuart Frankel & Co and it’s partners own (XRX)
Stuart Frankel & Co and it’s partners own (SDS)
Stuart Frankel & Co And Its Partners Own (UNM)
Stuart Frankel & Co and it’s partners are short (QQQQ)
Stuart Frankel & Co and it’s partners are short (MCD)
Stuart Frankel & Co and it’s partners are short (AAPL)

For Henry Kirn
UBS owned 1% or more of (DE)
UBS makes a market in (DE)
UBS makes a market in (AGCO)

CNBC.com with wires.

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