On ‘Grade the Trade’ we test the trading prowess of some of the most promising business students in the nation. This week they’re from Penn State, Brigham Young, Wake Forest and Miami University.
Get ready – school’s in session.
Our business school students have been given the questions in advance, and have 30 seconds to answer.
Grad #1: Eric From Miami University Richard T. Farmer School of Business
Here’s the scenario: Saddled with plunging prices on the mortgage-backed securities it owns, Bear Stearns (BSC) agrees to be bought by a private equity firm at a discount to save the firm. What are you buying and what are you selling as this scenario unfolds?
Eric is selling brokers such as Lehman Brothers (LEH) and Morgan Stanely (MS) and large US banks such as JP Morgan Chase (JPM) and Citi (C). He also selling Hilton (HLT), Dell (DELL) and Harrah’s (HET) to protect against a buyout premium. He’s buying PNC Bank (PNC) and Coke (KO) for international exposure and consumer staples such as Altria (MO), Wal-Mart (WMT) and more. As a final hedge he’s buying Amgen (AMGN) and Sun Microsystems (SUNW).
Karen Finerman gives Eric a “B+”.
Grad #2: Sakshi from the Wake Forest University Babcock Graduate School of Management
Here’s the scenario: As a Bloomberg story today suggested, Warren Buffett – enticed by new values created by the disappearance of buyout firms from the takeover game – used some of his $46 billion in cash to go on a buying spree. The billionaire investor buys health insurer WellPoint (WLP) and retailer Kohl’s (KSS). What are you buying and what are you selling as this scenario unfolds?
Sakshi is shorting companies Buffet acquired and buying names in retail and insurance. She likes The Gap (GPS).
Guy gives her a “B".
Grad #3: Jason from the Marriott School at Brigham Young University
Here’s the scenario: Google (GOOG) announced plans to sell a G-Phone through Verizon (VZ) and T-Mobile in December. What are you buying and what are you selling as this scenario unfolds?
Jason is buying Google and then shorting Google. He seems to have a longer list of trades but runs out of time because he shouts out “Booyah” to Jim Cramer.
Jeff Macke gives him a “B+”
Grad #4: Jason from the Smeal College of Business at Penn State University
Here’s the scenario: A publicly-traded homebuilder goes bankrupt. What are you buying and what are you selling as this scenario unfolds?
Jason is shorting homebuilders such as KB Home (KBH), and Beazer (BZH), home lenders such as Countrywide (CFC) and building materials. He’s staying away from Weyerhaeuser (WY), Home Depot (HD) and Lowes (LOW) as well as names in the consumer discretionary space. He’s buying residential REITs such as Essex Property Trust (ESS) and defense stocks.
Jon Najarian gives Jason a “B+”
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Trader disclosure: On Aug 3 2007, 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 (JNPR), (AXP), (AAPL), (BZH), (JSDA), (LEND), (NKE), (OATS), (UA), (WFMI), Is Short (HD), (WM); Macke Owns (ATVI); Finerman's Firm and Finerman Own (BAC), (C), (HD), (KALU), Finerman's Firm Owns (COP), (DVA), S&P Puts, Russell Puts; Macke Owned (ATVI) CNBC is a service of NBC Universal and Dow Jones