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Steve Cortes: Amazon Is Reason to Short Retail


Amazon shares slipped slightly even as one “Fast Money” pro named it a top pick for 2012, but contrarian Steve Cortes said the Internet giant’s stock performance was reason to short retail.

“I do like the company fundamentally, but it has just traded terribly the entire fourth quarter and still so far in the new year,” he said Thursday.

Why is Google Trading so Poorly?

Cortes said Amazon’s stock price, which declined 1.66 percent to close at $175.93, led him to bet against a top analyst’s prediction.

“I’m short the retailers, betting on them to underperform the S&P, using the XRT. The main reason I put that on is watching Amazon,” he said. “If what I consider to be the best-in-breed retailer can’t do well, I think the others are going to do much worse even than that.”

Meanwhile, Ken Sena of Evercore Partners expected the Internet retailer to increase market share, expand its operating leverage and extend its margins with mobile products and content.

Sena said Amazon was seeing an increase in search traffic.

“In searching for goods, I think for goods people are increasing search through Amazon,” he said, adding that consumers were searching Groupon for services.

Two major concerns were related to margins on the Amazon’s popular Kindle device and stock-based compensation, which Sena was calculating as a cash-based expense.

“When we actually try to adjust for the payment of stock-based compensation in the outer years, they are one of the biggest offenders. We basically wanted to, given the new year, right-size our model and follow an approach we feel is philosophically correct even though it’s not necessarily the tradition right now on the Street,” he said. “Longer-term, even though there are margin concerns in the first half of next year, we feel best about Amazon in terms of the overall story.”

Amazon.com remained Sena’s top pick, with an “overweight” rating and a price target revised to $240 from $260.

OptionMonster co-founder Pete Najarian called Amazon “a great opportunity” as it was pushing toward 52-week lows and said he preferred it over Google.

“Google, other than the beginning part of this year, as you look at the last month and a half or so, the stock is up 20 percent,” he said.

Ken Sena increased the target price on Google shares to $760 from $750 with an “overweight” rating.

Much of that was based on strong expected net revenues for 2012 and the fourth quarter of 2011.

Sena said there was concern about lower margins in new areas.

“A lot of the placement they’re getting on mobile devices are basically through rev-share agreements,” he said. And while Android was doing “tremendously well,” there were still questions about how that area would work out.

Sena also said Google was likely to extract patents from its acquisition of Motorola Mobility, “but I think they probably need more time to assess.”

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Trader disclosure: On Jan. 12, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders: Najarian is long AAPL; Najarian is long BAC; Najarian is long C; Najarian is long MSFT; Najarian is long INTC; Najarian is long YHOO; Najarian is long MOS; Najarian is long JAG; Cortes is long SO; Cortes is long KFT; Cortes is short Crude; Cortes is short MCD; Cortes is short QQQ; Cortes is short FSLR; Cortes is short XRT vs. S&P long; Weiss owns BRCM; Weiss owns EUO; Weiss is short AAPL puts; Weiss owns MOS; Weiss owns POT; Grasso owns ASTM; Grasso owns AVAV; Grasso owns BA; Grasso owns D; Grasso owns LIT; Grasso owns MHY; Grasso owns PFE; Grasso owns PRST; Grasso owns S; Grasso owns WFT; Grasso owns XLU

Brian Kelly
Shelter Harbor Capital is long IWM

Shelter Harbor Capital is long KRE

Shelter Harbor Capital is long XHB

Shelter Harbor Capital is long EWZ

Shelter Harbor Capital is long GLD

Shelter Harbor Capital is long SLV

Shelter Harbor Capital is short Aussie dollar

Shelter Harbor Capital is CDR

Shelter Harbor Capital is UBS

Steve Grasso
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 HPQ

Stuart Frankel & Co and it’s partners own HSPO

Stuart Frankel & Co and it’s partners own MU

Stuart Frankel & Co and it’s partners own NYX

Stuart Frankel & Co and it’s partners own PRST

Stuart Frankel & Co and it’s partners own WFT

Stuart Frankel & Co and it’s partners own XRX

Jamie Cox
Cox owns JPM

Cox owns BAC

Willie Williams
No disclosures

Michael Harris
Campbell & Company is long crude

Campbell & Company is short natural gas

Colin McGranahan
Sanford Bernstein has received non-investment banking fees from TGT

Ken Sena
No disclosures

David Palmer
UBS has received non-investment banking fees from SBUX

UBS makes a market in shares of SBUX