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Market Pros: Sell-Off In BofA Likely Overblown

On Tuesday investors were struggling to make sense of the financials, wondering if the credit crisis was like an old wound that just won’t heal.

By the close the Dow had plunged by triple digits, led lower by Bank of America. Investors sold first and asked questions later due to reports that a group of firms had sued BofA in an attempt to force the bank to buy back $47 billion in mortgage bonds.

(Click here for more on those allegations. Go to "NY Fed Part of Group Suing BofA Over Mortgage Securities")

How should you position now?

Instant Insights with the Fast Money traders

I think the sell-off in BofA is way overblown, muses Karen Finerman. You have to ask yourself, although the lawsuit is pegged to $47 billion if there’s a settlement – what will that be? And how much is already factored in? How much has the market already penalized BofA for this issue? The stock has been hit time and again for these issues, already. Personally, I find a long position tempting.

If would not sell BofA here, says Steve Grasso. Sit tight and wait for these developments to unfold. They’re trading for less than the cash on their balance sheet.

In the options market I did not see a flood of investors rushing to buy puts either, adds Pete Najarian. That suggests there wasn’t a great deal of panic. At these levels I think BofA belongs on your radar.

I don’t think the liability for BofA is anywhere near $47 billion, says FBR analyst Paul Miller. I have a 'Buy' rating on the stock. I’ve been telling investors all day to buy BofA, he explains. If you can take the headline risk I like the stock to $15-16.

We know the headline risk. Down another dollar or two I’d also start nibbling at BofA, says Brian Kelly.

I’m on the other side of this trade, counters Steve Cortes. I don’t believe that any investor should put money to work in BofA or any financials because they’re at the mercy of news like this – and perhaps worse, the potential of a government response.

*Hear more from FBR analyst Paul Miller about these developments. Check out our entire conversation with Miller in the Word on the Street video.

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CHART OF THE DAY: GOLDMAN

The traders are keeping a close eye on financials especially bellwether Goldman Sachs after better than expected earnings sent shares marching toward the key $160 level.

What’s the trade?

I think the pure brokers that don’t have mortgage risk are very attractive, says Steve Cortes.

I expect we see investors chasing performance and that should increase volumes, says Brian Kelly. That should be good for Goldman. I also like Jefferies.

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AFTER HOURS ACTION: YAHOO

Shares of Yahoo! were relatively unchanged in extended trade after the Internet search firm delivered tepid third-quarter revenue growth and forecast weaker-than-expected sales in the fourth quarter as it continues to lose market share to rivals like Google.

Looking at the numbers the company said it earned $396 million, or 29 cents a share in the third quarter, against 13 cents a share last year.

Revenue for the quarter came in at $1.12 billion, excluding traffic-acquisition costs, versus $1.13 billion last year.

Traffic-acquisition costs (TAC) include money that Web sites pay to advertisers and that they spend to draw traffic. Analysts factor TAC into their earnings estimates.

Equity analysts who follow Yahoo expected the company to turn in a profit of 15 cents a share on sales of $1.13 billion, according a consensus estimate from Thomson Reuters.

What’s the trade?

I have a 'Hold" rating on the stock, says Stifel Nicolaus Jordan Rohan. The business fundamentals are fairly negative but it could be a takeout candidate.


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APPLE: VALUE TRADE OR VALUE TRAP

For those of you that watched with teary eyes as Apple got slaughtered last night, cheer up: buyers swooped in this morning to reversed most of that decline.

So - are we talking value trade or value trap here?

I would not buy Apple right here, says Karen Finerman. I'd wait. Below $300 however, I'm a buyer.

The sell-off in Apple dragged down Cirrus and I'm a buyer of that stock on the pullback, says Pete Najarian.




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Trader disclosure: On Oct.19, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Grasso owns (ASTM), (BA), (BAC), (C), (CSCO), (JPM), (LPX), (MO), (MOT), (NDAQ), (PFE), (PRST); Cortes is short oil; Cortes is short gold; Cortes is short the Euro; Cortes is short (RSX); Cortes owns the S&P 500;Finerman owns (AAPL); Finerman & Finerman’s firm own (BAC); Finerman & Finerman’s firm own (JPM); Finerman’s firm owns (IBM); Finerman’s firm owns (SKS); Finerman's firm is short (IJR); Finerman's firm is short (MDY); Finerman's firm is short (SPY); Finerman's firm is short (IWM); Finerman’s firm owns S&P 500 puts; Finerman’s firm owns Russell 2000 puts; Pete Najarian owns (AAPL) call spread; Pete Najarian owns (BAC); Pete Najarian owns (CRUS); Pete Najarian owns (MS); Pete Najarian owns (YHOO); Pete Najarian owns (DO); Pete Najarian owns (DD); Pete Najarian owns (CNI); Pete Najarian owns (NOV); Pete Najarian owns (TEVA); Pete Najarian owns (NFLX) call spread; Pete Najarian owns (BMC) call spreads; Pete Najarian owns (AKAM) call spreads; Pete Najarian owns (RDN) call spreads; Pete Najarian owns (STX) call spreads; Pete Najarian owns (TSO) call spreads; Pete Najarian owns (LNC) call spreads

For Steve Grasso:
Stuart Frankel & Co and it’s partners own (COG)
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 (MERC)
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 (OPEN)
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 it’s partners are short (QQQQ)

For Brian Kelly
Accounts managed by Kanundrum Capital own (GLD)
Accounts managed by Kanundrum Capital own (GDXJ)
Accounts managed by Kanundrum Capital own (TIP)
Accounts managed by Kanundrum Capital own (SLV)
Accounts managed by Kanundrum Capital own (REE)
Accounts managed by Kanundrum Capital own (MCP)
Accounts managed by Kanundrum Capital own (JEF)
Accounts managed by Kanundrum Capital own (UUP)
Accounts managed by Kanundrum Capital own (PCL)
Accounts managed by Kanundrum Capital own (LPX)
Accounts managed by Kanundrum Capital own the Swiss Franc
Accounts managed by Kanundrum Capital are short the UK Pound
Accounts managed by Kanundrum Capital are short the Mexican Peso

For Rich Ilczyszyn
***No Disclosures***

For Anthony Scaramucci
Scaramucci and SkyBridge Capital own (DPS)

For Scott Nations
***No Disclosures***

For Paul Miller
***No Disclosures***

For Jordan Rohan
Stifel, Nicolaus & Company, Inc. or an affiliate is acting as exclusive financial advisor to Rivals.com in its pending sale to (YHOO)
Stifel, Nicolaus & Company, Inc. makes a market in (YHOO)
Stifel, Nicolaus & Company, Inc. expects to receive or intends to seek compensation for investment banking services from (YHOO) in the next 3 months.




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