'Fast Money' Recap: Eyeing Oil, Retail M&A

NEW YORK (TheStreet) -- After-Christmas deals, private equity shopping for bargains, ETF explosion and best commodity trades for 2011 were hot topics among the "Fast Money" crowd on Thursday.

CNBC contributor Dennis Gartman said the global recovery is propping up crude oil futures. The black gold rose to two-year highs on Thursday, settling at $91.56 per barrel. Gartman said stronger oil prices mean the global economy is strong, and that's good for stock price growth as well.

For a breakout of some stocks from a recent "Fast Money" TV show, check out Dan Fitzpatrick's "3 Stocks I Saw on TV."

3 Stocks I Saw on TV

Pete Najarian said the markets are feeling better, reflected by higher prices for all energy "stuff." He pointed out that Bed Bath and Beyond ( BBBY) benefits from higher cotton prices, trading above $5.50.

Gartman said BBBY and other retailers use high cotton prices as an excuse to raise prices and expand margins, though a towel contains only about 20 cents worth of cotton.

Melissa Lee said the price of oil will move higher in January and asked the group how to play the commodity.

Karen Finerman said investors should go into USO.

Anthony Scaramucci said BP ( BP) is a final trade. It cut costs and built a big cash war chest, he said, and will likely reinstate its dividend next year. With oil at $100 per barrel, this is a good stock, he added.

Gartman likes dividend-paying oil-related stocks like Chevron ( CVX), Exxon Mobil ( XOM), BP and SandRidge Energy ( SD), and says demand for these names will grow as oil prices rise.

Pete Najarian said hedge funds have exposure to base metals and oil, and the dollar is helping as is economic growth. Still, the Middle East peace conflict overhang could push oil to $120 next year.

Melissa Lee brought up the recent run-up in gold prices and asked if a bubble was waiting to burst or if gold is the best new trade of the year.

Gartman said that as more wealth is created around the world the gold market will rise. He doesn't like gold but said central banks are buying it and have reduced the supply. Still, he said gold is not a bubble but rather a currency trade, tapping the Market Vectors Gold Miners ( GDX) ETF as an example.

Melissa Lee brought the conversation back to retail M&A, mentioning the private equity takeover of Jo-Ann Stores ( JAS) by Leonard Green for $1.6 billion, or $61 a share, a 34% premium over its closing price on Wednesday. The deal, announced early Thursday, follows similar ones with Gymboree ( GYMB) and J. Crew Group ( JCG) earlier this year.

Karen Finderman said retail names have relatively low valuations, and private equity firms are putting their money to work in the sector. She said it creates a potentially interesting environment for retail M&A in 2011.

She speculated that retail takeover targets in 2011 include Office Depot, Aeropostale and Avon.Takeover Speculations: Office Depot ( ODP), Aeropostale ( ARO) and Avon Products ( AVP). Finerman said Urban Outfitters ( URBN) is too expensive and she's afraid of "the fashion risk" with names like Zumiez ( ZUMZ).

Trade Update

In the "trade update" segment, the "Fast Money" crowd said Kirkland's ( KIRK) was the hedge fund trade of this week. The small-cap low-cost stock gained more than 7% on Thursday amid heavier-than-average volume.

Pete Najarian cautioned investors not to overly pile into the stock and always stay diversified.

Melissa Lee turned the conversation to speculation about a new Apple ( AAPl) iPad and what the updated device will look like.

The group said it could include large speakers, and possibly front and rear cameras. It could also ship as early as next month though Najarian said it probably won't be introduced until April of 2011.

Melissa Lee then turned the conversation to the $1 trillion of inflows in ETFs in 2010.

Special guest Matt Hougan, managing director at IndexUniverse, pointed out that copper futures are up 27% year-to-date, and up 2.4% this week, but warned that fees for copper ETFs are sky high. Industrial ETFs are also too high.

Hougan said people buy ETFs like SPDR Gold Trust ( GLD) because it's the first that comes to mind, but iShares Gold Trust ( IAU) gets investors the same thing for half the price with lower management costs.

He said to focus on individual areas like gold or oil, and suggested trying the United States Commodity Index Fund ETV ( USCI) for a broad-based, tactical strategy.

Pete Najarian said he likes the Market Vectors Gold Miners ( GDX) or Market Vectors Junior Gold Miners ( GDXJ) as the best way to play precious metals.

Hougan said the GLD made gold a volatile asset. He doesn't think it will implode but prices could cascade.

Pete Najarian suggested hedging the VOLATILITY S&P 500 by buying January 18 calls and then selling January 21 puts. It won't explode but if it moves to the upside in volatility, investors could double their money in the next two weeks.

Speaking about market bubbles, contributor Stephen L. Weiss of Short Hills Capital pointed to the tulip bubble in the 1600s, comparing it to the Nasdaq's peak at 5,000 in the year 2,000, saying the market still hasn't recovered from that. Now gold is trading just under $1,400 after peaking in 1980. He said marginal buyers in gold are the consumers, as seen with gold bars being sold in vending machines in certain parts of the world. "I think gold is a bubble and it will pop," he said. "I'd rather be in equities." He says he is going short on gold.

Guest Borris Schlossberg, managing partner of BKForex Advisors, said the euro is an overdone trade and that China won't allow the currency to collapse. China has $2.8 trillion of reserves and "will act as a buyer of the last resort." He suggested investors buy American as he sees the economy looking good in 2011. The labor market is picking up and that bodes well for U.S. growth and the dollar-yen trade. He recommended to stay long the euro and U.S. dollar but short the Aussie dollar, including shorting Foster's Group Limited ( FBRWY).

Melissa Lee noted that the VIX was near 52-week lows.

Guest Brian Stutland of Stutland Equities agreed the VIX is low on a historical basis and suggested investors use the SPDR S&P 500 ( SPY) ETF instead of the VIX to minimize the cost of protection. He said to look to the SPDRs, rather than outright buying puts.

In a special "Fast Money" message frenzy segment, Karen Finerman said she likes Flowserve ( FLS) but that the risk-reward has changed. She expects it to report good earnings but said it's not as cheap as it was.

Responding to a reader's question about volatility in Las Vegas Sands ( LVS) shares, Pete Najarian said the stock ran up tremendously and was among the hottest stocks this year. He has said to take the money and run on LVS but added that it will recover in the low $40s.

-- Written by Miriam Marcus Reimer in New York.

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