'Fast Money' Recap: Beaten-Up Financials Eyed

NEW YORK (TheStreet) -- Stocks rallied Thursday, with the Dow Jones Industrial Average and S&P 500 stretching their winning streak to a third day, after data suggested improvements in the U.S. economy.

The Dow closed up 62 points, or 0.5%, at 12,170. The S&P 500 finished up 10 points, or 0.8%, at 1254 and the Nasdaq was up 21 points, or 0.8%, at 2599.

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

Thursday's volumes were so low it's clear to the Fast Money gang that most people have packed it in for 2011 and it's time to take a broad view of the markets. If there's any one sector that is actually still getting attention, it's the beaten up financials, which had another nice move. Visa ( V), in particular, continued higher.

People are not trading except the financials, says Jon Najarian, and that's good for shares of JPMorgan ( JPM) and Bank of America ( BAC), finally off that $5 level. Najarian says no matter how many times people say that the financials aren't a big part of the S&P 500, the S&P wants to move when financials move higher.

How high is the S&P headed. Guy Adami says that regardless of volume, price is truth, and we've seen higher lows and lower highs. If the S&P can close above 1265, there should be nothing stopping it until 1370. "Get out of the way if it hits 1265, it's going higher," Adami says.

Keith McCullough, CEO of Hedeye Risk Management, says the S&P 500 range he looks at is 1207 to 1269 and "some Italian rumor could drive you higher or lower." Tim Seymour says if the S&P gets to 1269, that's a break of the 50-day and 200-day moving averages. McCullough adds that the 50-day and 200-day are "moving monkeys" and the behavioral line. Yet, what's really of relevance longer term is that the S&P has been making lower highs for quite some time in stocks and that's why he uses 1269 as the bullish line.

Retail and the Weather

Is the winter weather going to cause a setback for retail, with warmer weather than expected so far? Joe Feldman of Telsey Advisory says the weather is an issue and mark downs on cold-weather goods are increasing. Items are going out the door at lower cost and these are unplanned sales. The cold weather gear has been the major cause of unplanned sales, but it's also hit electronics and toys, leading to a lower profit side of the equation, where retailers are taking hits.

Dick's Sporting Goods ( DKS) has sold down to $36.50, but Feldman remains a big fan of it into 2012. The sporting trend is still hot, but with the mild weather, it has impacted their cold-weather sales and that's worried people. However, longer term, look at Nike ( NKE) sales in North America, released earlier this week, which was a very good sign for Dick's.

Bed, Bath & Beyond ( BBBY) has gotten beaten up and that means opportunity, in Feldman's opinion. He says they came up against tough comparisons for the third quarter, and fourth-quarter comparisons will be even more difficult. It's time to take another look at this stock now after the pullback. "It's still a best-in-class retailer and is controlling costs well," the Telsey analyst says.

Feldman's top picks in retail are Wal-Mart ( WMT), Macy's ( M) and The Limited ( LTD).

Jon Najarian's top pick in retail is TJX Companies ( TJX), which is getting the best of high-end and low-end retail customers. It continues to go higher from the high it has already hit. "$75 is a reasonable level," Najarian says.

John Paulson's Tough Year

Reports that hedge fund legend John Paulson's Advantage Plus Fund are down more than 50% this year raise the discussion of hedge funds getting too big for their own shareholders' good. Greg Zuckerman of the Wall Street Journal says that with Bank of America ( BAC) hitting new lows and gold going down, two of Paulson's biggest bets, the man who could do no wrong a few years ago, with the housing short that made him famous, has seen everything go wrong.

You can also add to his bad bets the specific stocks of AngloGold Ashanti ( AU), one of his biggest holdings in addition to the big gold commodity stake, with that stock down 11% in December, and the disaster in Chinese stock Sino Forest, de-listed this year.

Tim Seymour says what has changed is size. At $40 billion in assets, how can Paulson get in and out of the market? Zuckerman says the fund is in fact back to $28 billion and it's true that investors aren't happy with these hedge fund managers when they get too big and start to stray.

"They stub toes when they get too big," Zuckerman said, and you can also add Hewlett Packard ( HPQ) to the list of bad Paulson calls this year. Zuckerman says that Paulson argues that he can operate in liquid markets and can always move. Yet the problem is style drift and that happens to all managers when they get big, which leads to questions about whether Paulson's process is repeatable.

Paulson's biggest bets come from housing and other areas of expertise, like the banks, where he made a lot of money shorting. Investors still trust him on those calls, but a Sino Forest or Hewlett Packard, "you scratch your head."

Netflix Getting High Grades?

Mark Mahaney, analyst at Citigroup, says that Netflix ( NFLX) consumers are more satisfied than you think, based on a new survey conducted by Citigroup. The results of the survey were mixed to slightly positive. Citigroup remains on the sidelines with Netflix shares, but after customer satisfaction fell off a cliff, the good news is it is improving and there are signs of stabilization among current Netflix subscribers. Citigroup has an $85 price target on Netflix.

Mahaney highlights three things Netflix needs to do: It needs to show it can regain streaming U.S. subscribers; it needs to show margins can start ramping again despite content acquisition costs; and with Netflix saying that it will use $120 million per quarter in international markets next year, investors need to see really strong international subscriber growth to justify that.

Yahoo! ( YHOO) was all over the headlines on Thursday, reportedly ready to sell a stake in its Asia holdings, but Mahaney and the Fast Money gang say investors shouldn't get too excited. The Asian assets are already public, so they can't be a dramatic catalyst for Yahoo! shares.

Yahoo! is also reportedly planning to keep a 15% stake in the Asian assets, instead of selling the whole company. Citigroup's Mahaney says that the board and management at Yahoo! have a checkered history and the "15% solution" shows they want to have their cake and eat it too, which is not a great solution for shareholders.

Another move that raised Mahaney's eyebrows on Thursday was Akamai Technologies ( AKAM), which was higher on an acquisition. However, when a company moves 18% on a $268 million cash purchase of Web and mobile support company Cotendo, and doesn't provide any details on revenue to be gained and whether the deal is accretive or dilutive to earnings, it's a stretch, in Mahaney's opinion.

The Citigroup analyst says a jump like this in Akamai, which values it at 18 times earnings, is a little rich. Citigroup thinks fair value is south of that, roughly 15 times earnings. There's also the threat of new competition coming in to Akamai's market of streaming content support, especially Amazon ( AMZN). "This deal jump raises our skepticism," Mahaney concludes.

Emerging Markets

Tim Seymour says emerging markets are the markets to play in 2012, and it can be done on any risk parameters, from the riskiest to the safest. Brazil is his No. 1 emerging market, with cheap stock values overall, 5% unemployment and the most insulated economy in the emerging markets. Seymour says the Brazilian banks like Itau Unibanco ( ITUB) and Banco Bradesco ( BBD) will outperform in 2012, but that's not going out on a limb, as most people in the markets are aware of it.

Seymour also likes the "riskless" name in China, China Mobile ( CHL), at 9.6 times earnings and with a 4.5% dividend yield. It's also been gaining while the Chinese equities market has gotten killed in recent trading. For emerging market financials that will outperform, and are known less than the Brazilian banks, Seymour says look to Turkey and India, where financials have been beaten up and will outperform in 2012.

Health Care Stocks

Les Funtleyder of Miller Tabak joins Fast Money to talk health care stocks. Pharmasset ( VRUS), up 470%, is going away through its acquisition by Gilead Sciences ( GILD), so there's not a choice for investors there on whether to hold the stock. Another higher flyer in the Miller Tabak portfolio, Intuitive Surgical ( ISRG), is up 77% this year. Investors should hold onto the shares because it's still going higher, Funtleyder suggested.

Another top pick from the Miller Tabak analyst and fund manager is Humana ( HUM); he likes the HMOs generally. Many investors have questions about the fate of Obamacare, with a Supreme Court hearing on its constitutionality scheduled for March and a decision expected in June, but the forces that have led to the health care reform are in place with or without Obamacare, the analyst says.

The HMOs need to control costs regardless of Obamacare, Funtleyder says. "The forces that are driving HMOs are exclusive of reform," the Miller Tabak analyst argues, and with HMOs at 8.5 times and offering conservative earnings outlooks that will lead to multiple expansion, as well as dividend increases, the HMOs are a good bet.

Tim Seymour says that too many health care trades are tactical and his one structural play in health care is Teva ( TEVA), which announced a $3 billion buyback. Even though it disappointed on earnings, it's at 7 times earnings, which is half its historical average, he adds.

One Funtleyder short that has some fans on Fast Money is Amgen ( AMGN). He says it isn't a biotech stock, but a biotech stock that hasn't yet figured out that it's a big pharma stock, and that creates a good short.

If the pipeline can deliver, the Funtleyder said he might revisit his short position, but for the time being, he prefers Eli Lilly ( LLY), which is big pharma, and unlike Amgen, has a 5% dividend. Comparing the two stocks, he concludes, "We want slow growth and a dividend, not slow growth and no dividend," Funtleyder says.

-- Written by Eric Rosenbaum from New York


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