'Fast Money' Recap: Banking on Financial Stocks

NEW YORK (TheStreet) -- The S&P 500 rallied 0.60% on Thursday after Wednesday's slight selloff in response to the Federal Reserve.

On CNBC's "Fast Money" TV show, the trading panel was discussing the financial stress test results, where 29 of the 30 tested banks exceeded expectations. 

Brian Kelly, founder of Brian Kelly Capital, said he would not short-sell the financial sector but did say he would take profits on Friday. 

Pete Najarian, co-founder of optionmonster.com and trademonster.com, said he doesn't foresee much of a pullback in the financial sector. He added the options activity was very, very bullish for the Financial Select Sector SPDR ETF (XLF). He liked Citigroup (C) and Bank of America (BAC). 

Jon Najarian, co-founder of optionmonster.com and trademonster.com, said longer-term investors could hold bank stocks for the next year or two because interest rates will continue to rise, which will improve profitability. 

Guy Adami, managing director of stockmonster.com, said that investors could add to their long Citigroup position, because it is still undervalued. 

Although bullish, Pete Najarian admitted he took some profits in the financial sector but he remains long overall. 

Zions Bancorporation (ZION) was the only bank to fail the stress test but traded surprising well on that news, according to Adami. He added the stock could actually trade higher on Friday. 

With dividend hikes expected, stress test results released and interest rates set to rise in the future, Kelly questioned what the next catalyst would be to push bank stocks higher. 

Dick Bove, bank analyst at Rafferty Capital Markets, said the banking industry is producing record profits while simultaneously maintaining the strongest balance sheets these banks have ever had. 

He added that these companies have the capacity to substantially increase loan growth, which, coupled with higher interest rates, would drive earnings per share growth. He concluded these banks have the capacity to raise dividends for the next several years, not just this year. 

Symantec (SYMC) announced the sudden termination of CEO Stephen Bennett, who was hired in 2012. 

Kelly said, "Where there's smoke, there's fire." He did not like the termination since it came so recently after the previous CEO was fired. He suggested there was either a problem with the board or a problem with the company; he doesn't care for either scenario. 

Alibaba has already announced it will list in the U.S. and its valuation continues to climb. It could be valued at over $150 billion at the time of the IPO. Aswath Damodaran, professor of finance at NYU Sterne, questioned how anyone could be valuing this company right now, considering there is hardly any information available for it.

He called the Chinese giant an advertising company that we know very little about in terms of hard facts and numbers. Investors are caught up in the hype and potential, rather than its actual finances, he concluded. 

Pete Najarian said he still likes Yahoo! (YHOO), and not just for its ownership in Alibaba. Adami said that if Alibaba IPOs with a $150 billion valuation, Yahoo! will trade through $40. He added that if the stock can hold the $35 level, it's a buy. 

Microsoft (MSFT) closed higher by 3%. Kelly said he is still long the stock and expects it to continue climbing. Pete Najarian added that shares of Microsoft could be headed to $44, and Satya Nadella was the right pick to be the new CEO. 

Adami said Microsoft still has positive catalysts to push it higher and should continue do well, so long as the broader market holds up.

Hewlett-Packard's (HPQ) CEO Meg Whitman announced the company would detail its plans for the 3-D printing space in June. Amit Daryanani, an analyst at RBC Capital Markets, has a sector perform rating on HPQ with a $33 price target. 

He agreed that HPQ's involvement in 3-D printing will obviously increase competition in the space. However, he did say there is room for all the current companies to exist in the industry since there is so much growth potential within 3-D printing. 

Jon Najarian said HPQ could have a big impact in 3-D printing and vice-versa. Kelly disagreed, saying the move "wouldn't move the needle" for HPQ. He said he wouldn't buy the stock on this announcement. 

Jon Najarian said, "I beg you, stay away from these stocks," in response to whether coal stocks have bottomed. 

Again, Kelly disagreed. He was a buyer of Cliffs Natural Resources CLF and the Market Vectors Coal ETF KOL. 

Nike (NKE) beat on top- and bottom-line expectations. The company improved margins and reported higher future orders. Sam Poser, senior research analyst at Sterne Agee, said Nike is making "very good headway in China." He added the company should be able to grow earnings per share in the mid-teens in terms of  percentage despite gross margins pressure from emerging market currency fluctuations. Overall, he called the business very strong with solid demand. 

Jeffry Rosenthal, president and CEO of Hibbett Sports (HIBB), was a guest on the show. His company sells sports gear for teams, not individuals. He said the company is focused on opening and operating its stores in small towns and small markets, where 75% of its stores are already located. The company could use an e-commerce overhaul but Rosenthal, for now, is focused on growing the number of physical locations. 

Adami expressed concern over the company's high margins since it could be susceptible to falling in the future. That said, investors could own the stock after the recent selloff. 

On a special "Spring Breakout" segment, the traders picked their favorite stocks for the upcoming season. 

Adami was a buyer of U.S. Steel (X) because of stabilizing steel prices, cost-cutting by the new CEO and the company's leverage. 

Kelly was a buyer of BlackBerry (BBRY). He sees value in the company's BlackBerry Messaging application and suggested that shares could climb to $12. 

Pete Najarian was a buyer of Home Depot (HD). He said the spring home-buying season should help drive sales, which have been strong despite weather issues for other retailers. 

Jon Najarian was a buyer of Deckers Outdoor (DECK). He added the stock is $20 per share off its recent high. 

Kelly said on Thursday he bought more FireEye (FEYE), which is off some 16% since he mentioned it a few weeks ago. 

For his online security play, Pete Najarian said he preferred F5 Networks (FFIV) for its valuation. 

For their final trades, Brian Kelly was a buyer of Emulex (ELX) and Pete Najarian was a buyer of Under Armour (UA). Jon Najarian was a buyer of Morgan Stanley MS and Adami was a buyer of ZION.

-- Written by Bret Kenwell in Petoskey, Mich. 

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Bret Kenwell currently writes, blogs and also contributes to Robert Weinstein's Weekly Options Newsletter.

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