'Fast Money' Recap: To Buy or Avoid Momentum Stocks?

NEW YORK (TheStreet) -- The S&P 500 and Dow Jones Industrial Average both closed at all-time highs. 

Guy Adami, managing director of stockmonster.com, said many momentum stocks have formed a short-term bottom. He added that Twitter (TWTR), LinkedIn (LNKD) and Netflix (NFLX) all look poised to continue higher this week. 

Brian Kelly, founder of Brian Kelly Capital, said he is not tempted to buy momentum stocks, which he called "broken." He added that the economy is not strong enough to justify the valuation of these high-flying stocks. 

Steve Grasso, director of institutional sales at Stuart Frankel, who is long Twitter (TWTR) and Amazon (AMZN), said investors should buy momentum stocks now. He is not a buyer of the overall market, though.

Karen Finerman, president of Metropolitan Capital Advisors, reasoned that just because momentum stocks have gotten cheaper over the past month, doesn't make the stocks cheap in valuation. 

CNBC's David Faber was a guest on the show. He said International Business Machine (IBM) had a rough first quarter of earnings as sales continued to underwhelm investors. However, the company is making a move out of its slower growth businesses and into higher growth, higher margin businesses, he added. However, a turnaround is hard to pull off for a company the size of IBM, he acknowledged. 

Grasso said the stock seems poised to go lower. He reasoned that the stock is only higher because investors have been rotating out of high-growth stocks and into blue-chip stocks. 

Adami agreed, saying he feels comfortable being short IBM. He added that if the market takes a turn for the worse, IBM will underperform. 

Kelly pointed out that IBM using almost all of its cash-flow to repurchase shares. With cash flows shrinking, the share buyback will slow and therefore the stock will be less valuable as earnings per share growth slows, he reasoned. 

Adami said Rackspace Hosting (RAX) can climb to the mid- to upper-$30s. He suggested investors wait a few more days before considering short-selling the stock. 

Kelly said investors who are long shares of Twitter should take profits after the recent bounce. 

Adami said investors can trade Apple (AAPL) from the long side and use $575 as their stop-loss. 

Finerman said investors in General Motors (GM) appear to have fully digested the negative news as the stock has held up quite well over the past few weeks. Grasso said investors who are long General Motors should use $34 as their stop-loss. He was a buyer of Ford (F). 

Finerman called the 20% revenue decline at Elizabeth Arden (RDEN) "absolutely awful." 

Steven Dennis, former vice president of corporate strategy at Sears Holdings (SHLD), was a guest on the show. He said the current management is not addressing its core issue, which is the failure to provide the right products in the right locations. He added that the key items consumers want are being delivered by Home Depot (HD), Lowe's (LOW), and Best Buy (BBY). 

Kelly called shares of Sears a "no touch." Adami said investors cannot short Sears because of its 60% short interest. He suggested that investors buy the stock as a trade if there is positive news that starts to rapidly push the stock higher. 

Grasso suggested that Amazon is also contributing to Sears' pain in the traditional retail space. 

Chris Verrone, head of technical analysis at Strategas Research Partners, argued that Monday's rally may not be as healthy as it initially appeared, with only 60% of the S&P 500 stocks trading above their 50-day moving averages. 

Verrone added that the market can either correct in price (in the form of a decline) or in time, where prices tend to remain rangebound. It appears that the broader market may have corrected over time, he suggested. It seems likely the S&P 500 will test its 200-day moving average sometime this summer, he concluded. 

Adami said Microsoft (MSFT) has a good technical setup as well as solid fundamentals. He reasoned that shares could climb up to and past $45. 

Dennis Gartman, editor and publisher of The Gartman Letter, pointed out the recent strength in aluminum, tin, copper and nickel. Nickel has had supply issues, which could cause the price to go higher. However, Gartman reasoned that all of the metals have moved higher in unison, suggesting the Chinese economy as well as the global economy will do well. 

Kelly said he is long gold because of the Indian elections and upcoming wedding season in the country, a time when gold is in heavy demand. 

VeriFone Systems (PAY) was the first stock on the show's "Pops & Drops" segment. Grasso said the stock seems poised to move higher. 

FireEye (FEYE) jumped 8%. Kelly said he'd "stay away."

Allergan (AGN) climbed 1%. Finerman said the shareholders will continue to deny the takeover attempts from Valeant Pharmaceuticals (VRX), which will make the deal hard to get done. 

TripAdvisor (TRIP) popped 6%. Adami said there is still room to the upside. 

Tony Alexander, president and CEO of FirstEnergy (FE), said consumers will continue to need reliable and affordable energy, which cannot be delivered solely by renewable energies such as solar and wind power. He argued that three billion people in the world do not have access to power, and when they do it will come from fossil fuels -- such as coal and natural gas. In the long term, renewable energy will be more vital but for now fossil fuels are still a much needed energy source, he concluded. 

Grasso said investors should buy into the beaten-up coal sector via a "basket" of stocks. However, he did not suggest specific companies or an exchange-traded fund. 

Adami said CBS Corp. (CBS) seems poised to go higher. 

Kelly said to take profits in Xerox (XRX). 

Finerman was not a buyer or a seller of Best Buy (BBY) but acknowledged the company had a good balance sheet and attractive valuation. 

Grasso said investors should wait until July to buy Carnival Corp. (CCL) due to seasonality.

For their final trades, Adami was a buyer of U.S. Steel (X) and Finerman said to buy Gaming and Leisure Properties (GLPI). Grasso was a buyer of Potash (POT) and Kelly said to buy the Market Vectors Gold Miners ETF (GDX).

-- Written by Bret Kenwell in Petoskey, Mich.

Follow @BretKenwell

Follow TheStreet.com on Twitter and become a fan on Facebook.

 

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

More from Jim Cramer

Regions Financial, Edwards Lifesciences: 'Mad Money' Lightning Round

Regions Financial, Edwards Lifesciences: 'Mad Money' Lightning Round

First Horizon National: Cramer's Top Takeaways

First Horizon National: Cramer's Top Takeaways

Waste Management: Cramer's Top Takeaways

Waste Management: Cramer's Top Takeaways

Jim Cramer: Will Apple or Amazon Become the World's First Trillion Dollar Stock?

Jim Cramer: Will Apple or Amazon Become the World's First Trillion Dollar Stock?

Not Thankful for Fridays: Cramer's 'Mad Money' Recap (Friday 4/20/18)

Not Thankful for Fridays: Cramer's 'Mad Money' Recap (Friday 4/20/18)