'Fast Money' Recap: Waiting on the Fed

NEW YORK (TheStreet) -- The S&P 500 climbed 0.22% ahead of Wednesday's Federal Reserve meeting. 

Dan Nathan, co-founder and editor of riskreversal.com, said investors are complacent. With the CBOE Volatility Index (VIX.X) near the lower end of its range, one perceived hawkish comment from the Fed could send markets lower.

Steve Grasso, director of institutional sales at Stuart Frankel, said the run-up in share prices for companies that become more profitable with higher interest rates -- such as E-Trade Financial (ETFC) and Charles Schwab (SCHW) -- is likely to be short-lived. He added the Fed is unlikely to raise interest rates anytime soon, and he is also a buyer of utility stocks. 

Brian Kelly, founder of Brian Kelly Capital, pointed out the three biggest holders of U.S. Treasuries are slowing or selling their purchases: The U.S. Federal Reserve is tapering, China's purchases are at 14-month lows and Russia has started selling its holdings. Hawkish comments could also cause a selloff in the bond market. He sold short the iShares iBoxx High Yield Corporate Bond ETF (HYG). 

Guy Adami, managing director of stockmonster.com, said the 10-year Treasury yield still seems likely to decline. He reasoned that inflation is increasing in "the wrong places" and rising rates won't necessarily mean the economy is improving.

Even though many investors seem stuck on the S&P 500's run toward 2,000, Nathan argued the index has yet to have a pullback of 10% in roughly two years. He suggested investors take some profits and wait for better buying opportunities. 

Andrea James, vice president of Dougherty & Company, said Tesla Motors (TSLA) is building its Gigafactory in order to produce the battery supply that it will need going forward. While this buildout is not easy, she said building the Model S production facility was a harder task, and one the company successfully completed. 

Adami said investors can buy Tesla now that it has broken out over $225 but he cautioned them to be "really careful." Kelly said to "buy with both hands" if shares of Tesla pullback to $215. 

Pavel Molchanov, senior vice president at Raymond James, has a buy rating on shares of SolarCity (SCTY) with a $75 price target. Shares shot higher by 18% after the company announced its purchase of Silevo, a Chinese solar panel manufacturer, for $350 million. Elon Musk, who is the company's chairman, says there could be a solar panel shortage as early as three years from now.  

Molchanov said the acquisition surprised him but nonetheless fits well into SolarCity's plan. Silevo makes high-efficiency panels, which are perfect for the residential market in which SolarCity operates, he said. With the new tariff increase it makes sense for a company to manufacture its own panels, he said. 

Nathan said the move in shares of SolarCity seems "gimmicky," although the high short-interest likely drove the price up quickly. 

Adami said investors could buy shares of SunPower (SPWR) with a stop-loss at $40. 

Amazon (AMZN) will unveil its new smartphone on Wednesday. Brian Marshall, senior managing director at ISI Group, discussed its possible impact. He reasoned the new phone is unlikely to take market share from Apple (AAPL), but more likely to take market share from Android-based devices. 

Marshall has a buy rating on shares of Apple with a $96 price target. He said the iPhone 6 will be the "mother lode" of all Apple upgrade cycles, which could drive year-over-year revenue growth by double digits. He said the downside in owning shares of Apple is "minimal." He likes EMC Corp. (EMC).  

Nathan said Amazon's new smartphone would hurt Samsung (SSNLF), not Apple. He added that there is risk in owning shares of Apple if it runs higher into the fall, when the new product cycle is expected to begin. 

"Today's the day to sell it, not to buy it," Adami said about shares of GW Pharmaceuticals (GWPH). 

Nathan said shares of Netflix (NFLX) appear to be headed back to its previous all-time high. However, he said investors should buy it on the selloffs, not near the highs. 

Grasso said events in Iraq seem to be getting better, not worse, and WTI crude oil may begin to trade lower as a result. 

KB Home (KBH) was the featured company on the show's "Street Fight" segment. Grasso was the bull, saying the stock is the cheapest among its peers, trading at just above 1-times tangible book value. Most of its peers trade near 1.7-times tangible book value. He added that the risk/reward is attractive, and the stock is a buy near $16. 

Kelly argued that KBH is "cheap for a reason." He said the housing market in general is not doing so well, with building permits and new home builds both trending lower. He added that mortgage rates are near six-month lows and the Fed could send them much higher with hawkish comments on Wednesday. Higher rates would equate to lower mortgage demand, he said. 

Cree (CREE) climbed 3% and was the first stock on the show's "Pops & Drops" segment. Adami said the stock appears to have bottomed out and is "headed higher." 

Domino's Pizza  (DPZ) fell 2%. Grasso said investors should wait for the stock to climb above its 200-day moving average at $71.05 before getting long. 

Orbitz Worldwide (OWW) jumped 5%. Nathan said the stock has been a laggard in its industry. Investors can buy the stock with a stop-loss at $8. 

DSW Inc. (DSW) jumped 3%. Kelly said he is a seller near $32.50.

Bonnie Herzog, managing director and senior analyst at Wells Fargo, said Altria's (MO) e-cigarette, Blue, could lose market share when Reynolds American (RAI) and Lorillard (LO) both bring their e-cigarette products to market. However, when all three do have e-cigarettes it could boost consumer interest significantly, which may end up bettering Blue in the future. 

Her top pick is Lorillard but she also likes RAI and Philip Morris International (PM). She has a hold rating on shares of Altria. She also said that a deal between RAI and LO makes a lot of sense and she is convinced that it will happen. LO could be bought by RAI for as much as $80 per share, but likely somewhere in the $70 range.

Grasso was a buyer of LO. Adami added that even without a deal, LO is still "fairly valued" at current levels. 

Nathan pointed out the bearish options activity in shares of Coach (COH), specifically in the July $40 put options. He added that the stock dropped below the $40 support level and that the next level of support appears to be at $30. 

Bitcoin is up 30% in the past month. Tim Byun, former bank regulator at the San Francisco Federal Reserve and now current chief compliance officer at BitPay, said the bitcoin system has a lot of growth ahead of it, and he expects it to happen at "light-speed."

He added there has been hits to bitcoin's reputation including the Mt. Gox bitcoin exchange bankruptcy and the Silk Road bust -- but he reasoned that companies in the industry are trying establish a high standard. He said BitPay is not focused on short-term prosperity but long-term opportunities. He concluded that there could eventually be an exchange-traded fund for bitcoin. 

Kelly said the gitcoin industry is starting to take regulatory issues very seriously. 

Adami is a buyer of Ingersoll-Rand (IR) and said it could climb to $70 if the overall market does well. 

Grasso said investors can stay long DirecTV (DTV).

Nathan said Zillow's (Z) upside momentum "can't be stopped," but he is not a buyer based on valuation. 

For their final trades, Grasso is buying Wynn Resorts (WYNN) and Kelly is a buyer of Microsoft (MSFT). Nathan is buying Pandora (P) with a stop-loss at $26 and Adami is buying NCR Corp. (NCR). 

-- 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.

If you liked this article you might like

Industrial Sector Fundamentals Remain Robust Amid Increased Market Volatility

Industrial Sector Fundamentals Remain Robust Amid Increased Market Volatility

CBOE Stock Is a Buy Despite Worries Over Volatility Products

CBOE Stock Is a Buy Despite Worries Over Volatility Products

6 Biggest Moments From a Game-Changing Week for Global Stock Markets

6 Biggest Moments From a Game-Changing Week for Global Stock Markets

Wall Street Lurches Lower as Yields Rise; Europe, China Weaken in Jittery Trade

Wall Street Lurches Lower as Yields Rise; Europe, China Weaken in Jittery Trade

Wall Street Edges Higher, Europe Weakens as Whipsawed Investors Stay Cautious

Wall Street Edges Higher, Europe Weakens as Whipsawed Investors Stay Cautious