'Fast Money' Recap: Flagging Demand Saps Energy Stocks

NEW YORK (TheStreet) -- The S&P 500 rose 0.36% and brent crude oil hit 17-month lows.

On CNBC's "Fast Money" TV show, the trading panel took a look at the energy sector. 

Guy Adami, managing director of stockmonster.com, said demand for oil appears to be decreasing, possibly because the global economy isn't as strong as previously thought. If this is true, interest rates are likely to move lower. He likes select energy companies such as Exxon Mobil (XOM) and Anadarko Petroleum (APC) on the long side. 

Dan Nathan, co-founder and editor of riskreversal.com, said a short-term bottom may soon reveal itself in the energy sector because it is too oversold. The same can be said for commodities. 

Jon Najarian, co-founder of optionmonster.com and trademonster.com, said the U.S. is the largest energy consumer, but is meeting that demand with its own supply. However, the rest of the world appears to have lower oil demand, which is hurting oil prices. 

Karen Finerman, president of Metropolitan Capital Advisors, suggested that alternative fuels and more efficient products and vehicles could also be contributing to the weaker demand. 

Dennis Gartman, editor and publisher of The Gartman Letter, said WTI crude oil seems likely to decline to $85 per barrel. He added Brent crude oil could decline even further than WTI crude. He attributed the issue to too much supply and not enough demand. He reasoned that the U.S. dollar will continue to move higher, which won't help commodities such as oil.  

Adami argued the energy sector appears to be oversold. He added that airline stocks should see an advantage due to lower fuel costs. Finerman said she believes the back-to-school season has been strong for retailers, but lower fuel costs should help, too. 

Najarian pointed out the bullish options activity in shares of Noble Energy (NBL) , specifically in the October $29 call options. He is long the stock. 

Restoration Hardware (RH) missed on revenue estimates in its latest earnings report. "I'd stay away," Finerman cautioned of the highly valued stock. Adami warned that inventories rose 35% for Restoration Hardware, suggesting promotions could weigh on the company going forward. 

Microsoft (MSFT) is considering a $2 billion bid for Mojang, the maker of the popular video game Minecraft. Nathan said Microsoft has so much cash on the balance sheet -- $85 billion -- that it's okay for it to spend some of it in an attempt to find growth. Najarian said Microsoft has multiple channels to distribute Minecraft or other games through, which could be beneficial to the company. 

Google  (GOOGL) is making a $145 million investment in a SunEdison (SUNE) solar project. Finerman, who is long SunEdison, said she continues to like both stocks and the solar industry as a whole. 

Adami said that shares of SunEdison have had a big run, but investors should stick with the stock since there do not appear to be any near-term headwinds. 

Adami said investors can stay long Mobileye (MBLY) for the time being. Najarian agreed. Nathan argued that Mobileye trades at an unsustainable 50 times revenue. It's not a good investment, he reasoned. 

Bob Peck, managing director and Internet analyst at SunTrust Robinson Humphrey, initiated Netflix (NFLX) with a hold rating and a $525 price target. There is already a lot of good news priced into the stock, he said, but it is a buy on a pullback. Turning to Twitter (TWTR) , the company is being "smart" by tapping into the convertible debt market, which will allow the company access to cash at a very favorable rate, perhaps just 1%. Management could have an acquisition in mind or just doing it to shore up some cash for the future, he concluded.  

Najarian said he would be a buyer of Netflix at $430 but not at its current price. Nathan argued that Netflix should do what Twitter did and tap into cheap financing via the convertible debt market. 

Amazon (AMZN) was the featured stock on the show's "Street Fight" segment. Najarian was the bull, arguing the company's gross margins are poised to rise. According to ChannelAdvisor, Amazon's same-store sales were up 40% in July, which is very strong. The stock can climb to the mid-$400s, he concluded. 

Nathan argued that Amazon will lose money on each of its products just to compete with its peers. This model is not very good for shareholders, he said, and the sentiment is beginning to sour. Even though the company is projected to bring in revenue of $90 billion, it will not generate a profit. He concluded by saying that the CFO is resigning. 

Adami was bearish on Amazon, saying that the business is deteriorating and Amazon expects to lose $800 million in the third quarter. Finerman reasoned that sentiment for Amazon could worsen once Alibaba goes public, since the Chinese company is quite profitable. 

Nili Gilbert, co-founder and portfolio manager at Matarin Capital, said large-cap stocks are poised to outperform small-cap stocks. The valuation for large-cap stocks is more attractive but it's because small-caps have outperformed for several years now. Two of her top picks include WellPoint (WLP) and Exelon (EXC) . 

Finerman said she is long WellPoint but also likes Molina Healthcare (MOH) . Adami said WellPoint looks good on the long side. The iShares Russell 2000 ETF (IWM) looks poised to decline to $108. He also advised taking profits in Apple (AAPL) , suggesting that it may decline to $88. 

Finerman said she covered her short position in eBay (EBAY) , which has deteriorated some 5% in the past two trading sessions. 

Nathan pointed out some bullish options activity for the iShares MSCI United Kingdom ETF (EWU) , specifically in the October $21 call options. 

When asked if investors should buy Tiffany & Co. (TIF) , Finerman said investors could do so with a "tight stop-loss." However, she is not buying the stock herself. 

Najarian reasoned that shares of Dow Chemical (DOW) can continue to rally. 

For their final trades, Finerman is buying Google and Nathan is a buyer of Zions Bancorporation (ZION) . Nathan is taking profits in Sprint (S) and Adami is a buyer of McDonald's MCD. 

 

-- 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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