Word On The Street
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Lehman Take
The Financial Times reported on Wednesday that Lehman Brothers (LEH) may need to raise more capital. The news sent shares of LEH tumbling 13%. Adding more fuel to the fire was a Merrill Lynch analyst who reversed his buy rating on Lehman just 7 days after he initiated it. Macke gave praise to the analyst for changing his tune on Lehman. Finerman said the call was interesting and she wonders if Merrill Lynch is having problems. Adami said he would buy Goldman Sachs (GS). Najarian mentioned he is seeing heavy put buying in Lehman and the XLF. He told investors to avoid the financials.
Options Action
AK Steel (AKS), Honeywell (HON) and D.R. Horton (DHI) all saw unusual options activity today. Najarian said the $70 call options in AKS were active and a large amount of June $55 calls on HON traded hands.
Salmonella Trade
The traders talked about developments of a salmonella outbreak in certain types of tomato varieties. Najarian said Whole Foods (WFMI) could suffer and he is seeing large put options activity in the name that could take the stock much lower. He also mentioned that Wal-Mart (WMT) and Costco (COST) are moving into the organic foods sector, which is also bearish for Whole Foods.
Cheesecake Factory CEO Interview
The traders spoke with David Overton, CEO of Cheesecake Factory (CAKE) about his company’s prospects. Overton said the consumer is trapped and until he sees more strength in the middle class it will continue. He explained that Cheesecake is hedged for commodity costs for the rest of the year and the company is working on hedging for next year. Overton mentioned that CAKE plans to do a $150 million stock buyback program this year and he expects to improve earnings next year.
High Oil Trade
The traders talked about ways to play high oil prices. Macke explained that high oil prices is bearish news for the casino stocks because airlines have to cut back on flights on to Vegas. Adami didn’t agree. He said investors should look to buy Las Vegas Sands (LVS) near $49.50.
Energy Trade
The traders discussed some alternative energy stock plays off of wind. Najarian pointed investors towards American Superconductor (AMSC). He explained that AMSC builds components that save energy once you derive the wind power. He also said the company just won a big contract from China and analysts think they have two more in the works. He also likes Hexcel (HXL) and FPL Group (FPL).
Trader Radar
Shares of Martha Stewart (MSO) were among the most actively traded stock on the NYSE Wednesday.
POPS&DROPS
POPS-Nortel (NT) popped 13% after the telecommunications company reaffirmed its 2008 guidance. Najarian said good news. Big Lots (BIG) traded up 4% after the company said it will add 1,800 stores. Macke said stay away. PetSmart (PETM) rose 1% off a J.P. Morgan upgrade. Macke said he likes the company. Grey Wolf (GW) jumped 3% after Precision Drilling Trust made an unsolicited takeover offer for $9 a share.
DROPS- Alcoa (AA) fell 8% after J.P. Morgan downgraded the stock. Adami said he thinks AA will be bought out by the end of the year. CSX Corp. (CSX) lost 4%. Adami said buy it at $59. The SPDR S&P Homebuilders (XHB) fell 6%. Finerman said stay away. Central Garden (CENT) dove 36%. Najarian said that management stated at a Piper Jaffray conference the company wouldn’t make numbers. RH Donnelley (RHD ) fell 7% after the publisher said it refinanced 11.75% of senior notes. Finerman said its a dying business with a mountain of debt doesn’t look good. Hooker Furniture (HOFT) plunged 15%.
New Segment – Fast & Furious
The traders introduced a new segment that will focus on trading tomorrow’s market moving events. Retail sales are set to be released for May on Thursday at 8:30 am. Macke said there’s no trade here, just move along. Alcoa (AA) is set to speak at the UBS Global Basic Materials Conference in London. Adami advised investor to listen if Aloca’s COO Klaus Kleinfeild is speaking. UAL Corporation (UAUA) will host its annual meeting Thursday. Finerman said she doesn’t see a trade here. Smith & Wesson (SWHC) will report earnings after the bell. Najarian pointed investors towards Taser (TASR).
Final Trade
Adami said buy National Semiconductor (NSM). Najarian selected FPL Group (FPL). Finerman disclosed she sold all of her J. Crew (JCG).
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