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"Fast Money" for Wednesday

WEDNESDAY’S PICKS

Jeff Macke liked Johnson & Johnson (JNJ). Open $66.25

Carter Worth recommended shorting Black & Decker (BDK). Open $82.64

Pete Najarian said Cypress (CY) is a buy. Open $30.91

Ned Riley, The CEO of Riley Asset Management said his pick is Power Shares QQQ Turst (QQQQ). Open $53.38

Tuesday’s Results

Jeff Macke liked McDonald’s (MCD). Open $56.87 Close Close $57.38 GAIN

Tim Seymour recommended selling Banco Itau (ITU). Open $27.41 Close $28.48 GAIN

Stacey Gilbert preferred Titanium Metals (TIE). Open $33.06 Close $33.89 GAIN

Pete Najarian said ValueClick (VCLK). Open $25.52 Close $28.19 GAIN

Since my tracking began on 6/21 (1-1 means one up pick and one down pick and no results from my vacation weeks). The percentage is the percentage of successful picks

Guy Adami= 29-19 = 59%
Eric Bolling= 10-11 = 48%
John Najarian= 13-3 = 81%
Jeff Macke= 36-25 = 58%
Pete Najarian= 23-19 = 53%
Tim Seymore= 4-2 = 66%
Karen Finerman= 14-8 = 63%
Stacey Briere-Gilbert= 3-0 = 100%

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Tuesday’s 52 Week lows



TSH
Teche Holding Company 38.61
SHRP Sharper Image Corporation 3.58
SHOO Steven Madden Ltd 17.28
RNGY Renergy Holdings Inc 7.12
PLCE Childrens Pl Retail S … 23.29
OXM Oxford Industries, Inc 28.44
MSSR Mccormick & Schmicks … 18.56
MNI McClatchy Newspapers, Inc 19.31
LARK Landmark Bancorp Inc 25.50
GGC Georgia Gulf Corporation 13.09
EPEX Edge Petroleum Corpor … 8.99
DEIX Directed Electronics Inc 3.42
CALC California Coastal Cm … 11.36
BMJ Birks & Mayors Inc 6.33
ITU Banco Itau S.A. 28.35

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The Romney Plan

If you are an investor or just a dabbler in the market, a statement made by Mitt Romney the other day ought to get your attention.

Romney stated “When I am President, the capital gains and dividend tax rate for middle class American’s will be reduced to zero”. The ramifications of that are huge. If you own stocks in companies like Altria (MO) or Citigroup (C), wouldn’t it be nice to have a 15% increase in your dividend check? If you have held them for less than a year, that instant jump would be a sweet 28%.

The question that now begs to be asked is, who is the middle class? In the Romney plan , middle class is defined families with less than $200,000 in taxable income. That covers a huge swath of people. The reasoning is simple. Savings and investment is done with monies that were already taxed. By taxing them again when they are returned in the form of dividends is “double taxation”? What this tax rate would do is encourage savings in people who ordinarily would not save. It also would push those already investing and saving to increase that activity.

Now the naysayers will say it will be too big of a draw on the treasury and the gov’t will just raise taxes in other areas to offset the loss here. If one thing has been proven is that cutting taxes on people has always lead to increasing revenues to the gov’t. The reason is simple, cutting taxes increases economic activity. Currently we are experiencing before unseen revenues flowing into our gov’t coffers. The problem has never been a “we do not have enough money” scenario but “we spent too much”.

Romney’s track record in Massachusetts is one that no other candidate can match. He increased revenues, decreased taxes and did them both working with an overwhelmingly Democratic legislature. If he can manage to get thing accomplished in the “blue-est of blue” states, working with the other party in a Congress that only has a narrow majority will be easy.

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Tuesday’s Links

Wall St.Journal, Ackman, Weight Loss, Kid’s Colds

– Another thank you to David Gaffen at the Wall St. Journal for the mention.

– Chad Brand agrees with my assessment that Ackman can’t do much at Sears Holdings

– The Stockmasters have some thoughts on trimming down

– If you are afraid to use cold medicine on your little one, here is what to do

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Another Victory for Lead Paint Defendents

Another blow to plaintiffs, this time in Milwaukee

Jane Genova Reports
Yet another setback for the plaintiff bar and the issue of public nuisance: Circuit Judge John Franke denied the plaintiff’s motion for a new trial in City of Milwaukee v NL Industries.

In a 16-page Memorandum Decision dated October 7, 2007, Judge Franke dismissed the plaintiff’s arguments. They included seven challenges to the instructions, the violations of the collateral source rule, the trial court’s decision not to submit a nuisance theory based on recklessness, the court’s grant of summary judgment on the issue of future costs, and that the court improperly denied three of its motions in limine.

In the conclusion to the ruling, Judge Franke writes, “For these reasons, and for reasons set forth before and during the trial, the plaintiff’s motion for a new trial is without merit. Because more than 90 days have passed since the verdict, the motion must be denied, and pursuant to Wis. Stat. 805.16(3) it is ordered that judgment shall be entered for the defendant.

Complimentary copy of Judge Franke’s Memorandum Decision available from Mgenova981@aol.com.

The legal cloud is lifting from this litigation on defendants Sherwin Williams (SHW), NL Industries (NL) and even DuPont (DD) and it clear its has no merit.

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Festival of Stocks: Submit Your Articles to ValuePlays

ValuePlays will be hosting the 10/15 edition of the “Festival of Stocks”. Please submit your articles..

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It’s Lampert Rumor Season Again

It been a few months since the last round so I guess it is time for people to begin guessing what Sears Holdings (SHLD) Eddie Lampert will buy next. My guess?

One rumor says: Lampert could respond by teaming up with Steven Roth of Vornado Realty Trust to take over Macy’s (M) department-store chain — a recurring rumor that most recently pushed up Macy’s share price on Sept. 14, said Davidowitz, chairman of Davidowitz & Associates, a New York-based retail consulting and investment banking firm.

Vornado has reportedly been interested in making a bid for Sears Holdings since 2005.

A Macy’s takeover by Lampert and Roth would be intelligent because Vornado has unlimited capital, Roth is a successful shopping-mall developer, and Macy’s would give Lampert a new opportunity to slash costs and sell off real estate, Davidowitz said.

“Lampert would save a fortune” in a Macy’s takeover by combining Sears, Kmart and Macy’s functions and saving costs on items such as accounting, distribution, administration and merchandising.

Lampert also would gain tremendous power because he would own two department-store anchors at shopping malls nationwide, Davidowitz said.”

All of the above is true, but one thing gets me. Lampert has never had a partner, why would he want one now? The reason Lampert owns over 50% of Sears shares (after the current buyback is finished) is that he wants autonomy. If it is true Vornado has been after Sears since 2005 and Lampert has not budged, why would he now? When you consider he could pull off the deal by himself (Macy’s has a market cap 1/2 that of Sears and Sears is virtually debt free at the moment)the chances of a Vornado partner ship seems even less remote.

The next prognostication has new shareholder Bill Ackman pressuring Lampert into dumping Sears valuable real estate holding. Does anyone really think Lampert would let a 3.5% holder pressure him into selling real estate during a real estate slump?

Personally I presume he would rather remove his eye with a dinner fork than have Ackman tell him what to do with his company. A more reasoned guess would be Ackman sees the value in Sears and is hopping on for the ride. Ackman is no dummy and I am giving him some credit here for not being such an egomaniac that he would expect to be able to pressure Lampert into doing anything he does not want to.

What people who believe in this scenario do not understand is the patience of Lampert. If this summer has proven anything, a dramatic drop in the price of the stock will not push him into making a move he does not want to make. What was his reaction this summer? Gobble up shares as fast as he could.

Alas rumor mongers, there most likely is nothing there. But I will admit that the exercise is a ton of fun… keep the rumors coming…

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Buy Sprint on Forsee’s Departure?

Sprint (S) said Monday that Chief Executive Gary Forsee is stepping down, effective immediately. It the stock a buy now?

Forsee, who has also served as chairman and president, has come under fire as telecommunications giant Sprint’ subscriber growth and share price have disappointed investors since 2003. The last straw was today when the company announced it expects to report a net loss of approximately 337,000 post-paid subscribers in the third quarter. Paul Saleh, Sprints current CFO, will serve as acting CEO until a permanent replacement is named.

Saleh, 50, has served as chief financial officer since the merger of Sprint and Nextel. Prior to the merger he had been EVP and CFO for Nextel since joining the company in 2001. Before joining Nextel, Saleh was SVP and CFO at Walt Disney International from 1997 to 2001, and also served as SVP and treasurer for The Walt Disney Company. Prior to Disney, Saleh served as treasurer of Honeywell, where he spent 12 years in various leadership positions in finance, treasury, investor relations, strategic planning and operations.

Last week, The Wall Street Journal reported that the company has been actively seeking a replacement for Forsee, who has served since 2003. That news followed a report in the same newspaper that activist investor Ralph Whitworth had lost confidence in Forsee, and was threatening a proxy fight for board seats unless Sprint dealt with the situation “immediately.” Whitworth is best known for ending the reign of Home Depot’s (HD) Robert Nardelli, only to watch the stock price tumble.

Why is this a good thing? Aside from Forsee’s departure Sprint did say the search for selecting its next chief executive “will focus on candidates outside the company,” said Hockaday. “We fully expect that the search will be concluded in a timely manner and we are focused on selecting the right candidate to guide the company to achieve its full potential. Sprint Nextel has the assets, spectrum, customer base and technology to be the leader in wireless mobility services.” said non executive chairman, Irvine Hockaday.

This means that Sprint is looking to change the culture and bring in fresh ideas to the company currently suffering an abysmal deterioration of customer service rankings for almost three years running now. If you are a shareholder (I am not) this can only be good news for you as without it, your investment is going nowhere except maybe down.

As for buying shares? Not yet. Let’s wait to see who takes over and what their plans are first. Unless he or she makes customer service priority one, expect more customer defections and further deterioration of share price.

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Tuesday’s 52 Week Lows

UPGRADES

Supertex SUPX Oppenheimer Neutral » Buy
Garmin GRMN AmTech Research Sell » Neutral
Vishay VSH AmTech Research Neutral » Buy
Powerwave PWAV Needham & Co Hold » Buy
Capital Senior CSU Stifel Nicolaus Hold » Buy
NovaGold Resources NG Citigroup Hold » Buy
Novatel Wireless NVTL CIBC Wrld Mkts Sector Perform » Sector Outperform
Valero Energy VLO Citigroup Hold » Buy
Sunoco SUN Citigroup Hold » Buy
American Reprographics ARP Sun Trust Rbsn Humphrey Neutral » Buy
Lehman Brothers LEH Credit Suisse Neutral » Outperform
CenterPoint CNP Credit Suisse Neutral » Outperform

DOWNGRADES

Smithfield Foods SFD BB&T Capital Mkts Buy » Hold
Hibbett Sporting HIBB Wedbush Morgan Strong Buy » Buy
Drew Industries DW Ferris Baker Watts Buy » Neutral
Aeropostale ARO Caris & Company Above Average » Average
Verifone PAY Morgan Keegan Outperform » Mkt Perform
Visual Sciences VSCN Needham & Co Buy » Hold
Senior Housing SNH Stifel Nicolaus Buy » Hold
Capital One COF Stifel Nicolaus Buy » Hold
CIT Group CIT Stifel Nicolaus Buy » Hold
AmeriCredit ACF Stifel Nicolaus Buy » Hold
US Cellular USM Citigroup Hold » Sell
Ceragon CRNT Morgan Joseph Buy » Hold
Sovereign Banc SOV Friedman Billings Outperform » Underperform
ASE Test ASTSF Friedman Billings Outperform » Mkt Perform
Rudolph Tech RTEC Friedman Billings Outperform » Mkt Perform
KLA-Tencor KLAC Friedman Billings Outperform » Mkt Perform
ASML Holding ASML Friedman Billings Outperform » Mkt Perform
Occidental Petro OXY Friedman Billings Mkt Perform » Underperform
Hess HES Friedman Billings Outperform » Mkt Perform
Merrill Lynch MER Credit Suisse Outperform » Neutral
Procter & Gamble PG Sun Trust Rbsn Humphrey Buy » Neutra

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"Fast Money" for Tuesday

Tuesday’s Picks

Jeff Macke liked McDonald’s (MCD). Open $56.87

Tim Seymour recommended selling Banco Itau (ITU). Open $54.83

Stacey Gilbert preferred Titanium Metals (TIE). Open $33.06

Pete Najarian said ValueClick (VCLK). Open $25.52

Since my tracking began on 6/21 (1-1 means one up pick and one down pick and no results from my vacation weeks). The percentage is the percentage of successful picks

Guy Adami= 29-19 = 59%
Eric Bolling= 10-11 = 48%
John Najarian= 13-3 = 81%
Jeff Macke= 35-25 = 57%
Pete Najarian= 22-19 = 52%
Tim Seymore= 3-2 = 60%
Karen Finerman= 14-8 = 63%
Stacey Briere-Gilbert= 2-0 = 100%

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Tuesday’s 52 Week Lows

ZZ Sealy Corp 12.69
USAK USA Truck Inc 14.85
R Ryder System, Inc 45.94
GEE Global Entmt Corp 4.25
EPEX Edge Petroleum Corpor … 10.62
DEIX Directed Electronics Inc 3.69
CSCD Cascade Microtech Inc 9.01
CALC California Coastal Cm … 11.62
AYA Alyst Acquistion Corp 7.20
ANEU American Cmnty Newspa … 4.55
AMMD American Med Sys Hldg … 16.2

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Citi’s Chuck Prince Again Under Fire

The NY Times this weekend detailed Citigroup’s (C) CEO’s missteps since he took office.

The article made 6 essential assertions:

* Citigroup stock has not moved from essentially where it was when Prince took over in 2003.
* Citigroup’s corporate strategy is flawed. The idea behind predecessor Sandy Weill’s acquisition strategy was to create an organization which would be able to earn consistently high profits because when one business unit was doing poorly, another one would take up the slack. But the latest earnings miss shows otherwise, problems in the mortgage market hurt Citigroup’s consumer and fixed income units. With the deal financing business at a standstill, yet another pillar of Citigroup’s corporate strategy is evaporating.
* Citigroup has had five significant blow ups since Prince took over. Recently, Citigroup warned that it planned to take a $5.9 billion write down in the third quarter, causing a 60% profit plunge. This was the fifth time since becoming CEO that Prince had to disclose a major problem to his board.
* Citigroup lacks management depth and one reason Prince has held on so long is that his direct reports are so weak. Some analysts in the past have described it as a convenient survival tool for the bank’s chief executives. Neither Mr. Weill nor John S. Reed, who also ran Citigroup before Mr. Prince, ever really tolerated the presence of strong No. 2’s. After Robert B. Willumstad left his post as chief operating officer in 2005, that crucial job remained unfilled for over a year and a half.
* Citigroup does not have a handle on its finances. This summer the depth of Citigroup’s ignorance about the risk on its balance sheet became ever more apparent. Citigroup’s problems grew more serious with prices of subprime mortgage bonds and other complex securities deteriorating rapidly. But despite hiring a highly touted outsider as CFO, it appears that Citigroup still lacks a specific understanding of how deep the hole is likely to be.
* Citigroup lacks financial discipline. Prince has been slow to fire executives overseeing money losing operations and has been slow to lead any executives to the chopping block, even though top-level firings have already taken place at UBS, Bear Stearns and Merrill Lynch.

Here is the thing. Everything said by the Times is true. But, and this is a big but, Citi did have two consecutive quarters before this upcoming one in which it surprised the street to the upside and made progress against all these former shortcomings. Prince has the public backing of major shareholders and almost every financial institution got hammered recently by the sub-prime issue. Consider Lehman (LEH), Morgan (MS), Bear Sterns (BSC), Goldman Sachs (GS), Washington Mutual (WM), Deutche Bank (DB) and others all got hit hard and took massive write downs in this area. It would have been shocking had Citi NOT had issues. The fact that his firm was one of a bout a dozen major institution that got caught will give Prince a pass this time and allow him to keep his job for now.

This is where it gets tricky. He is on record saying Q4 will be “much better” and all but promised shareholders will be very happy about it. This now makes it “do or die” for him. If Citi stumbles in Q4 then the Q’s 1 and 2 were just the aberration and more shareholder disappointment from him is on the way and he assuredly will be shown the door. If Citi comes through, then Q3 was the aberration this year and Prince has essentially put together a good year for the bank considering the performance of other institutions and this may just be enough to allow him to stick around.

Q4 has to be very good , not just good for this to happen though..

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Wal-Mart’s China Plans

Wal-Mart (WMT), the world’s largest retailer, has announced plans to more than double its stores in China in the next 5 years in an effort to tap the growing personal wealth of the country’s over 1 billion people.

The planned expansion will enable the company to increase its reach beyond its current 84 stores across 46 Chinese cities into smaller cities. Wal-Mart has already opened 12 stores in China to date and is well on track to beat 2006’s total of 15. It sped up its expansion earlier this year by acquiring a 35 percent stake in China’s Trust-Mart and then said the move may lead to its taking a controlling ownership of Trust- Mart’s more than 100 hypermarkets but no further details have been announced.

The US may be “Wal-Marted out” but in foreign nations, the retail giant is not only well liked, but coveted. The fact that Wal-Mart to date has increased same store sales overseas at an almost 16% clip this year underscores that popularity. This is the right move for Wal-Mart. Domestically, monies should be invested in refurbishing old stores, increasing the dividend and buying back stock by the truckload at its current levels. Any aggressive expansion plans need to be relegated to international operation as this is clearly the best use of funds in that area.

The recent deal with India illustrates that even the historically most reluctant atmospheres for “outsiders” recognizes the value and expertise Wal-Mart brings to the table. What folks at Wal-Mart need to do is stop looking at Target (TGT) as it’s competition and recognize that it is the largest global retailer and focus its effort on that goal to truly reward shareholders. There is not any reason, like most of the S&P 500 currently that Wal-Mart should not be getting the majority of it profits from its international operations in a few years.

If they are making real progress in that area, Lee Scott really missed a big opportunity,,,

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Monday’s Upgrades and Downgrades

UPGRADES

Take-Two TTWO MDB Capital Group Neutral » Buy
Varian Semi VSEA Credit Suisse Neutral » Outperform
Hutchison Telcom HTX Bear Stearns Peer Perform » Outperform
BearingPoint BE Jefferies & Co Underperform » Hold
Janus Capital JNS UBS Sell » Neutral
Bruker BioSciences BRKR Bear Stearns Peer Perform » Outperform
JB Hunt Trans JBHT Banc of America Sec Sell » Neutral
Werner Enterprises WERN Banc of America Sec Sell » Neutral
Pall Corp PLL Lehman Brothers Equal-weight » Overweight
Polaris Inds PII Rochdale Securities Hold » Buy
Edwards Lifesci EW Piper Jaffray Market Perform » Outperform

DOWNGRADES

Concur Tech CNQR DA Davidson Neutral » Underperform
BHP Limited BHP Credit Suisse Outperform » Neutral
State Street STT Punk, Ziegel & Co Mkt Perform » Sell
XM Satellite XMSR Wedbush Morgan Hold » Sell
SupportSoft SPRT Needham & Co Buy » Hold
Cavium Networks CAVM Needham & Co Buy » Hold
Hansen Natural HANS Stifel Nicolaus Buy » Hold
Leap Wireless LEAP Soleil Buy » Hold
COLT Telecom COLT Credit Suisse Outperform » Neutral
Business Objects BOBJ Credit Suisse Outperform » Neutral
Monster Worldwide MNST Wachovia Outperform » Mkt Perform
T. Rowe Price TROW UBS Buy » Neutral
Electronic Arts ERTS Bear Stearns Outperform » Peer Perform
Clearwire CLWR Bear Stearns Outperform » Peer Perform
Signature Bank SBNY Sun Trust Rbsn Humphrey Buy » Neutral
Hurray Holding HRAY Susquehanna Financial Positive » Neutral
KongZhong KONG Susquehanna Financial Neutral » Negative
Arcelor Mittal MT Banc of America Sec Buy » Neutral
Walgreen WAG Banc of America Sec Buy » Sell

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Sears Holdings Lands End Expansion On Track

At the annual meeting in May, Sears Holdings (SHLD) Chairman Eddie Lampert said that he planned to double the number if Lands End “store in a store” locations to around 200.

Since Halloween is rapidly coming upon us and Sears is well on track to spend $3 billion (or more) on share repurchased this year, I was concerned as to whether or not they were still on target. If you remember as far back as January I commented that the concept, then only in it infancy was “a great change” and I later commented in March, two months before Lampert made the expansion announcement that I thought it would eventually become the center of Sears retail clothing operations.

Since the products are good and the division is having record year after record year, I did need to know if we were buying back shares instead of continuing the Lands End expansion or if (hopefully ) we were doing both. I would have been greatly concerned if one was being done at the expense of the other. What is the saying “robbing Peter to pay Paul”? In that scenario, the massive share repurchase, while something I love would have been accomplished at the expense of the retail operations and that would have been just a temporary band aid approach. Not so good.

Were are we? As of last week we are at 171 Land’s End “store within a store”. So? It means we are well ahead of the pace to get to the 200 Lampert stated he wanted to be at while at the same time are in the process of taking 15% of the shares off the open market through repurchases. Perfect…

My guess is that the rush to get the stores done was to maximize their sales for the Holiday’s this year and that after the first of the year the rate at which they open will slow a bit. No matter, what is important is that both the retail operation and returning cash to shareholders goals are being accomplished at the same time and neither is suffering to accomplish the other.

I am guessing Bill Ackman already knew this and perhaps this is why be has been buying 3.5% of the shares????