tv Fast Money CNBC January 30, 2012 5:00pm-6:00pm EST
down 6.75 points. s&p 500 giving back three points closing at 1313. and the nasdaq shedded about five points. i'll see you tomorrow on "closing bell." follow me on twitter and google plus. stay right there. "fast money" begins right now. i'm melissa lee. here are the top three trades. last year's zero to this year's hero. snapping back in 2012. how should you trade it? plus wendy's got the facelift about square burgers. we'll ask the ceo in an exclusive. and the ipo is moving stobs every even before the paperwork has been filed. live from the nasdaq market site, this is "fast money." let's start trading. today started off grim. if you look at where we had been
earlier in the session to where we ended, it was a nice turnaround even though at the end of the day it looked unchanged. >> a lot of the thesis is surrounding the monetary policy out of china and the expect china would continue to lower rates. we didn't see that. so overnight they held pause. that was a bit of surprise. got a little bit of a shakeout here. i would call this a modest correction at best. nice recovery. ultimately at the end of the day, it's interesting. xlk, that's the symbol to own. it's apple. it's microsoft. it's ibm. that's 31% of the xlk. that's the perfect trade right now. >> and when you look at the xlk, you even mentioned at&t and verizon that have 3%, 4% dividend yield. but there's demand for those sorts of stocks in this market. they're also two of the largest holdings in the xlk.
>> we have news here. radio shack is want its quarters results will be below the expectations. and unanticipated changed in sprint's customer and credit model. so quite a different story obviously from the likes of an at&t or verizon. look at sprint. a company that doesn't have a dividend yield. >> and radioshack, if you look at a chart in radioshack it's been telegraphing something like this happening for awhile. it's been a slow and steady decline for months now. is now indicating down about 18%. so what does it all mean? it's going to make a new 52 week low if all this hangs out where we are right now. we're going to have a monster volume day. will take this as an opportunity to cover. tomorrow might be the day anywhere in the last hour or so where you finally get the capitulation selloff where this
might be an interesting name. again for a trade to jump into. i think tomorrow might provide -- just like we talked about in idcc last week. interdigital. you recall that? we said if the stock held 35 on this washout, get in. last wednesday it was spot on 35, traded north of 38. you're going to have a similar trade shaping out in radioshack. >> i'm not saying that -- these are the same companies carrying goods that people don't necessarily want or want at a low price. and it hurts the stock themselves. what do you think in terms of radioshack. at what point koul this be a takeout? >> i think maybe at 20 that was banded about. 18, 14, 12 wherever we are now. just the fact it's radioshack to me -- >> that sounds --
>> dated. there's so much competition in this space. i'd sort of stay away. >> here's another name if you remember. circuit city. went to zero. that was banded about as a takeover candidate. at the end of the day, there's few players. amazon, these guys are doing a number on them. probably going to go the way of the dodo. you probably have a down whatever opening. it's probably a great trading opportunity. at the end of the day, who's the natural buyer here? if you look at the top holders in this thing. but i don't know. i don't see a future here. >> in 2010 i used the term shack-wisition. i'm not going to joke now. that's not good. you never want to see that. you now have a stock that will go back to the lows it saw in march of 2009. market capital on the stock is about a billion. you would think it would be a
takeover target. a lot of private equity suggested maybe they would step in. a lot have owned the name. the market has to stabilize in radioshack, but i think at some point it is an acquisition target. you just right now can't own it. >> the ceo of the company says it remains in the health of the business absent the sprint impacts. strengthening relationships, et sit ra. but essentially saying we don't have any other problems other than sprint. we shall see. 18% down in the after-hours. that's a pretty big problem here. let's move on to our next trade. financial stocks may not be as cheap as they appear. next guest says stocks has coupled and for bottom fishing may be in for a rude awakening. let's bring in fred cannon head of research at kbw who joins us on set. nice to see you. >> great to be here. thanks. >> essentially we saw this play out last year. this is the data you go to. we saw earnings expectations being revised lower.
we saw a commensurate performance in terms of declines in the stock and multiple contraction. what are we seeing this year? >> that's exactly right. what happened last year was there are a lot of cheap stocks in financials across the board. but you have to look at value traps. those can turn into value traps. we've seen that decouple. the quintessential last year was bank of america. the worst performing stock in the dow. down 58%. earning estimated were down 53%. and there's a lot of correlation there. this year that's backed away. bank of america again, for example, stock up -- was 30%. 26% or so today. earning estimate revisions for 2012 and 2013, down 15%. that makes you want to step back and re-evaluate. >> you look at the flipside of it, stocks that haven't seen as many revisions but are trading lower. you identify those opportunities as value opportunities potentially. >> exactly. some of the high quality banks
have seen their numbers flat or go up. and wells fargo in particular have seen that. yet their stocks have underperformed some of these other ones. we do see select opportunities in financials. >> i would agree with that. but fred do you anticipate -- we haven't seen this in awhile -- any capital raise out of these banks or is that on the back burner? >> capital raises, no. however, some of the banks -- bank of america in particular -- raising capital in a bad way. getting the ratios up by selling off businesses to make money. and so while they don't have to go out and raise equity, they're reducing their earnings by selling off businesses. >> so let me ask you something. it really doesn't seem to be at this price. it's an earnings driven story. it's about these other issues that haunt them. so do you think we'll see any clarity on those? to me that would be a catalyst to move the stock more than it
would be earnings. >> i guess i disagree with that. i look back last year and it was the earnings revisions. and as long as they can keep reducing those, i think it's going to be -- a earning estimate revisions. i think a bit of relief can get a short-term rally. but a stock that's trading at 50%, 60% of book may look cheap. if they're only returning on equity, you don't really want to buy that. >> it comes down to market share. you've got a lot of names in the space. places citi from neutral to a buy. moves bank of america down low. do you agree with that? jpmorgan off the conviction buy list. it's very difficult. who's the winner in the space? >> that seems a little late to the game in my opinion. in my view you want to stick to the quality. if you want to jump into bank of america, you should have jumped in at five bucks not seven and a half. >> you mentioned bank of america
as potentially needing to come down in the earnings estimates. what other banks are vulnerable to a pullback now in order to reflect downward? to reflect the better earnings revisions? >> i think a lot of things that looked really cheap are the ones at risk. bank of america, ree gents financial. on the other hand the quality names, the u.s. banks of the world and other smaller regionals that have seen that's where to put your money at this point in time. >> using bank of america as an example because of the run it's had, is there any way to decipher what that pressure on the stock or what that multiple contraction should be? >> in general, i think you probably want want to see it in line with the earnings estimate. that's key in financials today. the question is let's face it. how do you look at these things?
we talk about historic multiples. capital rules have changed. regulation has changed. >> you wouldn't necessarily use a price tangible book anymore? >> only in line of what you think they can earn. >> when you look at normalized earnings. i know what you're saying this year short-term coming down. when you look at normalized earnings, what can they have on that base? >> we can try. i think the issue got thrown out last year because what was normalized earnings. bank of america raised a lot of capital at ten bucks a couple years ago. but what's a normalized earning for a bank when the fed's on hold through 2014. very tough. >> great to see you. >> great to be on. >> fred cannon. what do you think of his thesis? >> well, i'm long bank of america. i'm long jpmorgan. but i've been wrong. i'm still hanging on because i look at a normalized earnings and maybe they don't get that
roa of one we used to use, something less. i think that's in the stock. >> the thesis is interested. bank of america's for this year we're in now we're down year after year. i would actually focus less on bank america and focus on these guys that still have, you know, street consensus that is up significantly year over year. goldman's consensus is up 50% year over year. >> let's move on. hit the call of the day there. on apple's reach into china. according to the firm, apple could sell as many and adding china could add about ten bucks a share to apple's earnings per share in 2013. this is extremely bullish. imagine adding just $10 in earning power next year. >> said on the call last week. staggering. that's how we identify the opportunities in china and i think clearly they are. i think the question with apple in the near term is simple. you have a lot of folks that
have sat on the sidelines, myself being one of them, looking to take out last week's 454 earnings high. once you get a close above there you'll see aggressive buying for all the wait and see buyers who have point of troempbs work against. i think then apple moves to 500. some of the second derivative plays on apple, nuance has corrected somewhat. i would say with nuance i'd have that more as a neutral stance. cirrus logic pulled back. that's a name you have to look off here. >> in terms of morgan stanley, the 40 million iphones in china is a bull case scenario. the base case according to morgan stanley is to sell 26 million. and a $550 million target. >> both are bullish.
it's the downstream plays i think will get you the most bang for your buck. it seems for whatever reason to have trouble in march and july and most recently post apple earnings. i would say this. the stock's had a tremendous run since september. take profits here in qualcomm if you are long. when i say cheaper i mean 450s. if you don't like that idea, buy it on a break. in no man's land. >> playing the apple supply chain isn't always emerging. they squeeze the crap out of every supplier that they have. you know what i mean? so at the end of the day, a lot of times we saw broadcom
pronounce better than expected revenues in september. they sell into the iphone 4s. they had a good sense what their units were going to look like. when they report tomorrow, you could see those better than expected revenues on weaker earnings. >> on one of the conference calls today, isn't the expectation for china already baked into the stock? i mean, is this -- is this already in there? >> potentially. i'm a little nervous about apple. we did sell some 450s going into the earnings. so we'll have some called away at february expiration if it's above 450. it'll just kind of be sideways until the next catalyst. ipad 3 launch in march? maybe that's it. i don't know. i feel like i wouldn't jump in here. >> it's interesting because it's the price action that will pull you in. i think a lot of people have waited. i think the floor in apple had been raised. it seemed as though 422 to 430
that was the resistance point. now you sit back and you wait and at a certain point, it doesn't pull back. you've got to go get it. >> at some point it will. the ipad 3 coming in april or early march, at some point, the ipad numbers are not eye popping the way iphone is. iphone is 50% of this company now. what i took out of the morgan tan lee note is that apple has penetration of global carriers. there's the opportunity. you're talking two other carriers in china. they're the only carriers. when they have the whole world and all the carriers that are there, that's when you'll see this goe. >> quick one second. you're chasing apple and making a huge mistake. the volatility in apple is cheap enough that you don't have to worry here. you can buy a put and get out if you need to and get back in
again. you're not talking about a stock trading at 450 and the next morning it's 370. that's not what happens in the apple world. >> broadcom dealing with the earnings report on the desk. the company surging only 17% in 2012. what will happen now? what do you think? >> if you look at the stock, 12 and a half times earnings. it's a reasonable valuation. were significantly off the 52 week highs. but i think broadcom given the bounce we've had from the mid-20s is again, sort of like i'm in the qualcomm cap which reports on wednesday. i think it's a wait and see. i wouldn't go racing into this. you've had a nice bounce over the last few weeks. seem to be having trouble at current levels. you hope you get the pullback and get into there. otherwise i think you miss it and have to wait. that's my view. coming up next, we'll get the short story on the rally this month. we'll talk to the ceo of
wendy's. will it make you fast money? we'll be back. tdd# 1-800-345-2550 i'm a serious trader. tdd# 1-800-345-2550 so, i want to trade at a place that really gets who i am tdd# 1-800-345-2550 and what i need. tdd# 1-800-345-2550 and still gives me a great price. tdd# 1-800-345-2550 at charles schwab, you get everything you need tdd# 1-800-345-2550 to trade your way. tdd# 1-800-345-2550 all for $8.95 a trade. tdd# 1-800-345-2550 here, it's all about trading. tdd# 1-800-345-2550 start trading with the intuitive streetsmart edge platform tdd# 1-800-345-2550 and use its tools like strategy builder to screen for stocks, tdd# 1-800-345-2550 find opportunities faster and compare your strategies tdd# 1-800-345-2550 against other traders. tdd# 1-800-345-2550 at schwab, you also have the resources to research and trade tdd# 1-800-345-2550 across 30 countries with more than 40 stock exchanges tdd# 1-800-345-2550 around the globe. tdd# 1-800-345-2550 plus, talk strategy with dedicated trading specialists. tdd# 1-800-345-2550 attend workshops and webinars.
tdd# 1-800-345-2550 and get up and running faster with a personalized introduction tdd# 1-800-345-2550 to all that schwab offers. tdd# 1-800-345-2550 get it all for a great price of $8.95 a trade. tdd# 1-800-345-2550 this... this is how i like to trade ! tdd# 1-800-345-2550 open an account and trade up to 6 months commission-free. tdd# 1-800-345-2550 call 1-877-412-6113. tdd# 1-800-345-2550 talk to chuck today. can
welcome back to "fast money." competition is hotter than ever in fast food. get it? >> that's clever. >> i delivered it though. in a winning way. lately wendy's hasn't been winning the battle. the stock is underperforming the rivals in the past few years. today the ceo says he's got a plan to turn the company and the stock price around. ceo is with us now. thanks for being here. many seem optimistic about the plan you're selling out. one analyst said a key part of the turnaround story is turning around the breakfast and making the most of that. what do you have for breakfast? that is the area that's heating up with competition.
>> no. absolutely. and right now we're not in the breakfast area. so it's a tremendous opportunity. it's the fastest growing in the category. represents about 22% of the business. when you're not in it and have a chance to participate, it's a tremendous opportunity. we're testing breakfast in a variety of markets. we're seeing really wonderful results. we're working with our franchise partners and intend to roll breakfast out. >> you've got a coffee platform in the making. you're going to add the baked goods, that's what one analyst said. it sounds like you're taking a page out of mcdonald's. >> actually, we've branded our coffee program redheaded roasters. because we know that coffee's an important part of the breakfast program obviously. we wanted to carve that out and make that independently successful. and there is a bakery offering along with redheaded roasters.
we've gotten some positive pres on the coffee paragraph compared with the best brands out there. so we're very pleased with it. >> is this going to be key to achieving the 14 to 14.5% margin even though you're facing rising commodity costs? >> absolutely. we see an increase beverage presence as something that's going to be helpful to increasing our margins. >> you know, your guidance for store sales 2 to 3%. wendy's is a name i've tried to own for many years but you haven't gotten above that 2% threshold since 2004. do you feel the strategy needs to be that that higher end burger consumer, you lost a little to the panera's of the world. can you get them back? >> you're spot on. that is the opportunity. one thing we're doing that's exciting for us, we're reimaging. we've seen phenomenal results
from these reimaging. when people come in the type of environment, they get to trade up. they do see it as a quick casual experience. we are testing products that fit very much into that strategy. >> we talk about margins. your restaurant margins 15%. i think they were up a hundred basis points year over year. it's in favorite adjustments which sounds like a one off thing. you mentioned it i believe on the earnings release. that that was one of the factors that led to this. >> that was a one time adjustment. but typically those insurance adjustments happen at the end for every organization out there. so i don't think that was terribly unique. it was a little larger than normal. that's why we mentioned it. >> do you have any chance for any financial engineering with your franchisees?
>> we have a bond this year that i believe becomes in june. we think we can reduce -- it's at 10%. so we think we can reduce interest charges on that. one thing we're looking at a growing our company ownership base in the near term. this can give us the opportunity to accelerate the reimaging in our restaurants as well as accelerate the improvements in operation. we're excited about that. >> in terms of valuation, richer valuation than a mcdonald's, a jack in the box. at the same time your dividend when compared to mcdonald's is just about half or so. i'm wondering, what is the next catalyst in your view to say the valuation is rich but it's worth it and the stock's going higher. >> well, when you look at the total program of things we have going which is the breakfast depar entry.
when you look at reimaging. all these put together make us very, very optimistic for this year as well as accelerating growth going forward. this year in 2012 we're going to reimage 50 restaurants. we're opening 20 new company restaurants. but the year after that we're going to celebrate the reimagery. you put those all together, i think there's a positive story out there. >> emil thanks for stopping by. emil brolick. it's not whether you believe it's at hand and it's working. it's whether you believe to put money in at this valuation. >> they're my favorite -- single with everything and no tomatoes. >> you're weird about that. >> with the stock trading i guess fivish or so, it's been a difficult stock to own. but it's an interesting stock to
own. decent short interest at a certain point you're going to get a catalyst where the short's going to get squeezed. . quite a bit a name i love but something happened in '05, '06, '07. got up close to a bit above 20. fell below five within two years. the wendy's experience back then was the higher end consumer, better meal, healthier meal than you got at mcdonald's and burger king. >> would you rather own mcdonald's at a lower valuation with a higher dividend yield or wendy's? >> i'd probably rather own mcdonald's. the wild card in wendy's, they i don't think you can count that out completely that there could be something. >> if you're in mcdonald's because you like the space, at some point they're trading at
all time highs. maybe you take some profits to some of those and make a more specktive play where you know your downside. it's like a long-term option thing. >> nice way to run options. >> some say it's a rally fueled by short cover. but our next guest says it's not the case. will gordon joins us on the fast line. always great to speak with you. >> hi, melissa. >> you take a look at these big performers this year. sears up 50%. kb home up 40%. dendreon up and you say there's not a squeeze on the stocks? >> yeah we hate to rain on the parade of that theory. there might be a tiny bit of truth in it. whatever way we cut the data, we
can't find much evidence of major short covering. in fact, it points to shorts holding steady or slightly increasing rebounding the most in january so far. >> it's karen. let me ask you something. i love the accent so i want to believe whatever you say, but on sears in particular, when we ask how much it costs to borrow, that cost has been rising every day. to me that's indicative of some sort of squeeze. is that not in your data? or do you have different today ta than i do? >> sears is very expensive to short. eddie lampert owns so much of it so you can't borrow. but it's not like it's being recalled. that of the shares in programs, it's not like that's reducing much. i mean, kind of the definition of a short squeeze.
we haven't really seen that kind of forced because of plan broker calling back the shares. we haven't seen evidence of that. >> with that said, do you feel there's much -- a lot further upside into broader market given the things you just talked about? >> well, yeah. i mean, if you think that -- you could say that on the other hand short sale not panic and they're not running for the doors. they don't think the economy is dying to itch higher. keeping in position with some of the names. it's an overly optimistic january and things might get more as the years go on. >> we're going to leave it there. we appreciate you phoning in. will duff gordon. what do you make of the data? >> data is what it is. you don't always get a clear understanding. retail investors don't always see what it is. but at the end of the day when you look at these stocks, when
most powerful trading app ? total access - to everything. from idea toresearc. including financials, indicators and real-time streaming quotes. whether you eck your investments every day or every minute, our app can take them from thought to trade. at scottrade, seven-dollar trades are just the start. try our powerful mobile app. it's another reason more investors are saying... i'm with scottrade.
but when she got asthma, all i could do was worry ! specialists, lots of doctors, lots of advice... and my hands were full. i couldn't sort through it all. with unitedhealthcare, it's different. we have access to great specialists, and our pediatrician gets all the information. everyone works as a team. and i only need to talk to one person about her care. we're more than 78,000 people looking out for 70 million americans. that's health in numbers. unitedhealthcare. the other office devices? they don't get me. they're all like, "hey, brother, doesn't it bother you that no one notices you?" and i'm like, "doesn't it bother you you're not reliable?" and they say, "shut up!" and i'm like, "you shut up."
in business, it's all about reliability. 'cause these guys aren't just hitting "print." they're hitting "dream." so that's what i do. i print dreams, baby. [whispering] big dreams. welcome back to "fast money." we're live in times square. another day with no european debt deal. the rkt mas and the euro gets hit on the news. gold jumping. there's still more upside here. joining us now is the editor of the gartman letter.
always good to see you. >> always good to be seen. >> thank goodness you said that. all is right in the world. how much more offside in the gold? >> we're trading around 13 euros per ounce. given the problems we know they're there. they don't seem to get resolved. over the weekend we talked about them being resolved. the whole thing fell apart. the germans are not giving up on anything. i think gold in that instance goes to 1450 or so euros per ounce. the risk is no more to 1280. from the lower left to the upper right. i've liked this trade for a long period of time. i'm back into it especially after last week when the feds said rates are on hold until mid-2300. we're never seeing lower rates again. and the fed -- all of the central banks of the world is easing monetary policy and injecting reserves into the system. that's going to continue to push gold higher.
>> i'm a big gold believer. i'm not a gold bug but i'm a gold bull. are there risks of any central banks needing to sell any of their reserves in order to raise -- i know as crazy that might keep. more of a bookkeeping thing. is there any chance that might happen? >> there's always a chance. dogs could lie down with cats eventually, but almost anything can happen. nc state can beat carolina in basketball. but do i expect to see any of the reserve banks sell gold in the near future? i think that's limited. i'm going to put that at a 2% probability if that. they have been buying gold. they had sold gold for 25 years. now they're accumulating gold. they have not gotten anywhere close to have they had in the past. i think it would be an obtuse and strange phenomenon to see that occur. >> at what point do you get concerned about this. are you concerned a deal could be reached and the trade will be royaled?
>> i think as long as the monetary authorities continue to tighten or to ease monetary policy, i could see gold going higher. the point in this trade is does gold go to 1450 euros with gold going up very strongly and the euro holding sideways? or does it go that way with the euro getting weak and gold going sideways? or does it go to 1450 with gold going up a bit and the euro falling? i can make the case under all -- under a great number of circumstances that gold does better in euro terms almost regardless of what happens even if they reach an accord. they need to reach an accord. they keep falling away from it. the german public. >> thank you dennis gartman. investors are also worried about what's in portugal. soaring to area records of 17%. so will debt holders be forced to take a hair cut? let's bring in amelia bourdeau.
and money in motion contributor. there's a firm today out of london, capital economics, who believes that portugal will default. is that baked in on the screens? >> i don't think it's baked in. people started discussing the possibility of this back in january when s&p downgraded to junk status. then what happened was a lot of investors started selling bonds out of their portfolios and yields started to rise. >> do you have any sense -- what is the overall portuguese debt? i have no idea of the magnitude. >> i would have to check the levels. it's the worst in the eurozone. with their current bailout package, they are funded through the end of 2012. so there isn't a need for them to go to the market right away. as we approach mid-year, people will certainly -- this discussion will be heating up whether they need another bailout package. >> in the concern in the region, is the biggest that greece is going to hammer out new terms
and then everybody else will want the same. >> that is the concern. but european leaders have always said that greece is a one out case, a special case. so they'll have to see if they keep their word on that. with ten year yields this morning testing that theory for leaders. >> with all this said, what do you think the trade is here? >> right now this week the immediate trade -- i do like euro lower i should say. and then i would short it up around the 134th level. but i like to stay out of the mix. we don't know when we'll get the greece announcement. and we have bernanke testimony on thursday. i'm going to relative value trade this week. i want to be short the aussie against the new zealand dollar. rba is going to cut rates next week. and there's sovereign wealth funds buying a kiwi short. aussie kiwi trade down to
1.2650. >> great to see you. >> real quick -- this sunday while the rest of the world will be -- amelia is a giants fan. >> i am. >> final score. >> i think 38-30, giants. >> that's what i'm talking about. >> very exciting. i have blue on for giants today. >> all right. thank you amelia. next on "fast money," the facebook halo effect. stocks up over the past two trading sessions. more "fast money" coming up next.
trades. best buy has recovered a little bit in the after-hours. least move on to the volatility playbook. the vix ending below 20 again. should you use the drop in volatility to hedge your portfolio? how do you do this? >> you should have used it friday. here's the thing. the vix opened up almost 9% this morning. that was a sizable move that closed about 1950. 1950 in the vix is below the 20 year long-term average. but it's applying a 1%, 2% move a day. which doesn't seem that dramatic based on what we got used to last year. one of the main reasons when people say to me how do i trade the vix? i don't think you use options on the vix to speculate. i think it can be a great tool to put a disaster hedge in place. so one of the things i would suggest here, i think the vix barring any massive moves out of europe is going to trade at a technical level. that was a large move compared to what we've seen this entire
month. so one of the things i think you look out and look to do some low premium defined risk bets for some disaster hedges in the vix. if you own stocks and you're worried about waking up one morning and having it down over a couple weeks, you can look out of the money call butterflies in the vix. there's tremendous skew in the vix options. because the puts, you know where you're stopped at. you can use some strategies like call butterflies, define your risk. use a low premium to kind of protect long portfolio. >> can you boil this down into plain english for those who might not be familiar with call flies. what's the general idea behind the trade? >> sure. i would use it tactically to identify a period -- for instance, right now we're about 20. say maybe at 30 is a level if there's semiconcern in the market that's where it go. maybe look out to march.
buy a 25 call. sell two of the 30 calls and buy a further 35 strike call. i'm defining my risk. if you did that when it was 19.50, that would cost 40 cents. if the vix closed at march expectation. to me there's a great risk reward. there's a small probability of making money on that trade. this is a hedge against a long portfolio stock. >> thank you for that. coming up next, should you buy stocks like renren through all this facebook effect? we'll have the answers straight ahead. my job is to find the next big sound.
jpmorgan, scott, what are you doing? >> i was listening to fred earlier and i like what he has to say. but i think jpmorgan is like the prettiest girl at the dance getting ignored. i think earlier this year everybody wanted to be in citi and bank of america because they were looking for super. jpmorgan is not going to participate as much to the upside. so i can sell the february 37, 38 call spread. about 40 cents right now on the close could have sold for about 50 cents. that's selling the 37 call at about 35 cents and capping your risk by paying 55 cents for the 38 call. we're risking 60 cents. this is essentially a coin flip. i'm okay with the payout odds. it has to get to 30 drents for me to lose that full amount. >> yes. thanks for that trade. catch for "options action" every
welcome back to "fast money." investors are gearing up for the facebook ipo. documents could be filed wednesday. we've seen a run in other social media stocks. renren up 40%. can this rally of these stocks last though? joining us on the fast line is kathleen smith. kathleen, great to have you with us. i want to focus in on renren. it was up 20% in today's session alone. are we to draw from this that there is some merit in bidding the stock higher based on facebook's valuation? this stock has done terribly so far since it's been public. >> i think you need to put renren in some background. the ipo was probably the worst ipo return of the 125 ipos that were priced in 2011.
so renren is coming off a bad period. also it was a chinese adr. and there have been concern in 2011 and continues to be about chinese accounting. we had those factors that had gone into putting heavy downward pressure on that stock. as we come out now into a more improved market and some statistics that could help, our ipo index was down 21% in 2011. so ipos had very poor returns. now coming into the first part of this year early 2012, we're seeing an 11% return on the index. twice as strong as the overall market averages. more money is coming into unseasoned equities. as it comes in, this and a few others are making a -- some of the stocks are short covering. i point to renren. but we have had this return.
then top that off with the facebook filing. and that has created quite a bit of interest. looking back at some of these ipos that have not traded well and trying to adjust the pricing for these ipos relative to facebook. >> as somebody who has analyzed these, are there some ipos that should justly be valued. not along the lines of facebook because it's a unique situation. but that should be levitating higher to go towards the valuation of a facebook? >> yes. i think that many of the ipos has been unfairly punished. they performed poorly overall until we started this year. so we would look at renren. when it became public in april, the range was $9 to $11. i wouldn't be surprised to see it -- when we analyzed it we saw
that might be somewhere around $9 could be possible for trading in the stock. and that would get it to a multiple of a fast-growing high margin internet stock. it wouldn't be surprising early on in its evolution to have a trade at 10 to 15 time sales. only in the early stages for a fast-growing, high-margin internet stock. >> thanks so much for phoning in. kathleen smith of renaissance capital. do you think renren can chief that multiple share? >> i guess the issue would be this. when people were thinking of buying a few years back and comparing it to the google of china. and at the end of the day, facebook's model has not been proven yet. we don't know exactly what the financials look like. we know that they earn a couple dollars in revenue per user. to me i think it's a bit of a flier. >> all right. got your first move tomorrow when we come back. stay tuned.
[ male announcer ] the two trains and a bus to the 5:00 arider.holar. the "i'll sleep when it's done" academic. for 80 years, we've been inspired by you. and we've been honored to walk with you to help you get where you want to be. ♪ because your moment is now. let nothing stand in your way. learn more at keller.edu. i have actually put in over my career. and it's 168,000 hours. so just think, if you had an 8-hour job, i'm like a man of 100 and something years old. i've worked very hard to support my family.