Weekly Roundup

Housing and consumer confidence data was better than expected but investors discounted the durable goods and personal spending reports as being one-time-event driven. The president reappointed Fed Chair Ben Bernanke to another term, which was met with mild enthusiasm by the markets, but I believe it is a significant positive event especially as he navigates through the recovery with an exit strategy of monetary policy. Investors remain nervous about China as the Shanghai Composite had another rocky performance for the week, but profit-taking isn't surprising with the 61% gain on the year.

I remain cautiously optimistic on the markets and don't expect a huge downturn like some bears are calling for, although I've said repeatedly that a 3% to 5% correction wouldn't surprise me. I have been trimming some of the more expensive beta stocks where I have nice gains and adding to some cheaper defensive bets for better balance because it always makes sense to buy low and sell high. Naturally, if something materially changes I will remain flexible in my strategy.

I continue to be overweight in financials, technology and materials. I am now market-weight staples and remain so in the industrial and energy sectors. I also closed the underperformance gap in health care and plan to add more to Express Scripts (ESRX:Nasdaq) at the right price. I am underweight consumer discretionary because the stocks have run hard and the consumer remains under pressure. I have chosen to play the housing and apparel manufacture side of discretionary vs. the pure retail group.

This was a lighter-than-usual trading week for me as I sold out of Inverness Medical (IMA:NYSE) for a 6% gain, trimmed Qualcomm (QCOM:Nasdaq) to right size the position (it was over 6% of the fund) and pared back Chevron (CVX:NYSE) after locking in the 16% gain from my last trade. I used the cash to buy more Procter & Gamble (PG:NYSE) because the expectations are very low and the turnaround is underappreciated. And I bought more Altria (MO:NYSE) after it raised the dividend by 6.3%, which is always a healthy sign.

Speaking of dividends, I now have five companies in the fund that have raised their dividends this year which is impressive and highlights the strength of their balance sheets, underlying businesses and dominance -- Abbott Labs (ABT:NYSE), Chevron, Pepsi (PEP:NYSE), Procter & Gamble (PG:NYSE) and Altria. They may not be high beta, but they are great long-term positions.

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Here's the quick guide to my rating system, too: Ones are stocks I would buy right now, Twos are stocks that I would buy on a pullback, Threes are stocks I would sell on strength and Fours are stocks I want to unload as soon as my trading restrictions allow.

ONES:

Abbott Laboratories (ABT:NYSE, $45.92, 2,100 shares, 3.44%): This continues to be a steady, defensive stock in the portfolio with double-digit earnings growth driven by its diverse product portfolio and an attractive 3.5% yield. Abbot has jumped into the number three position in coronary stents, become a leader in HDL management, built a blockbuster product in the biologic Humira and established a nutrition business in emerging countries. Its recent acquisition of Advanced Medical Optics is a foray into a new growth vertical and should lead to improved earnings as the economy recovers. Shares trade at 11 times earnings, a 25% discount to the S&P 500, which is well below its historical levels (typically it has traded at a premium) and remains a compelling buy. Altria (MO:NYSE, $18.22, 3,800 shares, 2.47%): I bought 800 shares this week after the company raised its dividend 6.3%. This was welcome news and the stock now yields the same as Reynolds American (RAI:NYSE), which is unjustified in my view (meaning the stock is too cheap). Altria has better brand equity, younger smokers and its cash generation is superior and will be used to build the UST branding back to top form. Cost savings from UST will be more than what investors expect -- using history as a guide. I am a buyer for the long term, especially under $18.

Bank of America (BAC:NYSE, $17.98, 8,000 shares, 5.13%): Better housing data and sequential improvements in credit card delinquencies in July lent support to the stock this week. As the economy improves, charge-offs should fall and the lead to improved earnings. Coupled with better capital markets activity, stronger investment banking share and retail brokerage results, I feel confident in the earnings power of $3.25 and the compelling valuation. I'm at a full position now, but if shares pull back to the mid-teens I'd add more, especially as the data continues to get better.

China Unicom (CHU:NYSE, $14.43, 5,400 shares 2.78%): The company finally announced the iPhone deal with Apple (AAPL:Nasdaq), which spans three years. Details are still unknown (China Unicom subsidies and exclusivity) it's a clear positive for both firms to capture the huge demographic pool -- 700 million China mobile subscribers, 100 million mobile phone users in China change their phones annually and about 20 million buy high-end mobile phones. The company also posted better than expected earnings for its first half -- profits fell 42% (less than the 50% decline expected) as its GSM business offset weakness in its fixed-line segment. The company remains in a terrific position to capture market share growth over time with its leading WCDMA technology, the launch of 40 new 3G phones and the iPhone deal. I'll buy on any weakness, especially under $14.

Devon Energy (DVN:NYSE, $62.57, 1,700 shares, 3.79%): Natural gas stocks continue to churn and Devon has been stuck in a trading range for the last few weeks. After a much better quarter with stronger production growth of 12%, investors now await the partnership/sale of its Gulf of Mexico assets, which should be worth more after BP's recent discovery in the similar region. Shares have lagged the group (despite being up from the mid-$40s) and trade at a discount likely due to its hedging (or non-) strategy and lower capex budget for 2009. I think the Street is too pessimistic, especially after Devon's most recent quarter but also because of the quality of assets that company holds. I'm a buyer at $60 after my restrictions are lifted.

eBay (EBAY:Nasdaq, $22.46, 2,100 shares, 1.68%): Rumors circulated this week that a group of private investors were looking to buy Skype from eBay. Since Skype isn't a strategic fit for the firm, eBay already announced a spinout next year but I bet it would be happy to sell it for the right price of $2 billion. Whichever way this plays out will be a positive for eBay and I remain positive on the stock. My cost basis is $17.37, which is why I have held off on buying more, but around $20-$21 is attractive for long term investors. Shares are cheap at 13 times earnings (compared to 40 times for Amazon) and the turnaround in its Marketplace division (80% of revenue) has momentum. PayPal also continues to gain share as the company penetrates beyond eBay into other avenues

Express Scripts (ESRX:Nasdaq, $72.60, 1,000 shares, 2.59%): I was restricted on the shares this week but will buy if the stock pulls back to around $70 after I am cleared to trade. This is one of the best companies in the industry with superior returns, strong customer relationships, significant growth opportunities from generic expansion and its recent acquisitions. Over $12 billion in branded drug sales will go generic this year with Lipitor and Plavix following in 2011-2012. These are big tailwinds for the industry and Express Scripts will be one of the leading beneficiaries. Shares trade at 15 times earnings, below its long-term average of 24 times, and is attractive relative to its 20% growth rate.

Honeywell (HON:NYSE, $37.23, 2,800 shares, 3.72%): Shares rallied on the news from Boeing (BA:NYSE), one of Honeywell's largest customers, that its 787 Dreamliner is on track for its first delivery in fourth quarter 2010. Although Honeywell has many levers to growth in the future (aerospace, defense, auto/turbocharger, HVAC), its biggest exposure is to aerospace, so clearly this was good news. I have also heard that the air transport and business jet aftermarket segments are picking up sequentially, which I don't think is well known and likely not priced into the shares. I remain a buyer (I was restricted this week), especially as the company faces easier comparisons in aerospace in the fourth quarter but also because of it has many levers to growth and leverage as the economies recover. Shares trade at 13 times earnings with an attractive 3.2% yield and a 13% free cash flow yield. These are attractive metrics for such a high-caliber company.

Pepsi (PEP:NYSE, $56.76, 2,700 shares, 5.46%): Shares continue to be undervalued (why I bought shares last week) and should be bought for the long term. Management has done several things to make this a better company and stock during the downturn -- implemented a sizable productivity program (which will lead to more efficiencies and more product spend), bought out its two largest bottlers and announced plans to spend over $1 billion in international markets (China, Russia and India). It also raised its dividend and continues to buy back stock. It dominates the snack industry and is fixing its beverage division, one of the reasons it laid out $8 billion for PepsiAmericas (PAS:NYSE) and Pepsi Bottling Group (PBG:NYSE). The acquisition will lead to 15 cents accretion by 2012 with $300 million in synergies. I believe there is upside to those synergies and that shares remain attractive at 14 times -- relative to the S&P 500, the stock trades below its two-, five- and 15-year averages.

Procter & Gamble (PG:NYSE, $53.19, 2,300 shares, 4.36%): P&G is one of the most hated consumer product stocks by analysts. Shares are down 14% this year. I like to be contrarian and think the pessimism is too over done. The stock is trading at three-, five- and 10-year lows and its yield is at a 20-year high -- so the bad news is already out and reflected in the stock. The company has aggressive plans to sell noncore assets (it sold its drug division earlier this week for $3.1 billion) and to reinvest in its brands (mainly in the emerging markets). I like the risk/reward especially with raw costs so low and currency headwinds reversing.

Vale (VALE:NYSE, $20.06, 3,100 shares, 2.22%): I was restricted for most of the week and will buy more under $20 when I am cleared to trade. Morgan Stanley (MS:NYSE) upgraded the stock and HSBC (HBC:NYSE) downgraded it -- both on valuation. One thing is clear -- iron ore prices continue to rally as demand from non-China regions have improved (Brazil, Europe and U.S.). This bodes well for the company and will pick up the slack should China demand fall. The stock has underperformed the Brazilian stock market by 26% and the Brazilian steel index by 46% so far this year, which makes no sense especially since this is the blue chip of them all and the leading iron producer in the world. Its low costs and restructuring have led to better margins (and why it posted decent quarterly results) and as demand improves (with utilization rates at 65%) there is significant leverage for upside.

VMware (VMW:NYSE, $36.03, 1,200 shares, 1.54%): Speculation that Cisco Systems (CSCO:Nasdaq) and EMC (EMC:NYSE) will announce a partnership would be a positive for VMware because EMC owns 82% of it and the deal could lead to an outright merger down the road (the two have held discussions in the past). VMware is the jewel within EMC as the dominant provider of virtualization solutions. Its products provide efficiency, availability, flexibility and manageability to over 150,000 customers and a 99% of the Fortune 1,000 companies. The premium multiple is justified because the growth is the fastest in the industry and could accelerate further as the economy improves. Add on a possible takeout play and the stock is a buy.

Weyerhaeuser (WY:NYSE, $37.79, 2,100 shares, 2.83%): I was restricted on the shares this week but continue to own this stock for the recovery in the housing market. Pulp, OSB and timber prices have recovered (but still off from their highs), which suggests demand is improving and will lead to better earnings for the company. It has cut costs, streamlined its businesses and reduced its dividend to shore up its balance sheet. It generated more cash than expected in its most recent quarter as a result and is in good position for the recovery. I'll buy in the mid-$30s when my restrictions are lifted.

Yum! Brands (YUM:NYSE, $34.92, 1,200 shares, 1.49%): Shares have been trading in a range for the last few weeks and I think they are poised to go higher. Strong demand from China (50% of operating profit growth) and its international division coupled with cost cutting and restructuring initiatives in the States position Yum well above its competitors. Lower raw material costs and more favorable currency will also help drive double-digit earnings growth for the quarter and full year. That's impressive and the highest in the industry. I am looking to add more (my cost basis is $29.48) in the low $30s but continue to believe at the current levels the stock is a buy.

TWOS:

Bristol-Myers Squibb (BMY:NYSE, $22.12, 3,500 shares, 2.76%): Morgan Stanley downgraded the stock on Friday citing valuation. The shares are up 18% since mid-July and I am up nicely on the position. But I still think Bristol is one of the better-positioned pharmaceutical companies in the industry with a solid pipeline, a strong balance sheet and an aggressive cost-cutting program. I like its "string of pearls" strategy and its focus on finding small to medium-sized tuck-in acquisitions. At 10 times earnings and with a 5.6% yield, I don't think it's time to get off.

BP (BP:NYSE, $51.98, 1,700 shares, 3.15%): The company announced several IT outsourcing deals with IBM (IBM:NYSE), Infosys (INFY:Nasdaq) and Wipro (WIT:NYSE) to further enhance its technology efficiencies as well as to better manage its systems company wide. These are efforts led by CEO Tony Hayward that I think are underappreciated and should lead to better earnings over time. The best dividend and second-best growth rate keep this as a core bet in the fund.

Chevron (CVX:NYSE, $70.68, 1,900 shares, 4.79%): I trimmed 100 shares and took the 8% gain (I'm up 16% from my last trade at $61) but this will remain a core position. The company has the highest production growth in the industry and the strongest balance sheet as evident by its recent dividend increase. I'll buy more when it yields closer to 4% or in the mid-$60s.

Cisco Systems (CSCO:Nasdaq, $22, 5,000 shares, 3.92%): The company has forecasted 12%-17% long-term earnings growth, which will come from its traditional core/router business, its data center strategy and add-on acquisitions. The company held a webinar this week to review its new switch/router products, which along with better prices and functionality should help the company maintain its 70% share. The company will also do acquisitions to help its growth -- EMC (EMC:NYSE) was rumored this week. The two have held discussions before and I would applaud such a move as it would jump start Cisco's efforts in the data center/cloud computing. Shares were weak on the news and if it continues

I'll buy at $20.

Emerson Electric (EMR:NYSE, $37.20, 3,600 shares, 4.78%): The company reported orders for its trailing three months were down 25%, which was a sequential improvement from prior three-month trailing figures that were down 25%-30%. Process Management, Industrial Automation and Network Power all fell over 20%, but a slight uptick in each division from the last report was encouraging. Climate Technologies had stronger order rates in China and Appliance and Tools should see a meaningful pickup from the cash for clunkers for appliances and improved consumer confidence. Importantly, sales guidance was better than expected -- down 19-22% -- which is an improvement from -22% last quarter and likely the reason the stock rallied for the week. I continue to hold this high quality industrial because it's positioned well for the recovery (with 30% emerging markets exposure) and valuation. It trades at 14 times normalized earnings and its yield is 3.5%. With a 52-year track record of increases I believe it will be raised when the environment improves. I'll wait for $35 to buy again (my cost basis is $33.87) but the numbers are encouraging and should get better going forward for this high quality industrial.

Gilead Sciences (GILD:Nasdaq, $45.25, 2,000 shares, 3.23%): The stock was flat for the week but I will remain patient on the position because it offers strong growth (17%) and leads the industry in the HIV market. It has a solid pipeline and strong balance sheet. If swine flu is as bad as some expect, it's royalties from Tamiflu could exceed expectations. In the low $40s I will buy more.

Goldman Sachs (GS:NYSE, $164.42, 900 shares, 5.28%): The stock was up modestly this week despite the negative press over research trading opinions. I think this is noise and that the bigger picture and fundamentals remain bright for the company. It is the leader in the industry with strong market share in trading, capital markets, distressed assets and investment banking. Its $170 billion liquidity position affords it the flexibility to continue to grow its business, make acquisitions (possibly in asset management) and to potentially buy back its stock. At 1.7 times book, shares remain attractive.

Hewlett-Packard (HPQ:NYSE, $44.76, 1,800 shares, 2.87%): Shares rallied after better results from Dell (DELL:Nasdaq). Investors will now focus on its September analyst meeting, which should be upbeat as Mark Hurd discusses the growth potential at EDS and other areas of its business. I don't think the company gets credit for its strong product profile, geographic diversification and solid cash flow position. Even though I've pared this back recently, I remain positive on the position for the long run especially at the current cheap valuation at 11 times.

Home Depot (HD:NYSE, $27.69, 1,000 shares, 0.99%): Stronger new- and existing-home sale along with better inventories and prices helped lift the housing stocks. I've positioned the fund to benefit from the better housing market and Home Depot remains one of my favorite stocks. Its restructuring efforts have led to a better-run company and better macro indicators should lead not only to better earnings but a higher multiple as well. I would prefer to buy more in the mid-$20s along with a better yield but the big picture is improving and I want to be bigger in the name so I may add more when my restrictions are lifted.

JPMorgan Chase (JPM:NYSE, $42.92, 2,300 shares, 3.52%): Consumer and corporate debt is improving along with credit card delinquency rates. As the economy improves charge-offs will improve leading to better earnings. JPMorgan has done a great job increasing its share across its businesses -- core lending, credit cards, investment banking, trading, servicing and capital markets. The stock trades at premium on its normalized earnings, but deservedly so given its strong capital base, risk management and market share positioning. I'll buy more at $40.

PPG Industries (PPG:NYSE, $55.94, 1,000 shares, 1.99%): I continue to believe that this is one of the best ways to play the recovery in the economy. With diverse end-market exposure in paint, glass, industrial, housing and consumer along with its restructuring program and cheap valuation, I will stick with this bet for the long run. But given the run it's had, I'll wait for the upper $40s to add again.

Qualcomm (QCOM:Nasdaq, $47.22, 3,300 shares, 5.56%): I sold 500 shares to right-size the position in the fund as it was over 6%. This is a core holding and continues to be one of the best ways to play 3G and 4G migration. I expect earnings to be revised higher on stronger-than-expected CDMA handset sales, netbook sales and better margins -- as that happens, the stock should work higher. Its balance sheet remains solid with $15 billion in cash and no debt and will be used to fuel its growth, which should be 17%-20% over the long term.

Visa (V:NYSE, $70.50, 1,000 shares, 2.51%): The stock performed well this week as investors are betting that better credit and consumer trends will lead to improved volume growth. While that would certainly be good news for the stock, the company has other levers for 20% earnings growth between price increases (it has locked in 70% of its customers for the next two years), cost-cutting and better debit growth. I trimmed 300 shares into the strength, but still believe this is one of the best secular growth stories out there.

VF Corp. (VFC:NYSE, $71.02, 1,100 shares, 2.79%): Shares blew by $70 this week in the retail euphoria and I remain positive on the stock for the long run. I am waiting for a pullback to the low $60s, but I don't think it will get there. This is the best positioned apparel manufacturer with leading brands, a strong distribution platform and solid balance sheet. The stock trades at 12.5 times next year's earnings and sports a 3.4% yield. I expect the company to use part of its $700 million cash to make another acquisition and if the stock falls on the news, I'll buy more.

Wells Fargo (WFC:NYSE, $27.30, 1,700 shares, 1.65%): Shares were flat on the week as investors continue to debate whether the company will need to raise capital or not. I want to make this a bigger bet in the fund and would gladly buy more on a secondary offering (price talk is $25, which would be earnings-neutral). I am not convinced it will need to do a deal after generating $14.2 billion in capital in its most recent quarter, which is $500 million more than the government's required stress test amount of $13.7 billion. As the environment improves, the company will continue to "earn" its way out (from stronger revenue in mortgages, net interest income, capital markets and investment banking) to meet the capital requirements and to repay TARP as well. I expect charge-offs to lessen over time (likely 20% vs. 35% in the second quarter), which will also contribute. The stock trades at 6 times normalized earnings versus the 7.5 times for the group. That's too cheap to ignore for such a high-quality firm.

THREE:

General Electric (GE:NYSE, $14.08, 3,300 shares, 1.66%): I continue to look to trim this position back into strength because I prefer other industrials and financials better. That said, the company has hired JPMorgan to help sell its security business, which could fetch as much as $2 billion and would be a clear positive for the shares. I'll watch closely but am inclined to trim this at $15-$16 so I can buy more Emerson, Honeywell or Wells Fargo.

Regards,

Jim Cramer

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DISCLOSURE: At the time of publication, Cramer was long Abbott Laboratories, Altria, Bank of America, Bristol-Myers, BP, Chevron, China Unicom, Cisco, Devon Energy, eBay, Express Scripts, Home Depot, Honeywell, Emerson Electric, General Electric, Gilead Sciences, Goldman Sachs, Hewlett-Packard, JPMorgan Chase, Pepsi, PPG Industries, Procter & Gamble, Qualcomm, Vale, Visa, VF Corp., VMware, Wells Fargo, Weyerhaeuser and Yum! Brands