Weekly Roundup

The combination of a heavy economic calendar and more positive corporate earnings made for a very newsworthy week. Throw in Warren Buffett's aggressive purchase of Burlington Northern (BNI:NYSE), Johnson & Johnson's (JNJ:NYSE) large restructuring program and Ford's (F:NYSE) stronger-than-expected third-quarter profit, and it was especially exciting.

The real test came on Friday with the 10.2% unemployment rate, which initially rattled the markets, but after digging through the details, investors found some encouraging signals, such as the increase in temporary work and the positive revisions from prior months, as well as realizing that the report is a lagging indicator. Some of the more forward-looking reports this week were good, and they point to a recovery, such as pending home sales, manufacturing (ISM) well above expansionary levels, factory orders and an improvement in initial claims.

What's really impressive is that corporations have gotten very efficient over the last several months slashing costs and getting more out of their existing workforce, with output per worker up 9.5% on an annualized basis and productivity up 4.5% -- these are staggering numbers, and this is why corporate earnings have been so much better than expected. Now all we need is demand to come back, and Cisco's (CSCO:Nasdaq) John Chambers told us that was the case during its fiscal first-quarter conference call.

The other big story of the week was the Republican sweep in the Virginia and New Jersey elections, which suggests that people are tired of the endless spending strategy by our government. That could mean that health care reform is dead, or if something does pass, it won't be for a while, and it will be a watered-down version. That's why health care stocks rallied, but taking it one step further, it could mean less overall government involvement going forward. "The markets prefer gridlock" is likely the real reason for the rally in the averages this week.

There were a few changes to my sector weightings this week after selling out of PPG (PPG:NYSE) and adding to Home Depot (HD:NYSE), eBay (EBAY:Nasdaq), Marathon Oil (MRO:NYSE) and Weatherford International (WFT:NYSE). With these trades I pared back the materials overweight by half and reduced the underweight bet in consumer discretionary and energy. Overall, I continue to want balance and diversification in both beta and defensive sectors and maintain my overweight posture in industrials, technology, materials, staples and health care while staying underweight financials, energy and consumer discretionary.

I upgraded JPM to a One from a Two, because this remains the premier bank in the industry with great risk controls, top management and continued market-share gains. It's too small a bet, so it's on my radar to buy more next week.

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ONES:

Abbott Laboratories (ABT: NYSE, $51.53, 2,100 shares, 3.64%) INDUSTRY SECTOR – HEALTH CARE: Johnson & Johnson (JNJ:NYSE) which is often compared to ABT, announced a huge restructuring program this week to offset its large revenue declines. Clearly, JNJ's consumer division and generic exposure continue to plague the company and highlights just how good the ABT story is with its diverse pipeline, product innovation, balance sheet and acquisition strategy. The valuation remains attractive at 12.3 times, along with its 3.1% dividend yield.

Altria (MO:NYSE, $18.54, 5,000 shares, 3.12%) INDUSTRY SECTOR – CONSUMER STAPLES: The stock has recovered since it reported earnings two weeks ago, because the 7.3% yield is too compelling to ignore. Plus the company just raised prices by 3% last week on its cigarettes; this signals that the company is focused on profitability over market share, something investors want. Also, UST should gain momentum in 2010 as its pricing initiative and rebranding efforts take hold. Overall, this is a cheap stock (10 times earnings) with a dominant franchise and an above-average dividend yield (that is well covered). Management is doing the right things to build a better company, and I'll buy more under $18.

Cisco Systems (CSCO: Nasdaq, $23.82, 6,300 shares, 5.05%) INDUSTRY SECTOR - TECHNOLOGY: The company reported a very strong earnings report, beating expectations earnings by 5 cents with 6% sequential growth in revenue with orders down just 10% vs. down 30% over the last several quarters. Gross margins were higher at 65% on better pricing and strong cost-cutting. John Chambers raised estimates and called the bottom, and that is what investors were anxious to hear. At 15 times earnings, the stock remains a compelling buy, and I will continue to add over time. Its continued dominance, new growth initiatives, strong balance sheet and huge cash position along with attractive valuation are reasons that this will continue to be my largest tech bet in the fund.

China Unicom (CHU:NYSE, $13.93, 5,800 shares 2.72%) INDUSTRY SECTOR - TECHNOLOGY: The company announced that it has signed up 1 million 3G subscribers since Oct. 1, which was ahead of plan, and it guided for 1 million 3G subs per month going forward. This will lead to higher ARPU (a key measure of profitability/quality) and market-share gains (I expect its market share to increase from the current 9% level to 15% by the end of next year). Shares remain attractive at 1 times book value (below the group median of 2.5 times), and visibility is strong. I'll continue to buy when my restrictions are lifted.

Cooper Industries (CBE:NYSE, $41.21, 2,400 shares, 3.33%) INDUSTRY SECTOR - INDUSTRIAL: Shares hit a new high this week as industrials outperformed the market. CBE is well positioned when demand returns, because of its aggressive restructuring and very low inventory/sales ratio. Guidance is conservative, the balance sheet is strong, and its competitive position remains impressive as the leader in many of its businesses. I'll buy more in the mid-upper $30s.

Gilead Sciences (GILD: Nasdaq, $46.26, 2,300 shares, 3.58%) INDUSTRY SECTOR - HEALTH CARE: The stock finally has rallied, now that it appears a draconian health care reform plan won't be passed. The situation is fluid, but the fundamentals at GILD remain very strong – double-digit growth, strong balance sheet ($4 billion in cash) and a dominant franchise in HIV with a solid pipeline. I bought at $42 last week and will use that level to add again.

Home Depot (HD: NYSE, $26.08, 2,600 shares, 2.28%) INDUSTRY SECTOR - CONSUMER DISCRETIONARY: Costco (COST:Nasdaq) and Nordstrom (JWN:NYSE) both said that the California housing market was improving in terms of sales and traffic trends, and that is good news for HD, as it's one of the company's largest markets. It doesn't report until the Nov, 17, but I expect solid earnings as the macro environment has improved but also because of its internal restructuring efforts (better sourcing, inventory management, capital allocation). I bought 200 shares under $25 this week and will continue to add at that level.

Johnson Controls (JCI:NYSE, $26.23, 4,300 shares, 3.80%) INDUSTY SECTOR - INDUSTRIAL: I was restricted in the shares all week, but this is one of the stocks I want to add to when I can, especially after Ford just reported such a strong quality profit. The news is getting better for autos, and sales are picking up, which is encouraging for the industry, especially since inventories remain at record lows. I also believe its battery business is undervalued and its building efficiency division is poised for better profitability after its restructuring. I'll add to this when I am free to trade around mid-$20s.

JPMorgan Chase (JPM: NYSE, $43.48, 1,900 shares, 2.78%) INDUSTRY SECTOR - FINANCIAL: This is the bank stock I want to make bigger on any pullback. It has held up quite well, given its strong balance sheet, diverse business platform and top-rate risk-management team. Its early-cycle businesses -- capital markets and consumer -- along with its strong capital position make this the one to own as the economy recovers. I may just buy this at the current level, but will give it a chance on a down day to buy closer to $40-$41. I moved it to a One from a Two just in case I pull the trigger anyway. Marathon Oil (MRO:NYSE, $33.68, 2,500 shares, 2.83%): INDUSTRY SECTOR - ENERGY: The company reported better-than- expected earnings this week with stronger E&P production at 5% and 100% utilization rates in its refining/marketing unit, and I added 200 shares because the stock didn't react to the good news. With 98% of its Garyville refinery near completion, the company's cash flow will improve in 2010 along with margins, because it's the lowest-cost refinery being built. At 8 times earnings, the stock is too cheap to ignore, especially since the real exciting part of the story (production growth) is not even recognized yet.

Pepsi (PEP: NYSE, $61.76, 2,700 shares, 5.61%) INDUSTRY SECTOR - CONSUMER STAPLES: The stock did well this week, nearing a new near-term high in price, but the valuation still is cheap at 14.4 times consensus earnings. I think it's trading below its potential because of the bottler deals, and until they both close, there will be a lid on the stock. But therein lies the opportunity to buy it on the cheap, especially for the long term. Currency and commodity costs go in the company's favor this year, and coupled with strong international snack results, this should lead to double-digit earnings this year. The 3% yield doesn't hurt either. I am a buyer here.

Procter & Gamble (PG:NYSE, $61.04, 2,400 shares, 4.93%) INDUSTRY SECTOR – CONSUMER STAPLES: This remains a turnaround consumer staple stock that has best-of-breed brand names and a strong balance sheet, giving it the flexibility to spend on its brands and refocus on its growth strategy. PG plans to spend more on emerging markets, and that will help increase its core organic growth rate, margins and brand equity over time. At 14.6 times earnings, the stock remains well off its median multiple, and along with its 3% yield, I'm a buyer on any "red" days.

Qualcomm (QCOM: Nasdaq, $43.90, 3,200 shares, 4.73%) INDUSTRY SECTOR - TECHNOLOGY: The company reported better- than-expected earnings and guided lower as expected. I think this is the last of the "bad" quarters, and now expectations are now quite low. It also signed its license deal with one of its biggest customers, Samsung, which is a huge relief to investors. QCOM has great prospects for 2010 as 3G becomes more popular and consumers trade up. But it will also benefit as the economy improves overall and asserts its dominance with its vendors. Noncore revenue (Gobi/Snapdragon) could provide additional growth that's not factored into earnings. At 18 times earnings, the stock remains really interesting, considering the growth prospects it has. I'll buy more on a down day at $40-$41.

VF Corp. (VFC:NYSE, $74.47, 1,600 shares, 4.01%) INDUSTRY SECTOR - CONSUMER DISCRETIONARY: The stock rallied nicely this week, and I think the momentum money is finally out of the stock after the "disappointing" quarter. Retail sales this week came in better than expected with notable strength in outerwear, VFC's bread and butter (North Face). I've made this my biggest retail bet in the fund with the weakness in the shares over the last few weeks because of its strong brands, solid balance sheet and global distribution. China is a huge opportunity for the company, where it intends to grow sales until it is one-third of the company. At 12.7 times earnings, the stock remains cheap, below the group and the S&P, and it offers a 3.2% yield. I'll keep buying in the low $70s.

Weatherford International (WFT:NYSE, $17.72, 2,000, 1.19%): INDUSTRY SECTOR - ENERGY: I added 400 shares this week on weakness, because the risk/reward is compelling. The stock trades at a 30% discount to Schlumberger, which is too much in my opinion, especially given the strong international prospects at WFT. One of the largest opportunities for the company is in Iraq, where it has a two-year lead over it peers, given the $15 billion investment in this region by BP and China National Petroleum. I'll continue to buy more around $17.

Wells Fargo (WFC: NYSE, $27.12, 1,900 shares, 1.73%) INDUSTRY SECTOR - FINANCIAL: The overhang on the stock is speculation that it needs to do a secondary. This is despite the company delivering solid earnings – pre- provision earnings were in line (and this is one of the few banks that actually covered its credit costs) and it is containing the problems loans to the Wachovia book (the Wells book actually had sequential improvements). I still believe that normalized earnings are around $4/share, based on the company's large deposit base of $1.3 trillion, increased exposure to capital markets and fewer loan losses over the next two years. WFC had the strongest capital generation in the group this past quarter, and yet investors continue to ignore the improvements. This is also a play on the recovering housing market, which I believe has already bottomed. I'll buy closer to my cost, but the stock is attractive here for the long run.

TWOS:

Bank of America (BAC: NYSE, $15.05, 8,000 shares, 4.05%): INDUSTRY SECTOR - FINANCIALS: The only reason this remains a Two is that the stock could fall if and when it announces a secondary in order to repay its TARP funds. The company already raised $40 billion, but if the government makes it raise more, shares could be under pressure -- which I will then take advantage of. The company is on track for a turnaround as it integrates its businesses and earns more as the economy recovers, especially with the bottoming in housing, as BAC is the second-largest mortgage lender. The normalized earnings are $3/share-plus, making this the cheapest bank stock to own in the large-cap space.

Bristol-Myers Squibb (BMY: NYSE, $22.64, 3,500 shares, 2.67%) INDUSTRY SECTOR – HEALTH CARE: I mentioned the stock on my show this week for its growing presence in its cancer franchise, which I believe is underappreciated. That, along with its focus in immunology, strong, young pipeline, $9 billion cash spot and management's willingness to find any way to create shareholder value (sale, acquisitions, further cost cuts), makes this an attractive bet. Its 5.5% yield makes waiting around to see what management decides worthwhile.

BP (BP:NYSE, $58.43, 1,500 shares, 2.95%) INDUSTRY SECTOR - ENERGY: The real news this week was its official $15 billion investment in Iraq, which along with China National will make it one of the largest players in this resource- rich region. I think WFT will benefit more (which is why it's a One), but this development highlights how focused BP's management is to find new, nontraditional areas to grow its production, and for that I applaud Tony Haywood's efforts. This CEO has done nothing more than outperform expectations via better growth and disciplined cost- cutting, which justifies its premium multiple. The 5.7% yield is icing on the cake.

Chevron (CVX: NYSE, $77.53, 1,700 shares, 4.44%) INDUSTRY GROUP - SECTOR: The shares trade at a premium to the group for a reason: the best sustainable production growth out of the domestic integrated oil companies. This is after several years of disappointment, so investors remain skeptical, and that is why it trades at a discount to Exxon (XOM:NYSE), its largest competitor. But many projects have now been completed (and will be in 2010) providing the growth and visibility. That, along with the strong balance sheet, is key. I'm holding on.

eBay (EBAY:Nasdaq, $23.34, 3,500 shares, 2.75%) INDUSTRY SECTOR - TECHNOLOGY: I bought 200 shares this week and will continue to add on weakness, especially at $20-$21. The company announced technology this week that will make it easier for other companies to use the PayPal on their Web sites. That will lead to further market-share dominance and more growth opportunity for this division beyond the 20% growth it's been posting for some time. As retail improves and the company does more to attract buyers/sellers, earnings will move higher. At 15 times earnings, it's one of the cheapest Internet retail/technology companies out there.

Emerson Electric (EMR:NYSE, $41.23, 1,800 shares, 2.50%) INDUSTRY SECTOR - INDUSTRIAL: The company posted impressive earnings, and I want to buy more of this on a weak day – mid-$30s is ideal. This is one of the highest-quality industrial companies, and it just beat earnings and grew revenue nearly 5% sequentially despite its late-cycle end markets. Process management, its largest division, increased revenue and margins much better than plan, and this demonstrates the strong execution of management. Shares have lagged the group by 20%, which will narrow over time, especially as the economy improves and it benefits from positive operating leverage.

Express Scripts (ESRX:Nasdaq, $85.30, 1,200 shares, 3.45%) INDUSTRY SECTOR – HEALTH CARE: CVS indicated that its pharmacy benefit management (PBM) business was under pressure and lowered its outlook due to market-share losses from both ESRX and Medco Health Systems (MHS:NYSE). While I think the reaction to CVS was an overreaction, it really highlights the strength of ESRX's (and MHS) franchise, execution and ability to grow earnings at 20% per year. I'd love to buy more, but my cost is $67. Closer to that level is where I'll add, especially with generic penetration trends so favorable.

Goldman Sachs (GS: NYSE, $171.78, 800 shares, 4.63%) INDUSTRY SECTOR - FINANCIAL: Activity has been improving on a seasonal basis in capital markets, corporate global finance, cash equities and derivates, and this should continue the strong earnings momentum for the company. The stock has been in a trading range recently, but its valuation continues to be attractive at 1.8 times book and below its historical average at 2.5 times.

Honeywell (HON:NYSE, $37.70, 1,800 shares, 2.28%) INDUSTRY SECTOR - INDUSTRIAL: The company hosted an analyst meeting this week focusing on margin opportunity at its automation and control solutions division, which is 40% of sales. Most importantly, the growth in this division will be supported in the short run by the economic stimulus program, given its focus on building efficiencies. Longer term, this division has excellent prospects, given its IP network technology approach to integrating building controls and new products, especially in green-house capabilities. The stock trades at 9 times free cash flow, which is too cheap for this high-quality franchise. Mid-$30s, I'll buy more. Vale (VALE:NYSE, $27.49, 3,300 shares, 3.05%) – INDUSTRY SECTOR - BASIC MATERIALS: The stock was upgraded this week as strong iron pellet sales and pricing trends continue to surprise to the upside. The macro environment is getting better not only in China but in Brazil, Europe and the U.S., and inventories are at record lows. VALE has one of the best balance sheets, global infrastructure exposure and proactive management teams that will continue to build a better company throughout this downturn. It continues to trade at a discount to its peers, but I'd be more of a buyer in the low $20s just given the run.

Visa (V:NYSE, $79.67, 1,000 shares, 2.68%) INDUSTRY SECTOR - TECHNOLOGY: Shares were upgraded this week as it is obvious that the secular growth tailwinds will lead to consistent double-digit earnings for the next several years. Add on strict cost discipline and strong execution by management, and the story is very powerful. My cost is $59, so I'd have to see a meaningful pullback to buy more. But this remains a core bet.

VMware (VMW:NYSE, $40.07, 1,300 shares, 1.75%) INDUSTRY SECTOR - TECHNOLOGY: Cisco, EMC and VMW announced the much- anticipated joint venture this week which will accelerate and simplify the move toward virtualized cloud-based infrastructure. This new virtualized network package will make it easier for IT managers to use the bundled service/technology, but it doesn't materially change the great long-term story of VMW -- it remains the vendor of choice to building virtualized clouds vs. its competitors, Microsoft and Citrix. Mid-$30s, I am a buyer.

Weyerhaeuser (WY:NYSE, $37.62, 1,000 shares, 1.27%) INDUSTRY SECTOR - BASIC MATERIALS: The shares have stabilized after an impressive quarter last week. The stock caught an upgrade this week, and I expect more to follow as its operating leverage becomes obvious, now that expenses have fallen (in many areas permanently) and pulp prices have begun to rise. Its timber assets alone are worth mid- $30s, offering good support and where I'll continue to buy.

Regards,

Jim Cramer

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DISCLOSURE: At the time of publication, Cramer was long Abbott Labs, Altria, Bank of America, Bristol Myers, BP, Chevron, China Unicom, Cisco, Cooper Industries, EBAY, Express Scripts, Home Depot, Honeywell, Emerson Electric, Gilead Sciences, Goldman Sachs, Johnson Controls, JP Morgan, Marathon Oil, Pepsi, Procter and Gamble, Qualcomm, Vale, Visa, VF Corp, VMware, Weatherford International, Wells Fargo and Weyerhaeuser.