Weekly Roundup

The holiday-shortened week led to a drop-off in volumes, but the flow of economic data was robust and gave us good insight on the U.S. recovery. New- and existing-home sales were much stronger than expected (the 6.1 million annualized rate in existing-home sales is the highest since February 2007) and were a direct result of better affordability (the Case Shiller home price index fell again in October, and prices are now back to levels seen in the fall of 2003), sub-5% mortgage rates and the favorable tax credit environment. Consumer confidence improved from last month, and both personal income and spending were better than forecasts. Durable-goods orders fell, but September's report was revised a full percentage point higher, signaling that demand is still improving.

But the big news -- the most bullish of the news -- came from the Fed minutes, which stated that "rates will remain low for an extended period of time." We need job creation (the initial claims fell for the fourth consecutive week and are now below 500,000), but as long as rates remain low, that is the ticket to keeping liquidity in the system and improving the lending environment. And most importantly, the statement implies no change to the Fed's interest rate policy anytime soon. So despite the dollar rally on Friday (due to the Dubai news), it means status quo -- a weak dollar and higher equity markets. Add in the seasonal trade and portfolio managers chasing the market for performance, and it's just not hard to make a bullish case for the markets between now and year's end.

My strategy is unchanged in owning both economically sensitive stocks (to participate in the recovery) and defensive stocks with attractive dividend yield support. My weightings remain unchanged: overweight industrials, technology, staples, health care and materials (slightly), and underweight financials, energy and consumer discretionary. I am looking at a few discretionary stocks and may add one if Black Friday or Cyber Monday don't pan out as expected. On the short list are Target (TGT:NYSE), Family Dollar (FDO:NYSE) and Costco (COST:Nasdaq). And if the weakness in the commodity stocks continues next week (on Dubai concerns), I'll be adding to Weatherford (WFT:NYSE), Marathon (MRO:NYSE) and some of the industrial stocks.

It was a slow trading week in the portfolio, with just one buy in Weatherford International. The massive underperformance in the stock relative to the other oil- service stocks and its superior international growth exposures make this very attractive. I like the fact that there is insider buying as well. I downgraded Qualcomm (QCOM:Nasdaq) to a Two from a One, because it has moved up since my last purchase, but it remains a core bet.

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ONES:

Abbott Laboratories (ABT: NYSE, $54.08, 2,100 shares, 3.79%) INDUSTRY SECTOR -- HEALTH CARE: Shares were down slightly early in the week on news that its weight-loss drug, Meridia had safety issues. But shares recovered after investors realized that this is immaterial for the company's earnings or growth rate. Also, Medtronic's (MDT:NYSE) earnings surprise showed that the drug-eluting stent market is on the rise -- great for ABT, since it's the leader in this segment. This is the reason I like the stock: It's diversified, has a strong balance sheet and ample cash generation to make smart, accretive acquisitions -- it has done four in the last 12 months. Shares remain cheap at 12.8 times earnings, and its yield continues to be attractive as well, at 3%.

Altria (MO:NYSE, $19.00, 5,000 shares, 3.17%) INDUSTRY SECTOR -- CONSUMER STAPLES: This is one of the cheapest stocks I own in the fund, at 10 times earnings, with a 7% (safe, well covered) dividend. It continues to price aggressively, focus on profitability and remain the dominant leader in the cigarette industry. I thought I'd get a chance to buy the stock closer to $18 after the company was ordered to pay $300 million to a smoker, but the Street shrugged it off (just like I did), because the likelihood of MO having to pay that egregious amount is highly unlikely. My eyes are on this to buy more on any pullback under $19.

Cisco Systems (CSCO: Nasdaq, $23.38, 6,300 shares, 4.92%) INDUSTRY SECTOR -- TECHNOLOGY: Ciena's (CIEN:Nasdaq) bid/win for Nortel's telecom assets was an aggressive move that will take a long time to integrate and get right. I never thought CIEN was a true competitor to CSCO, but this move will distract CIEN for some time, further pushing it down the spectrum. I'm a buyer of CSCO here, because the stock is cheap relative to its historical range (15 times ex-cash vs. its 22-times average), and its dominance continues in core switches and routers. I also like its growth strategy into consumer, video and smartphones.

China Unicom (CHU:NYSE, $13.35, 5,900 shares 2.63%) INDUSTRY SECTOR -- TECHNOLOGY: Last week's announcement from Qualcomm and MTK means there will be cheaper phones in China with WCDMA technology sooner than expected. This will directly benefit CHU and its market growth potential, because the company won't have to issue large subsidies for these kinds of phones (i.e., more profitable business for CHU). The company is well positioned with superior technology, a strong third-party distribution channel and attractive 3G tariff plans. I'm a buyer at the current level.

Cooper Industries (CBE:NYSE, $41.61, 2,400 shares, 3.33%) INDUSTRY SECTOR -- INDUSTRIAL: This still remains one of the best leverage stories in the industrial segment, driven by permanent cost cuts, low inventories and dominant market share in electrical products. Long-term growth drivers are the smart-grid upgrade cycle, energy efficiency and infrastructure builds and the eventual turn in commercial construction. I also like that it has changed its revenue/end-market mix to higher-margin opportunities. This is not fully reflected in its valuation and should provide stronger growth than the market gives it credit for. Its 15- times trough earnings remains attractive and in line with historical levels.

eBay (EBAY:Nasdaq, $23.22, 3,600 shares, 2.79%) INDUSTRY SECTOR -- TECHNOLOGY: The company had outages over the weekend due to the 33% increase in listings and stronger demand. Shares were up on the news (investors are focusing on the fact that business has improved) and will likely continue to be strong into the company's client visits next week. The story remains strong, with the turnaround happening at Marketplace and improved penetration in PayPal. Now that the Skype deal has officially been completed, the company can build the momentum it has started. Shares remain attractive at 15 times earnings, not including the $2 a share in cash and strong balance sheet.

Gilead Sciences (GILD: Nasdaq, $46.56, 2,300 shares, 3.58%) INDUSTRY SECTOR -- HEALTH CARE: The company announced a collaboration with GlaxoSmithKline (GSK:NYSE) to commercialize Viread (its hepatitis B drug) in Asia. This is an extension of its first deal with GSK for Hepsera, GILD's first-generation hepatitis B drug. The market is huge, with over 350 million people affected with hep B, the bulk of them in Asia (about 280 million people in this market); this will lead to strong growth for GILD and Viread. Also, strong IMS sales continue to support growth for its HIV drugs, Truvada and Atripla. The stock didn't react to either data point, and that amazes me. I'll buy more in the mid to low $40s.

Home Depot (HD: NYSE, $27.61, 2,600 shares, 2.40%) INDUSTRY SECTOR -- CONSUMER DISCRETIONARY: Shares have recovered after selling on the news last week with its stronger-than- expected third-quarter report. After the positive housing data this week, the stock is a must-buy here. I'm restricted currently, but I'll be in buying when I am cleared to trade. Positive data points in California and Florida (19% of its sales) are also encouraging. HD continues to execute on its restricting, which positions it well to continue to take share from Lowe's (LOW:NYSE) as it has in the last three quarters. I will keep buying in the mid-$20s.

Johnson Controls (JCI:NYSE, $26.93, 4,300 shares, 3.87%) INDUSTRY SECTOR -- INDUSTRIAL: This is a play on the global recovery in auto and industrial demand. JCI is one of the best-positioned with its No. 1 market share in car interiors and lead batteries. Its energy-efficiency division will benefit from the "going green" theme and the U.S. stimulus efforts. Shares remain attractive at 1.8 times book value, and earnings are conservative (implying little turn in the economy until the second half of 2010). I'll buy more when my restrictions are lifted.

JPMorgan Chase (JPM: NYSE, $41.33, 2,100 shares, 2.90%) INDUSTRY SECTOR -- FINANCIAL: This is my favorite bank, and I will continue to buy in the low $40s. Credit costs remain high for the industry, but JPM is the best-positioned, with over $30 billion in reserves that will be run off (a "typical" year is $10 billion), leading to strong earnings power of $5.50-$6. It continues to gain market share in much of its business and is led by the best management team (which includes its risk team as well) in the industry. At 7.5 times normalized earnings, the stock remains a buy for the long run.

Marathon Oil (MRO:NYSE, $32.63, 2,600 shares, 2.83%) INDUSTRY SECTOR -- ENERGY: Valero announced that it will close its Delaware refinery, proving how difficult it has been for this market. Marathon remains the best-run refiner with its holistic approach and more productive assets, and cash flow in this division should improve dramatically in 2010 after the Garyville refinery is completed. Its exploration and production division doesn't get enough credit for its above-average growth (3%-5% until 2013 on its existing book). The sum of the parts gets me $40, so I'll keep buying on weakness.

Pepsi (PEP: NYSE, $62.30, 2,700 shares, 5.62%) INDUSTRY SECTOR -- CONSUMER STAPLES: The company was mentioned in Barron's as one of the best dividend stocks to own, and that is what I've been saying for the last year. It has the best international snack franchise, with aggressive expansion plans into faster-growing markets such as China and Russia. Its acquisition of its largest bottlers will lead to better control (from product design to distribution) and likely higher synergies than analysts expect. At 14.7 times earnings, the stock remains attractive.

United Parcel Service (UPS:NYSE), $57.43, 700 shares, 1.34%): INDUSTRY SECTOR -- TRANSPORTATION: The company issued new rates for 2010, including an average increase of 4.9% for its UPS Ground packages and an average net increase of 4.9% for all air express and U.S.-origin shipments, above the 3.8% historical price increases. Perhaps more important was the company's decision to keep pricing rational within its Ground packages, choosing to focus on superior service vs. its competition. This continues to be a play on the global economic recovery, and the valuation disparity relative to Federal Express (FDX:NYSE) makes this more compelling. I'll buy more on a pullback to the mid-$50s.

VF Corp. (VFC:NYSE, $72.32, 1,600 shares, 3.86%) INDUSTRY SECTOR -- CONSUMER DISCRETIONARY: If the stock is weak on disappointing retail holiday sales over the next several weeks, I will buy more (around $70). It has the best franchise with well-known brands (North Face, Vans, Wrangler, Lee, 7 for Mankind), a strong balance sheet (it will generate $700 million in free cash flow this year) and an attractive growth strategy beyond the U.S. into faster markets like China. The 3.3% yield and attractive valuation, 12.8 times earnings, make this one to keep.

Weatherford International (WFT:NYSE, $16.43, 2,200, 1.21%): INDUSTRY SECTOR -- ENERGY: I bought 100 shares this week and will continue to buy on weakness. Shares were down this week after CSFB lowered earnings estimates on concerns about slowing growth in Mexico. This isn't new information, and I think the valuation disparity over Schlumberger (SLB:NYSE) and Halliburton (HAL:NYSE) is too much, given that WFT stands to grow its international division more than the industry. And it has more leverage to the turn in activity and pricing, driven by higher capex budgets.

TWOS

Bristol-Myers Squibb (BMY: NYSE, $25.38, 3,500 shares, 2.97%) INDUSTRY SECTOR – HEALTH CARE: The company received good news by the FDA, which approved the supplemental New Drug Application for Abilify for the treatment of irritability associated with autistic disorder in pediatric patients ages 6 to 17 years. Also, it extended its collaboration with Asterand for access to its products and services for up to three years in drug discovery of human tissue. Both of these announcements show management's commitment to grow its franchise internally and find new areas of opportunity. I applaud the move and continue to view this as an attractive stock at 10 times earnings with its above-average 5% yield.

BP (BP:NYSE, $58.11, 1,500 shares, 2.91%) INDUSTRY SECTOR -- ENERGY: I continue to like the above-average growth prospects (especially its growth potential in the Gulf of Mexico), cost-cutting and productivity enhancement efforts companywide, and cash flow improvement. It still yields close to 6%, which is the highest in the industry; that alone justifies the premium multiple.

Chevron (CVX: NYSE, $78.17, 1,700 shares, 4.44%) INDUSTRY SECTOR -- ENERGY: This is the highest-caliber integrated oil company, with its above-average growth and strong balance sheet. The company just put up 11% growth in its last quarter and is on track to beat its guidance for fourth-quarter production as well. Shares still trade at a discount to Exxon Mobil (XOM:NYSE), which makes no sense given CVX's superior growth profile and 3.4% dividend yield. I have mid-$80s as a conservative target and will hold until then.

Emerson Electric (EMR:NYSE, $41.50, 1,800 shares, 2.49%) INDUSTRY SECTOR -- INDUSTRIAL: The company released trailing three-month orders for October, which improved sequentially; this represents the fourth month in a row of improvement. Growth in industrial automation, network power, appliances and tools and climate control more than offset weaker results in process management (although including the currency benefit of 18% orders fell just 5% to 10%). Impressively, climate technologies posted a 5% year-over-year growth improvement for the first time since September 2008. The story remains on track, and demand is slowly turning. EMR has lowered its inventories and costs meaningfully and will benefit from the recovery. Mid-$30s is closer to my buy level.

Express Scripts (ESRX:Nasdaq, $85.74, 1,200 shares, 3.44%) INDUSTRY SECTOR -- HEALTH CARE: Shares continued to work higher this week, because health care reform will not be a material threat to the health care industry -- especially the pharmacy benefit managers. The generic penetration is a huge tailwind for the industry, especially as Plavix and Lipitor go off-patent in the next few years. The NextRx acquisition is a great addition to ESRX, and management will provide more detail of the accretion in February. Realistically, it could be more than the $1 billion in incremental EBITDA that the company has stated. Low $90s is my short-term target.

Goldman Sachs (GS: NYSE, $164.16, 800 shares, 4.39%) INDUSTRY SECTOR -- FINANCIAL: Shares remain in a trading range and likely will continue with the absence of any fundamental news or details on financial services reform. I'm looking to trim this position at $180 to right-size the bet and take the 60% gain. But it continues to be one of the leaders, with industry-high ROE, very strong liquidity ($165 billion) and market-share dominance in trading and principal investing.

Honeywell (HON:NYSE, $38.48, 1,800 shares, 2.31%) INDUSTRY SECTOR -- INDUSTRIAL: This continues to be one of the cheapest industrial stocks, and its focus on costs and profitability generates above-average cash flow. This positions the company well for when the aerospace market turns, and that is where HON dominates. The yield remains attractive at 3.1%, but I'm a buyer in the mid-$30s.

Procter & Gamble (PG:NYSE, $62.48, 2,400 shares, 5.01%) INDUSTRY SECTOR -- CONSUMER STAPLES: The turnaround continues as the company uses its strong free cash flow to reinvest in its brands and improve its geographic focus in emerging markets. After recently beating earnings and core sales figures, the company is on the right track for further market-share gains and better results. Buybacks and dividends remain a priority, and its discounted valuation continues to make this an attractive investment for the long run. I'm a better buyer in the mid-$50s.

Qualcomm (QCOM: Nasdaq, $44.99, 3,200 shares, 4.81%) INDUSTRY SECTOR -- TECHNOLOGY: This is still the best 2010 story in technology as the smartphone demand continues to expand (-7% in 2009 to 8% in 2010). QCOM has strong customers and is positioned to gain share with them, along with adding new clients. Its growth beyond handsets (netbooks) provides additional opportunity that is not factored into the share price. At 17.5 times earnings, the stock trades at a discount to its long-term average of 22 times. I last bought around $41 and may trim if it gets back to its old high of $48 (to reduce my cost basis), so I moved this to a Two from a One just in case it gets there.

Vale (VALE:NYSE, $28.85, 2,500 shares, 2.41%) INDUSTRY SECTOR -- BASIC MATERIALS: This continues to be a great long-term story with exposure to global markets around the world, including China, Europe and Brazil. It's hard to find high-quality iron ore, and low-cost operations give the company an advantage over its peers; that should lead to valuation catch-up as investors realize it. Shares may be volatile in the next few weeks, as iron ore talks have begun between China and the mining industry, but I expect a favorable outcome and would use any weakness in the mid to low $20s to build up this position.

Visa (V:NYSE, $80.33, 1,000 shares, 2.68%) INDUSTRY SECTOR - - TECHNOLOGY: This is probably the best secular growth story I have in the fund as consumers transition from cash and checks to credit and debit card transactions. Visa dominates the industry in both credit and debit and has locked up 75% of its client contracts for the next two years. It not only guided to 20% growth in earnings for 2010 but for 2011 as well. That's worth a premium multiple - - more than where it's trading at now. I'm a buyer in the low to mid $70s (just given my $59 cost base), but this will remain a core, especially since credit card legislation is likely off the table.

VMware (VMW:NYSE, $41.30, 1,300 shares, 1.79%) INDUSTRY SECTOR -- TECHNOLOGY: Shares are off only $3 from their high as investors continue to put money to work in this terrific growth technology story. The company dominates the virtualization market with elite clients and a two-year technology lead. I'll continue to hold on to this and am looking to add on material weakness in the mid-$30s.

Weyerhaeuser (WY:NYSE, $37.69, 1,000 shares, 1.26%) INDUSTRY SECTOR -- BASIC MATERIALS: Favorable housing data bodes well for the company, as 80% of its sales are tied either directly or indirectly to this market. Pulp prices continue to firm, and inventories are gradually recovering. I believe the company converts to a REIT next year, which is worth around $45 a share, and I will hold on to this position as a result.

Wells Fargo (WFC: NYSE, $27.14, 1,900 shares, 1.72%) INDUSTRY SECTOR -- FINANCIAL: Shares have held up well despite continued rumors of a secondary, which I think are not likely. I believe earnings power remains strong, given its reserve base and synergies with Wachovia. I'll wait for mid-$20s to add to this position, which is closer to my cost basis.

THREE:

Bank of America (BAC: NYSE, $15.47, 8,000 shares, 4.13%) INDUSTRY SECTOR: FINANCIALS: This remains a Three because I will pare back this bet into strength once my restrictions are lifted (looking to do so at around $18-$19). I like the long-term story and the leverage to housing, the economic recovery and the integration of Merrill and Countrywide. But without a CEO to lead the charge, it will be a while until there is a meaningful turn, and the stock could buy time. I would applaud Ken Lewis (big statement, because I was a huge critic of his) coming back, because he would provide a smoother transition, but the fact that the board didn't realize this to begin with is disheartening. I'll trim it back if I get the chance and build up JPMorgan, which remains the one to own here.

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, United Parcel Service, Vale, Visa, VF Corp, VMware, Weatherford International, Wells Fargo, and Weyerhaeuser