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Jim Cramer's Action Alerts PLUS

Weekly Roundup

By Jim Cramer and Jack Mohr | 04/29/16 - 05:07 PM EDT

Equities were flat for the majority of the week as the positives from rallies in crude, strong earnings reports and a dovish tone from the Fed were offset by some weaker-than-expected earnings and sluggish economic figures. The trend quickly reversed and headed south Thursday afternoon, however, as some cautious comments by Carl Icahn regarding Apple exacerbated what was already a fragile environment given a disappointing policy statement by the Bank of Japan overnight (which voted to leave its monetary policy unchanged while expectations had called for further easing measures given the recent rally in the yen and diminishing inflation expectations) and a less-than-inspiring domestic GDP growth estimate released in the morning. The selloff pushed into Friday as investors pulled back from what has been a relatively steady climb over the last 2½ months. Next week, we get the comprehensive jobs report for April, which will give us an idea of whether one of the economy's bright spots thus far remained strong enough to support a cautiously optimistic outlook moving forward.

Treasury yields ticked lower this week; the dollar steadily weakened against the euro; gold climbed higher; and both West Texas Intermediate (WTI) and Brent crude traded higher.

First-quarter equivalent earnings have been relatively mixed, but somewhat positive compared with expectations, as 75.3% of companies have surprised to the upside vs. estimates. Within the portfolio, Lockheed Martin, Panera, Apple, Twitter, PayPal, Facebook, Thermo Fisher, Dow Chemical and American Electric Power all reported earnings.

Lockheed Martin (LMT:NYSE) reported a top-line beat with its first-quarter results as revenue of $11.7 billion (up 15.7% year over year) came in ahead of consensus of around $11.3 billion. On the bottom line, headline EPS of $2.58 was roughly in line with consensus, while adjusted EPS of $2.79 beat by 18 cents. Diving deeper into the release, the aeronautics segment stole the show with revenues that were up over 21% year over year due to larger volumes in the company's signature F-35 jet program. As for the Information Services & Global Solutions (IS&GS) division, sales declined 4% year over year (y/y) due to the wind-down of certain IT solutions programs and higher competition. The mission systems and training segment saw a 52% increase in net sales y/y, but we note this was largely due to the inclusion of Sikorsky's results ($990 million of the $1 billion increase).

Panera Bread (PNRA:Nasdaq) delivered a beat and raise in the face of high expectations, with earnings per share of $1.56 topping consensus of $1.50 and comparable store sales growth (a.k.a. "comps") of 6.2% at company-owned stores and 3.3% at franchise locations, well above consensus of 5.3% and 3.1%, respectively. At the same time, management raised full-year 2016 EPS guidance to $6.50-$6.70 (from $6.33-$6.52 and $0.05 above consensus at the midpoint) and comp guidance for company-owned stores to 4% to 5%, from 3.5% to 4.5%. Importantly, Panera's robust company-owned comp growth of 6.2% was driven by 3.8% in price increases (well above 2.5% estimates). The strong growth was accompanied with operating margin expansion of 40 basis points. Separately, management indicated that comps at company- owned stores were up 4.4% in the first 27 days of the second quarter.

In what was expected to be a tough quarter for Apple (AAPL:Nasdaq), fiscal-second-quarter results for the company came in below consensus on both the top and bottom lines. Revenues of $50.55 billion missed analysts' $51.97 billion consensus, while the $1.90 in earnings per share that Apple reported fell roughly 10 cents short of consensus. As for guidance, Apple said it now sees third- quarter revenues at $41 billion to $43 billion vs. analysts' $47.32 billion consensus. For the quarter, sales of 51.2 million iPhone units actually came in slightly better than consensus expectations for 50.5 million. Apple also announced a $50 billion increase to its capital-return program, including a $35 billion boost to the company's share-repurchase authorization. Additionally, the tech giant added $15 billion (or 10%) to its quarterly dividend, boosting the payout to 57 cents per share, or $2.28 on an annualized basis. CEO Tim Cook highlighted growing revenue contributions from Apple's services business as a key positive.

Twitter (TWTR:NYSE) reported a bottom-line beat with EPS of 15 cents coming in better than the expected 10 cents. The (far more important) reported sales of $595 million (up 36% year over year) fell well short of expectations for $608 million (recall from our earnings preview that the company had guided for between $595 million to $610 million for this quarter). Mobile advertising was responsible for 88% of the company's total advertising revenue, a trend that at least demonstrates Twitter is capitalizing on the importance of the shift to mobile. U.S. revenue totaled $390 million (up 35% year over year) and international revenue totaled $204 million (up 39% year over year). Excluding FX headwinds, however, international revenue would have increased 46%. As for the all-important user metrics, the platform returned to user growth this quarter as it saw a sequential increase of 5 million monthly active users (MAUs) to 310 million MAUs total, narrowly beating expectations.

PayPal (PYPL:Nasdaq) delivered top- and bottom-line beats, with first-quarter EPS of $0.37 (+28% year over year) coming in 2 cents ahead of consensus, revenues of $2.54 billion (+19% year over year) topping $2.5 billion consensus. Meanwhile, the company gained market share and extended its leadership position, evidenced by 31% growth in merchant TPV, to $81 billion. Merchant services TPV growth accelerated to 39% on a constant-currency basis, and represented 82% of overall TPV for the quarter. The company processed $21 billion in mobile payments volume, up 54%, representing 26% of TPV. The company's social payments platform, Venmo, processed $3.2 billion of TPV, up 154% year over year. Finally, PayPal announced a partnership during the quarter with one of Europe's largest mobile carriers, Vodafone, that will allow millions of the company's European customers to fund payments on Android smartphones at Visa contactless terminals using the Vodafone Wallet.

Facebook (FB:Nasdaq) reported revenues of $5.4 billion (up 52% year over year), which came in roughly $150 million above consensus, and EPS of 77 cents (compared with 42 cents in the first quarter of 2015) that walloped consensus of 62 cents. Digging deeper into the release, advertising revenue was up 57% year over year to $5.2 billion, and mobile ad revenue, to our delight, increased to 82% of total ad revenue (up from 80% last quarter and 73% from a year ago). As for user metrics, daily active users (DAUs) were 1.09 billion (up 16% year over year), mobile DAUs were 989 million (up 24% year over year), monthly active users (MAUs) were 1.65 billion (up 15% year over year) and mobile MAUs were up 1.51 billion (up 21% year over year). These also proved to be increases on a sequential basis and beat consensus estimates across the board.

Thermo Fisher (TMO:NYSE) announced an incredibly strong first quarter, delivering a beat across the board, with revenues of $4.29 billion (up 9.6% year over year) outpacing consensus expectations by almost $200 million and EPS of $1.80, 6 cents better than consensus. Organic revenue growth in the quarter came in at more than 10%, even with a 2% headwind from currencies, confirming positive underlying growth trends in the company's end markets and business segments. Lab Products were particularly strong in the quarter, representing 14% organic growth (second consecutive quarter of double- digit growth). Specialty diagnostics and life sciences solutions also posted double-digit organic growth in the quarter. Importantly, China, which experiences a high degree of scrutiny from investors, continued to demonstrate its resilience with double-digit growth. Perhaps most importantly, management raised full-year guidance to reflect a better FX environment, incorporate Affymetrix and account for this strong performance.

Dow Chemical (DOW:NYSE) reported a top- and bottom-line beat with its first-quarter results. EPS of $0.89 came in $0.06 better than consensus. EPS has now grown for 14 consecutive quarters on a year-over-year basis, driven by margin expansion through the company's geographic breadth, end-market focus and strength of business model. Revenues of $10.7 billion (down 8% year over year excluding divestitures) were slightly higher than consensus expectations of $18.66 billion. In the quarter, volumes were up 4% (excluding impact of divestitures and acquisitions) compared with last year, the 10th consecutive quarter of year-over-year growth, demonstrating continued underlying strength and positive business trends. By geography, North America led the way with volumes up 6% while Europe/Middle East/Africa was up 4% and Asia Pacific was up 3%. More specifically, China and India, two of Dow's most important emerging markets, were up 5% and 13%, respectively. Latin America was predictably weak, with volumes coming in 4% lower than last year.

Finally, American Electric Power (AEP:NYSE) reported a miss, with earnings per share of $1.02 coming in 2 cents below consensus while sales of $4 billion were short of the $4.5 billion consensus. The company reaffirmed its 2016 EPS outlook of $3.60 to $3.80, which implies 4% to 6% growth and is in line with consensus at the midpoint.

On the economic front, the Federal Reserve left interest rates unchanged on Wednesday following its policy meeting and remained ambiguous about its outlook for any further rate increases moving forward. From a high level, the Fed sees mixed global economic figures and persistently low U.S. inflation as holding back the case for further tightening. The Fed continues to leave room for a rate hike in June, but made sure not to signal any definite movements should the underlying trends remain uninspiring.

Fed officials also noted in their statement that the domestic labor market continues to improve despite what may be a decelerating economic growth environment. Even though real income and consumer sentiment have increased, spending has continued to diminish. This remains surprising considering the savings consumers have built up on lower gas prices over the last couple of months.

The economy still seems to be on fragile footing, and although there are some underlying positives, the Fed's decision to leave rates unchanged underscores the lack of confidence in global stability. That being said, Fed officials did seem incrementally more encouraged on the outlook as they struck a line from their March statement on the risks posed by the international situation and instead noted that they "continue to closely monitor inflation indicators and global economic and financial developments."

We look ahead to the June policy meeting, where Fed officials will have an extra two months' worth of economic data to help inform decisions about rate hikes for the remainder of the year. Until then, we suspect expectations for rate hikes to remain muted unless we see a quick turnaround in inflation and a softening of global uncertainties. All in, even though the Fed hasn't given any update on specific timing, there have been no definitive indications that it will back off its projection last month for a half-point rate increase by the end of the year (likely in two quarter-point increments).

On Thursday, the Department of Labor reported that initial jobless claims for the week ending April 16 were 257,000, 9,000 claims lower than the previous week's revised figure and 3,000 claims lower than expectations. The four-week moving average for claims (used as a gauge to offset volatility in the weekly numbers) fell 4,750 claims to 256,000, which is the lowest four-week average since December 1973. Claims have remained below 300,000 - - the threshold typically used to categorize a healthy jobs market -- for 60 straight weeks, which is still the longest streak since the early 1970s. The jobs market has clearly remained strong to start the year and we will get a better idea of April's comprehensive performance when we get the jobs report next week.

Also on Thursday, the Commerce Department reported that the U.S. gross domestic product (GDP) increased sluggishly by 0.5% (compared with expectations for a 0.7% increase) in the first quarter of the year, marking the slowest performance in two years. Although this is just the first estimate (and revisions are likely), this paints an anemic growth picture for the economy to kick off the year. We will note, however, that the second quarter typically shows acceleration from the first quarter. The slow growth thus far is not a new trend and leaves the door open for better months ahead. GDP shrank in the opening quarter of 2014 and continued the trend in 2015, only to bounce back to the trajectory typical of the expansion (GDP, in aggregate, advanced 2.4% in 2014).

That being said, the concern here is that GDP has continued to decelerate since the 3.9% growth demonstrated in the second quarter of last year. Global economic stability has remained a thorn in the side of economic growth. Net exports were shown to have declined, reflecting a continued strong dollar (despite some recent weakness) and spotty demand from overseas, which is telling of the health of global economies.

In addition, relatively low gasoline prices and steady job gains haven't been enough to spark increased consumer spending, which has been on a downward trajectory for three consecutive quarters. Personal consumption, which accounts for more than two-thirds of economic output, was reported to have expanded at a 1.9% rate while expenditures on goods only ticked higher by 0.1%, the slowest pace in nearly five years. Spending on services did climb 2.7%.

Although the overall figure is disappointing, we do note that these initial estimates often receive healthy revisions as the year progresses. We are not discounting the weakness, but we do continue to see pockets of strength and improvements in other key areas (e.g., construction and a weakening dollar).

On the commodity front, oil prices hit fresh 2016 highs multiple times this week as the steadily weakening dollar continued to provide a boost despite the global oversupply that remains, for now. Oil prices have risen over 75% in the last three months or so, bouncing off the 12-year lows they cracked toward the end of January. In April alone, the two major benchmarks are up almost 20%. The dollar, meanwhile, has declined roughly 6% year to date.

Ultimately, while we expect concerns to remain regarding the persistent oversupply of crude across the globe, and the continued efforts of Iran and Saudi Arabia to boost production, we also recognize that the environment seems to be stabilizing with increasing demand. That being said, there continues to be uncertainty despite the push higher. The environment has certainly improved, but the issues have not simply disappeared. On Friday, we even got news that OPEC producers likely increased their output this month as the failure to reach an agreement in Doha encouraged some producers to boost production in the fear of losing market share. Rising prices as of late could also incentivize some U.S. producers to ramp up activity, a move that would only intensify the oversupply. For now, the market is benefiting from improved sentiment, but we remain on fragile footing.

Within the portfolio this week, we initiated a position in Citi (C:NYSE) and closed out our Bank of America (BAC:NYSE) position. Shares of BAC were trading nearly 35% higher since their mid-February low of $10.99, and we view Citi as a better large-cap bank play at a more compelling valuation, with shares trading at a 26% discount (or 0.74x) to first-quarter reported TBV of $62.59 a share. In the end, we have greater appreciation for Citi's increased regulatory transparency and visibility, both of which make it a more reliable investment than BAC moving forward.

Moving onto the broader market, first-quarter earnings have been relatively mixed, but positive compared to estimates. Total fourth-quarter earnings growth is down 5.1%; of the 213 non-financials that reported, earnings growth is down 2.9% vs. expectations for a 9.2% decrease. Revenues have decreased 0.6% vs. expectations throughout the season for a 1.17% decline; 75.3% of companies beat EPS expectations, 16.6% missed the mark and 8.1% were in line with consensus. On a year-over-year comparison basis, 63.6% have beaten the prior year's EPS results, 32.7% have come up short, and 3.7% were virtually in line. Consumer discretionary, health care and industrials have led the relatively strong performance vs. estimates, whereas financials, telecom and utilities have posted the worst results in the S&P 500 thus far.

Next week, earnings season continues in full swing and 119 companies in the S&P 500 are set to report. In the portfolio, Kraft Heinz (KHC:Nasdaq) and Occidental Petroleum (OXY:NYSE) will report earnings. Other key reports include: CNA Financial (CNA), Diamond Offshore (DO), Loews Corp. (L), Sysco (SYY), American International Group (AIG), Anadarko Petroleum (APC), Cabot (CBT), Chegg (CHGG), Chemours (CC), Denny's (DENN), Edison (EIX), Horace Mann (HMN), Luminex (LMNX), Olin (OLN), Owens-Illinois (OI), Tenet Healthcare (THC), Texas Roadhouse (TXRH), Arrow Elec (ARW), Clorox (CLX), Cummins (CMI), CVS Health (CVS), Duke Energy (DUK), Ecolab (ECL), Emerson (EMR), Estee Lauder (EL), Fresenius Medical (FMS), Frontier Communications (FTR), GrubHub (GRUB), Haliburton (HAL), Hyatt Hotels (H), Henry Schein (HSIC), Mallinckrodt (MNK), Molson Coors (TAP), Mylan Labs (MYL), New York Times (NYT), Pfizer (PFE), Pitney Bowes (PBI), RR Donnelley (RRD), Sprint (S), Starwood Hotels (HOT), Valero Energy (VLO), Aqua America (WTR), Avis Budget (CAR), CBS (CBS), Etsy (ETSY), Live Nation (LYV), Match Group (MTCH), Noodles & Co. (NDLS), Papa John's (PZZA), XPO Logistics (XPO), Zillow (ZG), Anheuser-Busch (BUD), CDW (CDW), Choice Hotels (CHH), Dominion (D), Hain Celestial (HAIN), Halyard Health (HYH), Kate Spade (KATE), Priceline (PCLN), PG&E (PCG), Royal Dutch Shell (RDS.A), Shopify (SHOP), Vitamin Shoppe (VSI), Zoetis (ZTS), 21st Century Fox (FOXA), Allstate (ALL), Arris (ARRS), Chubb (CB), Energy Transfer Partners (ETP), Energy Transfer Equity (ETE), McKesson (MCK), MetLife (MET), Prudential (PRU), Tesla (TSLA), TripAdvisor (TRIP), Whole Foods (WFM), 3D Systems (DDD), Alibaba (BABA), AmerisourceBergen (ABC), Becton Dickinson (BDX), Blue Nile (NILE), Chesapeake Energy (CHK), DineEquity (DIN), Discovery (DISCA), Merck (MRK), MGM Resorts (MGM), Mobileye (MBLY), Radius Health (RDUS), Regeneron Pharma (REGN), Activision Blizzard (ATVI), Bojangles' (BOJA), DreamWorks Animation (DWA), El Pollo Loco (LOCO), EOG Resources (EOG), FireEye (FEYE), Fiserv (FISV), GoPro (GPRO), Mohawk (MHK), Motorola (MSI), News Corp. (NWSA), Square (SQ), Wingstop (WING), Yelp (YELP), CIGNA (CI), Exelon (EXC, and Berkshire Hathaway (BRK.B)

Economic Data (*all times EST)


Monday (5/2)

Markit US Manufacturing PMI (9:45): 51.0 expected

ISM Manufacturing (10:00): 51.5 expected

ISM Prices Paid (10:00): 51.5 expected

Construction Spending MoM (10:00): 0.5% expected

Tuesday (5/3)

Wednesday (5/4)

MBA Mortgage Applications (7:00):

ADP Employment Change (8:15): 200k expected

Trade Balance (8:30): -$46.5 billion expected

Markit US Services PMI (9:45): 52.4 expected

Markit US Composite PMI (9:45):

ISM Non Manufacturing Composite (10:00): 54.8 expected

Factory Orders (10:00): 0.8% expected

Thursday (5/5)

Initial Jobless Claims (8:30):

Continuing Claims (8:30):

Bloomberg Consumer Comfort (9:45):

Friday (5/6)

Change in Nonfarm Payrolls (8:30): 200k expected

Change in Manufacturing Payrolls (8:30): -5k expected

Unemployment Rate (8:30): 5.0% expected


Monday (5/2)

Japan Vehicle Sales YoY (1:00):

Germany Markit Manufacturing PMI (3:55): 51.9 expected

Eurozone Markit Manufacturing PMI (4:00): 51.5 expected

China Caixin PMI Manufacturing (21:45):

Tuesday (5/3)

UK Markit Manufacturing PMI (4:30): 51.2 expected

Wednesday (5/4)

UK Markit Construction PMI (4:30): 54.1 expected

Germany Markit Services PMI (3:55): 54.6 expected

Germany Markit Composite PMI (3:55): 53.8 expected

Eurozone Markit Services PMI (4:00): 53.2 expected

Eurozone Markit Composite PMI (4:00): 53.0 expected

China Caixin PMI Services (21:45):

China Caixin PMI Composite (21:45):

Thursday (5/5)

UK Halifax House Prices (3:30):

UK Markit Services PMI (4:30):

UK Markit Composite PMI (4:30):

Japan Monetary Base YoY (19:50):

Japan Nikkei PMI Services (22:00):

Japan Nikkei PMI Composite (22:00):

Friday (5/6)

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Apple (AAPL:Nasdaq; $93.74; 820 shares; 3.23%; Sector: Technology): Shares sold off this week following disappointing quarterly results and a subsequent announcement from Carl Icahn, who noted he had exited his position in the name. We had expressed our increasingly cautious view on shares heading into the print, advising subscribers to avoid buying the name despite low sentiment as the shareholder base has increasingly shifted from long-term fundamental investing toward short-term, event-driven trading (with the event being March- and June-quarter iPhone unit sales and associated gross margins). This has blinded the market to the company's long-term earnings potential -- a rash yet true reality that should weigh on the shares of Apple for the near future. On the conference call, the two major themes that emerged were growth in China and margin deterioration. Although China sales were down for the year, we do note the results were lapping a 70% gain in the prior year. We ultimately view China as a long-term play as LTE penetration increases and the middle class continues to expand. We also see great opportunity in India, where CEO Tim Cook noted he sees the same opportunity as he did in China 10 years ago. As for margins, management indicated that demand for the iPhone SE (which launched on March 31) is trending well above Apple's expectations, adding a boost to overall margins. On the flip side, the lower ASP for SE units and associated mix has a negative impact on margins. Also, as the 6 cycle is in the late innings, with supply for the high-end, higher-ASP 6/6s being replaced by demand for the cheaper SE, there is excess supply for the higher- priced phones. This forced the company to reduce inventory of the high-end phones, further compressing margins. All that said, we remain confident in Apple and continue to view it as a long-term investment. Its robust capital return program (which was increased along with the release of this quarter's results), growing corporate iPhone demand, high switch rates from Android and a burgeoning services business (which is unappreciated by the market) all paint a brighter picture moving forward. Bottom line, we believe Apple has an abundance of additional growth drivers that can propel earnings long term. Unfortunately, the long term is irrelevant for the time being, as the focus exclusively rests on whether or not it'll hit its next-quarter targets/sell-side forecasts. For this reason, and in light of near-term sales and earnings weakness, we lowered our 12-month price target to $130 from $140, which reflects 12x our reduced 2017 EPS estimates ex-cash.

Allergan (AGN:NYSE; $216.56; 500 shares; 4.55%; Sector: Health Care): Shares slipped lower this week as uncertainty continues to plague this name. This is not unexpected, however, as we have maintained our view that shares would continue to be volatile until investors are given some clarity into the future. How and when will this happen? The first soft catalyst is the company's earnings report on May 10, where management has the chance to demonstrate the continued strength of its budding pipeline and core franchises. The company has been in a blackout period, which restricts management from providing incremental visibility around its business operations prior to its quarterly release. We expect CEO Brent Saunders to answer many questions on the quarterly conference call regarding the path of the business moving forward. The closing of the generics sale to Teva (TEVA) is the next catalyst, expected in June. Two weeks ago, we sited our confidence that the deal will close; it just simply needs some time (click here to read our Alert). Recall that the terms were already approved in the EU but are awaiting approval in the U.S. In the end, we expect Allergan to emerge from the hole it has been buried in by investors -- following the closing of the generics sale, AGN will have an enormous cash windfall that can be used to pay down debt, fund tuck-in or transformational acquisitions, and further beef up its industry-leading pipeline. For this embattled name, we think patience will be rewarded, but recognize that change will not happen overnight. With that said, we reiterate our $270 conservative price target, but note that we see upside as investors are given more clarity into the future.

Cisco Systems (CSCO:Nasdaq; $27.49; 3,200 shares; 3.70%; Sector: Technology): Shares traded lower this week on little news. We continue to believe the company is being valued as a mature, "old tech" business despite its burgeoning cloud presence, which should lead to outsized earnings growth over the long term. Its powerful capital allocation program -- marked by a 3.8% dividend yield and massive buyback program -- pays investors as they sit back and witness the market re-rate shares to the upside. In fact, we view its juicy dividend as highly attractive against the backdrop of a "lower for longer" rate environment. We reiterate our $30 price target and maintain our One rating due to the attractive dividend and the combination of value and growth offered by the investment.

Citigroup (C:NYSE; 46.28; 1,600 shares; 3.11%; Sector: Financials): We initiated a position in Citigroup this week as we exited our Bank of America (BAC) position. We have become incrementally encouraged by Citigroup's increased regulatory transparency/visibility and discouraged by Bank of America's lack thereof. While interest rates, trading/banking activity, loan/deposit growth and operational efficiencies are deeply important to large-cap banks, regulatory stability and support have emerged as equally, if not more, important factors post- financial crisis. Regulators can single-handedly determine a bank's future, whether it be through controlling their capital return programs, enforcing penalties and/or outright overhauling a bank's entire business model. We appreciate Citigroup's efforts to shrink its assets (it is now the fourth-biggest U.S. bank by assets, down from No. 1), simplify its operations (consolidating its subsidiaries) and strengthen/standardize its internal reporting/oversight mechanisms since the financial crisis, in particular over the last two years. Since its peak in 2007, it has shed over 26% of its assets and continues to sell or shutter businesses, and now has fewer than 800 branches in the U.S., down from more than 3,500 in 2007. We are also impressed by the company's better-than-expected total trading revenue (which declined by the lowest amount vs. its large-cap U.S. banking peers), expense management (with a 61.3% efficiency ratio, 620 basis points higher year over year), and solid Tier 1 Common Equity (CET 1) ratio of 12.3%, which is far stronger than expected and represents core capital strength. Our $55 price target represents 0.8x 2016 consensus TBV, which still represents a major discount to peer-group average of 1.5x 2016 consensus TBV.

Costco Wholesale (COST:Nasdaq; $148.13; 500 shares; 3.11%; Sector: Consumer Staples): Shares traded lower this week on little news (outside of one downgrade). We believe investors are concerned that Amazon's (AMZN) strong quarter suggests it may be taking share from retailers such as Costco. This is unlikely, considering Costco's prices are lower than Amazon's on an aggregative and product-specific basis. That said, we would not be surprised to see COST shares struggle short term as traffic and average ticket growth may be subdued by its transition from AmEx (AXP) cards to Visa (V:NYSE) cards, with the transition taking place in mid-June. We reiterate our $175 target.

Dow Chemical (DOW:NYSE; $52.61; 1,400 shares; 3.10%; Sector: Chemicals): Shares traded slightly higher this week after getting an initial boost from DuPont's (DD) positive results in the beginning of the week and then further affirming its solid outlook with its own quarterly report later in the week. The highlights of the quarter were the better-than-expected performance in Agricultural Sciences and the higher-than-expected volumes (ex divestitures). Overall, the largely positive volume benefits were offset by 12% weaker pricing and FX environment. That being said, the company sees continued strength in its consumer-driven end markets in the balance of the year, and sees strong demand signals in North America, a gradual recovery in Europe and ongoing sustainable urbanization in China. Brazil is still expected to bring on the most volatility for the remainder of the year. Most importantly, management noted that it remains on track with its Dow Corning and Dow DuPont transactions. In both cases, the implementation teams have made significant progress and the synergy capture activities are expected to accelerate in the coming months. Although divestitures will continue to have an impact in 2Q, continued cost cuts and further progress on deals and synergies should help boost profits in the longer term. We reiterate our $60 price target.

Facebook (FB:Nasdaq; $117.58; 1,200 shares; 5.93%; Sector: Technology): Shares surged to all-time highs this week following the company's stellar earnings report. In recent weeks, investors have been wary of the high expectations for FB heading into this print, but the company left nothing in question with its beats across the board and proved that tech isn't dead. The key driver for growth in the quarter proved to be Facebook's continued dominance in mobile advertising. The continued growth in mobile ad penetration signifies the increasing attractiveness of Facebook's mobile platform to marketers. Importantly, it demonstrates this management team's ability to execute on initiatives that allow the company to be out in front of future trends. As for user engagement, management noted that users now spend 50 minutes per day on Facebook, Instagram and Messenger (this doesn't even include WhatsApp!) -- that offers an incredible opportunity for advertisers and, in turn, for Facebook. On the call, management also provided some insight into the performance of WhatsApp, Instagram and Messenger. On Instagram, more than 200,000 businesses are advertising every month and the time spent watching videos on the platform increased a whopping 40% over the prior six months. Between Messenger and WhatsApp, people send almost 60 million messages per day (almost 3x the amount that SMS handled at its peak!). On virtual reality, the company noted that initial response is positive, but it does not expect it to be a meaningful contributor to revenues this year. That being said, CEO Mark Zuckerberg did reiterate his view that virtual reality will be the next-generation computing platform and Facebook is positioning itself to dominate the space in the future. What did this quarter tell us? Don't bet against this management team because they have proved time and time again that they are leading this business on the right long-term path (we do recognize that FB will begin to lap tougher year-over-year comparisons given accelerated revenue growth experienced in 2015). In light of this view, we are all for the proposal that FB will issue new class C shares of stock, which are designed to be non-voting shares, as it will maintain Zuckerberg's controlling interest in the company. This is so important as it allows Zuckerberg to continue to make decisions that may not always look great in the short term, but may pay off for investors over time (think: Instagram). For those wondering, the issuance will have the same effect on share prices as would a 3:1 stock split (investors will retain their stake in the company as they will receive two class C shares for every class A share). Our new valuation of $145 per share reflects about 30x next year's EPS (we view $4.80 a share as fair), which, considering the 40% year-over-year growth, implies a price-to-earnings-growth (PEG) multiple of 0.75x, which would still be the lowest across the entire large-cap tech space.

General Electric (GE:NYSE; $30.75; 600; 0.78%; Sector: Industrials): Shares of GE traded flat this week on little news. We remain constructive on shares and consider them undervalued at current levels (and would be buyers if we were not restricted). Our bullish thesis is predicated on our belief that the stock has room for the further multiple expansion as the company's industrial earnings rise and capital assets are shed -- two developments that are happening in an environment where industrial comps trade at a higher multiple relative to banks. Accretion from its acquisition of power generation giant Alstom and an industry-high dividend yield (3% vs. group average of 1.7%) round out our investment thesis. We reiterate our $35 target.

Google (GOOGL:Nasdaq; $707.88; 150 shares; 4.46%; Sector: Technology): Shares continued their decline this week as a weak overall technology sector added to the pain following last week's "disappointing" earnings report. As we mentioned in our analysis of the quarter, Google continues to execute very well, but simply fell victim to extremely high expectations. Remember that Google has over 1 billion active users on at least seven separate platforms and maintains a dominant position in its core search business. In addition, we view its growing cloud presence and YouTube's ramping monetization as key growth contributors moving forward. The management team continues to invest for the long term and we have confidence that these bets, some less risky than others, will pay off over time. In addition, we view the weakening dollar as providing a major lift for Google should the trend lower continue for the balance of the year. We reiterate our $900 long-term price target.

Panera (PNRA:Nasdaq; $214.49; 475 shares; 4.28%; Sector: Consumer Discretionary): Shares of PNRA had an up-and-down week and ultimately ended slightly lower following what proved to be a very strong quarterly report. The company posted another beat and raise, in the face of high expectations, and continued to prove that its Panera 2.0 initiative is driving same-store-sales (SSS) gains. The largest contributor to the comp gains was price, which further demonstrates the strengthening of Panera's brand in the marketplace. Management's recent marketing campaigns have paired very well with the Panera 2.0 initiative -- on their conference call, management noted that stores that had upgraded to 2.0 were able to handle the significantly higher volumes of orders brought to the restaurants in part due to advertising. As a result, we see further upside opportunities as more stores are converted to the more technologically capable store formats. That being said, some investors were concerned with the company's commentary regarding slower trends through April. However, we note that PNRA's gap to the industry widened to a new record in April -- 660- basis-point SSS spread to Black Box Intelligence's basket vs. 650 basis points in the first quarter, so we believe the slowdown is more of an industry issue. While this is something to monitor, the underlying positive is that it could put PNRA in line for meaningful upside on SSS in coming quarters if industry trends improve. We reiterate our $235 price target long term.

PayPal Holdings (PYPL:Nasdaq; $39.18; 2,150 shares; 3.54%; Sector: Technology): Shares traded lower this week despite another strong quarter from the company, where it delivered a sweeping beat after the close across every conceivable metric, with first-quarter EPS, revenue, active customer accounts, active merchant accounts, transaction growth, total payment volume (TPV) and engagement rates all coming in ahead of Street expectations. The results were broad-based, thorough and convincing, effectively derailing bearish concerns around competition. One of the company's main growth drivers, One Touch, expanded to an additional 121 markets, and is now available in 144 markets. One Touch is growing at a rapid clip, with approximately 21 million consumers having opted in globally and over 1 million merchants having enabled One Touch. The company also launched PayPal Commerce, a set of contextual commerce tools that allows merchants to securely sell across email, social shares, blogs, articles, ads, in-page, in- app and basically anywhere consumers are online or on their mobile devices. We view the results as a powerful vindication of the company's unique value proposition, which in turn should drive multiple expansion. On the flip side, shares sold off Friday following the company's release of its 10-Q, which indicated that the Federal Trade Commission (FTC) had issued a Civil Investigative Demand (CID) "as part of [the organization's] investigation to determine whether [PayPal], through [its] Venmo service, [has] been or [is] engaged in deceptive or unfair practices in violation of the Federal Trade Commission Act." The issue here is that the CID could potentially lead to an enforcement action, substantial costs/fines or a requirement to change aspects of the way Venmo is operated. While there are no other specific details, we suspect this could be in relation to the security around the way payments are sent and received and potential scams that could arise in pseudo-business transactions between individuals. This could have some implications in the way Venmo monetization is ramped up with merchants. That being said, while we do not want to overreact, we will certainly be following this development closely. We reiterate our $45 target.

PepsiCo (PEP:NYSE; $102.96; 850 shares; 3.68%; Sector: Consumer Staples): Shares traded slightly higher this week on little news. Last week, shares traded lower despite the fact that the company delivered a strong earnings report. Some of this can be attributable to a weak earnings release from competitor Coca-Cola (KO), but also from the general rotation out of multinational consumer staples with strong dividends, as we saw a combination of higher rates and a stronger dollar throughout the week. In our view, Pepsi is a strong income name, and we expect its near-3% yield to grow. Beyond this, we appreciate its diversified presence, ability to adapt to a low-growth environment for consumer packaged-food companies, best-in-class cost efficiency and productivity, and robust free cash flow growth. We would be buyers on any sharp pullback and reiterate our $110 long-term price target.

Starbucks (SBUX:Nasdaq; $56.23; 600 shares; 1.42%; Sector: Consumer Discretionary): Shares traded lower this week on little news, but the trend from last week's earnings selloff continued as growth remained out of favor. The stock was hit last week following its results as high expectations proved too much to overcome. While we understand that Starbucks must continue to post outsized growth in order to maintain its premium multiple, we see several levers for the company to pull in the coming years. The company's focus on mobile has already begun to pay off and we are only in the early innings of adoption. The updated loyalty rewards program will help accelerate this process and the combination of rewards members who use mobile is a powerful traffic and ticket growth driver for stores. In addition, while there has been some concern over China, we note that the region's performance was better than it seemed on the surface (it is lumped in with Japan and other underperforming regions within the Asia Pacific area). Most importantly, management remains confident on the expansion (opening 10 stores a day on average) and sees positive underlying trends. We are keeping our eye on shares as we would welcome the opportunity to grow the position under our cost basis, if possible. We reiterate our $68 target.

Schlumberger (SLB:NYSE; $79.93; 1,000 shares; 3.32%; Sector: Energy): Shares traded flat this week after reporting strong earnings last week amid a severely difficult backdrop. We believe its second-quarter results will represent the bottom for sales. As producers look to recover, technology will become ever more critical. Given SLB's undisputed leadership, we expect revenue growth, continued market share gains and pricing appreciation to flow through its financials as the upcycle unfolds. We reiterate our $85 price target, which we raised from $80 last week, reflecting just over 10x EV/EBITDA on 2018 estimates.

Visa (V:NYSE; $77.24; 875 shares; 2.84%; Sector: Information Technology): Shares traded lower this week on the heels of weaker-than-expected guidance in its earnings report last week. We continue to view shares as undervalued and expect upside to be driven by strength in the company's core business along with larger-than- expected accretion from its acquisition of Visa Europe (although we qualify this by noting that the accretion will be achieved long term, not immediately). Recent positive data points around volume/transaction trends, an improved FX environment, potential pricing increase (a possible July 1 U.S. debit fee increase could add $300 million annually) and an increase in gas prices give us confidence that the company can deliver on its fiscal 2016 guidance. As we look toward the back half of the year, we identify several hard catalysts: 1) upside estimate revisions as sell-side analysts incorporate accretion from Visa Europe merger; 2) FX and gas year- over-year comparisons ease; 3) recent partnerships with USAA, Fidelity and Costco accelerate transaction volume; and 4) improving cross-border volume growth. Our price target remains $84.


American Electric Power (AEP:NYSE; $63.50; 500 shares; 1.33%; Sector: Utilities): Shares traded lower this week, more so off a notice from the Federal Energy Regulatory Commission (FERC), which said it would review contracts that both AEP and FirstEnergy (FE) secured from Ohio regulators. As for AEP's quarter, the results were relatively in line, and management reiterated their guidance outlook, which was already in line with consensus expectations. Moving forward, however, the FERC's decision has a major impact on FE and modest impact on AEP's earnings -- hence, why FE shares traded much lower on the news compared to AEP's. In short, the accepted complaints by FERC rescind the companies' affiliate waivers, which would have allowed the power purchase agreements (PPAs) to avoid review over whether Ohio regulators accepted them based on a competitive market standard. Although AEP (and FE) could file PPAs with the FERC -- and there would be a subsequent market- based review -- this could drag out six to 12 months. The PPAs, however, are less important to AEP as the company previously had stated its interest in selling its merchant generating assets not included in the PPA. Now, AEP likely will include the additional assets covered in the PPA in its future selling plans. Because these plants earn close to 3 cents per share on a market basis, we believe AEP could resell the balance of the merchant fleet for close to $1.3 billion. These funds then could be redeployed in its investment efforts in transmission and also for share buybacks. All in, we lowered our price target to $67 from $70 in light of the ruling, but we reiterate our Two rating on AEP shares.

Biogen (BIIB:Nasdaq; $274.99; 275 shares; 3.18%; Sector: Health Care): Shares traded solidly lower this week as investors shifted away from risk. Although we recognize shares of Biogen could be considered "cheap," we believe the current assessment is fair, as the company struggles to bridge its maturing core franchise (which lacks near- term catalysts) with its early-stage pipeline bets. Although the company remains the leader in multiple sclerosis (MS) treatments, its franchise, which contributes 80% of total revenues, faces major pricing risk -- as competitive challenges, combined with heightened regulatory scrutiny, give it little room to raise prices or grow volumes -- and increased reimbursement pressures -- which should result in share loss over time and flat-to-declining sales. Biogen does possess an intriguing early-stage pipeline of novel therapies that address serious neurological diseases (the main reason shares have incredible upside potential), such as Alzheimer's, ALS and Parkinson's. Unfortunately, although these "blockbuster" bets could unlock tremendous value, pivotal trials for such medicines are expensive (upfront costs for the experimental Alzheimer's drug Aducanumab total $2.5 billion), highly risky, slow and practically impossible to ascribe value to in the intermediate term, as Phase III results from these trials will not emerge until 2019 or 2020. As we mentioned above, this makes it difficult to bridge the gap from now to the long term as we can't be sure of the outcomes of the pipeline drugs. We reiterate our $300 price target.

Kraft Heinz (KHC:Nasdaq; $78.07; 850 shares; 2.79%; Sector: Consumer Staples): We continue to believe the company's merger with Heinz stands to boost its competitive positioning and create additional value from an efficiency standpoint. While the combined Kraft/Heinz entity is still in the early innings of integration, we believe the company's latest quarter (two months back) provided a crucial validation of the bull story for KHC, given the outsized margin expansion that was realized ahead of the more-significant cost synergies that should flow through over the coming year. In the near term, shares have become incrementally more attractive as Fed Chair Janet Yellen's dovish remarks and subsequent expectations for a lower- for-longer rate environment make KHC's 3% dividend a nice payoff as we wait for the story to materialize. We reiterate our $85 target.

Lockheed Martin (LMT:NYSE; $232.38; 350 shares; 3.42%; Sector: Industrial): LMT shares pushed higher this week following the company's very solid quarterly report that demonstrated its continued ability to execute on its core platforms. Importantly, Lockheed's solid first- quarter results led management to raise its 2016 earnings guidance by 5 cents a share at both the low and high ends of the range to $11.50-$11.80 per share, bracketing consensus of just under $11.80. Revenue guidance for the year was raised slightly to $49.6 billion to $51 billion (up roughly $100 million from the company's latest update in January). As we noted in our prior post-earnings bulletin (click here to read), 2016 is widely considered a transition year for LMT as the company works through several deals and streamlines its operating structure. In this context, we are encouraged by the strong revenue performance to kick- start the year and remain constructive on shares given clarity into a clean 2017, continued demand for the company's products, secular tailwinds and robust free cash flow. All in, we view the quarter as very solid and appreciate management's increased confidence for the balance of the year as evidenced by its guidance increases. We reiterate our $240 price target.

Occidental Petroleum (OXY:NYSE; $76.65; 675 shares; 2.17%; Sector: Energy): Shares traded higher this week as oil continued to rally. We view OXY's 4% dividend yield as more than safe; the company is sitting on $4.4 billion of cash, has an annualized cash flow of $2.7 billion to $3 billion (which reflects $35-a-barrel oil) and is set to receive a $1.2 billion cash windfall from asset sales. We forecast the company will end the year with over $8 billion in cash, which more than covers its $2.8 billion capital spending program and $2.3 billion in dividends (amounting to $5 billion in capital needs). While we view OXY as best-in-class across energy producers, the cyclicality and volatility in oil keep us on the sidelines for now. We reiterate our $75 price target (raised from $72 last week) but remain neutral in the near to intermediate terms.

Target (TGT:NYSE; $79.50; 1,200 shares; 4.01%; Sector: Consumer Discretionary): Shares traded lower this week as fears around Amazon's dominant quarter gave bears reason to believe the e-commerce giant may be taking share from retailers like Target. While we do not believe Target is immune from competitive pressures, we remain optimistic on shares as well as the company continues to execute on its key initiatives in digital, signature categories, food/grocery and the supply chain. The company has made great strides in developing organic brands, which should contribute to same-store-sales growth. In addition, Target will be a key beneficiary from the return of the middle-income consumer as job growth has remained strong and gasoline prices have dropped to more manageable levels. The middle-income consumer is TGT's core demographic, and they are returning to growth as confidence has rebounded and they look to start families and buy homes. While we recognize that TGT has to execute on its many initiatives, we believe the progress thus far provides solid support moving forward. Couple these initiatives with its powerful capital allocation program, and it is easy to see why we continue to like the investment. We reiterate our $85 target.

Thermo Fisher Scientific (TMO:NYSE; $144.25; 350 shares; 2.12%; Sector: Health Care): Shares traded lower this week despite a very strong first-quarter report. TMO shares had rallied over $20 in the last two months or so, which could have encouraged some investors to take profits. That being said, we remain confident in this company's executional excellence and its ability to acquire growth while also organically improving the business. In addition, management has a track record of issuing conservative guidance and beating those numbers with subsequent strong performances. They certainly mended any open wounds by taking care of business this quarter, and we expect that guidance could still prove to be conservative. In short, the updated outlook implies 5.3%-6.3% total revenue growth, which includes positive impacts from acquisitions and a better-than-expected FX environment (as we mentioned above). Essentially, by backing out the numbers, this would leave the expected organic growth rate unchanged from prior quarters despite the blowout results this quarter, likely a conservative move by management. Management also noted no significant change in major end markets with continued strong biopharma trends. All in, TMO delivered the exact kind of quarter we would expect from this outstanding management team. Although TMO's business may not be sexy, it continues to demonstrate its value to customers and find ways to grow the business organically and through tuck-in acquisitions. We reiterate our $155 target.

Walgreens Boots Alliance (WBA:Nasdaq; $79.28; 1,250 shares; 4.17%; Sector: Health Care): Shares traded lower this week on little news. We believe the stock's 16x price to earnings multiple fails to reflect its top- and bottom-line growth prospects, driven by margin expansion at the front end of the stores and merchandising initiatives. The stock is trading at a price-to-earnings-growth (PEG) multiple of 1.1x, which sits among the lowest in its industry and reflects the discounted valuation. We reiterate our $90 target.

Wells Fargo (WFC:NYSE; $49.98, 1,900 shares; 3.99%; Sector: Financials): Shares traded lower this week on little news. WFC trades at a premium to its large-cap peers as its business is viewed as safer and more stable. That being said, its results need to impress on a consistent basis in order to continue to justify the premium valuation. We could see some compression in the multiple in coming months as investors remain wary of the oil/gas exposure, so we will be keeping a close eye on this development. We reiterate our $56 price target and think shares will experience a (very) gradual recovery.

WhiteWave Foods (WWAV:NYSE; $40.21; 2,900 shares; 4.90%; Sector: Consumer Staples): Shares traded lower this week on little news. We think the selling is overdone and view the company as well-positioned to continue benefiting from the secular tailwinds that aid leaders within the natural and organic sector. Dollar weakness is also a key positive for the company in the near term (and longer term, should the dollar remain weaker). Ultimately, we believe in WWAV's brands and ability to innovate in a way that resonates with the consumer. That said, we await the company's upcoming earnings release before adding to our position as we would like to gauge management's commentary around the competitive environment. Our target remains $45.


Stanley Black & Decker (SWK:NYSE; $111.92; 200 shares; 0.94%; Sector: Industrials): Shares outperformed the market this week on the heels of its strong earnings report and guidance last week. With shares hovering around our newly raised $115 price target, we would be selling if we did not already have a massive cash balance, as we view the risk/reward skewed to the downside going forward. We reiterate our $115 price target but downgrade our rating to Three from Two.

Twitter (TWTR:NYSE; $14.62; 700 shares; 0.43%; Sector: Technology): Shares tanked this week following the company's quarterly report, where its beat on the bottom line was overshadowed by weak revenues and weaker- than-expected guidance. The earnings beat was rendered relatively meaningless in light of disappointing sales, which missed low expectations because, according to CEO Jack Dorsey, "brand marketers did not spend as quickly as expected in the first quarter." Twitter's track record of disappointment leaves little room for error and zero room for forgiveness. The fact that management seems incapable of even meeting the lower end of prior forecasts suggests they are out of touch with demand for their own product. The below-consensus, below-guidance advertising sales imply advertisers are struggling to identify value in allocating marketing dollars toward Twitter's platform. In addition to the revenue miss this quarter, the real disappointment in the report comes within the company's guidance for the second quarter compared to the Street's expectations. For 2Q, Twitter is expecting between $590 million and $610 million in revenues, which is more than 10% lower at the midpoint than consensus of $678 million. Dorsey noted that the lighter expectations are largely due to the timing of some bigger revenue opportunities (e.g., the NFL streaming partnership), which he doesn't expect to capitalize on until the third quarter. To sum up the report, the essentially flat user growth, coupled with a string of disappointing quarterly results, make the investment story that much bleaker. While we are intrigued by management's confidence in revenue opportunities in the back half of the year, we continue to view this as a "show me" story.


Jim Cramer, Portfolio Manager & Jack Mohr, Director of Research - Action Alerts PLUS

DISCLOSURE: At the time of publication, Action Alerts PLUS was long AAPL, AGN, CSCO, C, COST, DOW, FB, GE, GOOGL, PNRA, PYPL, PEP, SBUX, SLB, V, AEP, BIIB, KHC, LMT, OXY, TGT, TMO, WBA, WFC, WWAV, SWK and TWTR. .

Here Is Our Current Shopping List

There are many buying opportunities, but we are restricted.

04/29/16 - 12:10 PM EDT
We're Changing Banks
Stocks in Focus: BAC, C

Closing out of Bank of America, initiating a position in Citi.

04/29/16 - 11:36 AM EDT
A Look at AEP Miss and Impact of FERC Ruling
Stocks in Focus: AEP

We are lowering our price target for American Electric Power in light of the ruling, yet reiterate our Two rating on the shares.

04/28/16 - 11:33 AM EDT
Weekly Roundup

This week, oil, earnings and a dovish Fed couldn't offset weak earnings and a slowing economy. Meanwhile, the portfolio changes banks.

04/29/16 - 05:07 PM EDT

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Chart of I:DJI
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Action Alerts PLUS Holdings

Holdings 1

Stocks we would buy right now

Symbol % Portfolio
Industry Trade Now
AAPL 3.23% Consumer Durables
AGN 4.55% Drugs
C 3.11% Banking
COST 3.11% Retail
CSCO 3.70% Computer Hardware
DOW 3.10% Chemicals
FB 5.93% Internet
GE 0.78% Industrial
GOOGL 4.46% Internet
PEP 3.68% Food & Beverage
PNRA 4.28% Leisure
PYPL 3.54% Financial Services
SBUX 1.42% Leisure
SLB 3.38% Energy
V 2.84% Financial Services
Holdings 2

Stocks we would buy on a pullback

Symbol % Portfolio
Industry Trade Now
AEP 1.33% Utilities
BIIB 3.18% Drugs
KHC 2.79% Food & Beverage
LMT 3.42% Aerospace/ Defense
OXY 2.17% Energy
SWK 0.94% Industrial
TGT 4.01% Retail
TMO 2.12% Health Services
WBA 4.17% Retail
WFC 3.99% Banking
WWAV 4.90% Food & Beverage
Holdings 3

Stocks we would sell on strength

Symbol % Portfolio
Industry Trade Now
TWTR 0.43% Internet