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Jim Cramer's Action Alerts PLUS

Action Alerts PLUS

Building Up a Pair of Positions

BY Jim Cramer and Stephanie Link | 08/20/14 - 03:24 PM EDT
Actions Taken:
Symbol Action # Shares Traded Recent Price Shares Owned After Trade % of Portfolio After Trade
BAC Buy 200 $15.51 6500 3.60%
ETN Buy 100 $70.44 1500 3.80%

We're going to add to two names that are below our cost basis, buying 100 shares of Eaton (ETN:NYSE) at $70.44 and 200 shares of Bank of America (BAC:NYSE) at $15.51, after you receive this Alert. With this trade, we are also moving BAC to Two from Three.

We wrote this morning that both the Dodge Momentum Index and the Architectural Billings Index reported strong non-residential construction results in July. The Dodge Index also posted stronger three-month and six-month average figures, and the ABI included inquiries that now stand at multi-year highs. ETN is a way to play this theme (60% of revenue is tied to electrical end-markets), and it has been hit hard since reporting a disappointing quarter. We believe CEO Alexander Cutler has something to prove and will go out on top (he is slated to retire in two years) and, at a minimum, improve execution. The stock is totally out of favor and is worth adding at this level to improve our cost basis.

BAC is a change of tone for us. The stock is below our basis and has gone out of favor given the legal overhangs tied to its faulty mortgage-backed security loans. The company reached a $17 billion settlement with the Justice Department (we previewed this a few weeks ago in our Aug. 7 Alert) and, although it was expected, it removes a large overhang on the stock.

The cash component is $6 billion and we expect the company to take a $3 billion charge ($0.25 per share). Also, we fully expect that 3Q will be another messy one. That said, the stock has lagged the group and we expect catch-up -- especially now that the company is checking off the boxes one by one -- with settlements, Comprehensive Capital Analysis and Review (CCAR) success and implementation of its aggressive cost-cutting program. Slowly, the company is working on regaining shareholder confidence and creating value.

The stock (and sector) really needs rates to improve for NIM to recover and profitability to improve; every 100 bps increase in short rates equates to $3.4 billion in net interest income, or $0.15 to $0.20 per share.

We still feel that rates will rise eventually, but more likely at a gradual pace, which is why we have become more selective in our bank positions (we've chosen to diversify into American Express (AXP:NYSE) and are looking to add AIG (AIG:NYSE) on a pullback). But we do see value in BAC with shares down 15% from its highs, and we should see it catch up to the group now that the bulk of its legal issues are behind it and focus can return to improving execution.

Regards,

Jim Cramer, Stephanie Link, and TheStreet Research Team

DISCLOSURE: At the time of publication, Action Alerts PLUS was long BAC, ETN and AXP.

Lear's Reported Seat Deal Makes Sense
Stocks in Focus: LEA

We are buyers on weakness.

08/20/14 - 12:01 PM EDT
Appliances and Aerospace
Stocks in Focus: GE, BA

GE may be close to selling its appliances division while also ramping up its aircraft engine production.

08/20/14 - 10:02 AM EDT
Weekly Roundup

Given the geopolitical news and the market's day-to-day swings, we are holding more cash than usual.

08/15/14 - 06:19 PM EDT

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DOW 16,979.13 +59.54 0.35%
S&P 500 1,986.51 +4.91 0.25%
NASDAQ 4,526.4820 -1.0320 -0.02%

Action Alerts PLUS Holdings

Stocks we would buy right now

Symbol % Portfolio
Weighting
Current
Price
Avg.Cost
Basis
% Gain/
Loss
AXP 3.50% $88.49 $87.03 1.68%
BA 4.12% $127.35 $129.13 -1.38%
BWP 3.31% $20.44 $19.25 6.15%
CI 3.38% $93.95 $87.58 7.27%
DOW 4.31% $53.30 $52.60 1.34%
ESV 3.45% $50.49 $51.53 -2.01%
ETN 3.80% $70.40 $75.75 -7.06%
FB 3.77% $74.81 $64.23 16.47%
FCX 3.26% $36.98 $38.36 -3.59%
GOOGL 4.82% $595.41 $574.35 3.67%
KMI 0.75% $41.60 $41.47 0.31%
LEA 3.39% $99.12 $96.39 2.84%
MMM 1.82% $144.60 $141.54 2.16%
MSFT 1.46% $44.95 $43.53 3.26%
ORCL 3.12% $41.25 $41.77 -1.26%
PVH 2.08% $115.77 $112.61 2.80%
SBUX 2.95% $78.03 $78.50 -0.60%
STI 3.91% $37.47 $38.82 -3.48%
UPS 1.78% $98.80 $96.89 1.98%
VALE 1.77% $14.08 $14.60 -3.59%
WAG 1.56% $62.00 $61.97 0.05%

Stocks we would buy on a pullback

Symbol % Portfolio
Weighting
Current
Price
Avg.Cost
Basis
% Gain/
Loss
AAPL 2.97% $100.57 $79.05 27.22%
BAC 3.63% $15.52 $15.61 -0.56%
GM 4.22% $34.53 $37.69 -8.39%
GS 3.44% $174.03 $164.68 5.68%
JNJ 2.30% $103.21 $91.83 12.39%
OXY 2.01% $101.74 $92.47 10.02%
SWK 2.80% $91.54 $84.55 8.27%
UTX 4.05% $109.71 $116.08 -5.49%

Stocks we would sell on strength

Symbol % Portfolio
Weighting
Current
Price
Avg.Cost
Basis
% Gain/
Loss
GE 3.12% $26.36 $26.54 -0.69%
XLNX 2.84% $42.62 $47.42 -10.11%

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