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Jim Cramer's Action Alerts PLUS

Action Alerts PLUS

Weekly Roundup

BY Jim Cramer and Stephanie Link | 07/25/14 - 07:20 PM EDT

This week was dominated by earnings, and several bellwether companies were in the spotlight, including Apple (AAPL:Nasdaq), Amazon (AMZN:Nasdaq), Chipotle (CMG:NYSE), Dow Chemical (DOW:NYSE), PepsiCo (PEP:NYSE), McDonald's (MCD:NYSE), Texas Instruments (TXN:Nasaq), Boeing (BA:NYSE), United Technologies (UTX:NYSE) and many others. So far, 40% of S&P 500 companies have reported and the results are encouraging, with 71% beating consensus, 17% missing and 12% in line. Earnings growth is running up by about 5% over last year at this time, and revenue growth is tracking to plan at 3.3% from a year ago. Technology is the top sector with the most positive surprises, followed by financials, industrials and health care. Staples and utilities are at the bottom of the list. We'll get another barrage next week, but management commentary seems to be reaffirming the U.S. economic recovery, a patchy consumer and pockets of industrial strength. Europe is mixed but hopeful the turn is happening, albeit slowly. China commentary is favorable, indicating that the worst is behind it in terms of the slowdown. While every company is different, the commentary isn't surprising and it's consistent with what we've been expecting.

The economic data played second fiddle to U.S. corporate earnings season, and U.S. economic data had another week of mixed results -- better FHFA housing, the Richmond Fed report, durable goods and existing home sales offset by a disappointing University of Michigan confidence survey, leading Indicators, PMI and new-home sales. China positively surprised with a stronger HSBC manufacturing PMI, and the eurozone reported slightly better manufacturing from Markit, and higher money supply offset with weaker consumer confidence.

We haven't changed our strategy of owning more cyclicals vs. defensive-type stocks, but we have increased our materials and international exposure vs. more U.S.-centric concentration, hence adding to Dow Chemical (DOW:NYSE), Freeport-McMoRan (FCX:NYSE) and Lear (LEA:NYSE) in portfolio recently. We even added to Google (GOOGL:Nasdaq), which derives 48% of total revenue internationally. And we added back Vale (VALE:NYSE) this week. On the margin, international regions have cheaper valuations and more room to see improvement given the easy monetary policies. It's a small shift, but one we will continue to build on.

In general we were less active trading this week, something that usually happens during earnings season with so much information overload. We did take advantage of a few price dislocations and added to SunTrust (STI:NYSE), Freeport- McMoRan (FCX:NYSE), Dow Chemical (DOW:NYSE), United Technologies (UTX:NYSE) and Boardwalk Partners (BWP:NYSE). We added two new positions and took out two, buying Starbucks (SBUX:NYSE) and Vale (VALE:NYSE) and selling out of Macy's (M:NYSE) and Cummins (CMI:NYSE). We upgraded Apple (AAPL:Nasdaq) to Two and downgraded Xilinx (XLNX:Nasdaq) and General Electric (GE:NYSE) to Three.

Earnings will dominate again next week with another 19% of the S&P 500 expected to post results. A few that are important in our opinion are Masco (MAS:NYSE), Range Resources (RRC:NYSE), Eaton (ETN:NYSE), Illinois Tool Works (ITW:NYSE), Anadarko (APC:NYSE), International Paper (IP:NYSE), TRW (TRW:NYSE), Panera (PNRA:Nasdaq), Cigna (CI:NYSE), Whole Foods (WFM:NYSE), Vale (VALE:NYSE), Occidental (OXY:NYSE), Ensco (ESV:NYSE) and many others.

The economic data for next are broken down below:

U.S.

Monday (7/28)

Services PMI July flash (09:45)

Pending Home Sales, June estimates 1.0 (10:00)

Dallas Fed Survey, July estimates 12.0 (10:30)

Tuesday (7/29)

S&P/Case-Shiller HPI, May (09:00)

Consumer Confidence, July estimates 83.5 (10:00)

Housing Vacancies 2Q (10:00)

Wednesday (7/30)

ADP Employment, June estimates 225K (08:15)

Real GDP, 2Q advance estimates 2.9% (08:30)

FOMC Rate Decision, no change anticipated (14:00)

Thursday (7/31)

Initial Jobless Claims (08:30)

Employment Cost Index 2Q (08:30)

Chicago PMI, July (09:45)

Friday (8/01)

Nonfarm Payrolls, July (08:30)

Unemployment Rate (08:30)

Personal Income, July (08:30)

Manufacturing PMI, July final (09:45)

Consumer Sentiment, July final (09:55)

ISM Manufacturing, July (10:00)

Construction Spending, June (10:00)

Light Vehicle Sales, July

Rest of World

Friday (7/25) EC M3 Money Supply, June 1.2 (04:00)

Saturday (7/26)

China Industrial Profits, June (21:30)

China Westpac-MNI, July (21:30)

Monday (7/28)

Japan Jobless Rate, June (19:30)

Japan Overall Household Spending, June (19:30)

Japan Retail Sales, June (19:30)

Tuesday (7/29)

China Consumer Sentiment, July (21:45)

Japan Small Business Confidence, July (01:00)

Japan Industrial Production, June (19:50)

Wednesday (7/30)

Japan Vehicle Production, June (00:00)

Japan Labor Cash Earnings, June (21:30)

EC Economic Confidence, July (05:00)

EC Industrial Confidence, July (05:00)

EC Consumer Confidence, July (05:00)

Thursday (7/31)

China HSBC Manufacturing PMI (21:45)

Japan Housing Starts, June (01:00)

Japan Markit/JMMA Manufacturing PMI (21:35)

EC Unemployment Rate, June (05:00)

EC CPI Estimate, July (05:00)

EC CPI Core, July (05:00)

New folks, welcome aboard! You're reading the Weekly Roundup of the "charitable trust" that Jim talks about regularly on "Mad Money" and in his new bestseller "Get Rich Carefully." Jim put $3 million of his own money into this charitable trust so that you, the subscriber, can learn how he and Stephanie Link co-manage a diversified portfolio and make money. You'll see every position in every stock, and we'll send you alerts BEFORE every trade. And, best of all, all profits go to charity -- we've donated $1.8 million to date.

To learn more about how we construct and trade the portfolio, click on the "Getting Started" link directly above the "Weekly Roundup" headline. You can also get your alerts faster by following us on Twitter @CramerandLink. Enjoy.

We also want to be sure you're not confused about the terminology that Jim uses on his "Mad Money" television show: When you hear Jim refer to the "charitable trust" on "Mad Money", he is talking about the trust that holds the Action Alerts PLUS portfolio. The winnings from Action Alerts PLUS go to charity after the close of each trading year.

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

ONES

Boardwalk Pipeline Partners (BWP:NYSE; $19.44; 2,700 shares; 1.87%; Sector: Energy): We added to our position this week expecting a few positive catalysts in the not-too- distant future: strong production growth, reduction of debt load and potential payout increases. We like exposure in the Permian, Eagle Ford, Marcellus, and Woodford/South Central Oklahoma Oil Province regions of the country; this has been the hottest area in the energy shale revolution. It also stands to benefit from the secular shift from coal-powered electric generation to gas-fired power as its estimated that natural gas demand will grow 2% annually between 2013 and 2026 on the secular shift toward cleaner-burning energy and overall demand growth. The Loews management's 51% interest, new growth investments (why the distribution was cut) and the potential for growing EBITDA and cash flow are appealing at the current discounted valuation. Our target is $25.

Boeing (BA:NYSE; $123.20; 900 shares; 3.95%; Sector: Industrials): The stock took a beating this week following low-quality earnings, which was helped by a 3.7% tax rate and buybacks. Underlying fundamentals were a touch below expectations: commercial aircraft revenue grew only 5% vs. the 7% expectation, margins rose 10.8% vs. the 11% consensus and defense growth fell 5%, -- better than the 10% drop expected, but margins at 7.5% were 200 bps below consensus. While fundamentals were underwhelming, the unexpected $400 million charge for the KC-46 tanker had the biggest impact on the shares, especially since management has been quoted recently saying this was on track. For this reason we are clearly disappointed, but not giving up. On the positive side, book-to-bill in both segments was 1.15x, deferred production costs were down, and deferred revenue rose $1.1 billion sequentially to $24.2 billion. The cycle is not over in our view, with backlog and orders strong and the technology innovation leading the charge. That said, there is no rush to add until the stock stabilizes and when it will be material to helping our cost basis. We see $120 as that level. Our target is $145.

Cigna (CI:NYSE; $ $95.76; 1,000 shares; 3.41%; Sector: Healthcare): We continue to look for chances to buy more of the position, but even the disappointing WellCare (WCG:NSYE) news didn't set it back enough to help our basis. That's because much of the WGC news was company-specific to Medicare, Florida and California markets. This week brought two different legal rulings related to the state subsidies contained in the Affordable Care Act; one said they weren't legal and the other said that they were. The stocks rallied on the news yet the prevailing opinion is that the state subsidies will, in fact, stay in place for HMOs. We like Cigna's story for the exposure it has internationally (20% total revenue exposure) and in the ASO (administrative services) market, which over time will convert to private exchanges and lead to a better pricing/margin mix. We get the sense that disability and life assets could be poised to accelerate as the economy recovers and interest rates move higher. Management was upbeat throughout the conference season and we get a sense that they are more committed toward shareholder value such as dividends and buybacks. Our target is $110.

Dow Chemical (DOW:NYSE, $53.71; 2,050 shares; 3.93%; Sector: Chemicals): The company reported a very strong quarter that beat on the top and bottom lines. Considering there was a plant outage for a good part of the quarter, we were very pleased with the results. Earnings beat by $0.02 per share, EBITDA grew 5% and sales rose 2.3%. Volumes rose 1% with strength in performance chemicals, plastics, and electronic and functional materials. Softness was in Ag, as expected, but sales still grew at a record pace. The asset- sale story was reiterated for $4.5 billion-$6 billion this year and that will likely be the next catalyst for shares. We bought ahead of the quarter and it is now one of our largest positions. We will continue to buy ahead of the next catalyst. Our target is $65.

Eaton (ETN:NYSE, $77.47; 1,050 shares; 2.9%; Sector: Industrial): Last Friday after the close the company issued new 2014 guidance that narrowed its earnings forecast to $1.10-$1.12 per share from a prior $1.05-$1.15, as it will now treat the aerospace sale as a non-recurring item, thus, the reason for the clarification. The company expects to see total non-recurring charges of $0.70 for 2014, which includes $0.80 from the two recent legal settlements (Meritor and Triumph) and the recent aerospace sale. We were disappointed the news came out on Friday after the close, which usually dings a management team, so we are on the margin less enthusiastic. Emotions aside, our view on the stock, the valuation and the exposure to non-residential hasn't changed. And following the Architecture Billings Index's monthly report that blew away consensus was a strong endorsement in the non-residential theme. Our target is $89.

Facebook (FB:Nasdaq; $75.19; 1,400 shares; 3.75%; Sector: Technology): The company beat earnings and revenue estimates for its 2Q, and the underlying metrics were very encouraging. The stock surged 5% on the news. Revenue rose 60.5% at $2.91 billion vs. the $2.81 billion consensus, with revenue from advertising at $2.68 billion, up 67% y/y. Mobile advertising revenue is now 62% of total, up from 41% y/y, and the company now has 1.5 million active advertisers. Daily Active Users (DAUs) rose 19% y/y, mobile DAUs rose 39% y/y, Monthly Active Users (MAUs) increased 14% y/y, and mobile MAUs improved 31% y/y. Expenses were in line and operating margins rose to 59% vs. 44% a year ago. Trading at 40x forward estimates for 60% revenue growth continues to make this an attractive investment. We lifted our target to $90 and we would consider adding on a pullback. Google and Facebook remain our favorite tech plays, and we will continue to add opportunistically. Our target is $90.

Freeport-McMoRan (FCX:NYSE, $37.99; 2,150 shares; 2.91%; Sector: Materials): The company beat on earnings and revenue with solid underlying metrics: oil and gas beat, copper was slightly below estimates, gold was in line; copper sales were 968 million pounds, gold sales were 159,000 ounces, and oil and gas sales were 16 MMBOE. Copper realized prices were higher than expectations, offset by higher production and delivery costs. Oil and gas posted higher production from Eagle Ford and Deepwater Gulf of Mexico, and realized prices were higher and margins expanded. Following the quarter, the stock caught a downgrade on concerns about the export ban in Indonesia. We bought on the news. As it turned out, a memorandum of understanding was signed the day after the downgrade, proving our strategy to add on the dip made sense. We continue to like this name with its many ways to win: copper production improvement (now that the MoU is signed), oil and gas production growth, asset sales and debt pay-down. Our target is $47.

Google (GOOGL:Nasdaq; $598.08; 200 shares; 4.26%; Sector: Technology): The stock was flat this week following last week's strong gains on of its strong 2Q report. We added to the position once our restrictions lifted and it is now one of our largest bets in the fund. The quarter was very strong, with beats on revenue, cost per click (the metric that the stock trades on), paid clicks, and very strong international growth. Revenue grew 22%, with 22% growth in the U.K., 31% growth in the rest of the world, and 12% in the U.S. Cost per click fell 6% but improved from a 7% decline the prior quarter. Paid clicks rose 25%. These are all impressive figures, and an acceleration in most metrics from last quarter's disappointment. Trading at just 20x forward estimates and trailing Internet peers year to date, we like the risk/reward. Our target is $645.

Lear (LEA:NYSE; $99; 500 shares; 1.76%; Sector: Consumer): The company reported earnings that beat on the top and bottom lines and raised guidance. Earnings were $2.12 per share and beat the $1.17 consensus. Total company operating margin rose to 6% vs. the analyst expectation of 5.7%, and production rose 3% y/y, with 12% growth in China, 4% in North America and 2% in Europe/Africa. Seating revenue grew 12.2% y/y, EBIT improved 10.4% y/y and margins were 5.7%, better than the 5.5% consensus, but more importantly, better than the 1Q 5.5% level. It's worth noting that peak margins last cycle got to 11%, so there's ample room for upside. Electrical power management systems sales rose in line at 9.3%, EBIT beat at $143 million vs. $135 million consensus, and margins rose 280 bps from last year's 12.5% vs. the 12% expectation and 9.7% year-ago level, making it the best quarterly performance since 2002. Overall, it was a solid quarter. We see upside to earnings as margins recover and auto demand continues. At 4.6x EBITDA, it's one of the cheapest suppliers in the group. Our target is $109.

Marathon Oil (MRO:NYSE; $40.51; 2,450 shares; 3.54%; Sector: Energy): Shares continue to trade in a range, and along with the rest of the group, on political tensions in Russia, Ukraine and Israel. While the stock could be volatile in coming weeks, we still like the restructuring story: asset sales, redeployment into U.S. unconventional shale plays (Eagle Ford, Bakken, SCOOP) and buybacks/dividends. As we've said previously, the story is very similar to where Occidental (OXY:NYSE) was two years ago in its restructuring. We expect more updates about its U.S. shale strategy in its upcoming earnings report. Our target is $45.

Oracle (ORCL:Nasdaq; $40.33; 2,100 shares; 3.02%; Sector: Technology): We continue to like the shares, although with few near-term catalysts we don't expect the stock to get away from us. That said, we like the current valuation of 13x forward estimates and the initiatives under way to grow applications/software, hardware and cloud, and any evidence of such should lead to a higher share price. We like the cash on its balance sheet for M&A and buybacks/dividends, and we wouldn't be surprised to see news on all of these fronts in coming months. Our target is $48.

Starbucks (SBUX:NYSE, $78.74, 650 shares; 1.82%; Sector: Consumer): We added this position to the fund liking that the shares are just about flat on the year yet delivering double-digit earnings and revenue growth. The quarter was strong, with a beat on the top and bottom lines, and comps came in at 6%, beating the 5% consensus. Strength was across the board with U.S. up 7%, China comps up 7% and EMEA improved by 3%. Margins rose 200 bps y/y. Guidance was strong. The top-line growth was driven by new products and coupled with easier comparisons ahead and strong cost discipline, we expect to see double-digit earnings and revenue for the rest of 2014 and for 2015 (we believe guidance for 15%-20% in earnings at the low side is conservative). Trading at 25x forward estimates, we find the shares attractive and like the risk/reward. Our target is $90

SunTrust Bank (STI:NYSE; $39.08; 2,600 shares, 3.62%; Sector: Financials): The company reported earnings Monday that beat by $0.0 4 per share, revenue rose 4% and loan growth was a stellar 7.7%, with CRE loans up 42%, consumer up 8% and C&I up 10%. Capital levels improved, the balance sheet strengthened and the tone on the call was confident. The one negative was net interest margin (NIM), which fell 8 bps, or 3 bps more than expected. As a result, one sell side analyst downgraded it. We bought on the weakness. NIM pressure is not new and is a function of the 10-year bond yield staying at a stubbornly low level. We expect rates to back up this year, and when it does, the profitability of the banks and STI will improve. At 1.3x tangible book value, we like the valuation and will continue to buy on weakness. Our target is $45.

United Technologies (UTX:NYSE; $108.88; 925 shares; 3.59%; Sector: Industrials): Like Boeing, the company beat and raised estimates, but the quality was a mix and the stock sold off. We added on the news and we will continue to buy, likely in the low $100s, which helps our cost basis. We like the aerospace cycle and commercial construction market demand. We like the earnings and revenue beat, which grew 12% and 7.4% y/y, respectively. We also like that adjusted segment operating margins rose 90 bps to 17.1% (ahead of the 16.5% consensus), the organic growth of 3%, and the raised earnings guide for the full year, which includes 4% organic growth. Orders in climate controls and systems remained consistent at 2%, and aerospace systems rose 28%. We didn't like that Otis slowed to 3% from 11% last quarter, and Pratt & Whitney orders fell 6% from double-digit growth in the prior quarter. Orders are always lumpy, and management noted that Otis year-to-date orders are about where they expected them to be, and that 1Q had an unusual buildup from distributors into the spring seasonal timing. It's worth noting that the company posted 44% order growth in North America and double digits in EMEA at Otis. Rest-of-world orders were down in Otis on tough comparisons. The Pratt hit was more about lower deliveries, which isn't surprising and will be a headwind in the near term but should normalize as the aircraft fleet continues to age. Guidance for FCF conversion was lowered from 100% this year to 90%-100%, but that was well-telegraphed last quarter and another excuse to sell the stock. Our target is $135.

Vale (VALE:NYSE, $14.56; 1,500 shares; 0.78%; Sector: Materials): We got back into this position this week noting the clear sentiment shift in Brazil and China, which bodes well for the shares and comes at a time when the company is executing well following years of restructuring. We also believe iron-ore production growth is at an inflection following several years of project delays. We recognize that the supply/demand in iron ore is less compelling then in copper, but we believe the combination of it trading at a 28% discount to its NAV, improving production growth and better macro sentiment will drive shares higher. We were encouraged this week by the company's 2Q production growth of 10% q/q, 8% ahead of consensus, led by the ramp of Plant 2 Carajas, which posted a 25% q/q increase, where the company is ramping up its +40 MT project. It also showed improvements at Itabira and Mariana. This bodes well for making 2014 production/sales targets of 312/321 MT in iron ore/pellet forecast. Base metals/nickel was mixed, up 5%, above consensus but down 8% q/q on plant maintenance, but it should recoup the production in the back half of the year as the Sudbury mines continued to build inventory during the maintenance. The company reports next week and EBITDA should be at the trough in this quarter at $3.7 billion, $0.38 on 75 million in iron ore and pellet shipments. Shares trade at a 15% discount to peers and a 28% discount to NAV. The yield is covered and currently paid twice a year at 5%. Our target is $17.

TWOS

Apple (AAPL:Nasdaq; $97.67; 820 shares; 2.86%; Sector: Technology): The quarter was uneventful, with 6% revenue growth, higher iPhone sales vs. the iPad, which helped the gross margin mix, and conservative earnings guidance -- typical for the company. Apple bought back 59 million shares, which helped lead to a 20% earnings growth report. China was the clear highlight, with growth up 28% y/y and momentum continuing from the launch of the iPhone on China Mobile (CHL:NYSE) earlier this year. North America sales (its largest) rose only 3% y/y, likely as customers await new products, and Europe rose a healthy 6% y/y. Cash and investments now total $164.5 billion with $137.7 billion held offshore, a nice cushion to provide the company the flexibility for cash distribution and mergers and acquisitions. Overall, it was an uninspiring quarter, which is why we trimmed the position two weeks ago, but with this behind it, investors will focus more broadly on the product introductions in the second half of the year -- the iPhone 6 in two screen sizes and a wearable product. With the "bad" quarter out of the way, we move this back to Two and will look to build the position back up into the expected newsworthy second half. Our target is $107.

Anadarko Petroleum (APC:NYSE; $109.21; 600 shares; 2.34%; Sector: Energy): Shares rallied along with the group this week as oil prices increased on continued geopolitical uneasiness in the Middle East. The company reports earnings on July 29, with EPS expectations at $1.37 and for 808 MBOE/D. Expectations are high with the stock up 38% on the year -- one reason we recently took gains. We still like the story and the assets in the U.S. shale (Woodford being the biggest growth area) and the potential for it to monetize its 88% ownership of Western Gas Partners and several royalty positions (Wattenberg, Moxa/Wamsutter, Monell). We believe as Anadarko monetizes these assets and continues to execute strongly on its E&P platform, the stock should go higher. Our target is $115.

Costco (COST: Nasdaq; $117.55; 650 shares; 2.72%; Sector: Consumer Discretionary): Shares continued to grind higher this week and have acted pretty well in the face of a challenging consumer and macro backdrop. It is the one retailer that has been able to outperform expectations on a consistent basis. July comps will be reported in two weeks and we expect the continuation of mid-single digit comps and low to mid-single digit traffic trends. We're still impressed that the June results showed such a strong result on a two-year stacked basis of 12% in the U.S. and 16% outside the U.S., which speaks to customer loyalty, strong products and distribution advantages. Also, the recurring revenue provides a defensive quality to the story. Shares trade at a premium to the group but deservedly so in our view given the consistency and strong market share trends. Our target is $124.

Ensco (ESV:NYSE; $53.25; 1,700 shares; 3.23%; Sector: Energy): This week Diamond Offshore (DO:NYSE) reported earnings that disappointed and provided a weaker-than- expected fleet status report. It brought the entire group down. ESV is not immune to these issues in the oversupplied deepwater market. We fully expect that earnings and its rig report will also be underwhelming. That said, ESV is the best in the business and we believe it will hold up relatively better than DO and others. Estimates have already come down to $1.34 per share, with revenue growth of just 2.5% (management's target is 4%, which is somewhat bothersome), and COGS of $619 million (also above guide of $6604 million). We are looking toward 2015, when we believe the market will tighten and we expect the company to shine in that environment given its superior rigs, technology and execution. Plus, the new DS-8 rig five-year contract with Total (TOT:NYSE) for a higher dayrate ($610K/day) lifts estimates and should drive revenue to 10% from this year's expected 2%-3%. While we wait, we get the attractive dividend. Our target is $58.

General Motors (GM: NYSE; $35.07; 3,200 shares; 4%; Sector: Consumer Discretionary): The company reported mixed earnings, missing earnings by a penny, in line EBIT and weak North American margins. Expectations were very high headed into the print following the monthly sales figures, which clearly showed strong sales, market share and pricing. While EBIT in North America was in line, the margins should have been stronger than 9.2%, which was a disappointment. This is why the stock fell 5% on the week. The highlight was international operations, which beat in every region on EBIT and margins. The company also took a $400 million charge for ignition compensation, which was less than the $1 billion-$2 billion speculation. We would have liked better NA results, but we will stick with the shares given the strong product cadence, the margin upside potential (management reiterated 10% margin target in NA and believe they are only a third of the way through the cost cuts/efficiencies) and cheap valuation. We trimmed our target to $45.

Goldman Sachs (GS:NYSE; $175.40; 650 shares, 4.06%; Sector: Financials): Shares are close to our target price and we'll nudge it higher, liking the momentum from investment banking, where it easily exceeded consensus. We believe that the second half of 2014 sets up better than the first half because of the strong investment banking pipeline, easy FICC comparisons, and year-end comp flexibility. Also, we believe the company doesn't get the credit it should given that just 24% of total revenue is the more volatile FICC business vs. 45% from the sum of M&A, equity capital markets, equity trading and investment management. Shares trade at just 9x 2015 estimates, the lowest of the market-sensitive financials. Our target is $184.

Johnson & Johnson (JNJ:NYSE; $102.11; 620 shares; 2.26%; Sector: Healthcare): The company announced a new $5 billion share repurchase plan, which is what we have been waiting for. The stock posted a muted reaction to the news and we continue to like this quality healthcare play. The quarter was solid with strength coming once again from its pharmaceutical division, which showed 21.1% growth, albeit half of it came from its newest drug, Olysio, which faces competition later in the year. Still, 11% growth for a company this size is impressive. Consumer also showed encouraging signs of its turn and medical tech still needs work. Therein lies the opportunity, and should this be difficult to achieve, we wouldn't rule out a spin of this segment. Shares are not cheap, but again we like what management is doing with its pharma business and see other ways to extract value over time. Our target is $115.

JPMorgan Chase (JPM: NYSE; $59.01; 1,000 shares; 2.1%; Sector: Financials): The shares were upgraded this week by two firms, and it's easy to see why. The company posted a nearly flawless second quarter, far better than most of its peers, while trailing the group (it underperformed the S&P by 7% year to date) and trading at a rare discount to the group. Probably most impressive was the 4.8% q/q revenue growth despite challenging markets and mortgage weakness. This provides us with more confidence in earnings power, that the 14% ROE is sustainable and, at 9x forward estimates, remains very attractive. We're inclined to add below $55. We bumped our target to $62.

Occidental Petroleum (OXY:NYSE; $100.09; 550 shares; 1.96%; Sector: Energy): Shares have stalled lately as asset sale announcements have lessened and earnings have been coming down on lower production from Colombia. EPS estimates are now at $1.75 for 2Q and full year at $7.15, with production at 734 MBOE/D from 778 MBOE/D. We really don't put a lot of weight on earnings for this stock as it is more of an asset sale and cash reallocation story having filed for its California spinoff, which is on track for year's end. It has another $6 billion-$7 billion in sales, from MENA to its midstream joint ventures. Our target and sum-of- the-parts valuation remains $115.

Stanley Black & Decker (SWK:NYSE; $90.77; 850 shares; 2.75%; Sector: Industrials): The company reported a strong 2Q, beating on earnings, operating margins and it raised guidance, expecting organic growth to accelerate 4%-5% in the second half vs. 2% in the first half. CDIY was affected by a late U.S. spring, but industrial and security divisions more than offset this. Plus, Europe CDIY rose 6% y/y, which was very encouraging. Margins have always been the cornerstone of this management team and the 157 bps y/y improvement, which beat at all three units, was a nice endorsement that the company is back on track on this metric after faltering last year. Shares soared 6% on the news and even though we trimmed just ahead of the print (taking small gains), it will remain a core position. Our target is $100.

U.S. Bancorp (USB:NYSE; $42.75; 2,300 shares, 3.51%; Sector: Financials): Shares have recovered from last week's declines following a mixed report that saw better loan growth, strong returns, improved capital ratios and lower net interest margins. This feels exactly like the STI story, and we continue to like both positions and will continue to build them out ahead of the U.S. recovery and (eventually) higher interest rates. What was noteworthy in USB's report was the 7.6% annualized loan growth that nearly matched STI's, which is a much smaller regional bank. The expenses also improved from last quarter, which is a cornerstone of this management team. The stock trades at a premium to the group, but deservedly given the above average performance metrics. Our target is $48.

Yum! Brands (YUM:NYSE; $74.04; 800 shares; 2.11%; Sector: Consumer Discretionary): The shares fell again this week after reports that one of the company's chicken suppliers was selling expired meat. At first it was just YUM and McDonald's (MCD:NYSE) that were named, but mid-week several other companies were said to use this distributor and the stock stabilized. It's been a rough few weeks for YUM, having now lost 12% of its performance in less than a week. We believe it's overdone; the 2Q was mixed but China was stronger in sales and profits and we expect the recovery to continue in the U.S., even with this recent scare. Again, this one was not targeted to YUM specifically, like the recall in 2012 was. Pizza Hut products and reduced marketing should help the operating earnings in this segment, and KFC expectations couldn't be lower. Having sold a bit in the low $80s, the pullback is an opportunity and we'll add when our restrictions are lifted. Our target is $83. THREES

Bank of America (BAC: NYSE; $15.59; 6,300 shares; 3.5%; Sector: Financials): Shares will remain in a trading range in the near term but there is a catalyst on the horizon with U.S. government regulators expected to respond to BofA's second request for its cash distribution (CCAR) on or before Aug. 10. We expect approval. That said, the Justice Department settlement talks seem to have broken down and there remains a wide spread between $10 billion and $20 billion being the chatter. So that leads us to turn to fundamentals, which were mixed at best in the second quarter and clearly behind our other financials, JPM, GS and STI. Spread revenues were weaker, loans were down and investment banking were mixed vs. another strong expense quarter -- not enough to get us excited to buy more. If we get a bounce to the $17-$18 level, we'll trim.

General Electric (GE:NYSE; $25.79; 3,290 shares; 3.02%; Sector: Industrials): The company has been on the roadshow for its Synchrony IPO, which is slated to price next Wednesday or Thursday. The amount expected is $3.1 billion for a 15% offering. The company will spin out the remaining 85% to shareholders in the second half of 2015. This, along with the Alstom joint venture, are efforts to drive total revenue mix to 75% industrial and 25% financial, and given the strength the company has in its industrial execution that should be viewed positively. The margins in the most recent quarter were disappointing, however, and until GE can deliver upside to these figures, the stock will be in a trading range. Shares are cheap and we like its defensiveness and yield, but should shares pop on the IPO news, we'll cut back. We moved this to Three.

Xilinx (XLNX:Nasdaq; $41.46, 1,850 shares; 2.73%; Sector: Technology): The quarter was a very big disappointment. Not because revenue missed badly, but because the management was recently at conferences reiterating 8%-10% revenue growth for the year based on continued strong China LTE demand. It was surprising that the company lowered revenue growth to 5%, expecting an inventory adjustment transition for the next quarter and resumption of China LTE growth in the back half of the year. It also posted disappointing revenue growth in the industrial component, with pressure in aerospace/defense programs. On the positive side, it has $7 per share in cash and has been managing its cost structure -- upside on gross margins surprised in the quarter. Putting it all together, while the stock is down and we have no intension of selling it, should we get a bounce to the mid-$40s, we'll sell. We like value stories, but even with the pullback, this is still trading at 17x forward estimates. It has big management credibility issues that will overhang the stock until they can prove otherwise. There are simply too many other stocks to own. We moved this to Three.

Regards,

Jim Cramer, Stephanie Link, and TheStreet Research Team

DISCLOSURE: At the time of publication, Action Alerts PLUS was long AAPL, APC, BA, BAC, BWP, CI, COST, DOW, ESV, ETN, FB, FCX, GE, GM, GOOGL, GS, JNJ, JPM, LEA, MRO, ORCL, OXY, SBUX, STI, SWK, USB, UTX, VALE, XLNX and YUM.

Opening a Mining Position; Adding to Two Others
Action: FCX, STI, VALE

We revisit familiar name Vale and add to Freeport and SunTrust.

07/25/14 - 11:32 AM EDT
Lear Delivers a Strong Quarter
Action: LEA

With results like these, we'll continue to look for opportunities to buy the stock.

07/25/14 - 11:10 AM EDT
Industrial Shines for Stanley
Action: SWK

We were pleased with the report, especially on the margin side.

07/25/14 - 09:56 AM EDT
Weekly Roundup

In a week dominated by earnings, we haven't changed our trading strategy.

07/25/14 - 07:20 PM EDT
Navigating the Twitter Minefield
07/28/14 - 06:45 AM EDT
Next Week, It May Be Tech's Turn
07/25/14 - 07:14 PM EDT
Back in Bizarro World
07/25/14 - 11:38 AM EDT
In the Amazon Jungle Without a Guide
07/25/14 - 06:56 AM EDT

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