Weekly Roundup

The DJIA and S&P 500 both hit new highs briefly this week, because there was a lot of decent news out there -- Hewlett Packard (HPQ:NYSE) joining the technology M&A game with its purchase of 3Com (COMS:Nasdaq), better earnings from Applied Materials (AMAT:Nasdaq) and Disney, (DIS:NYSE) as well as a slew of good third-quarter reports out of the retailers such as Wal-Mart (WMT:NYSE), JCPenney (JCP:NYSE), Kohl's (KSS:NYSE), Urban Outfitters (URBN:Nasdaq) and Abercrombie & Fitch (ANF:NYSE). The reemergence of Dollar General (DG:NYSE) was also well received with an 8% jump off its IPO price. And Toll Brothers (TOL:NYSE) surprised most with its 42% order rate and 2010 profit guidance, which confirms my belief that the housing market has bottomed -- although I'd rather play it through Home Depot (HD:NYSE) and Weyerhaeuser (WY:NYSE).

And although there weren't big moves in oil and the dollar this week (both down around 0.9% for the week) the most overcrowded trade continues to work: short the dollar, long the market. I still believe the more important metric for the markets is what happens to oil prices, because it's a tell on overall demand. Oil has been in a trading range over the last several months, and when it hits the low to mid $80s, the market moves higher, only to give back those gains when the commodity falls back to the mid $70s.

I added a new name to the fund with United Parcel Service, otherwise known as UPS (UPS:NYSE). It's one of very few early-cycle transportation/logistics companies that has flat performance year to date, so I took advantage it. I added to JPMorgan Chase (JPM:NYSE), as I indicated with my upgrade of the stock last week. It's the best-run bank out there, and the stock has pulled back 10% from its highs despite its above average quarter. I also added to eBay (EBAY:Nasdaq) and will continue to make this a bigger bet in front of upcoming management meetings, which I believe will be a catalyst for the shares. And finally, I took profits this week in Vale (VALE:NYSE).

The trades this week didn't materially change my bets in sectors, and I still have a complement of early-cycle (beta) stocks along with defensive, high-yielding positions. I am slightly more overweight in industrials with the addition of UPS (it's technically in the transportation sector, which falls under industrials/early cycle), materials (although less so after the Vale sale), technology, health care and consumer staples. I remain underweight consumer discretionary, financials and energy.

I downgraded two stocks this week from Two to Three: Bank of America (BAC:NYSE) and Vale. BAC is the cheapest in the group and offers the most potential of upside, but I believe that even when the CEO announcement is made, it will take a while to sort out all of the issues, and the stock could buy time for a bit. Plus, I'm up 25% on the trade and would like to take some off and continue to add to JPM. VALE is a great long-term story on the global recovery theme, but I've registered a 35% gain in the stock, and given the big move, the shares could trade in a range until the fourth quarter is reported at the beginning of next year.

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ONES:

Abbott Laboratories (ABT: NYSE, $52.95, 2,100 shares, 3.68%) INDUSTRY SECTOR - HEALTH CARE: The company remains an attractive buy despite its move off the low $40s. Because of its diverse product portfolio and strong margins (pharmaceuticals, diagnostics, vascular, eye care and nutrition), it is poised for 11% earnings growth between now and 2015, which is the highest in the industry. Management has made four accretive acquisitions in the last 12 month, and its largest, the $6.6 billion Solvay deal, will bring a large pipeline and emerging-market exposure and over 50 cents to the bottom line. This week it announced a $190 million deal to buy the rights to Pangenetic's compound for pain management, which will add nicely to its pain franchise. Management reiterated its guidance for 2009 along with the announcement. At 12.6 times earnings, the stock remains attractive.

Altria (MO:NYSE, $19.26, 5,000 shares, 3.19%) INDUSTRY SECTOR - CONSUMER STAPLES: The stock hit a new high this week after Barron's ran its second positive article on the stock in two weeks and the WSJ indicated that adult smoking is on the rise, a complete reversal of expectations. I've been on this since $17 and will continue to buy it, because the yield alone is worth owning it: 7.1%. But if you add in that it dominates the cigarette market with 50% share with continued price increases (which has offset the volume declines), the fact that UST is just in its infancy in its turnaround, and that the 28% interest in SABMiller gets no value (it's worth $3 to $5 a share), it's even more attractive. Despite the move, it's still cheap at 10 times earnings.

Cisco Systems (CSCO: Nasdaq, $23.71, 6,300 shares, 4.94%) INDUSTRY SECTOR - TECHNOLOGY: Shares have stalled because of the pending acquisition of Tandberg and the 3Com acquisition by Hewlett-Packard (HPQ:NYSE). Shareholders of Tandberg want a higher price, and CSCO may increase its bid (the initial offer was very attractive at 17 times forward earnings and 21 times trailing earnings). But CSCO also may opt for buying out its U.S. competitors, Polycom and Lifesize, especially after raising $5 billion in debt earlier in the week. On HPQ, I don't see CSCO losing material market share, especially as HPQ integrates the two companies. Also, CSCO has new growth opportunity from its joint venture announced last week with EMC and VMWare, which expands its presence into the fast-growing data center market (a $40 billion market). I was restricted this week but will buy if the pullback continues.

China Unicom (CHU:NYSE, $13.83, 5,800 shares 2.66%) INDUSTRY SECTOR - TECHNOLOGY: Morgan Stanley upgraded the shares on the anticipation of higher subscriber rates. This is exactly why I own the stock -- it has superior WCDMA technology, which is a huge advantage, along with several new 3G launches, which gives it the first-mover advantage, especially with the iPhone. Higher sub growth will lead to a higher stock price, and its discount to CHL and CHA won't continue for long as the company shows stronger growth.

Cooper Industries (CBE:NYSE, $42.42, 2,400 shares, 3.37%) INDUSTRY SECTOR - INDUSTRIAL: The company indicated that maintenance, repair and overhaul (MRO) demand was improving at Goldman's industrial conference; this suggests that its margin guidance is likely too low. Also, it highlighted its opportunities in Smart Grid, which is expects to grow to $100 billion by 2030 from today's figure of $20 billion. Given CBE's dominance in this market, it is positioned well for good market-share gains and very strong visibility. It's still one of the cheapest industrial companies in the group, with a strong balance sheet and a lot of leverage. I'll buy more under $40.

Gilead Sciences (GILD: Nasdaq, $47.05, 2,300 shares, 3.58%) INDUSTRY SECTOR - HEALTH CARE: European data were released this week that will extend the HIV guidelines for treatment to cover sicker patients. The U.S. won't be far behind in following, and that will open up the patient population by another 180,000. This could translate into an additional 50- 60 cents in earnings over the next few years and will allay fears that the growth rate is slowing at the company. Shares remain attractive at 14.3 times earnings and below its growth rate of 17%, which makes no sense to me. It's still a buy here.

Home Depot (HD: NYSE, $27.34, 2,600 shares, 2.35%) INDUSTRY SECTOR - CONSUMER DISCRETIONARY: Positive earnings out of Toll Brothers (TOL:NYSE) were a surprise and good news for the housing sector, which I've been saying has bottomed. HD reports earnings next Tuesday. Expectations have climbed, but I believe that considering the combination of stabilizing market demand with an improvement in its key markets (California and Florida) and disciplined cost controls, the company should deliver a solid report of 36 cents with a 7% decline in same-store sales (which would be an improvement to the -8.3% in the third quarter of 2008, - 8.5% in the second quarter of 2009 and much better than the low of -13% in the fourth quarter of 2008). Gross margins should continue to recover on the basis of lower markdowns and better inventory management (less shrink). Shares trade at 16 times earnings, which is in the middle of its 10 to 20 times five-year average and remains attractive. I'm a buyer if the stock "sells off on the news."

Johnson Controls (JCI:NYSE, $27.13, 4,300 shares, 3.86%) INDUSTY SECTOR - INDUSTRIAL: Despite the weak demand, the company posted profits in all three of its divisions -- auto parts, batteries and building efficiency. Revenue continued to decline but beat estimates, and its new guidance continues to be conservative. There is some evidence that the auto industry is improving, with Ford's (F:NYSE) stronger profit last week, and the Asian auto companies have also seen better demand beyond Cash for Clunkers. I like the diversified revenue base and its lean cost structure, with much of it structurally lowered. As demand recovers in auto and in the buildings/batteries (driven by the government stimulus and green initiatives), JCI is in great position to benefit. I'll stay disciplined in my buy levels at around $25.

JPMorgan Chase (JPM: NYSE, $42.90, 2,100 shares, 2.98%) INDUSTRY SECTOR - FINANCIAL: I bought 200 shares this week because it remains the highest-quality financial in the bank space, with conservative reserves, market-share gains and strong earnings power (likely north of $5.50 a share). With 70% of its book tied to the consumer (and 30% to commercial loans), the company is positioned well for the early-cycle recovery. And with reserves 3 times as large as in a "normal" year, the leverage as the environment recovers is larger than that of its peers. I'll continue to buy in the low $40s.

Marathon Oil (MRO:NYSE, $34.65, 2,500 shares, 2.87%): INDUSTRY SECTOR - ENERGY: I still don't think investors give this company credit for its strong exploration-and- production program and just think of it as a refiner. Its last quarter showed 5% production growth and 100% capacity utilization, which was better than most. Its Garyville refinery is on track for completion by the end of this year, and full implementation is on track (this is a much more efficient/cost effective refiner), and that will be a positive catalyst. The stock trades at 8.7 times 2010 earnings, which is a discount to the super major oil companies, which are at 9.7 times, and the second-tier oil firms at 11.7 times. The sum of the parts is $40, so this remains a buy.

Pepsi (PEP: NYSE, $61.94, 2,700 shares, 5.54%) INDUSTRY SECTOR - CONSUMER STAPLES: This remains my largest consumer staple stock in the fund, because the valuation is compelling at 14.4 times earnings, the accretion from the bottler deal is not appreciated, and its global snack business continues to outgrow the competition. The weak North American beverage division remains a problem, but with the acquisition of Pepsi Americas and Pepsi Bottling Group, a lot of the issues will be elevated. The balance sheet is strong and cash generation solid; that will lead to a resumption of its buyback program in early 2010.

Procter & Gamble (PG:NYSE, $61.61, 2,400 shares, 4.89%) INDUSTRY SECTOR - CONSUMER STAPLES: The story remains compelling as management executes on its game plan to improve organic growth by focusing its capital allocation into new product innovation, further penetration in developing markets and new growth initiatives in the emerging countries. The company continues to be committed to growing the dividend and resuming its share-repurchase program and to provide shareholder value. The stock trades at a discount to its long-term average, which should narrow over time as the company delivers on its recovery plan.

Qualcomm (QCOM: Nasdaq, $45.77, 3,200 shares, 4.85%) INDUSTRY SECTOR - TECHNOLOGY: Now that the last of the bad quarters is likely over and conservative guidance has been issued, the stock will begin to move higher, especially as investors focus on growth in 2010. Handset volumes will improve to 8%-10% growth in 2010 vs. a 7% decline in 2009, and it will expand the growth in its handset royalties via its existing customers as well as new (Nokia, RIMM, Motorola). Given its stellar balance sheet, robust free cash flow, patent portfolio in CDMA technology and attractive valuation (17 times earnings, 15 times excluding cash and interest income), the stock remains a buy.

United Parcel Service (UPS:NYSE), $56.69, 700 shares, 1.31%): INDUSTRY SECTOR - TRANSPORTATION: I added this position in the fund this week and will continue to make it bigger over time. It has lagged the group and its biggest competitor by a mile, and I think it's about to play catch up -- it's flat on the year vs. the 24% gain in FDX and the 30% increase in the rails. UPS has done a great job cutting costs (11% in its last quarter), and much of that is stickier and will lead to savings over $1.3 billion for the year. As the economy slowly recovers, UPS will see better pricing and volumes, as was evident in its most recent quarter. I'm a buyer in the mid-$50s.

VF Corp. (VFC:NYSE, $74.48, 1,600 shares, 3.94%) INDUSTRY SECTOR - CONSUMER DISCRETIONARY: It's been a quiet few weeks for the company after the earnings report, which didn't live up to expectations. I remain bullish on this stock because the company is in good shape relative to its competitors, thanks to its superior brands, strong geographic distribution and cash flow generation. Its North Face brand is in the sweet spot seasonally and should continue to drive earnings growth and revenue. Shares continue to be cheap at 13.5 times earnings, and its 3.3% yield is an added plus.

Weatherford International (WFT:NYSE, $17.78, 2,000, 1.18%): INDUSTRY SECTOR - ENERGY: I was restricted this week, but I'll continue to buy shares under $18 when I can. The stock is the cheapest oil-service stock in the group (30% discount to Schlumberger and 19% to Halliburton) and has the best international growth prospects: three times the average at 30% for 2010. Its Iraq exposure is also very compelling, as it has a two-year lead to its peers in this country, and many integrated oil companies are just starting to explore there.

Wells Fargo (WFC: NYSE, $27.68, 1,900 shares, 1.74%) INDUSTRY SECTOR - FINANCIAL: The debate over strong pre- provision earnings vs. lack of credit stabilization continues and is the reason the stock has stayed in a trading range over the last few weeks. I'm focused on the fact that fundamentals are improving (spread income, operating fees, checking account growth, mortgage growth, trust/wealth management and credit card growth) and the company had the strongest improvement to liquidity in its most recent quarter. I believe that WFC will earn its way out of the credit cycle and that problem loans (all Wachovia at this point) will moderate. Earnings power is $4 a share, putting this at a very attractive valuation over the long run.

TWOS

Bristol-Myers Squibb (BMY: NYSE, $23.18, 3,500 shares, 2.69%) INDUSTRY SECTOR - HEALTH CARE: The yield alone makes this an attractive stock and a high-quality defensive stock that complements the beta in my portfolio. But BMY also has a solid, young pipeline of drugs in oncology and immunology that offers promising growth and a partial offset to its Plavix patent exposure (2012). I'm a buyer closer to $20, despite it being cheap, as I like ABT and GILD better for long-term growth.

BP (BP:NYSE, $58.35, 1,500 shares, 2.90%) INDUSTRY SECTOR - ENERGY: Shares have rallied nicely over the last month (near 10%) as investors are figuring out that the company has really transformed itself in terms of its production growth profile (more nonconventional areas around the world that enable the company to achieve above-average growth) and its commitment to structurally lowering its costs and productivity. And despite the move in the stock, the dividend yield remains attractive at 5.4%. For these reasons, the stock deserves to trade at a premium multiple to the group, and I will hold on to this core position.

Chevron (CVX: NYSE, $77.94, 1,700 shares, 4.39%) INDUSTRY GROUP - ENERGY: Projects offshore Western Australia, West Africa and deepwater Gulf of Mexico are expected to drive CVX's reserve replacement and production growth. And after reporting 11% production growth in its third quarter, its fourth-quarter guidance of 5% looks conservative. This, combined with cost reduction and control ($3.5 billion to date), is likely to drive the stock valuation going forward, and my target remains low $80s, so I'll stick with this one.

eBay (EBAY:Nasdaq, $23.74, 3,600 shares, 2.83%) INDUSTRY SECTOR - TECHNOLOGY: I bought 100 shares this week and will continue to buy more on weakness ahead of the company doing a marketing road show to investors in the first week of December. I think that as the CEO explains the strong EBAY message (turning around Marketplace/expanding Paypal) to the community, the stock will move higher. The shares remain cheap at 14.8 times earnings.

Emerson Electric (EMR:NYSE, $41.77, 1,800 shares, 2.49%) INDUSTRY SECTOR - INDUSTRIAL: The company's restructuring efforts were really evident in its last quarter as margins sequentially improved in every business segment and impressively in its process controls division, which cost the company 8 cents in earnings. Inventory burn doesn't last forever, and the company should start to benefit in fiscal 2010 now that levels are at a record low. The company generated $2.5 billion in free cash flow for the year, which gave it flexibility to raise its dividend and make the Avocent acquisition. I'll stick with this high- quality industrials, especially as 2010 should begin to see a recovery in margins without huge demand.

Express Scripts (ESRX:Nasdaq, $84.95, 1,200 shares, 3.37%) INDUSTRY SECTOR - HEALTH CARE: The spillover from CVS continues to lead investors to bid up this pharmacy benefit management (PBM) competitor, and I will hold on for the ride. The generic penetration story remains very compelling for the industry as billions of dollars of branded drugs go off-patent over the next several years. ESRX offers differentiation with its auxiliary services and special testing for its patients. The NextRX deal offers the company more patients, revenue and accretion, which will be given in February 2010, so I'll hold on.

Goldman Sachs (GS: NYSE, $176.76, 800 shares, 4.68%) INDUSTRY SECTOR - FINANCIAL: I would have sold 100 shares if I weren't restricted and will do so if it is above $180 when my restrictions are lifted, just to lock in the 65% gain that I have. I like the company and its strong position in the financial services industry. Its valuation isn't really stretch on a book-value basis, but it has run quite a bit, and it's prudent to trim.

Honeywell (HON:NYSE, $39.25, 1,800 shares, 2.34%) INDUSTRY SECTOR - INDUSTRIAL: The company presented at the Goldman Sachs industrial conference with not a lot of new information, but it remains committed to free cash flow generation, profitability and new product introductions. Demand remains solid in defense and space, energy efficiency and turbochargers, while weakness continues in aerospace. New products, market-share gains, low inventories and continued cost controls will lead to better leverage when demand comes back.

Visa (V:NYSE, $80.00, 1,000 shares, 2.65%) INDUSTRY SECTOR - TECHNOLOGY: The secular growth story remains very compelling as consumers transition from cash/check to plastic. Visa will benefit the most, as it has the dominant market share in this industry. Volume growth is picking up and should accelerate into the holiday season. This bodes well for Visa, because that is how it makes its money -- the number of transactions in credit and debit. There remains a lot of low-hanging fruit on cost-cutting, and along with better volumes, this will lead to 20% earnings growth for the remainder of 2009 and 2010. Shares trade below its growth rate at 18.8 times, and I think they deserve multiple expansion given the company's strong visibility. This remains a core position.

VMware (VMW:NYSE, $41.13, 1,300 shares, 1.77%) INDUSTRY SECTOR - TECHNOLOGY: Shares continue to trade in a range, and I think it's just buying time until the next move up. The virtualization market is in the very early stages of growth, and adoption is really just catching on. According to IDC data, server demand is starting to improve, and Microsoft confirmed this as well in its most recent quarter. As companies resume investing in physical server upgrades, there will be increased demand for virtualization software to maximize utilization of the new hardware. Management has set low expectations for its next quarter, and given that it is typically the seasonally strongest one for the company (and tech), I expect larger-sized deals and license revenue growth to be exceeded at 13% sequential growth. I'll buy in the mid to upper $30s, just given my cost basis, but the long-term fundamentals remain strong.

Weyerhaeuser (WY:NYSE, $38.36, 1,000 shares, 1.27%) INDUSTRY SECTOR - BASIC MATERIALS: The Toll Brothers positive earnings surprise shows that the market has stabilized with lean inventories and lower home prices, and I continue to believe that WY is the backdoor (no pun intended) way to play the recovery. With over 80% of its sales tied directly to the housing market, stronger pulp prices and volumes and the possible conversion to REIT status next year (which I value at $45/share), the stock continues to be attractive. It's a volatile stock, but if the stock corrects to mid-$30s I'll buy more, especially after its impressive quarter and encouraging guidance.

THREE:

Bank of America (BAC: NYSE, $15.98, 8,000 shares, 4.23%): INDUSTRY SECTOR - FINANCIALS: Chatter continued this week over who would replace Ken Lewis as CEO, and honestly, it has become a circus. I've moved this down a notch to a Three from a Two, because until the company announces a leader, which seems unlikely before its promise date of Thanksgiving, it's hard to buy it on a pullback. It's already a large position for me, but given the pullback in the group, I prefer JPM over BAC. If the stock were to rally on the news with a new CEO, I'll trim it and look to buy more JPM. BAC remains cheap, and the integration with Countrywide/Merrill gives it real opportunity for growth, though it will take time to see the evidence, especially in the absence of a leader. Some say Ken Lewis should be rehired. I'm starting to agree -- the devil you know.

Vale (VALE:NYSE, $27.78, 3,000 shares, 2.76%) INDUSTRY SECTOR - BASIC MATERIALS: I remain very bullish on the name for the long term, because this is the best way to play the global recovery. Iron ore/pellet prices continue to work higher as demand improves and utilization rates rise. But I have a 35% gain in the stock and I took 300 shares off this week and will likely sell more if the stock hits $30. As a result, I moved this to a Three from a Two, but this will remain a core position.

Regards,

Jim Cramer

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