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Jim Cramer's Action Alerts PLUS

Weekly Roundup

By Jim Cramer and Jack Mohr | 02/05/16 - 05:52 PM EST

Investors watched another volatile week in the equity markets fly past as major pushes in crude oil in the middle of the week and some strong earnings proved too little to provide any significant gains. The Nasdaq, in particular, experienced a rough week as investors rotated out of high-growth names and we saw a contraction of multiples and a short-term re-rating in the tech space.

While all eyes remained fixated on oil for most of the week, investors shifted their focus to the domestic economy on Friday following the comprehensive jobs report, which, although slightly disappointing on the headline number, showed stronger underlying trends. Ultimately, investors weren't gifted with any much-needed clarity in terms of the timing of future rate hikes, as the report seemed to leave the decision in limbo for the time being.

Treasury yields were lower for the week, the dollar was weaker against the euro, gold was higher and West Texas Intermediate (WTI) and Brent were both extremely volatile, with huge pushes higher during the week, but ultimately ended on a down note on Friday.

Fourth-quarter equivalent earnings have been relatively positive compared with expectations, with 76.7% of companies surprising to the upside. In the portfolio, Alphabet, Dow Chemical, Mondelez and Occidental Petroleum reported earnings.

Alphabet (GOOGL:Nasdaq) delivered a monstrous top- and bottom-line fourth-quarter beat, with revenue of $21.33 billion (up 18% year over year, including FX impact) topping consensus of $20.77 billion, while EPS of $8.67 blew away consensus of $8.10. The strong top-line growth -- which at 18% year over year represents a sequential acceleration from 15% y/y growth in the third quarter -- reflects the resilience of the company's business model amid biting FX headwinds. If FX costs were stripped out, revenue would have been up 24%, yet another acceleration from 21% year-over-year constant currency growth posted in the prior quarter. CFO Ruth Porat attributed the breathtaking top-line momentum to the vibrancy of the company's business, driven in particular by mobile search as well as YouTube and programmatic advertising. Aggregate paid clicks at Google grew 31% y/y (above consensus for 22%), with paid clicks on Google websites up 40% (smashing consensus of 28%).

Amid a nasty macro backdrop, Dow Chemical (DOW:NYSE) delivered a convincing top- and bottom-line beat, with fourth-quarter operating EPS of $0.93 (+9.5% year over year) coming in $0.23 above consensus ($0.70) and sales of around $11.5 billion (down 20% year over year) topping the Street's $11.17 billion forecast by nearly $300 million. The 20% decline in sales (or 15%, excluding the impact of divestitures and acquisitions) in the quarter - - albeit jarring from a headline perspective -- was better than feared and below the expected 25%+ decline. The company has been facing an onslaught of macro headwinds -- most potently commodity deflation (which pressures pricing related to hydrocarbons and energy) and biting currency, all of which weighed heavily on sales. Volume gains were broad-based, however, with all geographies posting positive growth, led by Asia Pacific (up 8%) and North America (up 6%). Volume grew 5% in emerging markets, led by Greater China (up 10%).

Mondelez International (MDLZ:NYSE) reported mixed fourth- quarter 2015 results, marked by a top-line beat (revenues of $7.36 billion vs. $7.26 billion consensus) and a bottom-line miss (EPS of $0.46 falling slightly short of $0.48 consensus). Management also provided mixed 2016 guidance, with a lower-than-expected organic revenue growth forecast balanced by relatively strong EPS growth and in-line margins. Overall, fourth-quarter EPS was messy as it included a $0.48 negative impact related to Venezuela operations (essentially, Mondelez had to take an accounting charge as a result of the country's collapsing currency and ongoing deconsolidation) and an incremental $0.19 drag from other FX headwinds. Fourth- quarter organic sales growth of 4.7% year over year, which came in well above consensus of 3.5%, was strong, however, as the company raised prices to recover currency-driven inflation in emerging markets. In fact, emerging markets grew 12.4% year over year, offsetting flat growth across developed markets.

Occidental Petroleum (OXY:NYSE) reported fourth-quarter results this morning with revenues of $2.8 billion and EPS of -$0.17 both coming in slightly below consensus of $2.95 billion and -$0.12 for the top and bottom lines, respectively. Revenues from operations were down roughly 35% year over year, but this was expected due to deteriorating conditions in the oil and gas markets. Specifically in that segment, the company's decline in after-tax results was solely a result of the persistent drop in commodity prices throughout the quarter, although partially offset by higher volumes and lower operating expenses (positive indications of both demand for OXY's products and the nimble nature of its management team). Although the company produced 11,000 additional barrels of oil equivalent (BOEs) per day domestically (to 312,000, which was in line with consensus) in the fourth quarter compared to last year, the increase was mostly attributable to its Permian operations, which remain the company's premium growth asset and differentiator from its peers. Sequentially (i.e., compared to the third quarter), production actually declined by roughly 3,000 BOE in the U.S. as management adapted to the worsening oil and gas price environments. Internationally, the slight increase in production year over year was due to the ramp-up of OXY's Al Hosn position in the Middle East, which opened in the third quarter.

On the economic front, the Commerce Department reported on Monday that personal income rose 0.3% in December while personal spending remained flat. Personal income was expected to rise 0.2% and spending was expected to increase 0.1%. Consumer spending for all of 2015 was up 3.4% after a 4.2% advance in 2014. The slowdown in the consumer's willingness to purchase contributed to the restricted economic growth we witnessed toward the end of last year (recall that fourth-quarter GDP was estimated at 0.7% last week). Despite continued lower oil and gas prices, consumers have seemed to hoard their extra earnings and savings as opposed to spending on discretionary items.

That being said, the big story coming out of this report is that the personal savings rate jumped to 5.5%, the highest since 2012. Inherently, when consumers are saving more, spending tends to decline as well, which is a concern as consumer spending makes up more than two- thirds of our economic activity. The savings rate is expected to drift lower, however, as consumers recognize the continued, depressed energy prices and ultimately feel more comfortable in spending. It is unclear how long it will take for consumers to shift their habits, but it will be an important theme to continue to monitor. On Thursday, the Department of Labor reported that initial jobless claims for the week ending Jan. 30 were 285,000, which was 8,000 claims higher than the prior week's revised figure and 5,000 higher than expectations. The four-week moving average for claims (which is used as a gauge to offset volatility in the weekly numbers) rose 2,000 claims to 284,750. Claims have remained below 300,000 -- the threshold typically used to categorize a healthy jobs market -- for 48 straight weeks, which is still the longest streak since the early 1970s. Importantly, this figure had no bearing on the more comprehensive jobs report released on Friday, as it fell outside the survey period.

On Friday, the Department of Labor reported that the U.S. economy added 151,000 jobs in January, lower than expectations for a 185,000 gain. Revisions were also made to the prior two months, with December's payroll gain adjusted downward by 30,000 jobs (to 262,000 from 292,000) and November's gain recast upward by 28,000 jobs (to 280,000 from 252,000). Overall, the revisions showed employers added 2,000 fewer jobs in the last two months of the year than previously stated.

As for the unemployment rate, we saw a slight dip to 4.9% (from 5% previously and vs. expectations of 5%), which marks the first sub-5% rate since November 2007. Importantly, hourly wage gains also accelerated in January, growing by 0.5% month over month and 2.5% year over year to an average of $25.39. However, much of this wage gain can be attributed to the rise in minimum wages across the country, which could prove misleading.

Overall, the report seems to pit the market against two competing trends: On one hand, we have a disappointing headline payroll number along with slight downward revisions for November/December; on the other, we have a lower-than-expected unemployment rate and accelerating wage growth. As for the weaker-than-expected job growth, we would note that the numbers fluctuate month by month and there are often heavy revisions to previous estimates once more data is collected (as seen in December and November in this report). In aggregate, the three-month trend remains stronger than the January report -- if viewed in isolation -- would imply.

With respect to the strong unemployment rate and wage growth, we believe these numbers could prove to be a bit misleading as well. Unemployment can be affected by many factors that can artificially inflate the number, and wages were likely boosted by minimum-wage increases, which do not spread evenly across the entire job market. In the end, we come away a bit concerned that the Fed may view this report as proof that further tightening is needed. By crossing under the 5% unemployment rate (key threshold for Chair Janet Yellen in particular), it reinforces the main theme driving the Fed's December hike decision -- that is, slack in the job market is diminishing and will ultimately lead to higher wages and inflation.

This would be a troubling interpretation in and of itself, in our opinion. Although our own economy is showing pretty resilient data (and this can be debated given weakness in manufacturing), the Fed has acknowledged that it cares about global market factors as well. With every other central bank accommodating (ECB, Bank of Japan) and considering the continued prevalence of global market volatility and deteriorating global economic data, there remain serious doubts about our own future economic productivity. For what it's worth, the rates markets are pricing in basically 0% probability of a March rate hike (as of this publication).

As for now, it is not worth speculating what the Fed will do in March, as the decision is a month and a half away. We know how much can change in a matter of days, not to mention weeks and months, and we expect the Fed to evaluate all the various data points we will receive in the coming weeks before making a decision. If anything, our view is that this report provided more confusion than certainty.

On the commodity front, it was another volatile week for oil as investors continued to speculate over a meeting between major oil producers to discuss potential output cuts. While there continue to be doubts that any such meeting will actually occur, other bullish factors, such as a weakening dollar, helped add to major upward pushes in the trade throughout the week. These factors, at least at the beginning, outweighed another inventory report that showed a build in crude stockpiles (to the highest level on record for weekly data since 1982), although the underlying numbers did show a cut in production, which is bullish given the global oversupply. An improvement in Chinese services activity also helped support oil prices on the upward climb, given that China is the world's second-largest consumer of crude (at about 12%). However, crude regressed toward the end of the week as the focus turned to global supply that has time and again pressured the trade.

What does all this tell us? Bottom line: The oil trade is poised to remain volatile in coming weeks as the underlying fundamentals (which continue to be bearish for the trade) jab back and forth with the short-term speculation of potential production cuts, short-covering and movements in the dollar. In our view, we can't count on output cuts from major oil producers as each continues to fight for market share, and this means the oversupply is likely to continue for the time being. While there may continue to be some short-covering in the trade as prices drop to trigger levels, the underlying fundamentals remain weak and this will continue to be the main driver of the longer-term outlook. Overall, it seems that any recovery in the oil market, regardless of how long it takes, surely will not occur in a straight line upward.

With respect to the portfolio this week, we added to Eli Lilly (twice -- LLY:NYSE), Allergan (AGN:NYSE), Biogen (BIIB:Nasdaq) and Jack-in-the-Box while we trimmed Kraft Heinz, Target, Mondelez and Starwood, downgrading the latter two names to Three.

We added to our positions on our three biotech names -- LLY, AGN and BIIB -- viewing the selloffs as overdone. Concerns continue to mount in the investing community over the headlines and presidential campaigns, but the underlying fundamentals for these three companies remain strong and their pipelines just as enticing.

As for Jack-in-the-Box (JACK:Nasdaq), we took advantage of a selloff to add to the position as we see serious upside potential in shares. Issues at Chipotle (CMG), along with Qdoba's "Knockout Taco" rollout, promotions and catering initiatives have all been cited as comp drivers and we expect strong momentum to continue through at least the intermediate term as it takes more market share from Chipotle, further innovates its menu and continues executing its remodel efforts.

On Mondelez (MDLZ:Nasdaq), we made the difficult decision to sell into weakness as we have lost trust in management following the company's disappointing quarterly results and believe the intense focus on the "holy grail" (margin expansion combined with top-line growth) allowed some key issues to slip through the cracks.

On Kraft Heinz (KHC:Nasdaq), we have trimmed the name several times over the last couple of weeks as the stock has been an outperformer and we did not want to be too greedy given that the company is without any significant near-term catalysts. With MDLZ's disappointing results, we wanted to further de-risk the portfolio ahead of what could be a disappointing fourth quarter and 2016 outlook.

We trimmed Target (TGT:NYSE) as we believe Costco's (COST:Nasdaq) weak comparable sales figure could be a read-through into TGT's 4Q results and outlook for upcoming quarters. We do believe, however, that impact will be near term, and is not reflective of deteriorating underlying trends at the retail chain. Therefore, we could look to build on any weakness.

Lastly, we trimmed Starwood (HOT:NYSE) as we remain concerned with the stock’s unrelenting link to shares of Marriott (MAR), given the impending merger between the two companies.

Fourth-quarter earnings continued this week and have been relatively mixed compared to estimates. Total fourth- quarter earnings growth is down 4.6%; of the 234 non- financials that have reported, earnings growth is down 5.2% vs. expectations thus far for a 4.6% decrease. Revenues are decreasing 4.8% vs. expectations throughout the season for a 3.31% decline; 73.1% have beaten expectations, 16.8% have missed the mark and 10.1% were in line with consensus. On a year-over-year comparison basis, 53.5% have beaten the prior year's results, 43.1% have come up short, and 3.4% have been virtually in line. Materials, health care and info tech have led the strong performance vs. estimates whereas energy, telecom and utilities have posted the worst results thus far in the S&P 500.

Next week, 62 companies in the S&P 500 report earnings. Within the AAP portfolio, Panera Bread (PNRA:Nasdaq), Cisco Systems (CSCO:Nasdaq), Twitter (TWTR:NYSE), and WhiteWave (WWAV:NYSE) all report earnings. Other key reports include: Hasbro (HAS), CNA Financial (CAN), Cognizant (CTSH), Diamond Offshore (DO), Lennox (LII), 21st Century Fox (FOXA), Molina Healthcare (MOH), Owens & Minor (OMI), Plains All American (PAA), Plains GP Holdings (PAGP), Yelp (YELP), Aecom Tech (ACM), Agrium (AGU), Coca-Cola (KO), CVS Health (CVS), Centene (CNC), Fidelity National Info (FIS), Goodyear Tire (GT), Masco (MAS), Omnicom (OMC), Regeneron (REGN), Spirit Airlines (SAVE), Sabre (SABR), Tenneco (TEN), Viacom (VIAB), WellCare (WCG), Wendy's (WEN), Wyndham Worldwide (WYN), Akamai Tech (AKAM), Assurant (AIZ), Horace Mann (HMN), Regal Entertainment (RGC), SolarCity (SCTY), Walt Disney (DIS), Western Union (WU), Amtrust Financial (AFSI), Aramark Holdings (ARMK), Berry Plastics (BERY), Carlyle (CG), DTE Energy (DTE), GW Pharma (GWPH), Henry Schein (HSIC), Humana (HUM), Owens Corning (OC), Sealed Air (SEE), Time Warner (TWX), Voya Financial (VOYA), (WIX), Andersons (ANDE), CenturyLink (CTL), CNO Financial (CNO), Cognex (CGNX), Expedia (EXPE), FMC Corp. (FMC), Green Plains (GPRE), Mylan Labs (MYL), O'Reilly Auto (ORLY), Omega Health (OHI), Primerica (PRI), Pioneer Natural Resources (PXD), Prudential (PRU), Tesla Motors (TSLA), Whole Foods (WFM), Advance Auto Parts (AAP), AllianceBernstein (AB), Avon Products (AVP), Blue Nile (NILE), Bunge (BG), Cenovus Energy (CVE), First American Financial (FAF), GNC Holdings (GNC), Huntsman (HUN), Kellogg (K), KKR (KKR), Lending Club (LC), Incyte (INCY), Manulife (MFC), Molson Coors (TAP), Monster Worldwide (MWW), Nielsen (NLSN), Nokia (NOK), PBF Energy (PBF), Peabody Energy (BTU), Penske Auto (PAG), PepsiCo (PEP), Reynolds American (RAI), Sonoco Products (SON), Teva Pharma (TEVA), Thomson Reuters (TRI), Time (TIME), TripAdvisor (TRIP), World Fuel Services (INT), Activision Blizzard (ATVI), American International (AIG), CBS (CBS), FireEye (FEYE), Groupon (GRPN), King Digital (KING), LPL Financial (LPLA), Pandora Media (P), (WEB), Zillow (ZG), American Axle (AXL), ArcelorMittal (MT), Brookfield Asset Management (BAM), Interpublic (IPG) and Red Robin Gourmet (RRGB).

Economic Data (*all times EST)


Monday (2/8)

Tuesday (2/9)

Wholesale Inventories MoM (10:00): -0.20% expected

Wednesday (2/10)

MBA Mortgage Applications (7:00):

Monthly Budget Statement (14:00):

Thursday (2/11)

Initial Jobless Claims (8:30):

Continuing Claims (8:30):

Bloomberg Consumer Comfort (9:45):

Friday (2/12)

Import Price Index MoM (8:30): -1.50% expected

Retail Sales MoM (8:30): 0.10% expected

Retail Sales Ex Auto MoM (8:30): 0.10% expected

Retail Sales Ex Auto and Gas MoM (8:30): 0.30% expected

U of Mich Sentiment (10:00): 92.8 expected


Monday (2/8)

Japan Eco Watchers Survey Current (0:00):

Germany Industrial Production MoM (2:00): 0.50% expected

Germany Industrial Production YoY (2:00): -0.50% expected

Japan Money Stock M2 YoY (18:50): 3.10% expected

Tuesday (2/9)

Japan Machine Tool Orders YoY (1:00):

Germany Trade Balance (2:00):

Japan PPI YoY (18:50): -2.80% expected

China Money Supply M2 YoY (21:00):

Wednesday (2/10)

UK Industrial Production MoM (4:30): 0.0% expected

UK Industrial Production YoY (4:30): 1.0% expected

UK Manufacturing Production MoM (4:30): 0.10% expected

Thursday (2/11)

Friday (2/12)

Germany CPI MoM (2:00): -0.80% expected

Germany CPI YoY (2:00): 0.50% expected

Germany GDP QoQ (2:00): 0.30% expected

Germany GDP YoY (2:00): 1.40% expected

Eurozone Industrial Production MoM (5:00): 0.30% expected

Eurozone Industrial Production YoY (5:00): -0.20% expected

Eurozone GDP QoQ (5:00): 0.30% expected

Eurozone GDP YoY (5:00):

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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 our trading restrictions allow.


Apple (AAPL:Nasdaq; $94.02; 820 shares; 3.43%; Sector: Technology): Shares of Apple continued their slide lower this week after last week's earnings report, which -- although strong on the bottom line -- highlighted expected difficulties in the iPhone market. We view the selloff as overdone and have reiterated many times our positive, long-term view on shares given the myriad upcoming catalysts, the enormous cash balance and well-seasoned management team. That being said, we recognize that investors remained concerned about the tough upcoming quarter (especially in terms of iPhone compares vs. last year, when sales were inflated due to the rollout of the new, larger-screen model and pent-up demand due to supply constraints from the first quarter of 2014). Therefore, we understand that shares could remain range-bound in the near term until catalysts come to fruition in the back half of the year. The company is expected, however, to hold an event in March to announce a new Apple Watch, iPad Air 3 and 4-inch iPhone (5SE). Depending on the details provided, the event could prove to be a much-needed boost in the meantime as we wait for the iPhone 7 launch. We reiterate our long-term price target of $140.

Allergan (AGN:NYSE; $273.80; 480 shares; 5.85%; Sector: Health Care): Shares of Allergan traded lower this week as the broader biotech sector continued to be pressured by speculation regarding presidential campaigns and future regulatory actions given current hearings discussing drug price increases. The bigger story for Allergan involves its pending merger with Pfizer (PFE). On that note, Pfizer CEO Ian Reid noted in his company's earnings call this week that he doesn't see any reason why the deal will not close and he continues to believe the merger is being undervalued by the market as the perception of risk around the close continues to cloud the revenue and earnings potential of the deal. PFE reiterated that the deal is expected to close in the back half of 2016. We are excited for the deal to close so AGN can get away from the regulatory, risk and arbitrage overhang that accompanies a deal of this magnitude. Ultimately, we believe the deal will be extremely valuable for shareholders and see even further catalysts when the combined company later decides to split into two separate entities, one growth-oriented and one established. As for AGN, we maintain our $400 target.

American Electric Power (AEP:NYSE; $62.84; 500 shares; 1.40%; Sector: Utilities): Shares of AEP continued to trade higher this week after last week's strong earnings report solidified the utility giant as a steady grower and safe investment in this volatile market environment. We like AEP's 4%-6% EPS growth, significant capex opportunities and potential for stock buybacks (via proceeds from the merchant divestiture). The stock offers investors a compelling dividend (about 3.6%), attractive transmission growth profile and a diversified regulatory footprint. As for catalysts, we expect AEP to receive approval for its Power Purchase Agreement (PPA) settlement from the Ohio Public Utility Commission within the coming weeks, and to announce a sale of its remaining merchant assets shortly thereafter, which effectively makes it a pure "regulated" operator in a sector that applies a premium to the more regulated player. We take our target slightly higher to $67 from $65 to reflect increased visibility into earnings and premium valuation amidst this volatile trading environment.

Bank of America (BAC:NYSE; $12.95; 6,700 shares; 3.87%; Sector: Financials): BAC shares continue to struggle given reduced expectations around a potential Fed rate hike this year. Despite the negative sentiment, we view shares as attractive and believe the bank can become materially more efficient, grow tangible book value (we target $17 by year-end), and view its valuation gap on a price to tangible book value basis as unjustified. The stock is trading at recessionary levels despite the absence of a recession. Even in a domestic recession, the bank would be able to grow its book value from $15.62 currently (based on analysis performed by analyst Mike Mayo, who had been BAC's biggest bear until he upgraded shares to Buy from Sell last Friday). We do not believe investors are giving the bank credit for a much-improved balance sheet, improved capital ratios and potential for major capital returns (we estimate the bank will be able to double buybacks and its dividend in 2016 alone). We reiterate our $18 long-term target.

Biogen (BIIB:Nasdaq; $263.86; 375 shares; 4.41%; Sector: Health Care): Share of Biogen also traded lower this week in sympathy with the entire biotech sector. Unfortunately, investors seem to be painting all biotechs with one brush (in regard to regulatory speculation), and we view this as unfair. Bottom line, we do not believe Biogen is getting the credit it deserves for its stellar quarterly results (it reported last week) that indicated continued strength in its key multiple-sclerosis franchise. With important data readouts coming later in the year, we expect it is only a matter of time before investors begin to pile into this name. We reiterate our $375 target.

Cisco Systems (CSCO:Nasdaq; $22.89; 2,650 shares; 2.70%; Sector: Technology): Shares of Cisco dipped a bit further this week despite an acquisition that we viewed as positive and additive toward the long-term strategic outlook. The $1.4 billion deal to acquire Jasper Technologies, a Silicon Valley-based private company -- which offers a cloud-based IoT (Internet of Things) platform to help enterprises and service providers (SP) "launch, manage and monetize" IoT services on a global scale -- further enhances Cisco's capabilities in the rapidly growing area of IoT services. More specifically, this deal allows Cisco to expand its IoT offerings to its mobile ecosystem as Jasper's portfolio is focused on connecting mobile devices or platforms (i.e., connected cars, jet engines, heavy machinery, smart vending machines, ATMs, pacemakers, home security devices, industrial robots and more) through wireless networks provided by SPs. Importantly, the move fits perfectly within the company's ongoing strategy to shift toward a software-based, recurring revenue stream model and away from hardware. We ultimately believe the acquisition and the overall long-term strategy are both being undervalued by the market. Cisco is investing in high-growth areas that should pay off in the future, and we have confidence in the management team to execute on the strategy. The story is not without risk, of course, but we think next week's fourth-quarter report and subsequent conference call could shed some light on trends for the future. That being said, we do recognize that the recent quarter faced and the current quarter is facing a difficult macro environment and FX headwinds, but much of this seems to be baked into the recent slide in shares. We maintain our long-term $30 target.

Costco Wholesale (COST:Nasdaq; $143.99; 450 shares; 2.89%; Sector: Consumer Staples): Shares of COST were down this week following a slightly disappointing January sales report. Costco reported January comparable sales results ("comps" or same-store sales, SSS), with solid international numbers offset by weakness in the U.S. as food deflation as well as several transitory items served as headwinds to comps. SSS grew just 1% in the U.S., dragging the headline number to the lower end of consensus expectations. Costco estimates that the later Super Bowl (Feb. 7 vs. Feb. 1 last year) had a 75- basis-point negative impact, while adverse weather conditions in the Northeast and Midwest were an estimated 100-basis-point drag on U.S. sales. More importantly, domestic sales were also affected by food deflation. While deflationary conditions across food & sundries ("slightly deflationary") were expected based on December sales results, deflation within fresh foods was unexpected ("low single digits deflationary" in January vs. "slightly inflationary" in December). These two categories represent 35% of total company sales (21% food/sundries and 14% fresh foods) and had an estimated negative impact of 60 basis points on U.S. comps. While the U.S. was disappointing, Canada and other international stores held up their side of the bargain and delivered strong core results. Overall, we would not read too much into one month, especially given the myriad non-recurring headwinds. We do not believe the sell side adequately adjusted its models to account for the Super Bowl calendar shift, the major blizzard across the Northeast and Midwest U.S. and deflationary food trends, the latter of which was the most unexpected. In addition, COST shares have traded lower following monthly sales results multiple times in the past, with each proving overdone and an actual opportunity to add to the position. We continue to view shares as attractive, especially with catalysts toward the middle and back half of the year, and maintain our $170 long-term price target.

Dow Chemical (DOW:NYSE; $46.69; 1,700 shares; 3.54%; Sector: Chemicals): DOW shares soared higher this week after the company posted a monstrous earnings beat with its fourth-quarter results, which, impressively, was done in the face of an increasingly difficult macroeconomic backdrop. We added to shares last week ahead of the report as we viewed our expectations for solid numbers as a nice catalyst for shares -- this turned out to be a great move. On a full-year 2015 basis, Dow expanded EBITDA margins by more than 360 basis points to nearly 20%, the highest level in over a decade, with increases reported across all operating segments. Margin expansion was led by performance plastics, performance materials & chemicals and consumer solutions, driven by increased demand, disciplined price and volume management, continued innovation and productivity improvements. The company generated a whopping $7.5 billion in operating cash flow in 2015, allowing it to return $4.6 billion to shareholders through dividends and share buybacks. Not only are we impressed by the results, but we think the bullish case for the merger with DuPont (DD) is now becoming more evident to the broader market as the combination and eventual split of the companies will generate immense revenue potential for shareholders in the future. We reiterate our $55 long-term target.

Facebook (FB:Nasdaq; $104.07; 1,200 shares; 5.56%; Sector: Technology): Facebook shares sold off this week on the heels of an incredibly strong quarter (reported last week). On Friday, the stock was dragged down with the higher-multiple Internet/social media/digital complex in concert with its cohorts. This basket-selling -- somewhat due to the awful first-quarter guidance issued by LinkedIn (LNKD), with shares down 40% intraday -- is a force that we decided not to reckon with. The fundamentals for Facebook, driven by a powerful and visible long-term growth trajectory, validated in its recent quarterly results and forward guidance leave us with little doubt that the selling is illogical. When fundamentals diverge from logic to this extent, however, we recognize there are undercurrents precipitating the action that are beyond our control. We are in Facebook for the long term and will not be distracted nor tempted by the flood of technical selling. Our target remains $130.

Google (GOOGL:Nasdaq; $703.76; 150 shares; 4.70%; Sector: Technology): Shares of GOOGL were surprisingly down this week despite a very strong fourth-quarter earnings report released earlier in the week. In all, the market seemed to beat up on high-growth, high-multiple names (with tech being a major target, as Facebook also got hammered despite its incredible results last week). We view the selloff as a near-term obstacle and not reflective of long-term results or trends. Through its concerted efforts on mobile and YouTube, Alphabet has cemented myriad consumer-savvy businesses that are poised to continue capturing large shares of advertiser wallets for years to come. Google has seven consumer products (Search, Android, Maps, Chrome, YouTube, Google Play and Gmail) that each boast over 1 billion monthly active users. YouTube is clearly the crown jewel of this group, as hundreds of millions of hours of video are watched on the platform on a daily basis, making it "a must-have for all brand advertisers" (according to Google core CEO Sundar Pichai). The video service now reaches more 18- to 49-year-olds than any cable network in the U.S.; even more excitingly, the time spent watching the platform in the living room (e.g., through the use of a smart TV or another connected device) more than doubled in 2015, demonstrating its high level of engagement. YouTube's reach stretches far beyond our own domestic borders, however, as 80% of its total views come from outside the U.S. We believe Google has just scratched the surface on YouTube's growth and monetization story. In addition, while the Other Bets segment posted a loss of roughly $3.1 billion, this was actually on the low end of what analysts were expecting (anywhere between $3 billion and $5 billion). In fact, investors appear willing to give management leeway on their moonshot businesses, now that the strength of the core business has been confirmed. We reiterate our $900 target, increased from $850 following the strong report earlier this week.

Jack-in-the-Box (JACK:Nasdaq; $72.94; 1,000 shares; 3.25%; Sector: Consumer Staples): Shares of JACK traded lower this week and we took advantage of the opportunity to add to our position. JACK remains one of our favorite names in the quick service restaurant space, with strong core comp trends and even more impressive results in its high-growth Qdoba stores. We expect the company benefited from Chipotle's (CMG) continued distress and its own innovative menu products (like the Knockout Tacos). With continued menu updates, a strong share-buyback program and a focus on core products, we think JACK has room to run. Our target remains $90.

Panera (PNRA:Nasdaq; $191.53; 550 shares; 4.69%; Sector: Consumer Discretionary): Recent channel checks conducted by analysts at Piper Jaffray indicate Panera is well positioned heading into its fourth-quarter 2015 earnings release. The channel checks suggest new product platforms and continued media spend by the company were generally well received by consumers. Management's efforts to modernize the brand have provided optionality around menu and marketing innovations; the resulting pricing power should ultimately translate into consistent comparable sales momentum over time. We reiterate our $225 price target.

PayPal Holdings (PYPL:Nasdaq; $35.07; 2,150 shares; 3.36%; Sector: Technology): Shares of PYPL ended the week roughly flat following a huge rally last week. We hosted PayPal CEO Dan Schulman on Mad Money's Invest in America series in San Francisco to get the inside scoop on the company's burgeoning business and a peek into the future of the increasingly popular digital payments landscape. Schulman noted PayPal's incredible volume growth (up 27% overall last year and 36% off eBay), which was almost double the pace of e-commerce, demonstrating the company's continued ability to increase its market share in a space many have worried is becoming overly crowded. Overall, Schulman noted that while the payments world is becoming increasingly competitive, data have proven that consumers are turning to brands they can trust, which is where PayPal's brand loyalty has shined the brightest -- PayPal now has 180 million people using its platform worldwide. In short, competition may be a concern for most payment facilitators, but not for PayPal -- not now. The company continues to dominate and the prospects are only more mouthwatering when we begin to consider the monetization of Venmo, which is PayPal's crown jewel in the peer-to-peer (P2P) payments world and has ingrained itself as the go-to P2P service for millennials. The platform is exploding in the under-30 demographic, and now that the company is beginning to roll out its Pay With Venmo service (whereby users can "venmo" a merchant to pay for goods and services), you could say the beast has been unleashed. Given the solid business trends and upward potential from Venmo and its other subsidiaries (such as Braintree), we are increasing our target to $42.

Stanley Black & Decker (SWK:NYSE; $93.25; 900 shares; 3.74%; Sector: Industrials): The stock rebounded nicely after the company issued disappointing 2016 guidance last week. It is not fair to blame the sell side for missing consensus, as SWK's management team bears the responsibility of better buffering currency volatility into forecasts (this is the CFO's job) and at the very least properly managing expectations when those headwinds intensify (this is a shared responsibility across the CFO, CEO and the head of investor relations). Prior guidance for $100 million fiscal 2016 top-line currency impact is unacceptable; while the FX environment deteriorated rapidly subsequent to its $100 million pegged drag last October, the absence of incremental communication leads to noise, uncertainty and headline disappointment. At worst, it sows the seeds for a lurking distrust in management. That said, we decided to add to our position with shares trading at roughly $90 as we viewed shares undervalued, trading (at the time) at roughly 15x lowered 2016 EPS despite the double-digit long-term earnings trajectory. The subsequent $4 (nearly 5%) pop in shares has validated our decision to buy into the post-earnings weakness. We do view fundamentals as intact, and keep our $105 price target.

Target (TGT:NYSE; $69.56; 1,200 shares; 3.72%; Sector: Consumer Discretionary): On Thursday, shares of TGT took a major hit (down 3.5%), which we believe was a result of negative commentary from Costco (COST) around food deflation and weather impacts. While COST and TGT are separate entities and do not have substantial overlaps in terms of product mix and sales, the fact that COST reported its weakest core U.S. comparable sales number since 2010 is a negative read-through as it pertains to TGT's 4Q results. We reiterate that the impact will be near term, and not reflective of deteriorating underlying trends at the retail chain (unlike Mondelez, where we believe the underlying story has cracked). Therefore, while we have reduced our position in TGT ahead of the quarter, we would also look to build back on any post-results weakness. We lower our price target to $80 from $85, however, to reflect near- term EPS impacts.

Walgreens Boots Alliance (WBA:Nasdaq; $75.20; 1,250 shares; 4.19%; Sector: Health Care): Analysts at Citi argued that WBA is a clear buy at current levels as they believe earnings growth potential for the core business is underappreciated in the current valuation. The analysts forecast 13% EPS growth ahead, driven by a U.S. retail margin growth opportunity, as well as benefits from deal synergies and cost cutting. While recent earnings results have been strong, near-term results are likely to be impacted by a potentially weaker flu season year over year and unfavorable FX changes. That said, this is incorporated into Citi's estimates and it appears the stock price already reflects these headwinds, at least in part. If WBA is able to achieve the lowered estimates, we think investor confidence in the longer-term outlook will improve, and valuation should begin to better reflect the strong growth potential at the company. We take our target down to $90 from $100 to reflect lower full-year estimates and a sectorwide re-rating.

Wells Fargo (WFC:NYSE; $47.86; 1,900 shares; 4.05%; Sector: Financials): Wells Fargo's strong fourth- quarter earnings results two weeks back reflect strong returns, solid loan/deposit growth and quality assets. We expect Wells to outperform peers in an environment of economic uncertainty and volatility. Upside -- while relatively contained given the stable nature of its business -- should be driven by its attractive dividend (3.1%), proven track record of growth, profitability and risk management, and a diversified business model that offers pockets of growth. To top it all off, the company's sizable share buyback program should at the very least help provide a floor on shares, with the potential to drive upside to earnings estimates. Our target remains $63.

WhiteWave Foods (WWAV:NYSE; $36.00; 2,900 shares; 4.65%; Sector: Consumer Staples): Shares of WWAV were volatile on Friday as there were some renewed concerns over the upcoming quarterly results (on Thursday) and the outlook given industry pressures, Wal-Mart's (WMT) intention to close stores (although WMT accounted for less than 15% of WWAV revenue last year), and high capital spending (although this is overdone in our view, as it is expected from high-growth companies). Overall, we believe these concerns have been more than baked into the decline in shares and the stock is now trading at roughly an 18% premium to peers vs. the 50% premium per its five-year average. WhiteWave continues to boast leading brands in plant-based beverages, alternative milks, yogurts and other on-trend categories. In the company's report next week, we will be looking for an update on the global outlook for packaged foods, details on the integration of recent acquisitions, and management's view on the M&A market (more specifically, whether they view themselves as an acquirer or a target). Our target remains $45.


Energy Transfer Partners (ETP:NYSE; $25.70; 1,700 shares; 1.95%; Sector: Energy): ETP remains one of the most controversial stocks in the energy space given overhangs around financing uncertainty and deal-related noise (with the impending merger between Williams and Energy Transfer Equity). We view both concerns as way overblown, with management largely addressing financing with last week's capital plan update, where it explicitly stated that it will not have to tap the equity or credit markets this year. This, combined with nearly $5 billion worth of projects scheduled to enter service by year-end, makes ETP's current $4.22/unit annualized distribution run-rate sustainable. We view the 16% yield as a highly attractive entry point to long-term investors, with significant potential to unlock value from a calming in the MLP space, easing of capital markets and/or company- specific confirmation of its intent to maintain distribution through 2016 and beyond (which would come on the company's conference call later this month). We maintain our $35 target and Two rating given the continued volatility associated with the stock and the energy sector as a whole.

Eli Lilly (LLY:NYSE; $74.32; 800 shares; 2.65%; Sector: Health care): We added to our position in Lilly twice this week as we took advantage of the broader health care selloff. As we have repeated many times, we are in this name for the long haul as we believe the company's Alzheimer's results later this year provide a significant catalyst. In the meantime, the company has proven its acumen in bringing new products to market and has demonstrated continued strength in its diabetes franchise. The pipeline is its most attractive asset and we believe it is undervalued by the market. While we wait, we will happily take the 2.7%+ dividend. Our $90 price target remains unchanged.

Kraft Heinz (KHC:Nasdaq; $72.78; 850 shares; 2.76%; Sector: Consumer Staples): We have been trimming our position in the name steadily over the past several weeks, reducing in the high $70s last Friday and last Wednesday before cutting yet again Thursday, this time in the mid-$70s. While we typically stay away from trimming at lower levels, we want to incrementally reduce our exposure to KHC following Mondelez's disappointing results and guidance, and believe it was prudent to trim our position ahead of what could be a disappointing fourth quarter and 2016 guidance (which the stock seemed to begin baking in today during its selloff). As we've repeatedly discussed, we believe KHC has more levers to pull from a cost perspective given the low-hanging fruit within Kraft's business, but also recognize that it will take several quarters for the newly combined entity to communicate the magnitude of these synergies. Given the lack of near-term catalysts and concerns around fourth- quarter results, we are glad we decided to trim and believe it helps de-risk the portfolio. We will be looking to build back our position on any post-earnings selloff below current levels. Our long-term target remains $80.

Lockheed Martin (LMT:NYSE; $211.94; 400 shares; 3.78%; Sector: Industrial): Lockheed Martin is a direct beneficiary from mounting defense budgets and escalating geopolitical tensions, particularly in the Middle East, where management's relationships with some of the region's key leaders -- built on deeply embedded trust and an impeccable track record of quality -- have allowed it to secure a robust project pipeline and international portfolio. Beyond the secular tailwinds, the company throws off cash in spades -- generating market-leading free cash flow yields -- and returns that cash to shareholders in the form of both a juicy dividend (3%+ yield) and a massive share repurchase program. Its consistency in driving shareholder value creation and legacy of success makes it a must-own in the post- industrial world. We reiterate our $225 target.

Occidental Petroleum (OXY:NYSE; $65.47; 750 shares; 2.19%; Sector: Energy): Shares of OXY traded lower this week as oil remained extremely volatile and an initial, very strong rally following the company's earnings report on Thursday proved too much to sustain. Although the company reported a miss on both the top and bottom lines for its fourth-quarter results, there were some key takeaways that indicated a more bullish outlook than the headline numbers would have seemed to imply. First off, the company's Permian Basin operations remained strong, which is extremely important given that it is one of the key differentiators between OXY and its peers. In addition, management reiterated its commitment to the dividend, which is attractive at a roughly 4.5% yield and should not be overlooked in this difficult oil and gas environment where peers are being forced to cut, suspend, or at least re-evaluate their ability to meet dividend requirements. The company also remained very prudent with its capital and has set a budget for no more than $3 million this year, which is easily covered by the company's more than $5 billion expected cash balance (even when considering the dividend commitments). Overall, we recognize the tough macro environment facing E&P companies at the moment, but OXY remains ahead of its peers and continues to boast a strong balance sheet. Our $70 target remains unchanged.

Starbucks (SBUX:Nasdaq; $54.49; 500 shares; 1.21%; Sector: Consumer Discretionary): According to analysts at Wells Fargo, in the four weeks ending Jan. 23, sales growth for the total packaged ground coffee category was up 4% year over year, driven by 12.3% unit growth, partially offset by -7.4% net pricing. SBUX's share of the category increased to 11.6% vs. 10.6% last year, driven by strong 18% unit growth, partially offset by -3.8% net pricing. The bottom line is that SBUX continues to execute its packaged coffee strategy through solid execution, strong pricing power, compelling loyalty program and premium brand equity. Our target remains $68.

Thermo Fisher Scientific (TMO:NYSE; $123.18; 475 shares; 2.61%; Sector: Health Care): Last week, Thermo Fisher issued disappointing guidance, which was especially frustrating as it more than overshadowed one of the best quarters in the company's history -- it had been nearly six years since it last reported about 7% organic growth. As for execution, the company has a strong track record: It delivered in 2014 (EPS $0.06 above) and again in 2015 (EPS at the high end of guidance, despite the incremental FX headwinds), and we believe it will ultimately deliver this year, though it may take at least a quarter or two to rebuild confidence. Trading at 15x for what should be a 10% annualized EPS growth trajectory over the coming years, we are not terribly concerned by the downside risk long term. In the near term (more specifically, over the next two quarters), we acknowledge shares could experience some volatility and test levels below $120. The back half of the year remains compelling with low expectations, strong underlying trends (which -- following deep analysis -- suggest upside to the company's own estimates), powerful capital deployment opportunities (we model over $2 billion in incremental buyback activity this year) and enhanced visibility following the Affymetrix (AFFX) deal's closure. In short, for subscribers with at least a six-month investment horizon, we remain bullish long term on TMO. Anyone owning shares for a rally between now and 2Q 2016 results shouldn't be owning shares. We reiterate our $150 target long term.


Mondelez International (MDLZ:Nasdaq; $37.70; 1,500 shares; 2.52%; Sector: Consumer Staples): Shares of MDLZ got crushed this week following the company's disappointing fourth-quarter earnings report. Unfortunately, the 2016 outlook didn't provide any relief to investors either. Mondelez guided 2016 organic sales growth of "at least 2%," which is disappointing relative to Wall Street's expectations for 4% growth. Management reiterated its 2016 operating income margin forecast of 15% to 16%, yet noted that it will likely fall on the lower end of the range given an estimated 50-basis-point headwind from the deconsolidation of its Venezuelan operations. The company also expects to deliver double- digit adjusted EPS growth on a constant-currency basis, with the FX hit reducing its 2016 EPS forecast by roughly $0.13. As a result, we made the tough but necessary decision to trim almost a third of the position this week and downgraded the name to Three as we have lost faith in MDLZ's ability to execute on its vision. We will be watching for any incremental dead-cat bounce to further trim our position. Overall, the implied 2016 EPS guidance of $1.70 falls 30 cents below consensus and, in our mind, muddles the story for at least the next few months. Everyone knew Venezuela would be a drag, but the magnitude and duration of the impact (larger and longer than expected) are rattling, to say the least.

Starwood Hotels & Resorts Worldwide (HOT:NYSE; $61.01; 400 shares; 1.09%; Sector: Consumer Discretionary): Shares of HOT dipped lower this week, especially after we decided to trim half of the remaining position on Thursday, validating our decision to do so as the name remains irrevocably linked to its deal with Marriott and continues to be exposed to macro headwinds. We have been vocally skeptical about Starwood's impending deal with Marriott (MAR), with our existing concerns confirmed after analysts at Wells Fargo downgraded MAR to Hold from Buy on Wednesday, taking its price target range down to $46-$67 from $80-$82. Given the structure of the merger (shareholders of HOT receive 0.92 share of MAR plus $2 in cash for each share of HOT), we recognize that HOT shares will continue to be dragged down along with Marriott, and so took advantage of Thursday's outperformance to trim the position. We are downgrading the name to Three given the clouded deal outlook and continued industry pressures and will keep an eye out for any bounce higher in shares.

Twitter (TWTR:NYSE; $15.72; 700 shares; 0.49%; Sector: Technology): Twitter stock was up and down again this week as the news headlines continue to dominate the story. We would prefer to see strong results and a sense of a turnaround help drive the stock higher, and the company will get a chance to redeem itself next week with its earnings report, although expectations remain muted. Shares were up more than 10% at points on Monday following a report from The Information detailing a previously discussed deal with venture capital firm Andreessen Horowitz and private equity firm Silver Lake Partners in which the two companies would work together to buy out the struggling micro-blogging site. Of course, there was no evidence that these talks remained on the table and Silver Lake even came out later denying its interest in the company. Ultimately, we believe it is important not to get sucked into the speculation in the absence of a tangible offer or active, substantiated deal conversation(s). While we have long touted the company's unlocked potential, and agree that many outside parties likely see the same possibilities, the fact remains that the user engagement issues continue to highlight results. Recent turnover and management shakeups only add to the murky situation that a buyer would have to inherit, address and ultimately fix, all of which would require substantial time and resources. Twitter is not only our smallest position but has been a Three-rated name for over eight months. It is beyond a show-me story, and we have no tangible evidence to be optimistic around any near-term turnaround in core trends, although we will be closely watching next week's report.


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


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Action Alerts PLUS Holdings

Holdings 1

Stocks we would buy right now

Symbol % Portfolio
Industry Trade Now
AAPL 3.43% Consumer Durables
AEP 1.40% Utilities
AGN 5.85% Drugs
BAC 3.87% Banking
BIIB 4.41% Drugs
COST 2.89% Retail
CSCO 2.70% Computer Hardware
DOW 3.54% Chemicals
FB 5.56% Internet
GOOGL 4.70% Internet
JACK 3.25% Leisure
PNRA 4.69% Leisure
PYPL 3.36% Financial Services
SWK 3.74% Industrial
TGT 3.72% Retail
WBA 4.19% Retail
WFC 4.05% Banking
WWAV 4.65% Food & Beverage
Holdings 2

Stocks we would buy on a pullback

Symbol % Portfolio
Industry Trade Now
ETP 1.95% Energy
HOT 1.09% Leisure
KHC 2.76% Food & Beverage
LLY 2.65% Drugs
LMT 3.78% Aerospace/ Defense
OXY 2.19% Energy
SBUX 1.21% Leisure
TMO 2.61% Health Services
Holdings 3

Stocks we would sell on strength

Symbol % Portfolio
Industry Trade Now
MDLZ 2.52% Food & Beverage
TWTR 0.49% Internet