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Jim Cramer's Action Alerts PLUS

Weekly Roundup

By Jim Cramer and Jack Mohr | 08/28/15 - 05:12 PM EDT

The market ended an up-and-down week in the green as a spike in crude oil helped breathe life into equities and investors showed resilience in response to the developing turmoil in China’s economy and volatile stock markets. Notably, the Dow Jones Industrial Average had its largest two-day point gain of all time and the S&P 500 jumped as much as 20 points off its lows. Treasury yields ticked higher as many suspected China was selling off a portion of its U.S. debt, the dollar strengthened against the euro, gold finished the week lower, and, as mentioned, West Texas Intermediate (WTI) and Brent crude both rebounded in a big way.

Second-quarter equivalent earnings continued this week and were relatively strong, with 61.6% of companies surprising to the upside thus far. No portfolio companies reported earnings this week.

On the economic front, the U.S. Department of Commerce reported on Tuesday that sales of new homes in July increased 5.4% to a seasonally adjusted annual rate of 507,000 units, slightly below expectations for a 510,000 unit pace. Despite the slight miss on expectations, the pace still demonstrates some nice momentum in the market for new homes after June’s sale pace was revised slightly down to 481,000 units.

The positive figure for new home sales, which make up roughly 8.3% of the housing market, builds upon other recent housing data which showed existing home sales increase to near an 8 1/2-year high in July and housing starts climb to their highest level since October 2007. The housing market is clearly gaining steam and could support overall U.S. economic growth for the rest of the year.

The housing recovery is so important because it touches almost all sectors of the U.S. economy and helps validate the tightening labor market. Overall, it seems as if the strengthening job market has boosted consumer confidence (which was shown in a different report on Tuesday to have sharply rebounded in August) and encouraged new home buyers to get their feet wet. That being said, the lone concern remains the shortened supply of homes in the market, which advanced 1.9% to 218,000 last month. Despite being the highest level since March 2010, supply remains less than half of what it was at the pinnacle of the housing boom.

The Commerce Department reported on Wednesday that new orders for durable goods (which are products designed to last at least three years -- computers, cars, etc.) rose 2% in July after a revised gain of 4.1% in June. The surge in orders was a positive sign as estimates called for a 0.4% decrease. Overall, new orders of durable goods are still down 5.1% year over year, although this most recent report suggests a sustained turnaround. The increase of orders for long- lasting manufactured goods extends the streak to two months of gains after April and May proved to be disappointing months.

Even more encouragingly, "core" orders, which are nondefense capital goods excluding aircraft and are a key proxy for business investment on equipment and software, increased 2.2% in July, better than expectations for a 0.3% uptick and the 1.4% revised gain in June. While this is encouraging, especially for the sluggish manufacturing sector, these core orders have been down four of the previous five months and growing concerns in China, combined with increasing U.S. dollar values (which make U.S. goods less competitive in foreign markets), could continue to be major headwinds moving forward.

On Thursday, the U.S. Department of Labor reported that initial jobless claims for the week ending Aug. 22 were 271,000, a 6,000 decrease from the prior week's revised number, and below expectations for claims to fall to 274,000. The four-week moving average for claims (which is used as a gauge to offset volatility in the weekly numbers) rose 1,000 to 272,500. Claims have now remained below 300,000 -- the threshold typically used to determine whether an economy is experiencing robust expansion -- for 25 straight weeks.

Also on Thursday, the Commerce Department reported that the revised second-quarter GDP estimate showed that the economy expanded at a 3.7% seasonally adjusted annual rate, a significant increase from the initial reading of a 2.3% rise. As a reminder, the last reading of first- quarter GDP indicated a 0.6% expansion for the economy, which was better than the previously reported 0.2% decline. All in, as of this latest estimate, GDP growth averaged 2.2% during the first half of the year.

Specifically, in the second quarter, spending by consumers, businesses, and the government all contributed to the economy, helping to propel the big jump in growth.

Consumer spending, which represents more than two-thirds of economic output, expanded at a 3.1% rate for the quarter, up from the previous estimate of 2.9%. The updated reading is a noticeable leap from the 1.8% growth in the first quarter, a clear demonstration of improving consumer sentiment, likely driven by lower gasoline prices and the tightening job market. We will receive a further indicator of the health of the job market next week when the Labor Department releases the comprehensive jobs report from July.

In addition, a firming housing market supported growth in the quarter as spending on home building and improvements advanced at a 7.8% pace, higher than the previous reading of 6.6%. We expect this positive trend to continue into the third quarter as we have already seen encouraging results for existing home sales and single-family housing starts in July, both of which reached multi-year highs.

Surprisingly, business investment, which was originally reported to have declined 0.6%, was revised significantly upward to show an expansion of 3.2%. This is a positive sign for the health of the economy as it relates to spending across construction, research, and equipment and likely indicates a sense of sanguinity for future results in the minds of business leaders.

As if this wasn’t already known, the Federal Reserve is left with a difficult decision for their upcoming September meeting, which is now further exacerbated by the upward revision in GDP. Prior to the last couple of weeks, it was widely expected the Fed would raise the benchmark interest rate at its meeting in mid-September, which would mark the first rate hike since 2006. The growing economic concerns in China and emerging markets, however, have made the decision less black and white as we have already seen opposing views proclaimed by some of the individual Fed chairs over the last couple of days. As for now, it seems that every economic data point will play an important role in the upcoming decision, and in the meantime, we would not be surprised to see the volatility in the markets continue in between each Fed utterance.

On the commodity front, WTI crude experienced a substantial turnaround, jumping all the way over $45. The trade was up over 10% and 7% at points on Thursday and Friday, respectively. Importantly, the Energy Information Association’s (EIA) weekly inventory report, released on Wednesday, showed a decline in crude inventory, a bullish sign for the crude trade. However, the market didn’t truly pop until Thursday as a big upward revision to second-quarter GDP helped bolster equities. Arguably, the biggest factor contributing to the explosion was a stampede of short-covering that came as a result of crude's first meaningful rally in weeks. With shorts scrambling to cover, the rally appeared to beget itself through the balance of the week.

Although we welcome the long-awaited bounce in crude prices, it is important to understand that the bullish numbers skew inventories in a misleading manner. For starters, although the EIA report suggested further drawdowns, it does not adequately reflect the current supply dynamic as it fails to include imports that are currently en route.

Separately, we suspect that domestic facilities currently storing oil have reached their maximum capacity, causing week-to-week supply levels to be uneven (a facility may be forced to draw down one week given maximum capacity, before accepting supply the following week once space opens up).

In total, we note that fundamental issues still remain in the oil market, namely the oversupply around the world, and we would not be surprised to see crude prices begin to slip back downward in the near future.

With respect to our portfolio, this week we initiated positions in Lockheed Martin (LMT:NYSE) and Panera Bread (PNRA:Nasdaq) (both of which we added to later); added to our positions in Cisco (CSCO:Nasdaq), Bank of America (BAC:NYSE), Energy Transfer Partners (ETP:NYSE) and Starbucks (SBUX:Nasdaq); trimmed our stake in Marathon Oil (MRO:NYSE); and exited our positions in both Halyard Health (HYH:NYSE) and General Motors (GM:NYSE).

We initiated a position in Lockheed largely because we expect share appreciation to be driven by strong free cash flow, an aggressive share repurchase program and recent strategic moves that have the potential to drive significant value over the coming years. From a high level, Lockheed has outperformed each year from 2011- 2014, with a compound return of 224% vs. 78% for the market, and we believe strong cash flows and the return of that cash have been critical in a low-yield environment.

On Panera, the market selloff afforded us the opportunity to buy back in below where we had previously sold. We have always loved this name, and with increased visibility into the company's strategic plan and progress following its most recent quarter, we are confident that it can continue to drive same-store sales growth, while pleasing its customers with continued innovation.

When it comes to Cisco, we saw Monday morning’s approximate 4% decline as unwarranted, especially in light of the company’s outstanding earnings results two weeks back, so we added to our holdings as the shares were approaching our downside case.

As for Bank of America, we added to the financial name following a compelling upgrade earlier in the week that helped validate our thesis.

We added to Energy Transfer and Starbucks in the middle of the week in order to take advantage of the market rally as these two names were trading at depressed valuations. Energy Transfer boasts an attractive yield and Starbucks is just a clear leader in its space and continues to muster up new ways to drive traffic through its stores (think: mobile apps/pay, Spotify partnership, etc.).

As we added to our Panera position on Thursday, we took the opportunity to trim more than half of our Marathon Oiil position as oil was trading up a staggering 10%, helping boost Marathon shares more than 7%.

Lastly, we exited our positions in Halyard and GM, both of which we had been trying to close for some time. As the market endured one of its worst days on Monday, we pulled the trigger early in the morning to help raise cash and protect the portfolio from further declines in these names.

Second-quarter earnings continued this week and remained strong. Total second-quarter earnings are down 1.8% vs. expectations at the beginning of the season for a 2.9% decrease; excluding financials, second-quarter earnings are down 3.2% Revenues are decreasing 4.2% vs. expectations for the season for a 2.9% decline. The results have been relatively solid across the board, with 61.6% having beaten expectations, 35.9% missing the mark and 2.5% in line with consensus. Health care, consumer staples and industrials names have led the strong performance. Materials, telecom services, utilities, and energy have posted the worst results so far in the S&P 500.

Next week, 1.0% of the S&P 500 is set to report earnings. Key reports in the market include: Adept Technology (ADEP), Bazaarvoice (BV), Matrix Service (MTRX), Dollar Tree (DLTR), Donaldson (DCI), Ambarella (AMBA), Bob Evans Farms (BOBE), Guidewire Software (GWRE), H&R Block (HRB), G-III Apparel (GIII), Vera Bradley (VRA), ABM Industries (ABM), Five Below (FIVE), Campbell Soup (CPB), Ciena (CIEN), Genesco (GCO), Joy Global (JOY), Medtronic (MDT), Infoblox (BLOX), Marvell Technology (MRVL) and VeriFone Systems (PAY).

Economic Data (*all times EDT)


Monday (8/31)

Chicago Purchasing Manager (9:45): 54.5 expected

Dallas Fed Manuf Activity (10:30): -3.8 expected

Tuesday (9/1)

Markit US Manuf PMI (9:45):

Construction Spending MoM (10:00): 0.6% expected

ISM Manufacturing (10:00): 52.9 expected

ISM Prices Paid (10:00): 41.0 expected

Wednesday (9/2)

MBA Mortgage Applications (7:00):

ADP Employment Change (8:15): 195k expected

Factory Orders (10:00): 0.0% expected

Thursday (9/3)

Initial Jobless Claims (8:30):

Continuing Claims (8:30):

Trade Balance (8:30): -$44.75B expected

Bloomberg Consumer Comfort (9:45):

Markit US Composite PMI (9:45):

Markit US Services PMI (9:45):

ISM Non Manuf Composite (10:00): 59.0 expected

Friday (9/4)

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

Change in Manuf Payrolls (8:30):

Unemployment Rate (8:30): 5.3% expected


Monday (8/31)

Japan Housing Starts (1:00):

Eurozone CPI YoY (5:00):

Japan Capital Spending (19:50):

China Manufacturing PMI (21:00):

Japan Nikkei PMI Manufacturing (21:35):

China Caixin Composite PMI (21:45):

Tuesday (9/1)

Japan Vehicle Sales (1:00):

Germany Unemployment Change (000’s) (3:55):

Germany Unemployment Claims Rate (3:55):

Germany Markit Services PMI (3:55):

Eurozone Markit Manuf PMI (4:00)

UK Mortgage Approvals (4:30):

UK Markit PMI Manufacturing (4:30):

UK Markit Construction PMI (4:30):

Eurozone Unemployment Rate (5:00):

Japan Monetary Base (19:50):

Wednesday (9/2)

Japan PMI Services (21:35)

Japan PMI Composite (21:35)

Thursday (9/3)

Germany Markit Manuf and Composite PMI (3:55):

Eurozone Markit Services and Composite PMI (4:00):

UK Markit Services PMI (4:30):

UK Markit Composite PMI (4:30):

Eurozone Retail Sales (5:00):

Eurozone ECB Main Refinancing, Deposit Facility, and Marginal Lending Rates (7:45):

Friday (9/4)

Germany Factory Orders (2:00):

Eurozone GDP (5:00):

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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 our trading restrictions allow.


Allergan (AGN:NYSE; $308.01; 400 shares; 5.09%; Sector: Health Care): We believe the combination of Actavis and Allergan created a "best-in-breed" company with high revenue and earnings per share growth, strong and diverse product franchises, and a strong and shareholder-driven management team. We acknowledge that some may view the company’s lack of discovery research capabilities as a shortcoming vs. some other large biopharma companies, but strong development capabilities and innovation-focused business development are elements that make us confident in Allergan's longer-term growth prospects. Our price target is $400.

Bank of America (BAC:NYSE; $16.36; 5,000 shares; 3.38%; Sector: Financials): Shares of Bank of America were up nicely this week on the strength of a slew of upgrades earlier in the week. We agreed with the upgrades, and believe the continued depressed valuation presents a favorable risk/reward profile, especially in light of our expectation for higher rates, improved operating leverage, strong trading revenues and increased capital returns. With respect to higher rates, although it is unlikely that rates would be raised as quickly or in a parallel manner the way the bank originally presumed, a more methodical increase would still add a meaningful amount to the bottom line. Bank of America also offers a safe haven in times of global economic turmoil, as 87% of its revenues are generated domestically. This, on top of its considerable room for growth in its capital return program, proves that the bank is poised to outperform moving forward on the back of secular and firm-specific tailwinds. Our target remains $20.

Cisco Systems (CSCO Nasdaq; $26.00; 3,000 shares; 3.22%; Sector: Technology): Recently, Cisco posted a breakout fourth-quarter: fiscal year 2015 (July) earnings report marked by a top- and bottom-line beat. The revenue beat was driven primarily by strong performance in the Americas and overall commercial orders and is particularly impressive as it reflects the traction of Cisco's burgeoning portfolio of new and refreshed products. At the heart of the company's long-term plan is the move toward software (away from hardware) and the push for subscription-based offerings, on which Cisco has already displayed noticeable success (the company’s product deferred revenues grew 21% y/y in the July quarter). While bears may point to weakness in emerging markets as cause for concern going forward, these markets were only dragged down by a few feeble performers and we see great opportunity in China (where the company had its best results in eight quarters), Mexico and India. Overall, the plan to shift toward software and a subscription-based model bodes well for the future, and we believe investors will continue to warm up to the company as it further penetrates the faster-growing areas of the IT market. Our target remains $33.

Energy Transfer Partners (ETP:NYSE; $49.56; 2,500 shares; 5.32%; Sector: Energy): ETP shares surged higher this week as oil finally showed some life. We recently did a deep dive into ETP’s current business and found that its Lake Charles operation continues to progress. Management expects to commence construction on the operation in mid-2016 and is looking to begin exporting in mid-2020. Importantly, the company has also noted that the integration of Regency Energy has exceeded its own expectations as it has already achieved most of the cost synergies of $160 million-$225 million and it expects to generate further commercial synergies. Perhaps most encouraging is that ETP does not seem to need any equity financing in the near term, largely thanks to its cash balance and proceeds from its recent dropdown acquisitions into Sunoco (SUN). In line with this, as we have repeatedly stated, ETP’s dividend remains extremely attractive and it is poised to grow distributions even further in the coming quarters. Our target remains $60.

EOG Resources (EOG:NYSE; $77.31; 1,250 shares; 3.99%; Sector: Energy): EOG continues to impress with the flexibility that it has afforded itself in the tough oil environment. It has focused on cutting capex and not chasing new wells, which has left the company with plenty of options to ramp up once its deems the price environment steady enough to move forward. As such, we are firm in our belief that EOG is the company to own in the E&P space, especially as it has been shrewd in its choice not to over-invest in current conditions. On the company’s latest earnings call, management noted that EOG's key plays can still generate 30% after-tax returns in a $50/barrel price environment. The company has been able to dramatically enhance well productivity across multiple plays by spending less and capturing more production. All in all, we appreciate EOG's steady hand amid a shaky macro environment and believe the company's prudence will be rewarded in the long run, when cash flow wins out against indiscriminate production. Our target remains $95.

Google (GOOGL:Nasdaq; $659.69; 150 shares; 4.09%; Sector; Technology): Shares of Google were up nicely this week following a well-timed upgrade from a Goldman Sachs analyst. That being said, the stock did come back down a bit as the European Commission statement that claimed Google’s innovations are anti-competitive were brought back to the forefront following Google’s response released on Thursday. Google was firm in its stance that its products and capabilities increase the choices for European consumers and offer great opportunities for all businesses. Goldman upgraded Google shares to a buy as it raised its price target to $800 from $640 and put the name on its Conviction Buy list. We agree with the analysis, largely due to Google’s recent cost-cutting efforts and commitment to margin expansion. In short, the company is serious about buckling down on cost controls. All in all, this should drive earnings outperformance and help power multiple expansion for the stock (in a market where multiples are contracting) as the increased visibility appeals to a wider variety of investors. With a boost sure to come from YouTube and mobile search (both in which Google is the clear leader), the company is poised to outperform in the future. We reiterate our $750 price target.

Honeywell (HON:NYSE; $100.02; 1,100 shares; 4.54%; Sector: Industrials): We view Honeywell as a transformed franchise vs. past cycles, as management has been successful in driving operational improvements while also investing in R&D and rationalizing the portfolio through divestitures and reasonably priced M&A. Our bullish thesis is based primarily on continued fundamental outperformance across the portfolio, helped by ongoing productivity and restructuring savings, which cause outsized margin leverage even in a low-growth environment. Of course, several businesses -- including the Turbo and UOP platforms -- also have attractive long- term growth profiles. Lastly, with less use of buybacks to support recent earnings growth, we see above-average potential to deploy cash into accretive bolt-on M&A, for which management has developed a good track record. Our target remains $115.

Johnson & Johnson (JNJ:NYSE; $95.17; 800 shares; 3.14%; Sector: Health Care): Shares of JNJ ended the week roughly flat. The company announced that it has agreed to sell its iconic sweetener product, Splenda, to Heartland Food Product Group. The deal is expected to close at the end of the year. Importantly, the company noted that the sale was part of its ongoing strategy to concentrate on key consumer areas such as baby care, pain care and oral care. The deal should prove to be a smart one for the company as sucralose (a key ingredient in Splenda) products are likely to suffer moving forward as weakness continues to mount in carbonated drinks, such as soda, domestically and globally. In addition, the product was operated out of the low-margin consumer products segment of JNJ’s overall business, which remains less attractive than the company’s higher-margin pharma and medical devices businesses. Our target remains $120.

Kraft Heinz (KHC:Nasdaq; $74.69; 1,900 shares; 5.86%; Sector: Consumer Staples): We believe Kraft’s merger with Heinz stands to boost the competitive positioning of the combined entity. KHC leapfrogs Coca- Cola (KO) to become the third-largest food and beverage firm in North America behind PepsiCo (PEP) and Nestle (and fifth largest in the world) boasting more than $22 billion in sales last year. Further, brand strength is sound, with eight brands generating more than $1 billion in annual sales and another five garnering $500 million to $1 billion. Before the tie-up, Kraft had been taking a hard look at its cost structure by realigning its U.S. sales organization, consolidating domestic management centers, and streamlining the corporate and business unit organizations, and we think these efforts will be accelerated following the combination with Heinz, with plans in place to cut $1.5 billion in costs, representing 10% of Kraft’s annual cost of goods sold and operating expenses. We view this target as achievable given the success Heinz has realized -- its EBITDA margins soared to 26% last year, from 18% pre-deal in mid-2013. Our target remains $85.

Lockheed Martin (LMT:NYSE; $203.90; 150 shares; 1.27%; Sector: Industrials): Shares of Lockheed Martin were down slightly this week but are still trading above our cost basis. We initiated a position in the name on Wednesday as it is a defense/aerospace powerhouse we have been looking at for some time. We expect share price appreciation to be driven by strong free cash flow, an aggressive share repurchases program and recent strategic moves that have the potential to drive significant value over the coming years. Since 2005, Lockheed’s free cash flow (FCF) to net income has averaged 114%, resulting in robust annual FCF for buybacks, dividend increases and external growth opportunities. The latter has moved front and center with the pending $9 billion deal for United Technologies' (UTX) Sikorsky helicopter unit. While initially Lockheed will borrow $8 billion to fund the transaction, the net funding may only be $2 billion-$3 billion pro forma since Lockheed is selling its IT/Services operations. We believe strong cash flows and the return of that cash have been critical in a low-yield environment and we expect the increasing role of defense companies around the globe to bode well for Lockheed moving forward. Our target is $225.

Occidental Petroleum (OXY:NYSE; $71.84; 1,675 shares; 4.97%; Sector: Energy): Middle East investment has always required a 20% return bar, vs. 15% for domestic. However, with the operational improvement runway in the Permian, it seems like the relative bar could effectively become higher in the Middle East. An Al Hosn expansion appears like it will pass the threshold, aided by the infrastructure already in place. However, the rest of the portfolio sounds like it will be more about free cash flow generation than growth, which we actually prefer, especially amid this difficult oil environment. We like that the core Middle East assets can fund a meaningful portion of the dividend and help accelerate the growth story in the Permian. Our target remains $86.

Panera Bread (PNRA:Nasdaq; $180.56; 250 shares; 1.86%; Sector: Consumer Discretionary): Panera shares were down this week on relatively little news. We re- initiated on the name earlier this week as it has remained on our radar and was trading below the levels where we last sold (sold at around $182 and was trading at around $175 at the time of the trade Alert). The company’s same-store sales trends remain positive, and we see additional boosts coming in the future as more higher-producing Panera 2.0 units are added to the comp base and benefits are realized from a new national marketing campaign beginning in the second half of the year. In addition, PNRA still sits in one of the more appealing segments on the restaurant industry: fast casual. We remain positive on growth in this area as consumer trends continue to shift towards healthier fast food alternatives. Importantly, the company, which has 1,800+ stores in the U.S. and Canada, is also poised to excel in the current market environment as dollar strength continues and money flows into the stocks of domestic companies. Panera’s excellent quarterly earnings, released on July 28, were evidence of this, and as we expected, acted as a positive catalyst for the stock (shares jumped more than 8% after the company reported). While we had originally thought the stock had run up too high to get back in, the depressed levels resulting from the recent market selloff provided an appealing buying opportunity. Our target is $215.

PayPal Holdings (PYPL:Nasdaq; $35.04; 1,600 shares; 2.32%; Sector: Technology): PayPal shares were up nicely this week, potentially off news that it would be increasing prices for thousands of its small business partners. The company is expected to be introducing (in the beginning of October) a flat rate of 2.9% plus 30 cents for domestic transactions and will be raising this to 3.9% plus an additional fee for international transactions. This is an increase from the company’s prior agreements, which offered a discount rate as low as 2.2% to business who posted substantial shares. The new agreement will remove any such discounts moving forward. While this is a positive for the company as it should generate incremental revenue, we note that the merchant base affected by the change is less than 1% of the company’s partnerships. Most of PayPal’s larger customers, such as banks, negotiate their own, specific contracts. Importantly, although the change may be minimal, we are happy to see management looking to optimize its potential revenue streams now that it is separated from eBay (EBAY). Our target remains $48.

Starbucks (SBUX:Nasdaq; $55.63; 500 shares; 1.15%; Sector: Consumer Discretionary): Starbucks shares were up handsomely this week following a recent selloff in relation to the economic issues engulfing China. That being said, we found the drop-off in price unwarranted (the company generates a little less than 10% of revenues from the Asia-Pacific region). We remain very confident in this restaurant chain as it boasts an extremely loyal customer base and continues to innovate through mobile pay, apps, and partnerships (think: Spotify). We believe Starbucks' numerous sales drivers (U.S. growth in total employment, food/beverage innovation and store growth) combined with innovation with mobile pay/apps are nicely matched with cost drivers (lower coffee, labor controls, growth of consumer-packaged-goods margin, and Europe restructuring) to drive visible 15% to 20% or more earnings growth. Our target is $65.

Target (TGT:NYSE; $78.03; 1,300 shares; 4.19%; Sector: Consumer Discretionary): Shares of Target were roughly flat this week on news that the company finalized the deal to sell its pharmacy business to CVS Health (CVS). The company notes that, based on current estimates, it expects a pretax gain of approximately $550 million at the close of the transaction, but this will be excluded from adjusted EPS. Deferred income is expected to increase by about $800 million, which we will be distributed evenly in the 23 years following the close of the deal. As we had previously mentioned, we expect this deal to be a positive for Target as it should benefit financially (as explained above) and will be able to direct its focus to its signature categories. We expect the company to continue build off of its solid quarterly results (released last week), where it recorded a top- and bottom-line beat and posted solid same-store sales growth. The name also stands to benefit from the increasing consumer spending trends as a result of declining gasoline prices. This, on top of Target’s domestic focus, should help Target shares remain a safe investment in the midst of the issues continuing to develop in China and emerging markets. We reiterate our $90 target.

Thermo Fisher Scientific (TMO:NYSE; $126.52; 850 shares; 4.44%; Sector: Health Care): We love Thermo Fisher and believe it is a stock you can sleep well at night holding. The company’s offering runs the gamut from analytical instruments and consumables used in biomarker research to scientific and healthcare product distribution, to logistics services for clinical trials. Thermo has been able to successfully leverage its breadth and scale to grow well with its largest customers, and is increasingly investing in emerging markets such as China to access additional growth. We believe the company’s ability to generate upside from recently closed transactions as well as use its balance sheet to generate double-digit EPS growth (i.e., through its acquisition of Life Technologies) is under-appreciated.

Walgreens Boots Alliance (WBA:Nasdaq; $87.42; 700 shares; 2.53%; Sector: Health Care): We perceive three important changes occurring across the combined company: 1) greater transparency and communication about how the business is performing real-time; 2) more willingness to evolve the business model, and 3) increased engagement with payers ("active discussions" with health plans and pharmacy benefit managers). Our target is $105.

Wells Fargo (WFC:NYSE; $53.54; 2,000 shares; 4.42%; Sector: Financials): Recently, analysts at Credit Suisse met with Wells Fargo Treasurer Paul Ackerman, walking away confident that the bank’s balance sheet remains well positioned to take advantage of rising interest rates. In terms of both the evolving regulatory framework and capital management, Wells is well positioned relative to large-cap peers. All in, Wells is a core holding; we remain confident in sustainable growth prospects, with or without a more favorable macro backdrop (higher interest rates/steeper yield curve). The latter would drive better revenue growth/realization of operating leverage. We reiterate our $63 target.

WhiteWave Foods (WWAV:NYSE; $46.79; 2,800 shares; 5.41%; Sector: Consumer Staples): We are not worried at all about WhiteWave’s Chinese exposure, In fact, the China joint venture is not meaningful until 2017, at the earliest. In the meantime, fundamentals are intact as the company continues on its path towards strong growth and sustained competitive positioning. Our target remains $55.


3M Co. (MMM:NYSE; $144.21; 700 shares; 4.17%; Sector: Industrials): Despite its disappointing second- quarter earnings results, we continue to believe that 3M is a great franchise, and management is executing well to deliver in a tough economic environment with a portfolio that, over time, shows below-average cyclicality. While our concerns remain around the degree of organic acceleration required in the second half of the year to hit guidance, as well as fading price/cost benefits, we do believe CEO Inge Thulin has a plan to deliver above investors’ now-lowered expectations. Our target remains $185.

Apple (AAPL:Nasdaq; $113.29; 820 shares; 3.84%; Sector: Technology): Apple shares bounced back this week following a pretty steep selloff, where the stock fell to the mid-$90s. As always, we stand pat in our view that Apple is a name to own, and not trade. Late this week, the company officially announced its traditional fall iPhone launch, as it sent out formal invitations for the event to be held on Sept. 9. As we have mentioned, the company is expected to reveal the new iPhone 6S and 6S+, details of which have thus far remained relatively hidden. That being said, it is widely expected that the updated versions will include some form of the force touch technology that has been embedded in the Apple Watch and the new MacBooks. Of course, this is exciting news for Apple as it marks the beginning of renewed optimism for the company following a disappointing month wherein sentiment has been relatively mum behind what some analysts felt was a weak iPhone sales number in the company’s most recent quarter. While China is expected to remain bumpy for the market as a whole, the upgrade iPhone cycle should help attract investors back to one of our favorite names. Our target remains $150.

Dow Chemical (DOW:NYSE; $44.00; 1,500 shares; 2.73% Sector: Materials): DOW shares traded higher this week in parallel with crude oil’s surprising rise. Earlier in the week, analysts from Deutsche Bank met with the company’s CEO and noted that there is significantly less risk than perceived in the market to consensus estimated EPS. Although the company has showed signs of slowing margins in China, it explicitly demonstrated that it has not seen any impactful change in demand in the third quarter, which is a positive sign considering the issues that continue to develop in the economically troubled region. In addition, CFO Howard Ungerleider avowed that the company remains bullish on the global ethylene cycle and sees great potential in its performance plastics business moving forward. Importantly, Underleider also confirmed that the company is having discussions with all the major players in the agriculture business regarding the next round of consolidation. As capex has seemingly reached its peak in 2015 and is expected to continue to decline as the company completes the Olin sale (bringing $5 billion or more of cash windfall), Dow is poised to be a free cash flow generator and distributor in the years to come. We reiterate our $60 target.

Facebook (FB:Nasdaq; $91.01; 1,300 shares; 4.89%; Sector: Technology): Facebook has no revenue exposure to China, but faces the risk of a global economic slowdown, which would depress ad demand. That said, Facebook is still at an early stage of growth and stands to benefit the most from the secular shift of traditional ad dollars to digital. Branded video ads on linear TV seem particularly ripe for disruption. Facebook is the largest/most-engaged Internet platform with multiple drivers (improved ad targeting, auto-play video ads, monetization of Instagram, etc.) to fuel growth well in excess of the market. Our target remains $110.

Marathon Oil (MRO:NYSE; $16.65; 750 shares; 0.52%; Sector: Energy): Shares of Marathon Oil were up sharply this week as crude oil experienced a huge rebound toward the end of the week. We took full advantage of the opportunity to trim more than half our stake on strength in the shares as we continue to see fundamental issues both in the oil environment and within Marathon itself. We had repeatedly expressed our intent to trim into any notable rally and with the shares up over 9% at points, we made sure to stay true to our word. Perhaps most concerning is that we believe Marathon's dividend may be at risk moving forward as the company looks to be strapped for cash. We will continue to monitor the price movements in the name next week and look to strategically trim or outright exit on strength. We lower our target to $20, from $25.

Morgan Stanley (MS:NYSE; $34.05; 850 shares; 1.20%; Sector: Financials): We are a bit concerned about the firm’s energy exposure as we recently learned that 12% of its lending book is levered to the sector. More broadly, we strongly prefer Bank of America over Morgan Stanley given BAC's 1) outsized ability to cut expenses; 2) far more attractive valuation; 3) diversified business model; and 4) stronger management team. Our target is lowered to $40, from $42.

Starwood Hotels & Resorts Worldwide (HOT:NYSE; $73.29; 1,600 shares; 4.84%; Sector: Consumer Discretionary): Overall, we are very encouraged by the amount of asset sales Starwood executed during its most recent quarter; year to date, the company has completed $566 million worth of sales, putting it on pace to exceed the $800 million 2015 target management previously laid out. We understand that the strategic review will take time to carry out fully, and we trust CEO Adam Aron in his ability to continue to drive value for the company and its shareholders. In fact, just this week, the company announced it has signed an agreement with the Phoenix Enterprises to open The Westin La Quinta Golf & Spa Resort in March 2016, which will expand the company's Westin portfolio in Spain. We expect more deals like this to continue to push the name forward in the coming months. We reiterate our $100 target.


Twitter (TWTR:NYSE; $26.83; 700 shares; 0.78%; Sector: Technology): We remain mildly intrigued by the company’s longer-term prospects, but, unfortunately, we are not sure what could possibly boost the shares in the near-term. Absent a complete shift in management's messaging, this company will struggle to regain investors' trust. From everything we've seen or heard, Twitter is in a state of disarray right now, making us believe that it will take a village to turn this ship around. Unless there are significant changes in the near future, we must continue to monitor the uncertainty associated with the company and its stock.


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

DISCLOSURE: At the time of publication, Action Alerts PLUS was long AGN, BAC, CSCO, EOG, ETP, GOOGL, HON, JNJ, KHC, LMT, OXY, PNRA, PYPL, SBUX, TGT, TMO, WBA, WFC, WWAV, MMM, AAPL, DOW, FB, MRO, MS, HOT and TWTR.

Adding to Lockheed Martin Stake
Stocks in Focus: LMT

Now's a good time to buy.

08/28/15 - 01:25 PM EDT
Markets Energized, but Don't Celebrate Yet

We welcome the long-awaited energy rally, but believe inventory numbers are a bit misleading.

08/27/15 - 04:16 PM EDT
Reducing Our Marathon Stake on Strength
Stocks in Focus: MRO

We'll take advantage of the huge rally in oil and sell over half our position.

08/27/15 - 03:20 PM EDT
Weekly Roundup

Amid a wild up-and-down week for the market, we initiated two new portfolio positions and closed out of two others.

08/28/15 - 05:12 PM EDT

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Chart of I:DJI
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 +1.21 0.06%
NASDAQ 4,828.3250 +15.6170 0.32%
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Action Alerts PLUS Holdings

Holdings 1

Stocks we would buy right now

Symbol % Portfolio
Industry Trade Now
AGN 5.10% Drugs
BAC 3.39% Banking
CSCO 3.23% Computer Hardware
EOG 4.00% Energy
ETP 5.33% Energy
GOOGL 4.09% Internet
HON 4.55% Industrial
JNJ 3.15% Drugs
KHC 5.87% Food & Beverage
LMT 1.27% Aerospace/ Defense
OXY 4.98% Energy
PNRA 1.87% Leisure
PYPL 2.32% Financial Services
SBUX 1.15% Leisure
TGT 4.20% Retail
TMO 4.45% Health Services
WBA 2.53% Retail
WFC 4.43% Banking
WWAV 5.42% Food & Beverage
Holdings 2

Stocks we would buy on a pullback

Symbol % Portfolio
Industry Trade Now
AAPL 3.84% Consumer Durables
DOW 2.73% Chemicals
FB 4.90% Internet
HOT 4.85% Leisure
MMM 4.18% Industrial
MRO 0.52% Energy
MS 1.20% Financial Services
Holdings 3

Stocks we would sell on strength

Symbol % Portfolio
Industry Trade Now
TWTR 0.78% Internet