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Jim Cramer's Action Alerts PLUS

Action Alerts PLUS

Weekly Roundup

BY Jim Cramer and Stephanie Link | 08/01/14 - 07:13 PM EDT

Equity markets gave back some of their gains this week after a number of uncertainties that led to profit-taking. Volatility spiked by double digits, and defensive sectors such as utilities and healthcare were the top-performing sectors.

It really was a combination of a lot of things that hit all at once: better U.S. economic data (the callouts being the 4% GDP, the hotter Institute for Supply Management and non- farm payroll figures that showed a sixth consecutive month of adding over 200,000 jobs), which led to fears that the Federal Reserve would have to tighten short rates sooner than expected; Europe inflation data fell 0.4% annualized, and purchasing managers' indices declined, creating recession fears; Argentina defaulted on its bonds, and that will trigger the settlement of $1 billion of default insurance, the first nation to do so since Greece restructured its debt in 2012; and Banco Espirito Santo was suspended on Friday by Portugal's securities regulator. Throw in no progress on the geopolitical front, and the S&P 500 fell 2.5% on the week and is now down about 3% from the highs set on July 24. Keep in mind that the index is still up about 4% year to date and has not seen a 10% correction since 2011.

By the way, there were a few notable positives this week. We view much of the better U.S. data as good news not only for our economy but for corporate earnings, which continue to come in at the high end of expectations: 68% have posted positive surprises so far, 17% have missed, and 11% have been in line. In autos, the North American season adjusted annual rate looked like another strong month at 16.7 million, China posted another positive PMI report at 51.7, and Brazil’s PMI inched closer to 50 and increased m/m to 49.1.

We've always believed that good news is good news, and when the U.S. data show signs of improvement, that is something to be encouraged about. This week, the data were solid, but in our view not “too hot” to move the Fed sooner than expected with respect to hiking rates, which seems to be a 2015 event. Second-quarter GDP was strong, but keep in mind that 1.7% of the 4% was inventory build (which will likely hurt the third quarter to a degree). The non-farm payroll report showed six straight months of over 200,000 job gains, but wage growth was flat, the PMI fell month to month (although still are well above 50), and the consumer and housing, two very important parts to our economy, accounting for 87% of GDP, continue to be fragile.

So we had good data, improving data, but not great data, and the Fed sticks to its current game plan. Keep in mind that since 75% of second-quarter earnings reporting season earnings is now complete, August sets up so that economic data will take on more importance. We'll be more data- dependent than ever in the coming weeks.

This has been a challenging time for us. Keeping up with the market has been hard, especially during earnings season, which is penalizing earnings misses to a degree we've not ever seen before. Even the companies that beat and “just” reiterate guidance are met with disdain. You need a clean beat-and-raise -- a Facebook (FB:Nasdaq) or Stanley Black & Decker (SWK:NYSE) kind of report -- to get positive action. We've had a few of both misses and beats. And we continue to evaluate each name in the portfolio -- the Ones, Twos and Threes -- to see where we can add value, where we can tweak where we can win.

One thing we have done recently has been to raise cash throughout earnings season, taking gains where we have them. We always like to have some cash to be able to take advantage of the dislocations that the market gives us – but the near term is likely to continue to be a confusing one, and we will probably see a little more volatility as a result.

This week, we took profits in JPMorgan (JPM:NYSE) and some gains in Marathon Oil (MRO:NYSE) and added PVH (PVH:NYSE) back into the portfolio. We like JPMorgan, but we had a gain, and we are not convinced Jamie Dimon's health issue won't lead to a near-term pause in its momentum. Argentina also exposes JPMorgan and other money-center banks possibly. We prefer the regionals, and we are looking at adding an American International Group (AIG:NYSE) or American Express (AXP:NYSE) for diversification within the financials. We like Marathon Oil, but we have a nice gain and want to reload if it falls on earnings. The stronger dollar could put pressure on the energy space, and we want some cushion and cash to buy more and/or add another. EOG (EOG:NYSE) on sale would be ideal. Or Kinder Morgan Energy Partners (KMP:NYSE), since it has come in some. PVH is down so much, it was too tempting to add it back in after we had sold it 14% higher. There's a lot of wood to chop here, so we’ll start small and average in, but this CEO is too good to keep disappointing, and the expectations are so low.

We also added to a few positions, buying the dips carefully: Dow Chemical (DOW:NYSE), Freeport-McMoRan (FCX:NYSE), Vale (VALE:NYSE), United Technologies (UTX:NYSE), Eaton (ETN:NYSE), SunTrust (STI:NYSE), Google (GOOGL:Nasdaq) and Starbucks (SBUX:Nasdaq). With the exception of Eaton, all of these had strong quarters and are lower than when they reported, and that doesn’t make sense. Eaton is a wild card, but being one of those that got hit hard on the guide down, it's just too hard to sell, given its strong brand name and franchise. We have battled it before. And have won. We downgraded Marathon to Two, again wanting to buy it back lower.

Earnings will quiet down somewhat next week, with 68 companies in the S&P 500 reporting, or 14% of the total. A few of the ones we are focused on are Michael Kors (KORS:Nasdaq), Coach (COH:NYSE), AIG (AIG:NYSE), Disney (DIS:NYSE), CBS (CBS:NYSE), Viacom (VIA:NYSE) and Chesapeake (CHK:NYSE). Micron (MU:NYSE) will hold its analyst meeting, and after recent supply concerns, that will be an interesting one to attend.

CSFB is holding a gaming, lodging conference next week that we want to highlight (Starwood (HOT:NYSE), Hyatt (H:NYSE), Hilton (HLT:NYSE), Starbucks (SBUX:Nasdaq), Wynn (WYNN:Nasdaq), and Piper Jaffray will hold a healthcare symposium (Medronic (MDT:NYSE), Pfizer (PFE:NYSE), United Healthcare).

The economic data are on the light side (especially compared with this week), and the details for the U.S. and rest-of- world are below:


Monday (8/4)

Senior loan officer survey 3Q (14:00)

Tuesday (8/5)

Services PMI July final (09:45)

ISM nonmanufacturing July - estimates 56.0 (10:00)

Factory orders June - estimates 0.6% (10:00)

Wednesday (8/6)

International trade, June, estimates -$44.0B (08:30)

Thursday (8/7)

Initial jobless claims w/e Aug 2 (08:30)

Consumer credit June, estimates $18.00B (15:00)

Chain-store sales

Friday (8/8)

Productivity and costs, second quarter, preliminary, estimates 0.0% (08:30)

Wholesale trade, June (10:00)

Rest of World

Saturday (8/2)

China non-manufacturing PMI July (21:00)

Sunday (8/3)

Japan monetary base July (19:50)

Monday (8/4)

China HSBC services PMI July (21:45)

China HSBC composite PMI July (21:45)

Japan Markit services PMI (21:35)

Japan Markit/JMMA Japan composite PMI (21:35)

EC PPI June (05:00)

Tuesday (8/5)

EC Markit Eurozone services PMI (04:00)

EC Markit Eurozone composite PMI (04:00)

EC retail sales June (05:00)

Wednesday (8/6)

Thursday (8/7)

China trade balance, July

China imports, July

China exports, July

Japan BoP, current account balance, June (19:50)

Japan trade balance BoP basis June (19:50)

Friday (8/8)

China PPI July (21:30)

China CPI July (21:30)

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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 my trading restrictions allow.


Boardwalk Pipeline Partners (BWP:NYSE; $18.80; 2,700 shares; 1.87%;Sector: Energy): It was a tough week for the shares, which fell 6% at one point on stronger economic data and concerns about higher interest rates. We still see significant upside potential in the wake of the stock’s nearly 50% selloff since it cut the distribution in February, which was really due to fund further growth expansion initiatives. Its exposure to many key U.S. shale plays such as the Eagle Ford, Marcellus, Oklahoma and Permian regions positions it well for the future, and the valuation is compelling as expectations remain quite low: 6x EBITDA. Our target is $25.

Boeing (BA:NYSE; $120.38; 900 shares; 4.00%; Sector: Industrials): Boeing slipped further this week, falling nearly 2% over the five days rather than recouping any post- earnings losses and hitting its year-to-date low on Friday. The reason is the poor earnings quality, with the tanker charge as an unexpected surprise. That said, we continue to see this as a value play within the aerospace and defense sector, and we believe the aerospace cycle is still a place to invest in the long term. Shares trade at a 14% P/E discount to the industry average, and backlogs are up more than 11% y/y, signaling promising revenue growth in the coming quarters. We’re looking to buy once shares stabilize, since the stock now trades in line with its historical average. Our target is $145.

Cigna (CI:NYSE; $90.76; 1,000 shares; 3.35%; Sector: Healthcare): The company’s earnings on Thursday beat on the top and bottom lines, and management raised full-year earnings guidance for the year. Cigna raised guidance despite higher costs, and this speaks to the company’s strong diversified platform and the strong balance sheet and share buybacks. For the quarter, revenue rose 9% y/y to $8.7 billion, ahead of the $8.4 billion consensus. Earnings rose 10% y/y to $1.96 a share. Free cash flow was strong at $325 million, the company bought back $500 million of stock (it has bought $1.15 billion year to date), and it will do another $750 million by the end of the year. In group healthcare, the company posted a 9% y/y rise to $6.8 billion, with premiums and fees up 7.6% y/y to $6.12 billion, ahead of the consensus. The strong top line was driven by commercial growth. Offsetting the top-line growth were higher trends in medical costs due to higher utilization rates in the individual segment from the Affordable Care Act. The company has planned for product adjustments, pricing and network/clinical management programs, which will help 2015 figures. The HMO group has suddenly become out of favor, and investors took profits, but we still like the story with stable group health and strong group disability and global supplemental, which both benefited from strong retention and customer growth. We'll buy below our basis in the mid-$80s. Our target is $110.

Dow Chemical (DOW:NYSE, $50.97; 2,250 shares; 4.23%; Sector: Chemicals): We added to our position this week, since our restrictions were cleared. The company reported strong quarter earnings last week against low expectations, and it surpassed previous figures on better volumes and pricing. Despite higher feedstock and energy costs, as well as $100 million from unplanned outages, the results beat, with main strength in its plastics, materials and electronics divisions. We see a higher share price on expense savings, market-share focus, product streamlining and asset sales. Dow’s key high-return growth projects remain on schedule and on budget, with start-ups coming in 2015: Enlist, the Sadara joint venture and U.S. Gulf Coast. The company continues to guide for sales of $4.5 billion to $6 billion of nonstrategic assets by the end of 2015, and that's one of the key reasons we like the stock and see upside. Our target is $65.

Eaton (ETN:NYSE, $67.18; 1,100 shares; 2.73%; Sector: Industrial): Eaton reported results this week that were essentially in line on the top and bottom lines, but guidance was lowered, and that sent shares lower by 10%. The lower guidance was attributed to electrical services and sales margins and hydraulics bookings that fell 2%. In addition, the company laid to rest the notion that it would spin off any segments, namely vehicles, because of the tax consequences from the Cooper transaction. The positives were electrical products, higher bookings in electrical systems and services, aerospace growth of 9% and higher truck units. But CEO Sandy Cutler was on the hot seat to deliver a clean quarter and just didn't in the face of a deteriorating sentiment for industrials. While Cutler has credibility issues, the stock is now oversold, and we find value in the electrical component on non-residential demand strength. We will use the weakness to buy on the pullback. But this will take time to work, clearly. Our target is $80.

Facebook (FB:Nasdaq; $72.36; 1,400 shares; 3.74%; Sector: Technology): Facebook had a knockout week last week after posting better-than-expected results, so the profit- taking this week was understandable. We still like the story: 60% growth in revenue, ad revenue growth, 123% pricing and 151% mobile ad growth. We see further mobile monetization in the near term, video monetization in the medium term and the eventual growth from WhatsApp in the long term. It’s the standout within the high-multiple, high- growth social-media space, and the stock is still attractive when looking at the 60%-plus growth, trading at 44x forward earnings. Our target is $90.

Freeport-McMoRan (FCX:NYSE, $36.78; 2,250 shares; 3.05%; Sector: Materials): We added to the position this week after what we viewed as a positive earnings report last week and the memorandum of understanding (MOU) with the Indonesian government. There are many ways for this stock to work higher: exposure to mining interests (copper and gold) internationally, as well as U.S. domestic onshore oil and gas plays that would be accretive to the stock. Specifically, increased visibility with regard to mining operations in Indonesia (offered by an MOU with that country's government signed late last week) gives us confidence that resumed production at the Grasberg mine will materially boost EBITDA in the second half of 2014. Freeport’s current valuation, at a 63% P/E discount to the industry average, seems inappropriate, and we believe this gap will close in the coming months. Our target is $47.

Google (GOOGL:Nasdaq; $573.60; 225 shares; 4.76%; Sector: Technology): We found the commentary from WPP CEO Sir Martin Sorrell on CNBC this week to be a reality check on what is so great with this company -- it spends $3 billion a year on advertising with the mobile media giant, compared with a paltry $600 million to Facebook and $100 million to Twitter (TWTR:Nasdaq). There is room for all to win with advertisers, but Google has double-digit earnings and revenue power even at its size, and it is gaining momentum internationally. Trading at 21x forward estimates, compared with its 25x historical average, the stock remains very attractive, and that is why we added this week. Our target is $645.

Lear (LEA:NYSE; $93.34; 600 shares; 2.07%; Sector: Consumer): We added to the stock this week after last Friday’s strong second-quarter report. Margins in the seating business are not near peak levels, and we believe this is the opportunity (the just-reported number was 5.7%, compared with the prior peak at 12%) as the company fixes seating via restructurings and contract re-pricing. Also, Johnson Controls (JCI:NYSE) is de-emphasizing its seating segment, and that should also be a positive catalyst to work Lear's business higher. Electrical business revenue rose 9.3% and posted 280 basis points of margin expansion to the 12.5% level, compared with the 11% target, and it seems to be clicking on all cylinders. We believe that management will either fix the seating division or sell it or spin it out. Lear is a candidate for activism as well, although nothing from its recent earnings report would suggest anything is imminent. Trading at 11x forward estimates, the shares remain attractive for the long term. Our target is $109.

Oracle (ORCL:Nasdaq; $39.61; 2,100 shares; 3.07%; Sector: Technology): Oracle continues to be a stable, value tech position in the portfolio. Second-quarter earnings are not due until Sept. 18, and the stock doesn't have a lot of catalysts (positive or negative) in the short term, but we feel that the company's strong installed customer base and strong balance sheet ($39 billion) keep it as a solid defensive holding during periods of volatility. The valuation is attractive at 13x forward P/E, compared with a historical P/E of 14x and an industry average of 23x, and we would be surprised to see the company bump up the dividend or buy back stock in the near term. 2015 catalysts are the turn in its applications and hardware segments, along with further expansion of cloud initiatives. Our target is $48.

PVH (PVH:NYSE, $107.99; 300 shares; 1.20%; Sector: Consumer): We initiated the stock into the fund on Monday. The stock is now off 17% for the year and down 14% from when we last exited it. We like the quality name brands, the aggressive investments made by management and the six steps it is taking to fix the business, which include installing new management in Asia/Europe and the implementation of new distribution channel strategies. Other initiatives are quality design and repositioning the brands. While this will take time to turn, we see easy comparisons and low expectations, and we expect better trends, given its strong brands and restructuring. The stock trades at 14x forward estimates, and we’ll slowly add on weakness. Our target is $125.

Starbucks (SBUX:NYSE; $76.98; 850 shares; 2.42%; Sector: Consumer): Last week, the company reported strong earnings for the fiscal third quarter, beating top- and bottom-line estimates. We added to the position this week while shares were below where the company reported these strong numbers, and below our cost basis. We believe this is the beginning of an inflection point for the company, whereby comps will begin to accelerate against easy comparisons and strong new products (La Boulange, Fizzio and Teavana). Earnings rose 22%, and revenue growth of 11% was led by strong results in the Americas (revenue is up 6%, transactions up 2% and ticket up 4%), China/Asia-Pacific (sales up 7%, transactions up 6% and ticket up 1%) and 13% growth in channel development. Guidance for the fourth quarter was raised 22%-25% and 15%-20% for full-year growth. Company estimates moved higher, but the stock moved lower, and that makes it an attractive buy point to add to this quality consumer play. Our target is $90.

SunTrust Bank (STI:NYSE; $37.52; 2,700 shares, 3.74%; Sector: Financials): We added to this position on weakness this week. It is trading below when it reported, despite the company’s strong second-quarter results. SunTrust reported a $0.04 earnings beat, with 5% growth in revenue in a flat- growth industry and total loan growth at 7.7%. Loans were broad-based in consumer, commercial real estate and commercial and industry lending, which was encouraging, and the balance sheet improved along with capital ratios. Investment banking grew by double digits, and the fee-based business remains strong (this is confirmation that the diversification strategy is working). We expect growth to improve as the U.S. economy does, and we expect the recovery in net interest margin to lead to better profitability. Trading at 1.2x tangible book value, shares remain attractive. Our target is $45.

United Technologies (UTX:NYSE; $104.75; 975 shares; 3.77%; Sector: Industrials): We added to the position this week, now that the premium multiple has narrowed relative to the group. United Technologies is down 15 points and now off 6% year to date. Sentiment has changed for the aerospace and HVAC sectors, but we do not believe this will last. In aerospace, production levels remain strong, technology initiatives provide solid return on investment, and the company is taking share since the Goodrich acquisition. In U.S. commercial construction and HVAC, the Architectural Billings Index continues to rise and just registered its highest reading since 2005, and that should lead to continued demand. United Technologies is one of the best-run operators in the industry, and it has an impressive client list and global diversification -- worthy of a buy, given the recent steep pullback. Trading at 15x forward estimates, the stock has officially lost its premium multiple and is in line with its historical average. Our target is $135.

Vale (VALE:NYSE, $14.01; 3,400 shares; 1.76%; Sector: Materials): We added to the shares before and after the company reported earnings this week. The results were ahead of plan in sales volumes, costs and price realizations, yet shares got caught in the market selloff. We got back into the stock because we believe the fundamental turnaround efforts will be recognized and respected, now that the sentiment in Brazil is starting to recover. That said, we are mindful of what would happen if the dollar strength continues. But we believe this is a quality iron ore play that is very cheap and doing the right things for its shareholders. Should the macro data get better in Brazil and in China (we’re already seeing that it is), we believe sentiment will shift in favor for the stock. Our target is $17.


Apple (AAPL:Nasdaq; $96.13; 820 shares; 2.91%; Sector: Technology): The stock gave up some ground this week, but we believe that now that the quarter has passed (it was admittedly in line at best), the focus will shift toward new products, the increased screen size on the new iPhone and the highly anticipated arrival of branded wearables, including the iWatch. While we wait, the company continues to buy back shares, and it has $164.5 billion in cash and investments and no meaningful near-term negative catalysts. Plus the shares trade cheaply in terms of both P/E at 14x, compared with the industry average of 22x, and a price/earnings-to-growth (PEG) of 1.22x, compared with the industry average of 2.46x. We now await the much-anticipated product cycle. Our target is $105.

Anadarko Petroleum (APC:NYSE; $105.62; 600 shares; 2.34%; Sector: Energy): Anadarko reported results on Tuesday that beat estimates on the top and bottom lines with $1.32 earnings per share, up 27% from a year ago, on $4.4 billion in revenue, compared with consensus calls of $1.29 per share on $4.1 billion, on average. Management also raised full- year guidance, with 2014 sales volumes of 299 to 302 MMBOE, up from 293 to 298 MMBOE. U.S. onshore sales volumes were the clear positive driver in the quarter, with a record 667,000 BOE/d, led by the 24% y/y volume growth in the Rockies -- namely the 30% q/q growth in Wattenberg. The Southern and Appalachia region delivered record volume growth with 47% y/y growth in Eagle Ford, 17% y/y growth in Marcellus and 12% y/y growth in East Texas/North Louisiana. The Gulf of Mexico assets posted average sales volumes of 76,000 BOE/d, with 54% being high-margin oil production and the International and Frontier region’s total average sales volumes of 102,000 Bbl/d rose 38% y/y. The company generated $2.4 billion in discretionary cash flow and ended the quarter with $5.4 billion in cash on hand. While no new information was announced on asset sales or royalty interests, we believe more is coming. Our target is $115.

Costco (COST: Nasdaq; $117.88; 650 shares; 2.83%; Sector: Goldman Sachs upgraded the stock to Conviction Buy - - odd timing, but we’ll take the support. We anticipate promising comps to be delivered next week, with total comps up 4.9% and U.S. up 5.9%. We also expect traffic to remain plus-4% and ticket up 1%. While the stock trades at a slight premium to its historical average, we see good reasons for it: easy same-store sales comparisons ahead, strong membership fee growth and above-industry ROIC. We’re truly holding this position but looking for dips, given recent strength in the stock. A true Two ranking. Our target is $124.

Ensco (ESV:NYSE; $50.93; 1,700 shares; 3.20%; Sector: Energy): The company reported earnings for the first time with the new CEO, Carl Trowell. It certainly was exciting, with a brand-new $1.5 billion impairment charge for eight rigs to be discontinued due to the heavy supply issues in the industry. Interestingly, the decision removes the oldest rigs from the company’s fleet, and on average its rigs are now just nine years old -- the youngest in the industry. The adjusted earnings were ahead by $0.05 a share, on better expense control, something we’ve become accustomed to with this company. The CEO confirmed the commitment to the company's dividend, the balance sheet remained strong with $1 billion in cash generated year to date, and the trough is likely in the next few quarters. While we wait, we collect the 5.9% yield. We see a $48-$55 trading range in the near term and will trade around it accordingly. Our target is $55.

General Motors (GM: NYSE; $33.44; 3,200 shares; 3.95%; Sector: Consumer Discretionary): Shares sold off further this week, down another 3% (compared with the S&P 500 down 2%) after the company reported mixed earnings last week. Auto stocks have now become out of favor, and the questions around North American margins and the second- quarter earnings inflection have been pushed out for another quarter. We don’t think the cycle is over, and the dividend provides good support in the near term. We have confidence in managerial capability at the company and believe that the stock still has potential for upside from here, with improving North American seasonally adjusted annual rate (SAAR) (July sales up 9.4% in the quarter tallied the NA SAAR to 16.9 million units), improved international results, a strong product cadence, further cost-cut potential and cheap valuation. Our target is $45.

Goldman Sachs (GS:NYSE; $170.25; 650 shares, 4.09%; Sector: Financials): We continue to like the story of Goldman Sachs and its record M&A pipeline, which has easy comparisons y/y. The company has No. 1 market share in M&A and stands to benefit nicely in the back half of the year. It also has wiggle room on compensation expense, and that should also help lead to operating leverage on the bottom line. It trades at a discount to Morgan Stanley (MS:NYSE), and we that view as overdone. That said, it is nearing our target, so we’ll watch it in the near term. Our target is $184.

Johnson & Johnson (JNJ:NYSE; $99.90; 620 shares; 2.29%; Sector: Healthcare): We continue to view this position as a core holding with steady earnings. The company is expanding its pharmaceutical arm while fixing its consumer and medical technology divisions. The exciting pipeline in its pharma segment should enable the company to continue its double-digit growth rate in this segment, and this is something for which investors pay a premium multiple. The consumer segment showed signs of improvement, and we expect medical technology to remain flat to up/down 1%. Given the new $5 billion buyback, we see strong support for the shares here. Our target is $115.

Marathon Oil (MRO:NYSE; $38.61; 1,950 shares; 2.78%; Sector: Energy): We took gains this week and moved this position to Two, given the volatility in the market and the importance of locking in gains when we have them. We continue to like the restructuring story very much as the company sells down its noncore assets and buys back more stock, focusing on U.S. shale properties (Eagle Ford, Bakken and Anadarko/Woodford), especially as it is now the fourth- largest player in the fast-growing Eagle Ford Shale. This should lead to 8.5% production growth in 2015 and 8% in 2016. But it’s prudent to lock in gains, and that’s what we did this week. Our target is $45.

Occidental Petroleum (OXY:NYSE; $97.89; 550 shares; 1.99%; Sector: Energy): The company reported strong quarterly earnings this week, which mainly came from the midstream segment, but production in the Permian was strong, and we are encouraged that the story is beginning to play out as we expected. Second-quarter earnings were $1.79 a share, compared with the $1.76 expected. Adjusted EBITDA was in line at $3.68 billion. Global production of 736 Mboe/d was slightly ahead of the 734 Mboe/d expectation. Domestic production was 464 Mboe/d and beat the consensus of 461 Mboe/d on higher oil and natural gas production. Also, California production continued to work higher again, up 14% y/y to 15,000 Mboe/d. On the international side, Middle East North Africa (MENA) production fell 4.6% q/q to 251 Mboe/d but still beat expectations of 250 Mboe/d. The company is looking to sell 25% of its exposure in the Middle East. Even with the two headwinds, the beat relative to expectations is encouraging. Midstream earnings of $219 million were double the consensus and increased from the $48 million posted last year and $170 million in the first quarter. Chemicals- segment earnings of $133 million were also slightly higher by $3 million. Management reaffirmed its shrink-to-grow strategy, whereby further asset sales are likely, and the company will redeploy the cash into faster-growing U.S. assets and continue to buy back shares. This is why the higher growth guidance in the Permian Basin is so bullish for the stock, as this is the core focus of the company and something we've been waiting a long time to see. Our target and sum-of-the-parts analysis remains $115.

Stanley Black & Decker (SWK:NYSE; $87.45; 850 shares; 2.74%; Sector: Industrials): The stock gave back some gains from last week, when it reported better-than-expected numbers followed by a 6% gain on the day. We like the story because of the company's exposure to three verticals with potential for upside to revenue and margins: industrial (the clear positive callout in the second quarter, led by fasteners), consumer do-it-yourself (record margins) and security (U.S. vs. Europe continues to perform). Cash flow is on the rise, margins continue to impress, and over time we expect the company to focus on more cash distribution to shareholders. Our target is $100.

U.S. Bancorp (USB:NYSE; $41.33; 2,300 shares, 3.51%; Sector: Financials): We continue to like this quality regional bank and believe it is in good position to see improvement in profitability, driven by loan growth, margin stabilization (as it re-prices its securities) and aggressive expense management. The premium valuation is warranted, given the company's steady double-digit returns, high capital levels and consistent risk management. We will be buyers in the low $40s. Our target is $48.


Bank of America (BAC: NYSE; $14.98; 6,300 shares; 3.48%; Sector: Financials): The stock fell this week with the rest of the market, but before getting too negative, the company has a big event coming up, which is the regulator response to the company’s re-initiation of its Comprehensive Capital Analysis and Review proposal. The regulators have until Aug. 10 to respond to the request from Bank of America, and we expect the response to be favorable, since the company has closed the loops of discrepancies and reduced the total amount. It should be a positive lift for shares, and we’ll likely trim into it. The quarter was mixed at best, with lower expenses, decent capital markets but lower net interest income and net interest margin as well as disappointing loan growth. We prefer others, and in addition, the company still has the Department of Justice lawsuit to settle, which could be a lot more than the initial $10 billion to $15 billion expected.

General Electric (GE:NYSE; $25.35; 3,290 shares; 3.08%; Sector: Industrials): The company sold 15% of its Synchrony (SYW:NYSE) IPO this week at the low end of the range and raised $2.9 billion in the process. We would have liked a higher price and valuation for the deal, but we also appreciate the value the company is trying to create, and it hardly needs the cash. That said, we believe the proceeds will be used to pay for the Alstom deal and further investments -- and possibly buybacks as well. But this is the first step of the process of the company getting to more of its 75% total revenue mix of industrial exposure, and that we applaud. The valuation isn’t commanding at 15x forward estimates along with the 3% yield. It’s a Three, and we will trim it back into strength, as we prefer other industrials that have been hit harder and offer more upside.

Xilinx (XLNX:Nasdaq; $41.35, 1,850 shares; 2.82%; Sector: Technology): This will remain a Three after the disappointing quarterly report, in which the company guided lower to 5% growth after endorsing 8%-10% in the spring. While the company made the earnings number, revenue was very disappointing, and again, after just reiterating that business was solid, the company totally missed. We find that alarming, and we are waiting for a bounce to sell. China LTE is likely pushed out until the fourth quarter, and 28 nm has question marks. We recognize that the stock is down 10% year to date (and 25% from highs), but it’s hard to own a company where the visibility is so low that even the CEO and CFO don’t know the up-to-date trends. We’re waiting for a higher level to sell.


Jim Cramer, Stephanie Link, and TheStreet Research Team

DISCLOSURE: At the time of publication, Action Alerts PLUS was long Apple, Anadarko Petroleum, Boeing, Bank of America, Boardwalk Pipeline, Cigna, Costco, Dow, Ensco, Eaton, Facebook, Freeport-McMoRan, General Electric, General Motors, Google, Goldman Sachs, Johnson & Johnson, Lear, Marathon Oil, Oracle, Occidental Petroleum, PVH, Starbucks, SunTrust, Stanley Black & Decker, U.S. Bancorp, United Technologies, Vale and Xilinx..

Closing Out a Financial Position
Action: JPM

We will sell out of JPMorgan, but would buy it back in the low $50s.

08/01/14 - 11:07 AM EDT
A Goldilocks Employment Report

We're in the camp that good news is good news and will buy the dips.

08/01/14 - 09:51 AM EDT
Ensco Reports Solid but Uneventful Quarter
Action: ESV

The new CEO, however, made an impression and looks like he means business.

07/31/14 - 05:03 PM EDT
Weekly Roundup

Stocks took some knocks this week, but we're encouraged by improving economic data.

08/01/14 - 07:13 PM EDT
Mixed Signals Abound
08/01/14 - 03:53 PM EDT
Russian Roulette
08/01/14 - 10:24 AM EDT
Cramer: When All Is Lost -- It's Not
08/01/14 - 08:38 AM EDT
Stay Cautious
07/31/14 - 07:29 PM EDT

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