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Jim Cramer's Action Alerts PLUS

Action Alerts PLUS

Weekly Roundup

BY Jim Cramer and Stephanie Link | 09/19/14 - 07:11 PM EDT

The markets rallied this week with the S&P 500 and Dow Jones Industrial Average both hitting all-time highs as confidence came back to the market following benign commentary from Federal Reserve Chair Janet Yellen, the U.K./Scotland unification, and two new stimulus efforts in China. Sentiment was also lifted by the clear success of Alibaba Group's (BABA) initial public offering -- the largest on record. Oil rose fractionally but still remains off by 15% from highs and down 5% for the year -- a tailwind for the consumer, which represents 72% of U.S. GDP. Economic data were mixed but rates held firm at the 2.6% level, and financials were one of the best-performing sectors for the week, along with health care and materials. Utilities and consumer discretionary sectors lagged.

Of all the news this week, the Fed's commentary about their economic assessment gained most attention. With sufficient slack in the system (on inflation and unemployment), there was no change in their strategy on when they would raise the fed funds interest rates -- the central bank will remain data dependent with no increase for a "considerable" period. Some had expected Yellen would be more hawkish in her tone, but she managed to balance it well. Digging deeper into the Federal Open Market Committee's expectations about the economy, it seems they are becoming more aligned about where the economy will be by the end of 2015. They expect GDP to be between 2.6% and 3%, unemployment between 5.4% and 5.6%, and core inflation of 1.6% to 1.9%. If so, the fed funds futures are pricing in something near 100 bps to 200 bps of higher short rates. Again, we believe the economy will be on better footing by then and can handle higher rates as long as the velocity is slow.

In the short term, between now and the end of the year, we expect the market to work higher and for portfolio managers to play catch up as just 23% of them beat their benchmarks year to date (us included) -- a historically low percentage. We expect to see technology, financials, industrials and growth stocks continue to outperform, and this is where we have continued to invest our dollars. We also have increased our weightings in discretionary. This week we added Macy's (M:NYSE) back into the portfolio with shares down from highs, easier comparisons ahead and an attractive valuation. We added discretionary exposure going into the holidays, which should be aided by lower oil prices. We also added to Starbucks (SBUX:Nasdaq), Walgreen (WAG:NYSE), AIG (AIG:NYSE), Cigna (CI:NYSE), Freeport-McMoRan (FCX:NYSE) and Kinder Morgan (KMI:NYSE). We downgraded 3M (MMM:NYSE) to Two given the recent move higher, preferring to buy on a pullback.

Next week's earnings of note are Accenture (ACN:NYSE), AutoZone (AZN:NYSE), CarMax (KMX:NYSE), Bed Bath & Beyond (BBBY:Nasdaq), Nike (NKE:NYSE) and Micron (MU:NYSE). Conferences of importance are Citigroup Industrials, UBS Chemicals and CSFB Global Steel & Mining.

The economic calendar for the U.S. and the rest of world is below:

U.S.

Monday (09/22)

Existing Home Sales (10:00): 5.2M expected

Existing Home Sales MoM (10:00): +1.0% expected

Tuesday (09/23)

FHFA House Price Index MoM (09:00): +0.5% expected

Markit US Manufacturing PMI (09:45): 58.0 expected

Richmond Fed Manufacturing Index (10:00): 10 expected

Wednesday (09/24)

MBA Mortgage Applications (07:00)

New Home Sales (10:00): 430,000 expected

New Home Sales MoM (10:00): +4.4% expected

Thursday (09/25)

Initial Jobless Claims (08:30)

Continuing Claims (08:30)

Durable Goods Orders (08:30): -17.0% expected

Durable Goods Orders ex. Transportation (08:30): +0.5% expected

Markit US Services PMI (09:45)

Markit US Composite PMI (09:45)

Kansas City Fed survey (11:00)

Friday (09/26)

GDP Annualized QoQ (08:30): +4.6% expected

Personal Consumption (08:30): +3.0% expected

GDP Price Index (08:30): +2.1% expected

Core PCE QoQ (08:30)

Univ. of Michigan Consumer Confidence (09:55): 85.0 expected

International

Monday (09/22)

Eurozone Consumer Confidence (10:00): -9.8 expected

HSBC China Manufacturing PMI (21:45): 50.1 expected

Tuesday (09/23)

Markit Eurozone Manufacturing PMI (04:00): 50.6 expected

Markit Eurozone Services PMI (04:00): 53.1 expected

Markit Eurozone Composite PMI (04:00)

Markit/JMMA Japan Manufacturing PMI (21:35)

Wednesday (09/24)

None

Thursday (09/25)

Japan National CPI YoY (19:30): +3.4% expected

Friday (09/26)

China Industrial Profits (21:30)

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

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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.

ONES

American International Group (AIG:NYSE; $55.24; 1,300 shares; 2.57%; Sector: Financials): It was a busy week for management changes at the company, naming Philip Fasano its executive vice president and chief information officer, a new position that will report to new CEO Peter Hancock. The move is consistent with Hancock's stated strategy of strengthening the company's use of data to predict risk and lower costs. The bigger news came later in the week when the president and CEO of the life and retirement division resigned "for personal reasons." He was passed up for the CEO role, so this is not surprising. That said, he was an important leader at the firm as he was instrumental in driving profitability at a challenging time over the last five years. CEO Hancock is clearly shifting the company into two operating segments of commercial and consumer vs. separation of life and property/casualty. We'll have to see how this plays out. There are always puts/takes to a new CEO, but we feel the strategy remains consistent: one of balance between profitability, risk control and shareholder value creation via buybacks. He has big shoes to fill, to be sure, but we believe these are the right moves to drive growth in the next chapter for the company. The valuation is attractive at 0.7x TBV, and with $18 billion in liquidity, we see more buybacks, growth in TBV and overall earnings growth. Our target is $65.

American Express (AXP:NYSE; $89.70; 1,300 shares; 4.18%; Sector: Financials): We received August credit card data this week and the company again had an impressive month. Loan growth was higher than expected, credit losses are hitting new record lows and volumes are improving. Charge-offs and delinquencies remain at record lows seen in July on recordings of 1.5% and 0.9%, respectively. Receivables rose 1% sequentially and are running up 6% y/y to $58.2 billion vs. $57.7 billion in 2Q. In addition to the continued credit strength, we see growth in loans, new product investments and reduced cost efforts. If the company is able to deliver September performance on par with July and August (and we believe they will), earnings are positioned for a beat against low expectations. We added shares late last week and will continue to do so if the stock falls below our cost basis. Our target is $95.

Boardwalk Pipeline Partners LP (BWP:NYSE; $19.23; 4,500 shares; 3.1%; Sector: Energy): Shares traded slightly lower this week without much news. The stock has essentially been flat since the beginning of August, giving up almost all of the gains that it experienced in the first half of last month. This is not a huge surprise, with the 44% climb from early February lows and the rollover in the energy sector. We still like the company for its exposure to the nations' most lucrative U.S. shale projects, heavy investment spending to create growth and the potential for resumed dividend growth. Also, we expect the Loews (L) interest to be an important driver of support over the long term. We've been encouraged by some of the companies' recent strategic deals, such as the acquisition of the Evangeline ethylene pipeline and the 20-year agreement signed by subsidiary Gulf South to transport approximately 1.4 billion cubic feet per day of natural gas from Freeport LNG's soon-to-come LNG liquefaction terminal. We believe the company is set up to deliver strong results in the future. Our target is $25.

Dow Chemical Co. (DOW:NYSE; $53.49; 2,250 shares; 4.31%; Sector: Materials): Shares jumped more than 2.5% this week after a bullish presentation at Credit Suisse's Basic Materials conference. Dow detailed some of the bigger investments in its core businesses and reiterated its commitment to unlocking shareholder value through asset sales and a rationalization of its joint ventures. The two main investments are its Freeport PDH facility and the Louisiana ethane flexibility project, both of which will allow it to reduce its third-party raw-material purchases. The two projects are running on time and on budget, and when complete should add more than $700 million to EBITDA when complete. Regarding asset sales, the company again stated that it is prioritizing the sale of its chlorine and epoxy businesses, which should generate up to $4 billion and be complete by the end of 2015. Another $600 million to $1 billion could be brought by the sale of corporate assets such as real estate and rail cars. The shares now trade at 16.2x forward estimates, which is above the historical average but still represents a discount to the sector multiple of 18.9x. Plus, activist Dan Loeb is in the mix, which keeps management's feet to the fire. Our target is $65.

Ensco (ESV:NYSE; $44.50; 1,900 shares; 3.03%; Sector: Energy): Offshore drillers provided fleet status reports this week, and though Ensco's represented a mixed picture, its stock fell about 3%, in sympathy with industry, which posted far worse results supporting the oversupplied nature of this industry. We maintain that ESV is the best company in this challenged industry, with the youngest rigs, superior technology and a well-supported dividend. Its rig status reports showed that the company extended the terms for three of its 8,500 series rigs in the Gulf of Mexico for the majority of 4Q and some of 1Q15. The fees for these contracts ranged from the low $350 kpd to the high $520 kpd, which are improvements over recent rates in the Gulf, though that should be expected given the short terms for the rigs. The negative news industry-wide is that it still appears as though 2015 will be a challenging environment as new rigs enter the market and assert further pressure on drilling rates. In this challenging environment, the company will have to rely on its superior technology, which is already paying dividends as the company deployed its recently enhanced rig, the Ensco 122, to the North Sea for a two-year term with NAM. This jack-up drill has been upgraded with a new technology that allows more wells to be drilled in a location, leading to logistical efficiencies and cost savings for consumers. The 6%+ dividend yield gives us support for the meantime, and the stock is far below its historical average on a valuation basis, at 7.6x forward estimates. We'll await price stability before adding again, but we remain committed to the stock and the story, with much of the bad news priced into the current share price. Our target is the mid-$50s.

Eaton (ETN:NYSE; $66.37; 1,700 shares; 4.04%; Sector: Industrials): The company presented at Morgan Stanley's industrial conference this week and did not offer many surprises, but it did reiterate its 3Q and 2014 guidance, which can be viewed as a positive after three quarters of earnings disappointments. The CFO stated that EPS growth should be 11%, which falls right in the middle of the full-year earnings projection of $4.50 to $4.70, and 3Q EPS should come in between $1.20 and $1.30, in line with the $1.25 consensus. The company's individual businesses and geographies presented an expectedly varied picture. Electrical products and systems/services (60% of total revenue) are seeing positive results in the US, while Europe remains sluggish, China has been inconsistent and Brazil remains weak. Margins in this segment should see improvement to around 14% (from the disappointing 12.9% level seen in 2Q) and hydraulics should benefit from the improvements in the U.S. construction segment. The best segment remains aerospace, where 6% to 7% growth is expected for the year. Overall, it was a solid presentation that met expectations, which is what the company needs right now. Third-quarter earnings will be the next catalyst for the stock, and consistent performance should send shares closer to their 2Q levels. Our target is $80.

Freeport-McMoRan (FCX:NYSE; $34.06; 2,550 shares; 3.11%; Sector: Materials): We added to our position this week as the stock's recent declines have enabled us to build out the position and lower our cost basis. The stock seems to have stabilized and gained about 25 bps this week, but it remains at its cheapest valuation in almost two years at 6.2 EV/EBITDA and the yield is now a robust 3.6%. This name has certainly taken its hits as commodities have declined by double digits throughout the third quarter, but prices show signs of bottoming in this space (copper, iron and oil are all up this week) and we are looking through the short-term volatility towards the longer-term value creation this company is in the process of delivering. We like the best-in-breed copper assets, the low cost structure, the foray into the energy markets and the paying down of its debt. The 3.6% yield is also very attractive. We added earlier this week and now we will wait for lower $30s to add again. We'll be picky on the way down, but remain committed to the position and the long term. Our target is $48.

Kinder Morgan (KMI:NYSE; $37.97; 1,800 shares; 2.45%; Sector: Energy): We doubled the size of our position this week with our restrictions lifted and lowered our cost basis significantly. Shares have fallen 12% since mid-August due to a double-digit decline in oil prices over the same period, which has led to an overall selloff in the group -- KMI was not sparred. Also the arb spread continues to be an overhang, as well as higher interest rate concerns (competitive with higher-yielding stocks). We like the story, the stock, and what CEO Rich Kinder is doing to build a better company. We have waited patiently to get aggressive. The deal to consolidate the various MLPs will create a simplified corporate structure and provide the company with easier access to capital markets due to its increased scale and lower cost of capital. The combined company will be the third-largest energy company in the world, behind Chevron (CVX) and Exxon Mobil (XOM), with a valuation and payout ratio that is better than its two larger companies, and improved transparency. Our target is $50.

Macy's (M:NYSE; $60.10; 1,000 shares; 2.15%; Sector: Consumer Discretionary): We added the company back to the portfolio this week given the low expectations, strong growth initiatives driven by its Omnichannel strategies, and the declines in oil prices, now down 15% from recent highs and 5% year to date. This gives more spending power to the consumer. Management has shown strong execution in the past and we believe in the stepped-up Omnichannel strategy announced this week. The twelve new initiatives including Apply Pay, Same Day Delivery and enhanced Buy Online and store pick-up should drive higher top-line growth and margins, as well as market share. The balance sheet is strong and we expect further buyback announcements, which could be 50% of the shares outstanding over the coming years. Plus, the company's domestic-only exposure is attractive, given the global uncertainties in global economies. The company recently reiterated earnings and same-store sales guidance and is headed into easy comparisons. Trading at 12x forward estimates, shares are well below the peer group at 16-18x and are an attractive story into the holiday period. Our target is $65.

Microsoft (MSFT:Nasdaq; $47.52; 900 shares; 1.53%; Sector: Technology): This week, the company officially announced the $2.5 billion acquisition of Mojang, the maker of the virtual/community-based game Minecraft. We wrote last week that this is a positive for the company as it expands its software and services to consumers, and strengthens its mobile presence given 40% of Minecraft units are on mobile platforms. The deal is consistent with CEO Satya Nadella's strategy of growing the mobile and cloud businesses, and the younger customer base of Mojang brings a new demographic to the Xbox and Windows products. Mojang posted $314 million in revenues in 2013, 43% EBIT margins, and earnings will break even in 2015. Microsoft expects that the addition could add a penny per share to earnings in 2015. In other news, the company raised its dividend by 11% and added two new board members. The dividend increase was in line with expectations, though there had been hopes that the 40% payout could be bumped higher for closer to a 20% increase. The two new board members, Kraft (KRFT) CFO Teri List-Stoll and Visa (V) CEO Charles Scharf, bring a new set of eyes to the company and growth strategy, which we view positively. Shares were down slightly this week, and we will add more when our restrictions are lifted. Our target is $52.

Oracle (ORCL:Nasdaq; $39.80; 2,100 shares; 3%; Sector: Technology): It was another disappointing quarter for shares as the company missed on the top and bottom lines. The bright spot was strong cloud revenue growth, cash flow and deferred revenues. The bigger news was that CEO Larry Ellison announced that he would step down and become executive chairman and head of technology. He relinquished the CEO role to co-President's Mark Hurd and Safra Catz. Management downplayed the changes and said it really will be business as usual. We like the move -- the fresh set of eyes on the business and in executing the transition toward cloud technology. The stock fell on the news and now trades at 13x forward estimates -- a very uncommanding valuation. The new $13 billion buyback now brings the total plan to $15 billion (it bought back 5% of shares outstanding in fiscal 2014) and will likely support the shares in the near term at the $39-$40 level. That said, it will take a while for cloud to be meaningful to total sales (currently 5%), so we see limited upside in the near term. We expect it to bounce from the current levels and will adjust our thinking accordingly; there are stories that are more exciting in technology to own with faster growth and better execution: Facebook, Google and Twitter come to mind. Our target is $43.

Royal Dutch Shell (RDS.A:NYSE; $78.75; 1,000 shares; 2.82%; Sector: Energy): The stock had its first positive week of the month, finishing up almost 1.5% as value investors came into the shares and as the company hired Credit Suisse to help sell its European liquefied petroleum gas (LPG) assets, which have been valued at around $1.3 billion. This has been an underperforming segment at the company's downstream division and is consistent with management's strategy to improve free cash flow, sell non-core/underperforming assets and increase returns to shareholders. We continue to look for opportunities to buy the shares but we've been restricted all week. We like the asset sale story, the 4.7% dividend yield and cheap valuation at 5.8 EV/EBITDA. Our target is $87.

Starbucks (SBUX:NYSE; $76.07; 1,150 shares; 3.14%; Sector: Consumer Discretionary): We added to shares this week as our restrictions were lifted and the stock fell 6% from recent highs. We continue to like the long-term story: product mix changes (bakery, teas), international square-footage growth, easy same-store sales comparisons and double-digit top- and bottom-line growth. The valuation is attractive at 24.7x forward estimates for forecasted growth of 22% next quarter and 15%-20% next year. We remain patient on the position and look to add in the low $70s should it get there. Our target is $86.

SunTrust Banks (STI:NYSE; $39.84; 3,200 shares; 4.57%; Sector: Financials): Shares rallied with the group as the 10-year bond's yield broke the 2.6% level for the first time since early July. The leverage to bond yields has been clear as profitability certainly is boosted by such, and even more so for the regionals. Beyond its spread business, we like the Southeast exposure, higher than average loan growth and improved capital ratios. To that point, the company released its mid-year stress test results and passed with flying colors. Over time, we believe we will see higher payouts as a result. The valuation is attractive at 1.4x TBV and 12.6x earnings, and with direct exposure to the U.S. economic improvement, market share gains and efficiency improvements, it will remain one of our largest positions in the fund. Our target is $45.

Twitter (TWTR:NYSE; $53; 1,100 shares; 2.09%; Sector: Technology): Shares initially sold off early in the week ahead of the Alibaba Group (NYSE:BABA) deal and while we were restricted in the shares, we indicated we would buy as the stock fell to $47. When our restrictions cleared, we added mid-week and will continue to do so on dips, although we are currently restricted again. The company's user growth is stabilizing and we are encouraged by the efforts we are seeing as it starts to look toward monetization, such as the "buy" button introduced last week. We believe earnings, revenue and margins have upside as a result and with expectations still very mixed, we expect sentiment to shift over time. Aggressive new products and operational efficiencies should drive higher earnings leverage over time. Shares are down 22% from the highs, trading at 13.5x price-to-sales (between Facebook and Alibaba). Our target is $60.

United Parcel Service (UPS:NYSE; $99.44; 600 shares; 2.14%; Sector: Transportation): The company's shares traded higher this week in sympathy with FedEx (FDX), which posted a solid upside surprise to its quarter. In addition to the strong quarter's 6% volume growth and margin expansion in all three segments, FedEx raised prices by 5%. We expect UPS to follow. They are a duopoly with strong pricing power -- a key positive in owning the stock. Also important this week was news that the company will be hiring 90,000 to 95,000 seasonal employees to handle anticipated holiday demand, driven by e-commerce. The company has also stated this it has improved its forecasting ability and is working with its highest-volume customers to make improvements to its network utilization and schedule planning -- a perfect example of the heavy investments it has made to improve its operations, which spooked investors and hit the stock 10% at the time. We like the progress, the pricing power, the growth in U.S. ecommerce and the gradual global recovery as reasons to own. Our target is $105.

Vale (VALE:NYSE; $12; 3,500 shares; 1.51%; Sector: Materials): It was the first positive week for the company since mid-August as commodity prices stabilized. Iron ore had a solid week, finish about 50 bps higher, while oil finished about 1% higher. Also encouraging was HSBC's China manufacturing PMI figure, which came in at 50.3, signaling admittedly modest expansion but beating expectations. This week CFO Luciano Siani and his team met with investors in the Middle East and reiterated the company's strategy to meet its cash distribution goals amid an environment where iron ore prices have fallen to their lowest levels since September 2009. The company plans reduce costs mainly by achieving efficiency gains in Carajás and lowering its freight and SG&A costs. As a sign of the company's progress, SG&A costs declined 40% in 2013 and nearly 20% in the first half of this year. Additionally, the company will lower its capex through partnerships and divestitures. Finally, management reiterated its view that iron ore prices will recover from their current low-$80s per ton level, especially given the newly announced Chinese stimulus program. Our target is $17.

Walgreen (WAG:NYSE; $62.88; 1,200 shares; 2.7%; Sector: Consumer Discretionary): Shares climbed higher by about 1.5% this week and we continue to like the risk/reward this play presents. We added mid-week when our restrictions were lifted. The shares are down about 20% from their summer highs after the company decided not to pursue an inversion. We think it is priced into the shares and they have been punished enough. More importantly, we believe the merger with Alliance Boots could produce more than $1 billion in synergies, margins have upside, and an infusion of talent to the company's management team will be a big positive inflection for the combined entity. Also, it will be the largest global retailer, with huge size and scale to help it manage the rising costs from PBMs and generics. Our target is $75.

TWOS

Apple (AAPL:Nasdaq; $100.96; 820 shares; 2.97%; Sector: Technology): Shares were essentially flat this week amid mixed news regarding the recently revealed iPhone 6 and 6 Plus smartphones. On the positive side, the company sold 4 million units of the phones in the first day they were available to pre-order. That translates into a likely 10 million units for the first weekend. That was offset later in the week with news that China's launch of the new phones won't happen until 2015 and that Foxconn (Apple's main distributor) was struggling to meet demand, both due to supply constraints. These issues come up all the time with new launches and we remain positive on the product cycle over the long term. We would use any volatility to add to our position if shares were to pull back to the low $90s. The shares remain very cheap at 14x forward and with $27 per share in cash. We continue to like the stock and will hold it around the near-term volatility. Our target is $115.

Bank of America (BAC:NYSE; $16.95; 6,500 shares; 3.95%; Sector: Financials): Shares rallied with the group this week as interest rates picked up and the financials led the markets higher. BAC has one of the highest betas in the sector and outperformed, as we would expect. The company's co-heads of consumer banking spoke at RBC Capital Markets' financial institutions conference and gave an encouraging update on the transformation of the consumer business, reducing risky assets and focusing on deeper penetration of its existing customers for higher-quality assets. It is also simplifying its banking products, going from 22 types of checking accounts and 1,820 credit cards down to three of each. We continue to like the story and with the litigation overhang mainly removed, investors can focus on the fundamentals and cheap valuation at 1.2x TBV and $2 per share in earnings power. Our target is $18.

Cigna (CI:NYSE; $95.25; 900 shares; 3.07%; Sector: Healthcare): We added to the shares this week at 7% above our cost basis, which is something we rarely do. But after investor meetings, we are more positive on the stock and believe earnings are positioned to accelerate from here as it minimizes Affordable Care Act (ACA)-related losses. The company is using a conservative MLR assumption as well as expected further cash distribution in the form of buybacks and dividends. We will watch for further chances to buy. The company is well-positioned to benefit from an increased customer base and higher volumes from the ACA, the improving strength of the American consumer and higher interest rates. Trading at a 10% discount to the group, we see it playing catch up as it delivers strong results. Our target remains $115.

Facebook (FB:Nasdaq; $77.91; 1,400 shares; 3.91%; Sector: Technology): Shares saw profit-taking this week ahead of the Alibaba (BABA) IPO as investors sold some winners to raise cash to buy the deal. We think it's noise and would buy shares below $70. We focus on the fundamentals, which are strong. This week, August Internet use and mobile data showed that FB continues to be strong, with total Internet time share at 17.7% vs. 15.6% last year and mobile minutes growth of 51% y/y, compared with 39% for the industry. In our view, FB offers the best social platform in the sector based on users, engagement and monetization, and it deserves to trade at a premium multiple. Shares trade at 42.9x earnings but are positioned to grow 50%-60% in earnings and revenue for the next several quarters and 30% CAGR for the next three to four years. Our target is $90.

General Motors (GM:NYSE; $33.94; 3,400 shares; 4.14%; Sector: Consumer Discretionary): Early in the week we received an update on the faulty ignition-switch compensation program, which indicated that 19 death claims have been found eligible for payment, up from the original 13 figure, and more than 100 death claims were still under review. This is about what we had expected in this tragic event and we applaud the company and Kenneth Feinberg's team for getting through this process quickly and getting payments out to the families involved. The stock didn't react to the headline, largely because a lot of bad news is already factored into the shares. The fundamentals are improving and the product set is exciting and selling well (with $2,900-per-car price increases y/y). And it offers a 3.5% dividend yield while we wait for this horrible chapter in the company's history to be resolved. We were encouraged to hear that the company would be expanding production of its mid-sized Chevrolet and GMC trucks to meet stronger-than-expected demand, which is another indication that the company's mix is improving (trucks and SUVs have higher margins). With gas prices falling significantly from summer levels, the trend could last several periods. Our target is $45.

Goldman Sachs (GS:NYSE; $186.20; 450 shares; 3%; Sector: Financials): We pared this back in a small way just to take some gains but we still like the long-term story, so it will remain a Two and a core position. Its FICC comparisons will continue to get easier as the company reports second-half earnings and it should continue to benefit from this year's robust mergers-and-acquisitions pipeline, due to its industry-leading M&A franchise. This week the company released its mid-year internal stress tests, which were submitted to the Federal Reserve Board and then published, as per Dodd-Frank Act protocol. The company reported a Common Equity Tier 1 Capital ratio of 7.9% under the most adverse stress case, which is 1.1% below its March 2014 test levels and below the group median as well. The difference is mostly due to higher risk-weighted assets, which increased by 7% for the six-month period between reports, but we expect over time the company's earnings power will improve by the time the compliance measures are implemented in 2016. We are approaching our price target of $190, but we will likely continue to hold most of this position at 1.2x TBV, a discount to Morgan Stanley's 1.3x TBV and its historical average. Our target is $190.

Google (GOOGL:Nasdaq; $605.40; 225 shares, 4.88%; Sector; Technology): Shares declined early in the week as part of the Alibaba selloff but recovered strongly and finished the week up almost 2%. The company continues to deliver double-digit top and bottom-line growth and trades as a reasonable 18x forward, which, to us, is a great combination and the reason it is one of our largest bets in the fund. The most recent ecommerce data was favorable on mobile trends, which increased 31% y/y in August, up from 28% in July, and total U.S. minute growth (including PC) accelerated to 21% y/y, while mobile user growth stayed steady at 30%. These are very impressive numbers for a company of this size that we view as underappreciated. We're encouraged by the recent recovery in shares and we believe the hype over Alibaba will have a positive spillover effect. Our target is $645.

Johnson & Johnson (JNJ:NYSE; $107.99; 620 shares; 2.4%, Sector: Healthcare): Shares are up more than 2% this week, outperforming both the health care sector and the S&P 500 following favorable commentary from Piper Jaffray. The analysts predict 3Q prescriptions and sales are running ahead of expectations, and expect core pharma sales growth closer to 40% vs. the 20% consensus. It's a bold call but is consistent with what we have seen from the company as its huge pipeline hits its sweet spot. Shares trade at 17x forward estimates and are well above its historical average of 14.5x, but it is a quality franchise and we believe the stock can inch higher given its pharma focus and fixes in its consumer and med-tech segments. Our target is $115.

Lear (LEA:NYSE; $97.21; 950 shares; 3.31%; Sector: Consumer): The stock fell more than 2% this week, really due to mean reversion as investors assess whether auto sales have peaked or not. The Indiana strike also was a negative headline but was resolved quickly. We'll stay patient on the rotation because we see strong earnings power driven by margin improvement in its seating business, synergies from the Eagle Ottawa acquisition and further cash distribution in the form of buybacks. Trading at 11x forward estimates, the stock is below the sector average by 10% and we see a cheap turnaround with multiple catalysts in coming years. Our target is $110.

3M (MMM:NYSE; $146.69; 350 shares; 1.84%; Sector: Industrials): Shares inched higher this week on no company specific news. We like that CEO Inge Thulin has a strategy to invest in the company's product offerings and global footprint, as well as improve the financial leverage to drive shareholder returns. We expect to see solid the top line growth organically through new entry into emerging markets and strategic M&A. Shares deserve to trade at a premium to the group given the level of execution and consistency, and we are looking for any dips to add. Given the move this week we bumped this to Two and we are more aggressive buyers in the low $140s. Our target is $155.

PVH Corp. (PVH:NYSE; $125.98; 500 shares; 2.26%; Sector: Consumer Discretionary): The stock was flat this week as it continues to mark time following the 10% rally post-earnings two weeks ago. As evidenced by our recent addition of Macy's (M:NYSE) to the portfolio, we believe that retailers will continue to benefit from the improving U.S. economic picture, a more confident consumer and very low expectations. PVH was hit hard following the Warnaco acquisition and heavy investments that were required unexpectedly, but we think much of the heavy lifting is now done and the story sets up well for 2015, where we see $15 in earnings power. Shares remain cheap at 15x forward estimates and we'll look for pullbacks to add. Our target is the low $130s.

Stanley Black & Decker (SWK:NYSE; $93.25; 850 shares; 2.84%; Sector: Industrials): CFO Don Allan gave a presentation at Morgan Stanley's industrial conference this week and reiterated the company's commitment to building a world-class branded franchise while creating value for shareholders. The company is working to retain its top position in tools and storage, expand profitability in engineered fastening, and grow its security segment. Additionally, the company plans to expand its presence in emerging markets, with a goal of 20% exposure or more. With a moratorium on new M&A in place until 2016, management is focused on organic growth, with a 4% to 6% target, and operating margin expansion to the 15% level. When the company resumes M&A transactions in 2016, it plans to distribute 50% of cash to shareholders and allocate the other 50% to new deals. Shares reacted positively, finishing about 1% higher for the week. We believe it can continue to climb higher as this show-me management executes, as it has historically done. Our target is $100.

United Technologies (UTX:NYSE; $108.45; 1,125; 4.37%; Sector: Industrials): CFO Greg Hayes presented at Morgan Stanley's industrial conference this week and reiterated the company's long-term goals and strategies. There were no new surprises but we were encouraged that the story remains on track and with the stock having lagged, will play catch-up in coming quarters. Hayes reiterated earnings for the full year and indicated it would likely be at the high end of its previous guidance. The core growth outlook of 4% was reiterated and strong results remain likely for the company's commercial businesses. Like other global industrial companies, the company sees mixed results by region, with solid growth in the U.S. of 5%, Europe up about 1%, and Asia likely up 7% to 9% -- an increase from 1H14's 6% growth figure. Also encouraging was the company's endorsement of its 2015 guidance of 10% earnings growth and 5%-6% organic growth as the company begins to see the benefits of its Goodrich acquisition. Capex should be about $2 billion next year, flat y/y, but the company expects free cash flow (FCF) conversion to rise from 90% to 100%, leading to a likely higher payout ratio and buybacks. Overall, the company is targeting a 75% return of its FCF to shareholders and a 35% payout ratio, with another $2 billion in repurchases slated for 2015. We will continue to build out this position, with shares still down more than 10% from spring levels and solid fundamentals ahead. Our target is $125.

THREES

There are no Three-rated stocks this week.

Regards,

Jim Cramer, Stephanie Link, and TheStreet Research Team

DISCLOSURE: At the time of publication, Action Alerts PLUS was long AAPL, AIG, AXP, BAC, BWP, CI, DOW, ESV, ETN, FB, FCX, GM, GOOGL, GS, JNJ, KMI, LEA, M, MMM, MSFT, ORCL, PVH, RDS.A, SBUX, STI, SWK, TWTR, UPS, UTX, VALE and WAG.

Oracle Has Work to Do
Stocks in Focus: ORCL

Estimates missed, the CEO is stepping down, and the company is undergoing a big transition -- but we believe in its prospects.

09/18/14 - 06:44 PM EDT
Adding to AIG and Cigna
Stocks in Focus: AIG, CI

We're making a rare exception for Cigna.

09/18/14 - 01:35 PM EDT
Buying Up More Macy's
Stocks in Focus: M

This is a solid story, and the stock trades at a discount to the group and the broader market. Also, a word on Walgreen.

09/18/14 - 10:14 AM EDT
Weekly Roundup

We bolstered our consumer discretionary holdings amid a market rally this week.

09/19/14 - 07:11 PM EDT

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DOW 17,279.74 +13.75 0.08%
S&P 500 2,010.40 -0.96 -0.05%
NASDAQ 4,579.7890 -13.6380 -0.30%

Action Alerts PLUS Holdings

Stocks we would buy right now

Symbol % Portfolio
Weighting
Current
Price
Avg.Cost
Basis
% Gain/
Loss
AIG 2.57% $55.24 $55.81 -1.01%
AXP 4.18% $89.70 $87.28 2.77%
BWP 3.10% $19.23 $19.25 -0.13%
CI 3.07% $95.25 $89.25 6.72%
DOW 4.31% $53.49 $52.60 1.70%
ESV 3.03% $44.50 $51.53 -13.64%
ETN 4.04% $66.37 $75.10 -11.62%
FCX 3.11% $34.06 $38.22 -10.89%
KMI 2.45% $37.97 $39.60 -4.11%
M 2.15% $60.10 $60.07 0.04%
MMM 1.84% $146.69 $141.54 3.64%
MSFT 1.53% $47.52 $43.53 9.16%
ORCL 3.00% $39.80 $41.77 -4.73%
PVH 2.26% $125.98 $112.61 11.87%
RDS.A 2.82% $78.75 $80.37 -2.01%
SBUX 3.14% $76.07 $78.22 -2.75%
STI 4.57% $39.84 $38.80 2.69%
TWTR 2.09% $53.00 $50.73 4.47%
UPS 2.14% $99.44 $97.24 2.26%
VALE 1.51% $12.00 $14.60 -17.83%
WAG 2.70% $62.88 $62.62 0.41%

Stocks we would buy on a pullback

Symbol % Portfolio
Weighting
Current
Price
Avg.Cost
Basis
% Gain/
Loss
AAPL 2.97% $100.96 $79.05 27.71%
BAC 3.95% $16.95 $15.61 8.60%
FB 3.91% $77.91 $64.23 21.30%
GM 4.14% $33.94 $37.69 -9.96%
GOOGL 4.88% $605.40 $574.35 5.41%
GS 3.00% $186.20 $162.86 14.33%
JNJ 2.40% $107.99 $91.83 17.60%
LEA 3.31% $97.21 $96.39 0.86%
SWK 2.84% $93.25 $84.55 10.29%
UTX 4.37% $108.45 $115.41 -6.03%

Brokerage Partners

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