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Jim Cramer's Action Alerts PLUS

Weekly Roundup

By Jim Cramer and Jack Mohr | 10/02/15 - 05:34 PM EDT

The market ended a roller-coaster week of trading amazingly in the green, with the S&P 500 and Dow both experiencing steep declines at the beginning of the week before rebounding as the week progressed. On Monday, the market was hampered with an extreme selloff in the biotech sector as investors continued to worry over potential pricing regulations and excessive valuations. Equities rebounded, however, on Wednesday as many of the biotech names jumped off their lows due to the absence of sellers. Perhaps most importantly, the market experienced one of its largest one-day turnarounds on Friday when the initial bearish reaction to the disappointing jobs number quickly reversed as investors looked toward a seemingly longer lower-rate environment for the economy.

Treasury yields slipped lower, the dollar weakened against the euro in expectation of a further delay of a rate hike, gold finished lower and West Texas Intermediate (WTI) and Brent crude were both volatile and ended the week roughly near their starting levels.

Second-quarter equivalent earnings were relatively strong, with 61.5% of companies surprising to the upside thus far. We ramp up third-quarter earnings next week. We did not have any companies within the portfolio report earnings this week.

On the economic front, the Commerce Department reported on Tuesday that U.S. exports of goods fell a seasonally adjusted 3.2% in August to $123.09 billion, marking a multiyear low. Struggling global economies, falling commodity prices and the strong dollar all contributed to the decline, which included a slide in industrial supplies, consumer goods, autos and food. On the other hand, imports, which are a subtraction from the GDP calculation, advanced 2.2% on a seasonally adjusted basis as weakening global currencies resulted in a surge of consumer goods into the U.S. Positively, the strong increase in consumer-goods imports does signal strong demand within the U.S. economy.

Overall, as global economies continue to regress and the dollar remains strong, U.S. goods are becoming increasingly more expensive for foreign buyers. As a result, exports are likely to be a drag on GDP in the second half of the year as the situation is likely to remain unchanged for some time. Net exports had been a slight increase to GDP in the second quarter of the year. Foreign sales had initially been a major contributor to the overall economic recovery following the recession, but as the labor market has tightened and the dollar has strengthened, international trade has become a drain on growth.

On Thursday, the Department of Labor reported that initial jobless claims for the week ending Sept. 16 were 277,000, above expectations for 270,000 claims. The figure is 10,000 more than the prior week's figure. The four-week moving average for claims (which is used as a gauge to offset volatility in the weekly numbers) fell by 1,000, to 270,750. Claims have remained below 300,000 -- the threshold typically used to determine whether an economy is experiencing robust expansion -- for 30 straight weeks. The low claims figure is a continuing sign of the healthy labor market, which has been adding jobs for almost five years. That being said, it was not a good indication of the disappointing jobs report released on Friday.

The Labor Department reported on Friday that the U.S. economy added a meager 142,000 jobs compared to the expectations of 200,000 additions. Importantly, the August job numbers were also revised down to 136,000 additions, down a stark 37,000 from the previous report. Within the report, the biggest losers were in mining, logging and manufacturing, while health care, the leisure and hospitality and professional and business services industries remained strong. Although the unemployment rate remained steady, it likely would have risen if the labor force participation rate didn't fall to the downside.

This news came as a big surprise to many who had thought that business had remained strong for most companies in the country despite the turmoil overseas. As a result, the market took a hit from the disappointing news and many investors are wondering whether the economy is in worse shape than initially expected. Of course, this relates back to the Fed as many now believe we are looking to 2016 for our first rate hike. We are again left with a puddle of uncertainty and will have to wait on any additional news that can point toward a possible Fed decision.

On the commodity front, the Energy Information Administration reported on Wednesday that U.S. crude inventories increased by 3.96 million barrels, which was a surprise as expectations were for a slight 100,000- barrel draw. This was, however, in line with the America Petroleum Institute's report on Tuesday night, which indicated a build of roughly 4 million barrels as well. Importantly, gasoline stockpiles also rose, by about 3.25 million barrels, vs. expectations for roughly a 40,000- barrel draw.

That being said, although these figures were bearish for the oil trade, WTI remained up for much of the day as news of a hurricane threatening energy infrastructure on the East Coast helped boost a positive outlook. In addition, rising concerns over airstrikes in Syria added to the global uncertainty for future oil deliveries. However, WTI did ultimately finish down for the day on Wednesday following the choppy trade that typically characterizes a month-end/quarter-end trading session.

Although WTI crept near the $47 mark on Thursday, we again want to reiterate that the trade is likely to remain volatile until the fundamental issues in the market are ironed out and we start seeing continually bullish news. Overall, there seems to be too much uncertainty clouding the trade and the broader equities market for there to be any type of sustained run at this point in time.

With respect to our portfolio, we initiated a new position in UnitedHealth Group (UNH:NYSE); added to our positions in Starwood (HOT:NYSE), Mondelez (MDLZ:Nasdaq), Lockheed Martin (LMT:NYSE), Occidental Petroleum (OXY:NYSE), Walgreens (WBA:Nasdaq) and Target (TGT:NYSE); and trimmed our stakes in 3M (MMM:NYSE) and Honeywell (HON:NYSE), selling shares of each at two different points throughout the week.

We view UnitedHealth as the perfect investment in a turbulent market. The company maintains a leadership position in various health benefit segments, which should lead to continued share gains.

Although Starwood management has remained mum on its strategic review, we believe this merely reflects the situation's inherently delicate nature, as management does not want to risk revealing any information before the strategic actions have been thoroughly vetted and finalized. In addition, the company recently completed its sales goal for the fiscal year and has indicated that demand for its assets remains strong, which could lead to additional sales for the year that will ease the pressure in 2016.

Mondelez has one of the lowest margins within the U.S. peer group despite its strong brand equities (nine $1 billion brands) and exposure to favorable categories (three-quarters of its revenue is derived from higher- growth snack categories), leaving plenty of room to widen margins with its new cost-cutting initiatives. We are also excited for the company's long-term prospects as it begins to focus more on top-line growth.

Lockheed is a steady, proven name committed to enhancing shareholder value (remember, the company just recently announced a 10% increase in its dividend for the 13th straight year and added $3 billion to its share buyback program).

Occidental remains our favorite name in the oil patch as it boasts the best balance sheet and operates one of the most enviable growth operations in the Permian Basin. As for Walgreens, we added on the downturn as we see several catalysts upcoming, including its continued focus on preferred and branded products in order to drive increased store traffic and better margins.

We added to our Target position on Friday as the name was significantly underperforming even as the broader market swung back into the green on a volatile trading day. We sold some shares of MMM and HON as they are both large, multinational companies more susceptible to the issues abroad. In addition, HON's exposure to the Volkswagen scandal is one we need to follow.

Second-quarter earnings have wrapped up and were somewhat strong. Total second-quarter earnings growth is down 1.7%; excluding financials, that growth is down 3% vs. expectations at the beginning of the season for a 2.9% decrease. Revenues are decreasing 3.8% vs. expectations throughout the season for a 3.44% decline. The results have been relatively solid across the board, with 61.5% having beaten expectations, 36% missing the mark and 2.5% in line with consensus. Health care, consumer staples and industrials 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% of the S&P 500 is set to report earnings. Included are The Container Store (TCS), Acuity Brands (AYI), Constellation Brands (STX), Monsanto (MON), Mistras Group (MG), Resources Connect (RECN), Domino's Pizza (DPZ), International Speedway (ISCA), Alcoa (AA), Helen of Troy (HELE), Ruby Tuesday (RT), PepsiCo (PEP) and Yum! Brands (YUM).

Economic Data (*all times EST)


Monday (10/5)

Markit US Composite PMI (9:45):

Markit US Services PMI (9:45):

ISM Non-Manufacturing Composite (10:00): 58.0 expected

Tuesday (10/6)

Trade Balance (8:30): $41.65 billion expected

Wednesday (10/7)

MBA Mortgage Applications (7:00):

Thursday (10/8)

Initial Jobless Claims (8:30):

Continuing Claims (8:30):

Bloomberg Consumer Comfort (9:45):

FOMC Meeting Minutes (14:00):

Friday (10/9)

Import Price Index MoM (8:30): -0.5% expected

Wholesale Inventories MoM (10:00): 0.0% expected


Monday (10/5)

Germany Markit Services PMI (3:55):

Germany Markit Composite PMI (3:55):

Eurozone Markit Services PMI (4:00):

Eurozone Markit Composite PMI (4:00):

UK Markit Services PMI (4:30):

UK Markit Composite PMI (4:30):

Eurozone Retail Sales (5:00):

Tuesday (10/6)

Germany Factory Orders (2:00):

Wednesday (10/7)

Germany Industrial Production (2:00):

UK Industrial Production (4:30):

UK Manufacturing Production (4:30):

RICS House Price Balance (19:01):

Japan Machine Orders (19:50):

Japan BOP Current Account Balance (19:50):

Japan Trade Balance BOP Basis (19:50):

Thursday (10/8)

Germany Trade Balance (2:00):

UK BOE Asset Purchase Target (7:00): 0.50% expected

UK BOE Bank Rate (7:00):

Friday (10/9)

UK Trade Balance (4:30):

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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 our trading restrictions allow.


Allergan (AGN:NYSE; $288.00; 400 shares; 4.89%; Sector: Health Care): Shares of Allergan experienced a roller-coaster week as the name was originally hit hard along with the entire biotech sector, but it then rebounded throughout the remainder of the week. Despite the selloff in shares over the last couple of weeks, we have never been more confident in this company. Allergan announced on Monday its updated guidance for the second half of 2015, which largely matched consensus expectations (more than $8 billion in revenue, 10% growth in branded products, and 77%-79% gross margins). The company also confirmed that the generics business will be recorded as discontinuing operations moving forward, which will have an artificially negative impact, for accounting reasons, as investors struggle to forecast true earnings. That being said, Allergan's upcoming buildup of cash is still being undervalued by the market. First, the company will be able to pay down its most expensive debt obligations, which will effectively decrease interest-related expenses and lift earnings (although, due to the lack of 2016 guidance from the company, no value is currently being ascribed to this). More importantly, as we have continually stated, the company is surely looking for ways to deploy this cash into both transformative and tuck-in acquisitions. Ironically, the recent selloff of health care stocks could actually be viewed as a near-term positive for Allergan as it has decreased the valuations of many of the company's potential acquisition targets while the agreed-upon fixed value of the cash from the Teva (TEVA) deal has not depreciated in any way. In short, the slide in health care shares could be a blessing in disguise for a company poised to deploy a boatload of cash. Our target remains $400.

Bank of America (BAC:NYSE; $15.38; 5,400 shares; 3.53%; Sector: Financials): Shares of BAC took a beating on Friday following the surprisingly low jobs report on the expectation that the Fed will now delay raising rates for the year. We believe BAC shares have become increasingly compelling at these levels and are willing to wait until next March for the Fed to ultimately raise rates. In the meantime, Bank of America has countless other levers working in its favor, including improving credit, expense savings, potential for a significant increase in normalized earnings, and its position as a leading retail and commercial banking franchise in the U.S. While the trade may be volatile in the near term, the above catalysts showcase the company's ability to withstand the near-term headwind as it gears up for a higher-rate environment. Our target remains $18.

Biogen (BIIB:Nasdaq; $290.35; 150 shares; 1.85%; Sector: Health Care): Unexpected positive data for Roche's ocrelizumab in primary progressive multiple sclerosis could enable BIIB to receive an additional $500 million in peak out-year royalty revenues, something we believe is in few expectations. Overall, we believe this could help offset the potential cannibalization from the same drug of BIIB's other agents in the MS setting -- potentially helping turn around sentiment from what we view as an undervalued story. Our target is $375.

Cisco Systems (CSCO:Nasdaq; $25.76; 2,500 shares; 2.74%; Sector: Technology): Earlier this week, analysts at Deutsche Bank did a round of checks with the Enterprise and Service Provider IT channel to get a mid- quarter view on Cisco's major product and end-market segments. The bank's mid-quarter channel color suggests Cisco's Enterprise Networking portfolio is a +$16 billion a year run rate business, which is GDP correlated; i.e., seeing 2%-4%-plus CAGR. Our target remains $33.

Energy Transfer Partners (ETP:NYSE; $42.89; 2,700 shares; 4.92%; Sector: Energy): ETP shares were hit hard this week as the MLP space has quickly fallen out of favor with investors as hedge funds remain overly levered in the group. Most concerning is the fact that the eight largest MLP-dedicated funds allocate -- on average -- 20% of their assets to either ETP or Energy Transfer Equity (ETE:NYSE) alone. Aggravating this concentration is the massive amount of leverage taken on by the vast majority of these funds. Our conversations and analysis suggest that forced selling and liquidation at the hedge-fund level have driven a large part of both ETP recent capitulation, as over-levered funds exposed to the two names have had to unwind their positions in a dramatic fashion. Another force weighing on ETP is its frequent comparison to fellow MLP Linn Energy (LINE), which has seen its stock fall from $32 to $2.56 in a year. This is an unwarranted comparison, however, as ETP isn't directly exposed to the pricing of underlying commodities as it focuses on storing and moving for a fee. Lastly, we see many positives that will come out of ETE's deal with Williams Companies (WMB) and expect investors to reward the partnership for its smart decision making. Our target remains $52.

EOG Resources (EOG:NYSE; $77.06; 1,000 shares; 3.27%; Sector: Energy): Under a normalized oil price environment (about $65-$70 a barrel), EOG has the potential to grow its Eagle Ford well activity by 40% given its use of "high density fracs." EOG has been a bit reticent when it comes to discussing the details of its proprietary technology, though we do know it involves stimulating the rock more evenly along the wellbore. EOG has used high-density fracs selectively so far; once the oil environment normalizes, however, the company could apply it on a more widespread basis across its portfolio, yielding tremendous cost savings and amplifying productivity. Our target remains $80.

Google (GOOGL:Nasdaq; $656.99; 150 shares; 4.19%; Sector: Technology): Google hosted a press conference this week announcing new features available in Android 6.0. In addition, it also revealed two new Nexus devices, an updated Chromecast product, a Chromecast audio product, and the Pixel C. The updates to the product portfolio confirm that Google is continuously working to remain a player in the device space. Importantly, it was also announced that Android has 1 billion MAUs. We remain confident in Google's ability to innovate and execute, and have become even more bullish on the name as a result of the impending restructuring into Alphabet. As the company has grown, the drivers of revenue and growth of the core advertising business have been tempered by the "pie in the sky" litany of projects. This has been a clear and meaningful headwind as it relates to visibility and earnings clarity, so we are excited that this cloud over the business will finally be removed. Our $750 price target remains unchanged.

Honeywell (HON:NYSE; $96.54; 600 shares; 2.46%; Sector: Industrials): Volkswagen's (VLKAY) recent emissions scandal, with legal proceedings brought by the U.S. Environmental Protection Agency, has the potential to negatively impact Honeywell, which serves as one of the largest suppliers to the automotive industry, and Volkswagen in particular. The impact is in the form of 1) reduced U.S. sales of directly exposed turbo engines and other products to the impacted vehicles where production is halted; 2) risk of additional recalls/sales standstills in Europe as regulators conduct their own investigations to follow the U.S. lead; 3) sales and profit risk from other auto manufacturers stepping forward after conducting their own internal examinations and finding any similar issues; and 4) potentially slower ramp of diesel penetration in the U.S. While Honeywell's direct exposure to Volkswagen isn't overly concerning (represents less than 2% of U.S. turbo sales), the ripple effect caused by the scandal has the potential to weigh heavily on Honeywell's remaining book of (automotive) businesses. Until this information is fully baked into the share price, we prefer to limit our exposure to headline risk. Given the current conditions, we are decreasing our price target from $115 to $110.

Kraft Heinz (KHC:Nasdaq; $71.41; 1,900 shares; 5.76%; Sector: Consumer Staples): From our vantage point, Kraft's merger with Heinz stands to boost the competitive positioning of the combined entity. Kraft Heinz leapfrogs Coca-Cola (KO) to become the third-largest food and beverage firm in North America behind PepsiCo (PEP) and Nestle (and the fifth-largest in the world), boasting over $22 billion in sales. Despite the opportunity to extend Kraft's fare across Heinz's vast global distribution platform, which derives 60% of sales outside North America, including 25% in emerging and developing markets, we suspect a fair amount of rand pruning could also be in the cards, similar to the actions 3G took when it bought Heinz, which shed Shanghai Long Fong Foods in China and its domestic food-service dessert business in 2013. Our target remains $80.

Lockheed Martin (LMT:NYSE; $206.61; 200 shares; 1.76%; Sector: Industrial): After the second quarter, Lockheed Martin had roughly $2.1 billion remaining on its existing buyback program, During the first half of 2015, LMT repurchased about $1.5 billion in stock under its buyback program, with plans to retire at least $2 billion in stock in 2015. With the latest expanded buyback program, LMT continues to return cash to shareholders and remains on a path to reduce its share count to below 300 million in 2017. Lockheed remains one of the leading defense companies in the world -- we reiterate our $225 target.

Mondelez International (MDLZ:Nasdaq; $43.56; 1700 shares; 3.15%; Sector: Consumer Staples): Other than its compelling margin expansion story, Mondelez's significant exposure to emerging markets is also a key growth catalyst, as the company generates almost 40% of its revenues from the EM. Despite the weak macro trends in the developed markets, MDLZ's exposure to EM is driving its organic growth. Additionally, MDLZ has been working to optimize its brand portfolio by selling off its non- core brands. The company has recently been aggressively taking initiatives to increase its exposure to the-fast growing EM and snacks business, which we believe will boost its market share and earnings growth. We reiterate our $48 target.

Panera Bread (PNRA:Nasdaq; $194.73; 350 shares; 2.89%; Sector: Consumer Discretionary): Panera remains one of our favorite food names, especially as it continues to ramp up its Panera 2.0 initiative. We have always thought of the company, much like Starbucks (SBUX:Nasdaq), as a hybrid between a food and a technology company with its mobile order and pay strategy, and this characterization is and will continue paying off for shareholders. The company recently rolled out a new nationwide campaign to boost awareness for its new efforts and we expect the extra attention to bode well for the stock moving forward. Importantly, the company will not be facing tough comps (sales from comparable stores) from here on out as several of the recent quarters were weaker than typical due to an increased focus on ramping up new initiatives. That being said, comps trends are likely to accelerate in the quarters ahead, pleasing retail investors who solely focus on the all-important number. In addition, Panera's 2.0 initiative and new storefronts are bound to increase store traffic (especially as the company puts an increased focus on advertising). Our target remains $215.

PayPal Holdings (PYPL:Nasdaq; $32.83; 1,800 shares; 2.51%; Sector: Technology): While PYPL shares were hit hard this week, we remain confident in the company's core fundamentals and its attractive growth prospects. Unfortunately, the stock is plagued with a choppy trade as hedge funds make up much of its investor base. In addition, there are still lingering effects from over-levered arbitrage trades vacillating between PYPL and eBay (EBAY). That being said, the company is a leader in innovation, as evidenced by its One Touch feature (which creates a seamless experience for online and mobile shoppers), and has made smart acquisitions that have allowed the company to expand in a diversified but additive manner. While we would not be surprised for shares to extend losses in the coming weeks due to the volatile trading environment, we believe in this company's long-term vision and appreciate its investment value as a hybrid-payments stock. Given the current environment, we are lowering our target from $48 to $40.

Starbucks (SBUX:Nasdaq; $58.08; 500 shares; 1.23%; Sector: Consumer Discretionary): Starbucks continues to showcase its innovative abilities through its mobile order and pay concept that continues to drive traffic through the coffee chain's stores across the country. The stock has been rewarded for the company's outstanding execution and it is only going to get better. This week, the company announced it is launching Mobile Order & Pay in the U.K., allowing customers to pre-order their favorite drinks and food in over 150 London stores and save time in the queue. The feature, which has allowed customers in the U.S. to prepay for orders, customize drinks, save store locations, etc., will undoubtedly be a success in the U.K. and should drive the same types of positive comps performances. As the company continues to roll out the initiative worldwide, investors will find it hard not to pay up for this booming name. We reiterate our $65 target.

Target (TGT:NYSE; $79.53; 1,350 shares; 4.56%; Sector: Consumer Discretionary): We added to our position in Target on Friday as the name was underperforming the broader market even as investors quickly jumped back into equities. Importantly, Target is set to benefit from an enduring low-rate environment, which we expect will continue as a result of the disappointing jobs number released on Friday, and shares should ultimately benefit from increased spending at retail stores. In addition, the company has introduced several new features, such as credit-card chip scanners (to increase customer security in tandem with the new trend in consumer cards with chips) and an extended price-matching policy (which should continue to incentivize customers to shop at Target stores). We also expect the company to succeed in the holiday season as it has become masterful with its targeted promotions (e.g., Plaid takeover). We reiterate our $90 target.

Thermo Fisher Scientific (TMO:NYSE; $124.49; 850 shares; 4.49%; Sector: Health Care): Thermo Fisher is a bastion of consistency in multiple areas: organic growth (mid- to high-single digits), management execution, capital deployment and, importantly, shareholder returns. The company has positioned itself as the market leader across a diverse portfolio of life-science tools and diagnostics, with unmatched global reach across customer classes and end markets. From the company's instrumentation roots as Thermo Electron, it expanded more aggressively into lab distribution with the Fisher Scientific acquisition in 2007. Its 2014 Life Technologies acquisition has given the company further scale, leverage and exposure to the rapidly growing genomics market and a strong catalyst for multiple expansion. We reiterate our $150 target.

UnitedHealth Group (UNH:NYSE; $188.83; 200 shares; 1.01%; Sector: Health Services): We initiated a position in UNH this week as we see several positive levers that should propel shares higher. The company differentiates itself through its faster-growing Health Services segment, Optum, which provides a higher-margin, higher- growth opportunity. UNH is a perfect investment for a turbulent market. For starters, it occupies an enviable leadership position in the health care sector. The company's revenue is highly recurring and the growth outlook across all business segments is compelling, highlighted by its differentiated Optum asset (which encompasses a mail-order pharmacy, a health savings account operation and a payment processor for health care providers) and a developing government (Medicare/Medicaid) book. The latter accounts for roughly one-quarter of earnings and will benefit from long- lasting demographic and state outsourcing trends that create growth visibility. UNH is insulated from ex-U.S. instability and its seasoned management team is among the best, giving us confidence it can deliver on a targeted 15% three-year earnings compound annual growth rate. Finally, we favor UNH for its healthy balance sheet and strong cash flow generation. Its free cash flow run-rate of $7 billion-$8 billion over the coming two years represents an attractive 6.5% to 7.5% yield. Our target is $140.

Walgreens Boots Alliance (WBA:Nasdaq; $87.11; 1,000 shares; 3.70%; Sector: Health Care): We recently took a dive into the Alliance Boots (AB) business, which goes largely overlooked. While U.S. retail is about 65%-70% of total adjusted operating income for the combined entity, growth in AB, in our view, will remain an important and solid long-term driver. We expect future growth to come from additional acquisitions or affiliations with a very large "unaffiliated" community pharmacy population in the U.K. and Europe, a significant increase in generic penetration, cost synergies from greater buying scale with AmerisourceBergen (ABC) and increased penetration of preferred brands and products. Our target remains $105.

Wells Fargo (WFC:NYSE; $51.26; 2,100 shares; 4.57%; Sector: Financials): With bank stocks down materially from recent July highs, we believe the names are no longer pricing in any interest rate increases for the foreseeable future. At WFC, net interest income growth should be highest of peers -- rising 6% year over year. We like this setup and see shares as attractive. Our target remains $63.

WhiteWave Foods (WWAV:NYSE; $41.78; 2,900 shares; 5.15%; Sector: Consumer Staples): Amid the recent selloff in shares, we would remind subscribers that trends remain strong -- early September tracking data continued to show industry-leading growth. The 20-point drop from recent highs presents a uniquely compelling buy opportunity. Our target remains $55.


3M Co. (MMM:NYSE; $143.20; 450 shares; 2.74%; Sector: Industrials): We continue to view 3M as a high-quality, durable franchise with a strong R&D competency and best- in-class margins as well as return on invested capital. Identifiable catalysts include stronger-than-expected organic growth via recent product introductions, secular strength in consumer electronics and relatively bearish sell-side sentiment, which provides ample room for upside earnings revisions and rating upgrades. Our target remains $170.

Apple (AAPL:Nasdaq; $110.38; 820 shares; 3.84%; Sector: Technology): On Monday, Apple announced that it sold more than 13 million new iPhone 6s/6s Plus models over the weekend, marking a new record for the company and beating analyst expectations for roughly 11 million units. In addition, two interesting trends should help boost ASPs for the company's most important product. First, there is a continuing consumer shift toward purchases of higher-capacity storage offerings since the 5s launch (remember, Apple increased its mid-tier storage offering to 64GB from 32GB starting with the iPhone 6 model). As mobile activity (email, mobile browsing, apps, mobile commerce, etc.) continues to dominate consumer lifestyle, higher capacity and faster processors will be in high demand. Apple is smartly capitalizing on this trend and should see a significant benefit from the higher prices consumers must pay for these devices. Second, there seems to be a slower trend toward adopting the larger screen in the Plus phone models. Of those buyers who were upgrading from an iPhone 6 Plus phone, the overwhelming majority purchased the iPhone 6s Plus model as they enjoyed the larger screen. Importantly, we expect momentum to continue heading into the fourth quarter. Apple has more selling days in the fourth quarter this year compared to the third quarter, which helps justify the initial softer guidance for 3Q (two days of new iPhone selling in 3Q this year vs. nine days last year), but will also help the company surpass sales expectations at the end of the year and reinvigorate investor interest. Our target remains $150.

Dow Chemical (DOW:NYSE; $44.45; 1,500 shares; 2.74%; Sector: Chemicals): Legacy holders of DOW's common stock have the opportunity to exchange all, some or none of their existing shares for shares of the combined "Splitco" entity (includes Olin plus the spun-off chlorine unit) at a 10% discount. In our view, while the prospect of a 10% discount looks attractive on the surface, we are not sufficiently intrigued by the Splitco's fundamentals. The entire reason Dow Chemical decided to shed the chlorine unit in the first place was because of its persistent underperformance with little prospect for improvement. We certainly understand the Splitco appears cheap (using the current valuation range); at 6x EBITDA, the entity is solidly cheaper than Dow. That said, we struggle to identify sustainable growth drivers over a long-term trajectory, and do not feel comfortable owning a company that is levered to secularly declining end markets. All in, while Splitco may be an interesting trade given the 10% discount, we do not believe the fundamentals are compelling. Also, we have waited patiently for Dow to complete this transaction in order to raise the cash to execute its massive buyback program slated for the fourth quarter. We encourage subscribers to perform their own due diligence -- many may come to a different conclusion depending on their respective investment strategies. Our target remains $55.

Facebook (FB:Nasdaq; $92.07; 1,300 shares; 5.08%; Sector: Technology): Facebook remains uniquely positioned to benefit from increased ad dollars spent on social media as it is the clear leader in the space, offering an attractive portfolio of tools for marketers. In fact, eMarketer recently raised its projections for social media ad spending, solely based on projections for higher ad revenue at Facebook. Even better, Facebook announced some key developments at the New York Advertising Week that have solidified our positive views on the name. First, the company has experienced a 25% jump in the number of active users since February -- an astonishing increase. Secondly, it is rolling out a new advertising product that will be based on traditional TV audience measurement metrics (target-rating points or TRPs), which will help advertisers quantify the contribution from Facebook ads along with TV spots. Additional features added will be a brand awareness optimization tool (based on the amount of time a user spends on an ad), a mobile polling tool and carousel ads with video. Facebook continues to innovate and improve its already dominant platform, which is why it will continue to win. We reiterate our $110 target.

Occidental Petroleum (OXY:NYSE; $68.79; 1,725 shares; 5.04%; Sector: Energy): This is a high-quality company that has traded as such, significantly outperforming its peer set over the past several months while battling a crescendo of macro headwinds. OXY checks all the boxes for us given its operational efficiencies, ability to balance growth while limiting cash flow outspend and financial flexibility, topped off with a pristine balance sheet. Our target remains $80.

Starwood Hotels & Resorts Worldwide (HOT:NYSE; $68.04; 1,700 shares; 4.91%; Sector: Consumer Discretionary): Starwood recently agreed to sell its Westin Excelsior Rome asset for $251 million, or $800,000 per key, putting the company over its goal of selling $800 million worth of assets in 2015. Management made a point to note that demand remains incredibly strong, standing in contrast to La Quinta's recent negative commentary. We lower our target to $80, from $90, to reflect the emergence of macro headwinds.


Morgan Stanley (MS:NYSE; $31.43; 850 shares; 1.13%; 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 (BAC:NYSE) 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.

Twitter (TWTR:NYSE; $26.31; 700 shares; 0.78%; Sector: Technology): Twitter shares were volatile this week but ultimately ended higher on news that the company was finally leaning toward a decision on its new, permanent CEO. Re/code's Kara Swisher and Kurt Wagner reported on Wednesday that founder and interim CEO Jack Dorsey will be named permanent CEO by Thursday (hasn't happened yet). According to their sources, the company is also likely to restructure its board of directors, beginning with the departure of former CEO Dick Costolo. Re/code also noted that Dorsey will remain CEO of Square, the privately held payments company he founded in 2009. All in, we are not particularly pleased with the idea of Jack Dorsey running the company, as he has been unwilling to acknowledge the major, fundamental flaws within Twitter's business model. While we still think the long- term opportunity is tremendous, the short term -- plagued by recent challenges -- is a "show me" story through and through. Execution on product rollouts and Twitter's ultimate ability (or inability) to grow MAUs/engagement will remain of utmost importance. That being said, the company has made some small strides in recent months with the ramp up of Project Lightning, the addition of buy buttons for key advertising partners, and even the intent to remove the 140-character limit (allowing for more in- depth knowledge transfer). We remain skeptical until we see a sustained turnaround.


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


We're Aiming to Buy More Target
Stocks in Focus: TGT

Today's underperformance creates a bullish opportunity.

10/02/15 - 01:44 PM EDT
Adding to Bank of America and WhiteWave
Stocks in Focus: BAC, WWAV

We'll use our large chunk of cash to accumulate shares at bargain prices.

10/02/15 - 10:55 AM EDT
Buying Weakness on Poor Nonfarm Payrolls Report

We will pick at the opportunities we see in strong companies.

10/02/15 - 09:39 AM EDT
Weekly Roundup

The portfolio was busy during a volatile week that ended with the market making a big one-day turnaround. Get ready for earnings season.

10/02/15 - 05:34 PM EDT

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Chart of I:DJI
DOW 16,472.37 +200.36 1.23%
S&P 500 1,951.36 +27.54 1.43%
NASDAQ 4,707.7750 +80.6910 1.74%

Action Alerts PLUS Holdings

Holdings 1

Stocks we would buy right now

Symbol % Portfolio
Industry Trade Now
AGN 4.95% Drugs
BAC 3.57% Banking
BIIB 1.87% Drugs
CSCO 2.77% Computer Hardware
EOG 3.31% Energy
ETP 4.97% Energy
GOOGL 4.23% Internet
HON 2.49% Industrial
KHC 5.83% Food & Beverage
LMT 1.77% Aerospace/ Defense
MDLZ 3.18% Food & Beverage
PNRA 2.93% Leisure
PYPL 2.54% Financial Services
SBUX 1.25% Leisure
TGT 4.61% Retail
TMO 4.54% Health Services
UNH 1.02% Health Services
WBA 3.74% Retail
WFC 4.62% Banking
WWAV 5.20% Food & Beverage
Holdings 2

Stocks we would buy on a pullback

Symbol % Portfolio
Industry Trade Now
AAPL 3.89% Consumer Durables
DOW 2.86% Chemicals
FB 5.14% Internet
HOT 4.97% Leisure
MMM 2.77% Industrial
OXY 5.09% Energy
Holdings 3

Stocks we would sell on strength

Symbol % Portfolio
Industry Trade Now
MS 1.15% Financial Services
TWTR 0.79% Internet