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Jim Cramer's Action Alerts PLUS

Action Alerts PLUS

Weekly Roundup

BY Jim Cramer and Stephanie Link | 12/19/14 - 04:58 PM EST

Markets bounced back sharply this week following last week's decline, as the S&P 500 and Dow Jones Industrial Average rose more than 3% and the Nasdaq was not too far behind with a 2.2% gain. Many identify this as the start of a "Santa Claus" rally, which is often seen at this time of year. It wasn't a smooth shot upward, though. The week started rocky, with sharp declines in the U.S. and global markets as the Russian ruble continued to crash following the unexpected 17% rate hike from the Central Bank of Russia -- the second action taken in a week. The ruble has been falling for quite a while and before the action taken this week, it had devalued by 109% for a number of reasons primarily tied to the 48% drop in oil prices -- a key commodity for the Russian economy.

But things took a turn for the better mid-week after the Federal Reserve's Federal Open Market Committee (FOMC) announcement and Chair Janet Yellen's press conference, which reversed all the declines and then some. She indicated that not only will the committee move slowly to raise interest rates in the U.S., but the committee talked up the U.S. economy, noting stronger GDP, an improving job market, benign inflation, and that the oil price decline was "transitory." In other words, the economy is healing and even so, they will use "patience" in assessing their actions on higher interest rates. This got the attention of the bond market and rates moved higher; the 10-year bond yield rose about 5% for the week and took the financial services sector with it.

Finally, news that the U.S. will begin taking steps to normalize relations with Cuba for the first time in more than 50 years was not necessarily a market-moving event, but it certainly was historic and was talked about by everyone in the market community for its broader implications.

Not surprisingly, the U.S. dollar continued to rally, up 1%, and is now up 12.2% from the lows in May. That's the highest it's been since 2006. We don't expect this to reverse and it is something we continue to monitor for the impact on not only commodity prices but on U.S. corporate earnings, and for its possible negative effects.

The Volatility Index fell 21% as investors regained their confidence, and while West Texas Intermediate and Brent crude oil prices still fell another 4% and 2%, respectively, they felt more stable by the end of the week. The energy sector bounced hard, with many individual stocks gaining 15% to 20%. The sector leaders were energy, telecommunications, materials and industrials, mainly the cyclicals or economically sensitive stocks, again, on the upbeat commentary from the Fed. These comments aren't surprising; we've noted the U.S. economic progress for a while and the recent acceleration to trends as well. We've been positioned for this as well.

This week we did more selling than buying to take gains and clean up the portfolio, readying it for 2015. We will continue to do this for the next two weeks when the opportunities arise. We took gains in Facebook (FB:NYSE), Lear (LEA:NYSE), Starbucks (SBUX:Nasdaq), Walgreen (WAG:NYSE) and United Technologies (UTX:NYSE). We trimmed positions in Eaton (ETN:NYSE), which his up 20% from lows, and Vale (VALE:NYSE), which rallied 12% this week alone. We added to McDonald's (MCD:NYSE), UPS (UPS:NYSE) and Morgan Stanley (MS:NYSE).

We moved our ranking on Ensco (ESV:NYSE) from One to Two given its 18% share gain this week, and Lear (LEA:NYSE) also went to Two given its 14% move higher recently.

Walgreen is the only S&P 500 company that will report earnings. And Family Dollar's (FDO:NYSE) special meeting will be market-moving given the implications for the company's takeout prospects and the impact on Dollar General (DG:NYSE) and Dollar Tree (DLTR:Nasdaq). There are no conferences next week.

Below is the economic calendar for the U.S. and international markets of interest:


Monday (12/22)

Chicago Fed National Activity Index (08:30): 0.25 expected

Existing Home Sales (10:00): 5.20M expected

Existing Home Sales MoM (10:00): -1.1% expected

Tuesday (12/23)

Durable Goods Orders (08:30): +2.9% expected

GDP Annualized QoQ (08:30): +4.3% expected

Capital Goods Orders Ex-Aerospace & Defense (08:30): +0.5% expected

Personal Consumption (08:30)

FHFA House Price Index MoM (09:00): +0.3% expected

University of Michigan Consumer Sentiment Index (09:55): 93.0 expected

Richmond Fed Manufacturing Index (10:00): 7 expected

New Home Sales (10:00): 460K expected

New Home Sales MoM (10:00): +0.4% expected

Personal Income (10:00): +0.5% expected

Personal Spending (10:00): +0.5% expected

Wednesday (12/24)

MBA Mortgage Applications (07:00)

Initial Jobless Claims (08:30)

Continuing Claims (08:30)


Monday (12/22)

Eurozone Consumer Confidence (10:00): -11.0 expected

Tuesday (12/23)

UK GDP QoQ (04:30): +0.7% expected

UK GDP YoY (04:30): +3.0% expected

UK Total Business Investment QoQ (04:30)

UK Total Business Investment YoY (04:30)

Wednesday (12/24)

Japan Small Business Confidence (00:00)

Japan PPI Services YoY (18:50)

Germany Import Price Index MoM

Germany Import Price Index YoY

Thursday (12/25)

Japan Annualized Housing Starts (00:00): 904K expected

Japan Housing Starts YoY (00:00): -12.2% expected

Japan Construction Orders YoY (00:00)

Japan Jobless Rate (18:30): +3.5% expected

Japan Job-to-Applicant Ratio (18:30): 1.10 expected

Japan Overall Household Spending (18:30): -3.6% expected

Japan National CPI YoY (18:30): +2.4% expected

Japan National CPI Ex-Fresh Food YoY (18:30): +2.7% expected

Japan Retail Trade YoY (18:50): +1.2% expected

Japan Retail Sales MoM (18:50)

Japan Industrial Production MoM (18:50): +1.1% expected

Japan Industrial Production YoY (18:50): -2.0% expected

Friday (12/26)

China Industrial Profits YoY (20:30)

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.

To learn more about how we construct and trade the portfolio, click on the "Getting Started" link directly above the "Weekly Roundup" headline. You can also get your alerts faster by following us on Twitter @CramerandLink.

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.


American International Group (AIG:NYSE; $55.78; 1,600 shares; 3.24%; Sector: Financials): Shares traded higher this week along with the rest of the financials as interest rates steadied and Fed Chief Janet Yellen talked up the economy. We still like this position as it diversifies our financial holdings, and we like the internal restructuring under new CEO Peter Hancock. First quarter will be the new management team's first full quarter and we expect the company will continue to make progress on its initiatives, such as improved operations, a greater focus on data analytics and the previously-implemented shift into a leaner business focused on AIG's P&C franchise. The stock is still attractive on a valuation basis at just 0.7x Px/TBV, less than half of competitors Chubb (CB) (1.5x) and Travelers (TRV) (1.6x). Our target is $65.

Dollar General (DG:NYSE; $68.56; 900 shares; 2.24%; Sector: Consumer Discretionary): It was a volatile, yet ultimately positive week for the stock, with shares hitting all-time highs ahead of next week's vote for Family Dollar (FDO) shareholders. The vote will clearly be a significant catalyst for all involved parties, including the other FDO bidder Dollar Tree (DLTR). We think the prospects for a DG & FDO combined entity are more compelling than DLTR, with the ability to leverage the newfound scale to put more pressure on suppliers and expand margins. But we also believe in Dollar General as a standalone entity, with both gasoline prices and unemployment at multiyear lows, giving consumers more buying power and the company's shifting product mix likely will lead to a higher stock price as well. So, it's a win/win in our view -- on a standalone or with FDO. On a valuation basis, the stock is cheap at just 17.8x, offering about a 10% discount to Dollar Tree (19.6x) and over a 25% discount to Family Dollar (25.0x) -- and incredibly in line with Wal-Mart (WMT) -- at double the growth. Our target is $72.

Dow Chemical (DOW:NYSE; $45.84; 2,550 shares; 4.25%; Sector: Materials): Shares traded higher in what was a very volatile week of trading, climbing more than 4% in Wednesday's trading session alone. For a few weeks now, we've discussed how the stock has traded in lock-step with the energy complex, correctly or not. This week the energy exposure theme worked in favor of Dow, as oil rolled over and most stocks in the sector saw a sizeable bounce off their lows. We're still into this name for the restructuring story/activist involvement and we view positively all of the efforts that management has introduced recently to create value for shareholders. The company has increased its dividend by 14% and added another $5 billion to its buyback program, bringing the total planned buyback to $9.5 billion, more than 15% of the company's current market cap. Plus, the targeted level of asset sales had been lifted to $7 billion to $8.5 billion by mid-2016 and any news regarding developments on this front will likely be a positive catalyst for shares. Trading at just 14.1x forward estimates, shares offer over a 4% discount to the chemicals group, which is unjustified in our view. Our target is $65.

Kinder Morgan (KMI:NYSE; $41.63; 2,400 shares; 3.63%; Sector: Energy): The stock participated in the energy sector rally this week, gaining more than 1% as oil and natural gas prices stabilized. We are now back in the black for this position and we expect the shares to head to the upside as the newly combined corporate entity hits its stride. The company's dividend yield will soon increase to 5% once 2015 arrives, when the dividend is boosted to $2 per share, and management expects to boost the dividend by about 10% each year thereafter until 2020. Regarding what has been a point of emphasis as of late, the company also expects to generate more than $2 billion in excess coverage for that dividend each year, bringing a measure of safety as investors question the ability of other companies in the pipeline/MLP space to pay its current dividends. The new company is the fourth-largest energy company in the country and the largest pipeline company in the world. It will be able to use its newfound scale to tap capital markets economically and acquire assets for growth going forward. And importantly, only 15% of its revenue base is tied to oil prices, which is very manageable in our view. We're buyers when our restrictions are lifted. Our target is $50.

lululemon athletica (LULU:Nasdaq; $53.50; 1,000 shares; 1.94%; Sector: Consumer Discretionary): The stock was flat this week, taking a pause after last week's 16% increase following better earnings and a return of confidence in the company and its products. The company beat expectations on the top and bottom lines, e-commerce sales and margins. Guidance was set conservatively, but is achievable especially as the West Coast port slowdown eases and as the company reworks its distribution channels to deal with the situation. Importantly, management stated that sales increased throughout the third quarter and remained strong in its fiscal 4Q. Even with the recent gains, the stock remains down almost 10% YTD and trades at about a 17.5% discount to its own historical valuation. Even though we're now up 15% in the position, we think there is plenty of room left to the upside as the company sells its new products and grows its store count aggressively. Our target is $56.

Merck (MRK:NYSE; $59.58; 1,100 shares; 2.38%; Sector: Healthcare): Shares recovered somewhat following last week's 6% slide -- after making the $9.5 billion acquisition of Cubist (CBST) -- only to find out that its major drug lost an important court battle that brings on generic competition sooner than expected. We still like the combination, but it won't be the initial blockbuster that we initially thought. That said, MRK's pipe is slowly getting better with Keytruda's data having showed encouraging early results in its numerous trials studying its effect on various types of cancer and we believe that the company's 6- and 8-week HCV treatments will allow MRK to participate in the $20 billion HCV drug market. The stock remains cheap at just 16.1x forward estimates, about a 15% discount to the company's peer group, and the 3.2% dividend yield is one of the best in the sector. Our target is $65.

Morgan Stanley (MS:NYSE, $38.51, 1,400 shares; 1.96%; Sector: Financials): We used the declines in shares to add this week and lower our cost basis and we continue to like the 2015 setup for the company and the stock. The company has an attractive 50-50 mix of exposure to the U.S., where it should see quicker and quicker appreciation of revenue and earnings and international markets, which we expect to be valued higher over time. As Morgan Stanley has transitioned itself from primarily an institutional bank to one with more recurring revenues via its global wealth management business, returns have been squeezed -- from a peak of 23% to 9% in the most recent quarter. We expect this trend to dissipate and we think the firm can get to the low-teens level in the coming years as it commands greater market share in asset management and wealth management. We believe in CEO James Gorman's ability to reach his goal of $3 in EPS over the next two years and we like that he is accountable to achieving that figure. The stock currently trades at just 12.4x forward estimates or 1.1x Px/TBV, but we believe that as the company gets closer to its profitability and margin goals, and continues to improve its capital and liquidity position, that we should be an earnings multiple closer to the 14-15x range and a mid-$40s share price. Our target is $44.

Royal Dutch Shell (RDS.A:NYSE; $68.69; 1,650 shares; 4.12%; Sector: Energy): Shares got a boost this week as oil prices stabilized and the entire energy complex traded higher. While it is certainly too soon to call of the bottom for oil and the sector, the moves are encouraging as they shows that we could see a quick recovery for oil stocks whenever the bottom actually does occur. We have prepared our shopping list for when we gain confidence that prices have indeed stabilized and are especially attracted to best-in-class companies that that have been hit especially hard, such as Schlumberger (SLB), ConocoPhillips (COP) and Anadarko Petroleum (APC). But we did not chase any of these this week. We're content to miss the first few points of a recovery in order to avoid being burned if oil continues to fall. In the meantime, Royal Dutch is a special situation story. We continue to like the efforts that CEO Ben van Buerden has undertaken to make the company a leaner, more profitable company with a priority on cash generation for shareholders. As we wait to see if this recovery is real, we can collect a 5.5% yield, which is well covered. Our target is $80.

Twitter (TWTR:NYSE; $37.08; 1,400 shares; 1.89%; Sector: Technology): It was a volatile week for the stock and it remains in the crosshairs of investor sentiment. Several analysts were positive on the stock this week, which was offset by the large-scale selling of shares by CEO Dick Costolo. The fact remains that this stock is a show-me story at this point and the company will need to deliver positive results for monthly active user (MAU) growth, user engagement, advertising revenue growth and increased monetization for each user. The positive news is that expectations are now quite low for the stock and trends are favorable for social media stocks and the shift from advertisers. We continue to stick with this. There is low sentiment, the stock is off 50%, there is secular growth in social advertising and the potential for management changes ahead (the CEO removal, potentially). But we will have to wait for the next quarter. Our target is $60.

Unilever (UN:NYSE; $39.35; 1,900 shares; 2.72%; Sector: Consumer Staples): Shares gained a bit of ground this week and we continue to like this position as a defensive name to help offset some of our higher-beta holdings. Additionally, we like the diversity of exposure that the stock brings, with only 14.6% of revenue coming from North America and an emphasis on emerging markets. But Unilever is likely to remain above the fray of emerging markets, due to its vast footprint, strong balance sheet and 3.6% dividend yield. UN shares currently offer a 2.5x-multiple-point discount to chief competitor Procter & Gamble (PG) and even a partial closure of that gap would send shares higher during 2015. Now below our cost basis, we could use this dip to build out the position. Our target is $45.

United Parcel Service (UPS:NYSE; $110.96; 800 shares; 3.22%; Sector: Industrials): The stock traded lower this week, primarily due to a soft earnings report delivered by its primary competitor, FedEx (FDX). FedEx's revenues were in line with expectations, and up 4.4% y/y, but EPS was just $2.14, below the expected $2.22. Additionally, while margins did increase by 130 bps y/y, this was below consensus. Importantly, demand was strong and volumes were solid and up 5%, driven by growth in both BTB and BTC business. While we are not surprised that UPS shares traded in sympathy with FDX, it's important to remember the differences between the two companies and their stocks. First, FedEx had vastly outperformed UPS so far this year (up 21% YTD into the report vs. UPS' 4.5% rise over the same period), so it had much less room for error with its earnings performance. Additionally, one of the main culprits of FDX's margins miss was higher costs for its airplane fleet, which was viewed as more FDX-specific as its fleet is older than UPS's. We still like this pick very much as a way to play falling oil costs and the stronger domestic consumer. The company's investment initiatives will dissipate as 2014 ends, and the company has easy comparisons in the first half of next year. Last month, management reiterated its 2015 guidance of $5.45 to $5.70 per share and we still expect a strong 4Q14. We added to the position this week. Our target is $125.


AbbVie (ABBV:NYSE; $67.71; 900 shares; 2.21%; Sector: Healthcare): Shares gained ground once again this week, charging about 3% higher without much news for the company. We saw some profit-taking in the name last week, which led to the first negative week for the company in over a month. So it was encouraging to see shares rebound this week and continue to outperform both the market and the healthcare/biotech sectors. The next focus for ABBV investors is the pricing strategy for the company's new HCV treatment, and ultimately we believe that the company can achieve a market share of about 20% in what is a $20 billion end market. But the price point that it chooses will indicate how the company chooses to address that end market. Shares have had a nice move off the low $50s, but still trade at a 15% discount to peers and offer an attractive dividend. Our target is $73.

American Express (AXP:NYSE; $92.90; 1,200 shares; 4.05%; Sector: Financials): The company reported November card data this week, in line with the trend data -- and an industry best. The net charge-off rate for the month was 1.4%, up 10 bps from October's level but a typical rate for November; delinquencies were once again flat at 1.0%, a very strong level. End-of-month receivables were up 3% sequentially and 8% y/y to $59.9 billion, an indication that our thesis of elevated holiday spending is correct. Recall, however, that the company disclosed last week that Cyber Monday was its highest day of card spend in the company's history. Since that day fell in December this year (Dec. 1), spending levels are likely trending above the November metrics. Stubbornly lower interest rates have acted as an offset to the positive trends seen for the company, but we're confident that the company is in a position to report a strong 4Q, sending shares higher. We're buyers in the mid $80s, as we were prudent in trimming back the position in the mid $90s. Our target is $95.

Apple (AAPL:Nasdaq; $111.78; 820 shares; 3.33%; Sector: Technology): Shares reversed early-week declines to finish up for the week, ending the December slide that has seen them fall over 10% from their late-November all-time highs. It was a busy week for the company on the legal front, as it saw favorable outcomes for two current legal proceedings. First, a jury found Apple not guilty of antitrust violations for restrictions the company had made for its iPod device, ending a decade-long case that had the potential to cost the company $350 million to $1 billion. Second, a federal judge approved the company's settlement with GT Advanced Technologies (GTAT), the parts supplier that filed for bankruptcy in October, putting that matter behind Apple as well. Apart from the legal proceedings, there were developments on Apple Pay this week, which added many retailers and credit card/banking partners, and now supports the cards that represent about 90% of the credit card purchase volume in the U.S. As usual, we view shares as cheap at just 13.5x forward estimates, offering over a 20% discount to the stock's own historical valuation. Our target is $120.

Ensco (ESV:NYSE; $32.77; 2,025 shares; 2.41%; Sector: Energy): The company presented its fleet status report (FSR) for the month of December, which was a mixed bag with both positive and negative developments. The positive news was that the company received a three-year extension for one of its jackup rigs, Ensco 92, currently under contract with ConocoPhillips (COP) in the North Sea. The rate for the three-year extension came in at $150,000 per day, a new low but actually higher than the $120,000 per day expectation. On the negative side, the company delayed the delivery of one of ESV's newly constructed rigs, Ensco DS-8, which is contracted for five years with Total -- yet, importantly, at the same $500,000 per day contract amount. The one quarter push out is tolerable in our view, given the price for the deal. Additionally, the company decided to cold-stack one more of its jack-up rigs in the Gulf of Mexico -- the older rigs will continue to be cold-stacked, which is mixed -- it's positive in that it reduces the age of its existing, active fleet but a negative on the costs side. It didn't matter -- as shares traded in line with the group and outperformed gaining over 6% given its higher beta exposure. The near-term macro outlook remains challenging for Ensco, but at this point shares are so oversold -- down about 50% YTD -- and so cheap on a valuation basis -- the 5.3x EV/EBITDA offers nearly a 20% discount to the historical level -- we'll will wait for the stock to return to a reasonable level. Meanwhile, we'll collect the 11% dividend yield. Just given the volatility of the situation we'll move this to Two -- maintaining our selective stance on adding. Our target is the mid-$50s.

Facebook (FB:Nasdaq; $79.88; 1,300 shares; 3.77%; Sector: Technology): Solid engagement data for the month of November showed continued strength across both mobile and desktop users. Facebook's share of overall Internet time improved to 16.9% (up from 16.2% in October) and its share of mobile time -- excluding subsidiaries Instagram and WhatsApp -- also increased to 21% (up from 20% in October). The increase in share of mobile minutes is especially encouraging, as it represents the fastest-growing segment of internet use and advertisers are increasingly allocating more of their ad spending to mobile campaigns. Interestingly, the growth in FB's share of mobile minutes comes as the combined share of its primary rivals in the social media space are declining -- Instagram, Twitter (TWTR), WhatsApp and Snapchat combined for about 3% of total mobile minutes. The figures are similarly high if Instagram and WhatsApp are included in Facebook's total. The combined entity has seen its total internet minutes increase 20% y/y, down from October's 23% y/y increase but up from September's 18% increase. These stats help to reinforce our notion that this company will be a core internet/social position, as advertising dollars shift to digital campaigns. The relatively high multiple the stock commends is justified, given the consistently strong growth that the company exhibits. We trimmed a small lot this week -- just to take some gains and improve our cost basis. Again, this is a core position for the long term in our social basket. Our target is $90.

General Motors (GM:NYSE; $32.81; 3,400 shares; 4.05%; Sector: Consumer Discretionary): It was reported this week that GM and several other automakers have suspended auto sales in Russia, following the collapse of the ruble -- not a surprise given the turmoil going on in this region. Importantly, Russia represents only 1.5% of GM's global unit sales volume, and the possibility that this would occur has been priced into shares, with the stock's 22% YTD decline. We remain confident in the company's 2015 outlook, with the removal of the ignition switch recall overhang in the first quarter, strong ongoing sales metrics domestically, and a key product mix shift to higher margin vehicles (trucks and SUVs) as gasoline prices fall. The stock is very cheap on a valuation basis, trading at just 7.4x forward estimates, 4% below its own historical level and about 20% below its peers' average valuation, and yields a stout 3.9% -- which will be raised most likely in January. Our target is $45.

Google (GOOGL:Nasdaq; $520.04; 235 shares, 4.44%; Sector; Technology): The stock fell over 1.5% this week, amid mixed sentiment from investors. The most negative tone came from J.P. Morgan equity research, which lowered 2015 estimates, primarily due to projected a slowing of organic revenue growth and FX headwinds, and its price target for Google to $600 from $670. Though the FX headwinds are legitimate, the thesis that organic sales growth is slowing is not yet one that we are willing to concede; y/y revenue growth has averaged 20% for the first three quarters of the year and the company seems to be well positioned for the secular shift of advertising dollars to digital campaigns. It is also worth noting that the lowered price target of $600 still represents 17% of upside from the stock's current level in the low-$500s (and about 5% of upside from our cost basis). The stock's valuation at 16.8x forward estimates represents almost a 15% discount to its own historical level, and is a fraction of many of its competitors in the mega-cap tech space. Our target is $645.

Johnson & Johnson (JNJ:NYSE; $105.55; 620 shares; 2.38%, Sector: Healthcare): The stock traded higher this week as the company announced a couple new partnerships in its Janssen division -- Geron (GERN) confirmed that its previous collaboration to develop and distribute imetelstat, a telomerase inhibitor, was effective as of Dec. 15. With Halozyme Therapeutics (HALO) it has a collaboration and license agreement to develop and commercialize Halozyme's ENHANZE technology, which aids in the dispersion and absorption of injected therapeutic drugs. These partnerships are crucial to JNJ's pharmaceutical business, as they require little R&D contribution, but allow JNJ to participate in the upside for smaller biotech companies' developments. In both of these cases, JNJ is contributing a relatively small upfront payment ($35 million for Geron and $15 million for Halozyme), followed by "milestone payments" and royalties from sales that are only paid to the smaller companies once certain goals are scheduled in the development and sale of the drugs, reducing JNJ's risk for the projects. The stock is not far off its all-time high of $109.49 reached last month, and is valued fairly at 16.7x forward estimates, almost 15% above its historical level. But the company continues to report strong performance from its pharmaceutical division and, until this narrative subsides, we believe shares can continue to trend higher into and in reaction to January's earnings report. Our target is $115.

Lear (LEA:NYSE; $95.79; 1,100 shares; 3.83%; Sector: Industrials): We trimmed back the position, with shares rallying 4% on the week and we moved this to Two, as shares approach our target price. We like the auto cycle at 17.2 million, the highest November total since 2003, and expect it to remain strong in 2015 especially on the stronger consumer and lower oil prices. Even as we sold some this week to take gains, we believe that shares can get back to their September highs, above the $100 mark, based upon the strength of the auto industry trends, the recovery in Europe, the restructuring and higher margins in seating, and leverage to its balance sheet potentially. Plus, the stock offers nearly a 20% discount to its peer group. The next big catalysts will likely be December sales figures and the late-January 4Q earnings report. Our target is $105.

McDonald's (MCD:NYSE; $93.22; 700 shares; 2.37%; Sector: Consumer Staples): We see a multiple of paths to win over the long term, beginning with the internal improvements that the company is making, such as menu fixes and new store concepts, aggressive cost cutting, and real estate monetization. While there is much work to do internally, many of these improvements have only recently been implemented, after new North America head Mike Andres assumed his role in the fall. We also believe that the company will be the beneficiary of the consistently improving domestic economic picture in the near term, as well as longer-term stimulus measures in Europe and Asia. Finally, activist involvement is a real possibility (Bill Ackman was rumored to be involved this week), which could lead to increased leverage and more dividends/share repurchases. In the meantime, the yield is now 3.7%, so we are compensated as we wait for the company to enact self-help measures and yield results. Our target is $100.

Microsoft (MSFT:Nasdaq; $47.66; 1,700 shares; 2.94%; Sector: Technology): The stock lagged the broader market this week, finishing the week essentially flat. Microsoft's Investor Relations Director Todd McCommon was optimistic about the company's near-term outlook at an investor conference, focusing on the cost control demonstrated this year. He expects further progress on this front, given the fundamental change in culture at the company, with each project now being judged based upon its individual merits and profitability prospects. Given that margins have been a sore spot in the prior regime, we see upside continuing on this metric going forward. He also highlighted that the prospects continue to look increasingly strong for the company's upcoming Windows 10 software -- a second-half calendar 2015 development. But after Intel (INTC) recently suggested that as many as 600 million PCs might upgrade to Windows 10, it's become clear that the product's release will likely be closer to that of Windows 7 vs. the weaker launch of Windows 8. We continue to like the company's relatively cheap valuation at just 15.6x forward estimates, with product and cash flow distribution catalysts ahead. Our target is $52.

Panera Bread (PNRA:Nasdaq; $165.60; 700 shares; 4.21%; Sector: Consumer Discretionary): Shares climbed about 2% this week on the back of continued falling oil prices. The company announced that its products would no longer include antibiotics, in an effort to differentiate itself from other QSR peers. We applaud the effort and now look forward to getting 2015 guidance, progress on the 2.0 concept and the return implications of the heavy investments when the company reports earnings in February. We were encouraged with traffic trends, ticket improvement and less margin deterioration in its most recent quarter. We expect that the stock will be in a trading range until we get the updates, but believe the 2015 story sets up well for operating leverage as investments subside. Our target is $185.

Starbucks (SBUX:NYSE; $79.44; 1,050 shares; 3.03%; Sector: Consumer Discretionary): We trimmed this position back this week, taking some profit in the name and right-sizing what had grown to be a large position in our portfolio. But we continue to think that the 2015 setup is good for the company, which has invested heavily in its technological capabilities and continues to exhibit strong growth, despite its maturity. The projected growth is striking -- at its analyst day earlier this month, management stated that it expected revenue to grow from $16.4 billion to $30 billion from 2014 to 2019, as it grows its number of locations to 30,000. We expect to see mid-single digit comps in the Americas over the next four years, margin improvement in EMEA, and aggressive store growth in the China/Pacific region. Additionally, we think the company can gain share in packaged coffee channels, due to its new, distinguished product offerings and logistics advantage. Finally, we expect that the introduction of new products -- such as the La Boulange bakery offerings and even alcohol in the evenings -- to its domestic locations could help grow average ticket prices. There's a lot to like here, and at just 25.0x forward estimates, the stock trades at a fair valuation, in our view. Our target is $88.

SunTrust Banks (STI:NYSE; $41.95; 2,800 shares; 4.27%; Sector: Financials): The stock climbed higher this week, as commentary from Fed Chair Janet Yellen talked up the US economy, a clear positive for financial stocks. Even if rates remain lower than expectations, a gradual rise will go a long way for STI's Net Interest Margins. That said, we continue to like the stock for reasons other than NIM improvement -- continued expense reduction, diversification of revenue sources, including further growth in its investment banking operation -- and increased capital return to shareholders. With regard to the last point, the company's CEO commented last week at an industry conference that SunTrust planned to increase its capital ask for the 2015 CCAR process, so it is likely that buybacks and dividends will be increased in the first half of next year. Expectations remain somewhat low for the current quarter, as NIM will remain low, but if the company can continue to exhibit cost savings and strong mortgage origination performance to offset this, shares should see a valuation catch-up to those of STI's competitors in the regional space. Our target is $45.

United Technologies (UTX:NYSE; $115.59; 1,125; 4.72%; Sector: Industrials): Shares recouped all of the minor declines seen late last week that followed the announcement of lowered 2015 estimates. Into the rally, we trimmed back the position (it's up $15 straight points) to lock in gains, but still like the long-term story, the potential changes under the new CEO and CFO, and a sum-of-the-parts analysis which gets us to $140. Some of the strength this week in shares can be attributed to Boeing's (BA) 25% dividend increase and new $12 billion share repurchase plan. The announcement was a strong vote of confidence that the aerospace cycle has not yet peaked. Positive commentary reinforced that view -- a clear positive to UTX. Shares are flat for the year, and still trade at about 5% discount to their April YTD high. At just 15.6x forward estimates, we still see upside. Especially since the new CEO indicated likely higher cash distribution and an evaluation of all of its businesses. Our target is $120.


Bank of America (BAC:NYSE; $17.62; 5,000 shares; 3.2%; Sector: Financials): Shares returned to the mid-$17s this week, climbing more than 3% in Wednesday's trading session alone, along with other financials, following favorable U.S. economic data commentary from Fed Chair Janet Yellen. Clearly, for the stock to really take off, interest rates need to move higher. We don't see a big move in 2015, but a gradual one. That said, we do believe a stronger economy will lead to higher loan growth, stronger capital markets/M&A and more cash generation. In addition, we see less of a drag from the legal front. Shares are near our target so we'll leave this as a Three, but we are inclined to stick with this name and our other financials into 2015, with upside likely should rates rise. Plus, the stock remains relatively cheap at 1.1x Px/TBV, especially compared to the top competitors in the money-center segment, JPMorgan Chase (JPM) (1.3x) and Wells Fargo (WFC) (2.0x).

Eaton (ETN:NYSE; $69.16; 1,600 shares; 4.02%; Sector: Industrials): The stock rose 3% this week and is up 17% from recent October highs. We trimmed the position to right size it. We continue to like the non-residential construction space. November's Dodge Index of Construction showed another month of strength at 143 vs. 127 m/m and 117 y/y, with total constructions spending rising 21% y/y, led by the non-residential portion at +30% y/y. Non-residential is 60% of total earnings and along with stronger aero, auto and truck, the company should continue to perform well. Offsets are from hydraulics and Europe. We wouldn't be surprised to see the company announce another restructuring to offset these offsets, and we expect a significant cash distribution announcement in mid-2015. For those reasons, and our bullish view on non-residential construction, we'll hold onto this position, recognizing CEO Alexander Cutler needs to continue to execute in this "show me" story. That, plus it trades at just 13x earnings and yields 3%.

Vale (VALE:NYSE; $8.14; 3,400 shares; 1.01%; Sector: Materials): It was a positive week, with the stock rising 13% from recent lows as bottom fishers picked at shares and tax-loss selling abated. We trimmed the position into strength. The materials group rallied along with oil prices as well. The stock remains oversold, and we intend to wait until it achieves a reasonable valuation before selling the position, which is intentionally small. It trades at 5x EBITDA, and management has just sold a stake in its non-core coal assets to further strengthen its balance sheet. The 17% yield certainly won't stay there, but a cut is already anticipated and we expect an IPO of its base metals division to act as a backstop for a reasonable dividend going forward.

Walgreen (WAG:NYSE; $73.23; 1,150 shares; 3.06%; Sector: Healthcare): We downgraded the stock to a Three last week and trimmed part of the position, locking in some of our 18% gains. We still like this story for the long term, viewing many ways to win: new management, Alliance Boots synergies, margin upside as it sees better size/scale and execution, and activism interest from Jana Partners. Shares have had a nice run from the lows seen when the tax inversion decision was reversed. But we see enough catalysts ahead to stick with this one -- especially since it's lagged its largest rival, CVS Health (CVS), and trades at a discount.


Jim Cramer, Stephanie Link, and TheStreet Research Team

DISCLOSURE: At the time of publication, Action Alerts PLUS was long AAPL, ABBV, AIG, AXP, BAC, DG, DOW, ESV, ETN, FB, GM, GOOGL, JNJ, KMI, LEA, LULU, MCD, MRK, MS, MSFT, PNRA, RDS.A, SBUX, STI, TWTR, UN, UPS, UTX, VALE and WAG.

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We Like the Dollar General Story
Stocks in Focus: DG

With or without a Family Dollar tie-up.

12/19/14 - 02:05 PM EST
Paring Vale Stake, Adding to Two Names
Stocks in Focus: VALE, MS, UPS

We look to sell out Vale. We like Morgan Stanley's 2015 setup. UPS has meaningful positives.

12/19/14 - 01:59 PM EST
Taking Some Profits in Two Positions
Stocks in Focus: FB, LEA

We will lock in some gains in Facebook and Lear.

12/18/14 - 01:56 PM EST
Weekly Roundup

We did more selling than buying this week as the market bounced back sharply and we set up for 2015.

12/19/14 - 04:58 PM EST

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Action Alerts PLUS Holdings

Stocks we would buy right now

Symbol % Portfolio
AIG 3.24% Insurance
DG 2.24% Retail
DOW 4.25% Chemicals
ESV 2.41% Energy
KMI 3.63% Energy
LEA 3.83% Automotive
LULU 1.94% Consumer Non-Durables
MCD 2.37% Leisure
MRK 2.38% Drugs
MS 1.96% Financial Services
PNRA 4.21% Leisure
RDS.A 4.12% Energy
TWTR 1.89% Internet
UN 2.72% Consumer Non-Durables
UPS 3.22% Transportation

Stocks we would buy on a pullback

Symbol % Portfolio
AAPL 3.33% Consumer Durables
ABBV 2.21% Drugs
AXP 4.05% Financial Services
FB 3.77% Internet
GM 4.05% Automotive
GOOGL 4.44% Internet
JNJ 2.38% Drugs
MSFT 2.94% Computer Software & Services
SBUX 3.03% Leisure
STI 4.27% Banking
UTX 4.72% Aerospace/Defense

Stocks we would sell on strength

Symbol % Portfolio
BAC 3.20% Banking
ETN 4.02% Industrial
VALE 1.01% Metals & Mining
WAG 3.06% Retail

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