This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Jim Cramer's Action Alerts PLUS

Weekly Roundup

By Jim Cramer and Jack Mohr | 07/31/15 - 06:01 PM EDT

The market ended a busy week of earnings with all three major indices higher. Treasury yields were down as investors bought into the bond market, the dollar ended almost at the same level against the euro as the beginning of the week, gold finished roughly flat after a rally on Friday and both West Texas Intermediate (WTI) and Brent crude oil continued their decline.

Second-quarter equivalent earnings continued this week and have been relatively strong, with 64.5% of companies surprising to the upside thus far. Within the portfolio, Twitter (TWTR), Express Scripts (ESRX), Eaton (ETN), MasterCard (MA), Facebook (FB), Starwood Hotels (HOT) and Occidental Petroleum (OXY) reported earnings.

Twitter reported a top- and bottom-line beat for the second quarter, with earnings per share of $0.07 coming in $0.03 above consensus and revenue of $502 million (up 61%, year over year) beating consensus estimates of $481.3 million. Advertising revenue totaled $452 million (90% of revenue), an increase of 63% year over year, and mobile advertising revenue was 88% of total advertising revenue. The company raised its 2015 revenue guidance to $2.20 billion to $2.27 billion from $2.17 billion to $2.27 billion, above consensus of $2.20 billion. EBITDA guidance for the year was also raised to $520 million to $540 million from $510 million to $535 million. However, despite the juicy headline figures, the company reported disappointing user growth.

Express Scripts posted a nice beat and raise for the quarter, with second-quarter EPS of $1.44 coming in $0.04 ahead of consensus and revenue of $25.45 billion slightly below consensus of $26.15 billion. Meanwhile, management raised its 2015 EPS guidance to $5.46 to $5.54 from $5.37 to $5.47, representing growth of between 12% and 14% vs. last year. Gross margins in the quarter of 8.6% beat consensus by a full 20 basis points, while adjusted EBITDA per adjusted claim of $5.59 fell short of $5.73 consensus. We exited this position this week.

Eaton posted disappointing second-quarter results on Wednesday, with EPS of $1.16 vs. consensus of $1.13. Revenues came in a little light at $5.37 billion (down 6.8% year over year), below consensus of $5.49 billion. Importantly, organic revenue declined 1%, but segment margins were up 15.8% (up 120 bps from 1Q). Disappointingly, all of Eaton's segments posted worse sales numbers year over year. Aside from the lackluster results, Eaton also issued lower guidance for 3Q and 2015, with expected EPS of $1.00-$1.10 for 3Q below consensus of $1.30 and 2015 EPS of $4.40-$4.60 (down from $4.65-$4.95) less than consensus of $4.74. The company also noted, to our dismay, that it does not expect further strengthening in its business over the rest of the year. We exited this position this week.

MasterCard reported second-quarter 2015 EPS of $0.85, which was roughly in line with consensus, but realized softer-than-expected revenue of $2.39 billion (revenue increased 1% vs. consensus expectations for 2% growth). That being said, revenue would have grown 7% in constant currency. Operating expenses rose 9%, with ten points of growth related to acquisitions, partially offset by a four-point FX benefit and operating margins declined 350 basis points to 54.9%. Overall, MasterCard’s in-line quarter was overshadowed by reported revenue growth that disappointed compared to Visa (V), due primarily to faster rebate and incentive growth (MA up 21% vs Visa up 5%). We exited this position this week.

Facebook reported a top-and- bottom-line beat for the quarter, with revenues of $4.04 billion ahead of consensus for $3.99 billion, and EPS of $0.50 $0.03 above expectations. Revenues grew 39%, year over year, which was 50% in constant currency. Importantly, advertising revenue was $3.827 billion (up 43%, y/y, and would have been 55% in constant currency), of which mobile ad revenue made up 76%, up from 62% in the year-earlier period. The company also reported daily active users (DAUs) of 968 million on average (+17% y/y, above 958 million consensus), mobile DAUs of 844 million on average (+29% y/y), monthly active users (MAUs) of 1.49 billion (+13% y/y, above 1.48 billion consensus), and mobile MAUs of 1.31 billion (+23% y/y, in line with consensus).

Starwood reported second-quarter 2015 results above consensus and guidance, with EPS of $0.84 coming in $0.10 ahead of consensus and above guidance of $0.70 to $0.74. EBITDA of $311 million was 5% above consensus and higher than guidance of $290 million to 300 million. Fees and timeshare results were in line with guidance, while stronger owned results, lower-than-expected G&A/interest expenses and lower taxes boosted results. With respect to deals, during the quarter, Starwood sold The Gritti Palace for $117 million (or $1.4 million per key), The Phoenician for $400 million ($622,000 per key), and the Element Denver Park Meadows for $15.5 million ($126,000 per key). Asset sales to date have totaled $566 million (vs. the $800 million expected this year).

Occidental Petroleum was the last company in our portfolio to report second-quarter results this week, with adjusted EPS of $0.21 coming in $0.02 below consensus, and revenue of $3.47 billion missing calls for $3.65 billion. Much of the earnings miss was due to the effect of a higher-than-expected international-tax rate that led to an effective tax rate of 65%, whereas many analysts were looking for 55%. In the oil and gas segment, the exploration-and-production company reported that the quarter's total year-over-year production grew 78,000 barrels of oil equivalent per day (up 13%) to 658,000 barrels. Performance in the Permian Basin was the real driver of success for the quarter, with oil production growth of 78% year over year. On a quarter- over-quarter basis, domestic production grew 2.3%, Latin America production grew 5%, and Middle East/North Africa (MENA) production was up 1.4%.

On the economic front, the U.S. Department of Commerce reported on Monday that new orders for durable goods (which are products designed to last at least three years -- computers, cars, etc.) rose 3.4% in June, compared with estimates for a 3.2% increase and better than the revised 2.1% decline seen in May. Excluding the volatile defense sector, durable goods orders rose an even larger 3.8% for the month. The increase of orders for long- lasting manufactured goods snaps a two-month streak of declines, largely on the back of transportation equipment orders, which were up 8.9%. Overall, new orders for durable goods are down 2.0% year over year. More encouragingly, “Core” orders, which are nondefense capital goods excluding aircraft and a key proxy for business investment on equipment and software, increased 0.9% in June after falling 0.4% in May.

The National Association of Realtors reported on Wednesday that the pending home sales index fell 1.8% in June when estimates had been for a 0.9% gain. The drop marks the first decrease in the index this year. The index had risen 0.9% in May to 112.6. That being said, sales are still 8.2% higher year over year. The bearish figure for the housing market comes a week after the existing home sales announcement showed an increase of 3.2% in the month of June, likely due to the anxiety over the anticipated rise in interest rates. Overall, it seems that pending home sales are being pressured by the competition for existing houses, which remained stiff in June as supply for homes continues to run short. The demand for home sales is certainly still strong, but buyers are deciding whether to hold off until an increased supply lowers the historically high prices in the market.

On Thursday, the U.S. Department of Labor reported that initial jobless claims for the week ending July 25 were 267,000, a 12,000 increase from the prior week's number, but still below expectations of 270,000. The four-week moving average for claims (which is used as a gauge to offset volatility in the weekly numbers) fell 3,750 to 274,750. Claims have now remained under 300,000 -- the psychologically important threshold typically used to determine whether an economy is experiencing robust expansion -- for 21 straight weeks. The low figure is consistent with the Federal Reserve’s statement this week that claimed the market has shown “solid” job growth. The economy added 223,000 jobs in June, so we will be looking to the comprehensive jobs report next week for to see if the consistently low jobless claims figures in July coincide with strong hiring for the month.

The Commerce Department also reported on Thursday that the initial reading for second-quarter GDP came in at +2.3%, below expectations for 2.6% growth. That being said, the release did show that economic growth accelerated in the quarter as consumer spending increases seemed to offset the drag from weaker business spending on equipment. The department also released another revised figure for first-quarter GDP, which showed that GDP actually rose at a 0.6% rate compared to the previously reported 0.2% decline. The revision seems to reflect some actions taken by the government to refine their seasonal adjustments, which had been called into question earlier in the year.

Importantly, consumer spending expanded at a 2.9% rate after 1.8% in the first quarter. Overall, consumers finally seemed to open up their wallets this quarter to spending the additional savings built up from cheap gasoline prices over the last year or so. The strengthening labor market also contributed to consumer willingness to spend more money shopping. The change in consumer sentiment is important to the economic recovery and timing of the rate hike as consumer spending accounts for more than two-thirds of U.S. economic activity.

In addition, a firming housing market supported growth in the quarter, as did exports along with state and local government spending. These positives, however, were offset by the declines in the energy sector, which continued to weigh on the economy as it struggles with spending cuts due to the nosedive in crude oil prices over the last year.

Although economic growth slightly missed expectations, it did show steady momentum that could provide the Fed with the data it needs to justify a rate hike later in 2015.

On the commodity front, WTI crude experienced another volatile week, at points dropping below the $47 mark. WTI started the week in line with its recent downward trend, but shot up over 3% following bullish news released on Wednesday, which indicated a surprise drop in oil inventories by 4.2 million barrels. However, bearish news emerged on Friday that showed that OPEC production hit 32 million barrels per day in July, which was up 140,000 bpd from June and 31.25 million bpd for the quarter, about 3 million bpd more than daily demand. As the month comes to a close, WTI is headed toward realizing its worst monthly drop in seven years. Aside from the overproduction issues, the market also remains worried about oil demand in China, which is currently one of the world’s most important consumers of the commodity.

With respect to our portfolio, this week we initiated positions in Bank of America (BAC) (and added to it later) and Kraft Heinz (KHC); added to our positions in Dow Chemical (DOW), Occidental Petroleum (OXY), EOG Resources (EOG) and Marathon Oil (MRO); trimmed our stakes in General Motors (GM), Wells Fargo (WFC), and Thermo Fisher Scientific (TMO); and exited our stakes in Eaton (ETN), MasterCard (MA) and Express Scripts (ESRX).

On Bank of America, we view now as the right time to get back into the name, and believe the company has the potential to realize an incredible amount of inherent earnings power. We recognize the importance of financial names in order to leverage a rising rate environment and wanted to diversify beyond Wells Fargo (WFC) and Morgan Stanley (MS).

We believe the upside in KHC will be driven by accretive acquisitions over the next several years. 3G Capital, which has backed the merger of the two original companies, thinks big and is not likely to be satisfied with Kraft and Heinz alone. Its partnership with Warren Buffett’s Berkshire Hathaway (BRK.B) gives it significant firepower to make acquisitions.

On OXY, EOG, and MRO, we remain confident in the fundamentals of our energy names and have strategically added to our positions in order to lower our cost bases as we await a resurgence in the oil market.

As for DOW, we were perplexed by last Friday's continued slide in share price and believed it was more a result of the broad-based selloff across cyclicals than incremental pessimism following Thursday's mixed results. We remain comfortable in the story ahead of the anticipated fourth- quarter completion of the Olin sale, which will provide a nice $5 billion or more cash windfall, which can then be used to aggressively buy back shares.

We trimmed our GM position into strength as the stock was trading higher largely in sympathy with Ford's (F) quality earnings report earlier this week. While we were pleasantly surprised by GM’s solid quarter, we took the opportunity to sell closer to our cost basis.

On TMO and WFC, we remain confident in both names moving forward, but decided to take some profits on the names (both were up 7% from our cost basis) following their solid earnings reports. In addition, we took this was an opportunity to dial back our stakes in two of our larger names in order to build the cash to allocate to some new names.

Lastly, we exited our positions in MA, ETN and ESRX following their earnings reports this week. We were disappointed with ETN's quarter and decided it was time to get out of a Three-rated name on which we had remained cautious and pessimistic. MA's quarterly report was also less than spectacular and we wanted to lock in the remaining profits we could on the name. On ESRX, we wanted to distance the portfolio from the potential risk associated with the recent health care consolidations.

Second-quarter earnings continued this week and remained strong. Total second-quarter earnings growth is 1.7%; excluding financials, that growth is 0.9% vs. expectations at the beginning of the season for a 2.8% decrease. Revenues are decreasing 1.7% vs. expectations at the beginning of the season for a 4.10% decline. The results have been solid across the board with 64.5% having beaten expectations, 32.7% missing the mark and 2.8% in line with consensus. The telecom services, health care, consumer staples and industrials sectors have led the strong performance. Materials, utilities and energy have posted the worst results so far in the S&P 500.

Next week, 18.2% of the S&P 500 is set to report earnings. Key reports include portfolio holdings Tyson Foods (TSN), Allergan (AGN), Halyard Health (HYH), EOG Resources (EOG), Energy Transfer Partners (ETP), Marathon Oil (MRO), and WhiteWave Foods (WWAV).

Other companies reporting include: Array Biopharma (ARRY), Boardwalk Pipeline (BWP), Clorox (CLX), CNA Financial (CNA), Columbia Pipeline Partners (CPPL), Diamond Offshore Drilling (DO), Frontier Communications (FTR), Loews (L), NiSource (NI), Noble Energy (NBL), ON Semiconductor (ON), PPL Corp. (PPL), Vanguard Natural Resources (VNR), Texas Roadhouse (TXRH), Tenet Healthcare (THC), RSP Permian (RSPP), Omega Health (OHI), Luminex (LMNX), KBR (KBR), Kona Grill (KONA), EarthLink (ELNK), Denny’s (DENN), Cognex (CGNX), Chegg (CHGG), BioMarin Pharmaceutical (BMRN), Avis Budget (CAR), American International Group (AIG), Allstate (ALL), Advanced Energy (AEIS), Aetna (AET), Ametek (AME), ANI Pharmaceuticals (ANIP), Cabot (CBT), (CRCM), Coach (COH), Cobalt International (CIE), CVS Health (CVS), Emerson (EMR), Harman (HAR), Hyatt Hotels (HEP), Kellogg (K), Mallinckrodt (MNK), MGM Resorts (MGM), Momenta Pharmaceuticals (MNTA), Norwegian Cruise Line (NCLH), NRG Energy (NRG), Office Depot (ODP), Regeneron (REGN), Sabre (SABR), Sagent Pharmaceuticals (SGNT), Scripps Networks Interactive (SNI), Sprint (S), Time (TIME), W.P. Carey (WPC), Zoetis (ZTS), Activision Blizzard (ATVI), American States Water (AWR), Aqua America (WTR), Cerner (CERN), Convergys (CVG), DreamWorks Animation (DWA), Etsy (ETSY), First Solar (FSLR), Genworth Financial (GNW), HomeAway (AWAY), LeapFrog (LF), Lending Club (LC), Masimo (MASI), Oasis Petroleum (OAS), Papa John’s (PZZA), Pioneer Natural Resources (PXD), Potbelly (PBPB), Tanger Factory Outlet (SKT), Walt Disney (DIS), Zillow (Z), American Superconductor (AMSC), Ariad Pharmaceuticals (ARIA), Chesapeake Energy (CHK), Cognizant Technology (CTSH), Discovery Communications (DISCA), DISH Network (DISH), Famous Dave’s (DAVE), Kate Spade (KATE), Lumber Liquidators (LL), Martha Stewart (MSO), MarkWest Energy (MWE), Motorola Solutions (MSI), Perrigo (PRGO), Ralph Lauren (RL), Priceline (PCLM), SodaStream (SODA), Spark Therapeutics (ONCE), Time Warner (TWX), Valero Energy Partners (VLP), Vitamin Shoppe (VSI), Voya Financial (VOYA), Wendy’s (WEN), Twenty-First Century Fox (FOXA), Alder Biopharmaceuticals (ALDR), American Water Works (AWK), C&J Energy (CJES), CBS (CBS), CenturyLink (CTL), Compass Group (CODI), Craft Brew Alliance (BREW), Energy Transfer Equity (ETE), Fitbit (FIT), FleetCor (FLT), GoDaddy (GDDY), Herbalife (HLF), Jack in the Box (JACK), Keurig Green Mountain (GMCR), SandRidge Energy (SD), Sunoco LP (SUN), Tesla Motors (TSLA), 3D Systems (DDD), Apache (APA), AMC Networks (AMC), Chemours (CC), Cinemark (CNK), Duke Energy (DUK), Energizer (ENR), GW Pharmaceuticals (GWPH), hhgregg (HGG), Magellan Midstream (MMP), Michael Kors (KORS), Molson Coors (TAP), Mylan (MYL), New York Times (NYT), Orbitz (OWW), Progenics Pharmaceuticals (PGNX), Rice Energy (RICE), SeaWorld Entertainment (SEAS), Swift Energy (SFY), Viacom (VIAB), Amtech Systems (ASYS), Boingo Wireless (WIFI), Bojangles’ (BOJA), Consolidated Edison (ED), Esperion Therapeutics (ESPR), Fleetmatics (FLTX), Galena Biopharma (GALE), Lions Gate Entertainment (LGF), Noodles & Co (NDLS), (OSTK), Pacific Drilling (PACD), RE/MAX Holdings (RMAX), Skullcandy (SKUL), TrueCar (TRUE), Cablevision (CVC), Harris (HRS), Groupon (GRPN), Hershey (HSY), Horizon Pharma (HZNP), (JD) and Berkshire Hathaway (BRK.B).

Economic Data (*all times EDT)


Monday (8/3)

Personal Income (8:30): 0.4% expected

Personal Spending (8:30): 0.1% expected

Markit US Manufacturing PMI (9:45):

Construction Spending MoM (10:00): 0.7% expected

ISM Manufacturing (10:00): 53.5 expected

ISM Prices Paid (10:00): 49.5 expected

Tuesday (8/4)

Factory Orders (10:00): 1.6% expected

Wednesday (8/5)

MBA Mortgage Applications (7:00):

ADP Employment Change (8:15): 210k expected

Trade Balance (8:30): $42.5B expected

Markit US Composite PMI (9:45):

ISM Non Manf Composite (10:00): 56.2 expected

Thursday (8/6)

Initial Jobless Claims (8:30):

Continuing Claims (8:30):

Bloomberg Consumer Comfort (9:45):

Friday (8/7)

Change in Non Farm Payrolls (8:30): 220k expected

Change in Manf Payrolls (8:30): 5k expected

Unemployment Rate (8:30): 5.3% expected


Monday (8/3)

Japan Vehicle Sales YoY (1:00):

Germany Markit Manufacturing PMI (3:55): 51.5 expected

Eurozone Markit Manufacturing PMI (4:00): 52.2 expected

UK Markit Manufacturing PMI (4:30): 51.6 expected

Japan Monetary Base YoY (19:50):

Tuesday (8/4)

UK Nationwide House PX MoM (2:00): 0.4% expected

UK Markit Construction PMI (4:30): 58.5 expected

Japan PMI Services (21:35):

Japan PMI Composite (21:35):

China PMI Composite (21:45):

China PMI Services (21:45):

Wednesday (8/5)

Germany Markit Services PMI (3:55): 53.7 expected

Germany Markit Composite PMI (3:55): 53.4 expected

Eurozone Markit Services PMI (4:00): 53.8 expected

Eurozone Markit Composite PMI (4:00): 53.7 expected

UK Markit Services PMI (4:30): 58.0 expected

Eurozone Retail Sales (5:00): -0.2% expected

Thursday (8/6)

Germany Factory Orders MoM (2:00): 0.15 expected

UK Industrial Production MoM (4:30): 0.1% expected

UK Manufacturing Production MoM (4:30): 0.1% expected

UK BOE Asset Purchase Target (7:00):

UK BOE Bank Rate (7:00): 0.50% expected

Friday (8/7)

Germany Industrial Production MoM (2:00): 0.3% expected

Germany Trade Balance (2:00): 20.3B expected

Germany Exports MoM (2:00): 0.0% expected

UK Trade Balance (4:30): -1650 expected

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 Jack Mohr make decisions about 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 @CramerAndMohr.

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; $331.15; 400 shares; 5.10%; Sector: Health Care): Allergan shares were up handsomely on the week after the company announced it would sell its generics drug unit to Teva Pharmaceutical (TEVA). The deal is worth $40.5 billion, $33.75 billion in cash and about $6.75 billion in Teva stock. This is an absolute monster deal for the health care company, which will now be able to completely de-lever and focus on its core branded business. By becoming debt free, Allergan will also afford itself the ability to make strategic acquisitions that can help bolster its already strong portfolio of branded names. While we do not believe Allergan was shopping around its generic franchise, being offered a 17x EBITDA multiple on a business in decline is all but impossible to pass up. With generic revenue growth slowing and consolidation trends driving up multiples for generic businesses, we believe the timing is optimal for Allergan to sell its generic business. Overall, we view the breakup as a clear mechanism for Allergan to unlock tremendous value and command a higher multiple on its higher-growth branded business. We raised our price target to $400 from $350.

Bank of America (BAC:NYSE; $17.88; 1,500 shares; 1.03%; Sector: Financials): We view now as the right time to get back into the name, and believe the company has the potential to realize an incredible amount of inherent earnings power. More specifically, we believe Bank of America has the potential to 1) grow revenues (the bank is already well on its way, with the intent of ultimately growing in excess of GDP); 2) return more to shareholders (increasing both return on tangible equity and capital payouts over time); and 3) become meaningfully more efficient, with an unrelenting focus to lower the expense base. We believe leverage to a rising rate environment is paramount in today's market. Our price target is $20.

Cisco Systems (CSCO:Nasdaq; $28.42; 2,750 shares; 3.01%; Sector: Technology): We see upside potential to Cisco’s current quarter (July) estimates driven by strength with U.S. and European enterprise customers. While emerging markets remain troubled (if not worse), we think these headwinds are largely accounted for in guidance. Similarly, we are not worried about FX headwinds as movements were modest this quarter. Our confidence in the story is also boosted by Cisco’s cost reduction initiatives, which suggest that new CEO Chuck Robbins plans to be more aggressive on costs and keeping Cisco more focused. Overall, we expect another quarter of solid momentum with a number of drivers supporting our positive outlook. We reiterate our $33 target.

Energy Transfer Partners (ETP:NYSE; $51.22; 2,300 shares; 4.53%; Sector: Energy): Two weeks back, Energy Transfer announced a series of transactions among its partnerships that we view as an overall positive for ETP. Specifically, ETP will sell $2 billion of retail assets to Sunoco (SUN) and exchange its interest in SUN’s incentive distribution rights (IDRs) to ETP. For ETP, the deal generates both discounted cash flow (DCF) accretion and de-leveraging benefits, while reducing its equity financing needs. We reiterate our $72 target.

EOG Resources (EOG:NYSE; $77.19; 1,450 shares; 4.31%; Sector: Energy): EOG shares surged this week in what appeared to be largely a relief rally. As a reminder, on its most recent earnings call EOG reiterated that it is not interested in accelerating oil production until prices improve to a sustainable level and is prepared to resume double-digit production growth in 2016 if prices stabilize at $65/barrel. For 2015, EOG expects a U-shaped production profile, with 2Q-3Q being the low point. We expect EOG to be able to bridge its funding gap via asset sales and additional borrowing. Our target remains $110.

Google (GOOGL:Nasdaq; $657.50; 150 shares; 3.79%; Sector; Technology): Two weeks ago, Google delivered exceptional second-quarrter 2015 earnings results that exceeded expectations and erased most bearish arguments. Investors were looking for three things for the quarter: solid revenue, strong margins and confidence-inspiring commentary from newly minted CFO Ruth Porat. We believe the company delivered above and beyond on each of these fronts as revenue accelerated and exceeded expectations (up 13.3% on a net basis vs. 12% consensus), margins were better than expected (33.6% vs. 31% consensus) and Porat's commentary made clear her embrace of balance- sheet management, expense controls and prioritized growth projects. Moreover, the core business -- search -- was strong (paid click growth was 30% on Google sites), mobile delivered (on mobile, YouTube reaches more 18- to 49-year-olds in the U.S. than any domestic cable network) and margins expanded on both a sequential and annual basis. We are thrilled with the results and have moved our price target up to $750.

Honeywell (HON:NYSE; $105.05; 1,100 shares; 4.45%; Sector: Industrials): HON shares were up nicely this week following the company’s announcement to acquire Elster, a division of London-based Melrose Industries, which provides thermal gas solutions, gas/water/electricity meters (including smart meters), and software analytics solutions, for $5.1 billion. The deal was met with excitement from the market as the company expects to generate double-digit return on investment (ROI) in year five and should realize more than 8% synergies (mainly on the cost side). Even better, the purchase could add $0.30- $0.40 per share to EPS starting in 2017 (about one-third of the promised $1.00 per share of external, incremental EPS by 2018). At the crux of the deal, management called out the importance of cementing Honeywell in the smart metering business -- a space in which Elster is the leader -- given the trends in data usage and analytics and continued environmental legislation. Overall, we applaud management's aggressiveness in acquiring the leader in a growing space of importance. Our target remains $115.

Johnson & Johnson (JNJ:NYSE; $100.21; 950 shares; 3.66%; Sector: Health Care): Earlier this week, analysts at Leerink hosted investor meetings with JNJ’s management team. The key takeaway was that Wall Street may be underappreciating the long-term growth trajectory, placing too much focus on near-term headwinds, which are likely quite manageable. It sounds to us like all three of JNJ’s businesses are on the path to improving growth - - to high single digits in pharma in the medium term and mid-single-digits in both consumer and medical devices & diagnostics over the short-term. JNJ management reiterated its goal to deliver above-market sales growth overall -- above the current 3%-5% broader health care market growth -- with slightly faster earnings growth, leaving room for fairly meaningful upside to Street expectations. We reiterate our $120 price target.

Kraft Heinz Company (KHC:Nasdaq; $79.47; 500 shares; 1.53%; Sector: Consumer Staples): In our view, 3G Capital's acute focus on cost savings and cash flow generation, not to mention its pragmatic approach to running a business, makes this a highly attractive consumer-staples stock to own. In fact, we believe 3G -- which has a successful history running consumer-staples companies -- will find substantial ($300 million-plus) upside to its $1.5 billion synergy projection as it becomes more familiar with the Kraft business (3G previously owned Heinz). Kraft's weak gross margin falls 500 basis points below its peer group and 800 basis points below Heinz's despite obvious scale advantages. Correcting gross margin inefficiency is right in 3G's wheelhouse due to its willingness to make tough decisions that incumbents have trouble swallowing. We also believe upside will be driven by accretive acquisitions over the next several years. 3G thinks big and is not likely to be satisfied with Kraft Heinz alone. Its partnership with Warren Buffett's Berkshire Hathaway (BRK.B) gives it significant firepower to make acquisitions. We point to Kellogg (K), General Mills (GIS) and perhaps even Mead Johnson (MJN) (to strengthen Heinz's nascent nutrition business) as potential targets. Assuming a 25% valuation premium, we believe its next acquisition could be nearly 30% accretive. Our target is $85.

Occidental Petroleum (OXY:NYSE; $70.20; 1,675 shares; 4.52%; Sector: Energy): Shares of Occidental traded higher this week on the back of a volatile week for WTI crude. As a reminder, the company reported second-quarter 2015 earnings this week, where it missed slightly on both revenues and EPS consensus estimates. Regardless of the slight disappointment, the company continues to distinguish itself through its superior Permian resources operations. The business unit continues to outpace the pack and now represents 17% of total production, well above its 10% contribution a year ago. Proof of Occidental's leading position in the area is the 10% decline in its U.S. operating costs, to $13/barrels of oil equivalent. This positive trend should continue as the company scales its operations and allocates more budget to the program (Permian was 47% of total budget in the first six months of the year). All in all, we were impressed with Occidental's ability to withstand the storm from weaker oil prices and continue its domination in the Permian Basin, which we see as a major driver for success moving forward. As we have repeatedly mentioned, the company maintains a best-in-class balance sheet and remains more attractive than its peers due its ability to generate free cash flow in excess of its quality dividend. Our target remains $86.

Target (TGT:NYSE; $81.86; 1,050 shares; 3.31%; Sector: Consumer Discretionary): Target runs three TargetExpress stores (two in California and one in Minneapolis, Minn.), with plans to add six more this year as it experiments with sizes and settings. We applaud the measured approach, and see opportunity for expansion over the next several years, allowing Target to access untapped urban and college markets. Recently, CVS (CVS) and Target announced plans to develop five to 10 TargetExpress stores over two years, each with a CVS pharmacy. We think this is a natural partnership as TargetExpress reminds us of newer, more upscale stores from CVS, Rite Aid (RAD) and Walgreens Boots Alliance (WBA). We acknowledge it will take considerable time for a small format to gain the scale necessary to move the needle for Target’s sales and earnings, but think that in the meantime, TargetExpress provides a positive brand halo, allows for testing products/concepts, especially with younger consumers, and serves as an omnichannel link in urban markets. Our target remains $100.

Thermo Fisher Scientific (TMO:NYSE; $139.53; 850 shares; 4.56%; Sector: Health Care): TMO shares traded higher this week as the market remained high on the name after its solid earnings report last week. As a reminder, TMO reported a top-and-bottom line beat last week and raised its guidance for the remainder of the year. The company continues to post great results, especially in its biopharma segment, where business is growing as the company’s strong value proposition resonates with its increasingly loyal customer base. In addition, TMO should continue to reap the benefits from its expanding margins moving forward as its best-in-class management team finds ways to keep costs down. That being said, we did trim our position this week as the stock was more than 7% above our cost basis. We remain confident in the name and our target is $160.

Tyson Foods (TSN:NYSE; $44.35; 2,600 shares; 4.44%; Sector: Consumer Staples): Tyson is scheduled to report third-quarter fiscal 2015 (September) EPS results Monday morning. We believe the key issues into the print include: 1) whether recent declines in bird prices were steeper and quicker than management anticipated; 2) how closely the prepared foods segment sales align with Nielsen data; 3) how much income was generated via Hillshire-related synergies; 4) whether management will continue to support 10%+ EPS growth expectations in FY 16; and 5) when the company expects the cattle herd to increase. We reiterate our $50 target.

Walgreens Boots Alliance (WBA:Nasdaq; $96.63; 700 shares; 2.60%; Sector: Health Care): We believe the company’s cost-cutting strategy is progressing well and continue to expect material upside to its $1.5 billion target. Management looks to be on the cusp of solving its longer-term competitive issues through M&A and partnerships. It now appears there is low earnings risk with the potential for "game-changing" strategic moves. We expect the stock to continue to move higher as the company provides further updates. Our $105 target is unchanged.

Wells Fargo (WFC:NYSE; $57.87; 2,000 shares; 4.45%; Sector: Financials): WFC shares traded roughly flat for the week. Two weeks ago, the company posted in- line earnings, with strong reserve release offsetting weaker fees. Net interest income also grew by more than $300 million for the quarter and net interest margin (NIM) expanded by two basis points to 2.97% despite expectations for a decline. Interestingly, this week, The Wall Street Journal reported that Wells Fargo surpassed Industrial & Commercial Bank of China Ltd. as the lender with the largest market value in the world. The increase in market value is due largely to the bank’s fairly simple business, in which it doesn’t focus on complex derivatives or risky trades using borrowed money. In addition, Wells remains the top player in U.S. mortgages. Overall, Wells remains a core holding to the portfolio and we are confident in the company’s prospects moving forward. We reiterate our $63 target.

WhiteWave Foods (WWAV:NYSE; $51.62; 2,600 shares; 5.16%; Sector: Consumer Staples): We remain bullish on the name ahead of next Friday’s earnings. We believe WhiteWave’s long-term growth outlook is compelling, especially compared to its plodding packaged good peers, given its leading/dominant brand share in almost every category, positive exposure to structural consumer shifts toward healthy eating, benefits from recent and future M&A, and potential for meaningful operating margin expansion. Our target remains $52.


3M Company (MMM:NYSE; $151.34; 700 shares; 4.08%; Sector: Industrials): Shares of 3M bounced back this week following the prior week’s decline that was driven by the company’s disappointing quarterly results. As a reminder, the company reported revenues that were down 5.5% year over year, and showed specific weakness in its electronics & energy segment. To add insult to injury, management also decreased its organic revenue guidance for the year. On a positive note, however, the company did proclaim its confidence in its business in Mexico, which currently boasts a 15% growth rate that it does not expect to slow down. In addition, 3M was very confident in its safety and graphics segment, which it views as its next breakout business, especially with its recent acquisition of Capital Safety. Our target remains $185.

Apple (AAPL:Nasdaq; $121.30; 820 shares; 3.83%; Sector: Technology): Apple stock continued to falter this week following the market’s disappointment in the company’s reported iPhone sales last quarter. However, we would note that the momentum of this iPhone cycle is actually stronger compared to those in the past. On a different note, news was released late this week that Apple is set to announce its next-generation Apple TV in September, which will be the product’s first refresh since 2012. The updated product should include a more recent chip that would improve the device’s usability and enhance the experience. On that front, it is also expected that the updated product will fix the current interface, which is more cumbersome than some of the competing products, notably Fire TV and Nexus Player. One of the possible additions would be integrating Siri’s capabilities to allow for voice queries and commands. The new Apple TV is expected to launch with third-party streaming services as the company hopes to sell as many devices as possible ahead of what many people believe will be an eventual launch of a new proprietary streaming service. While we are excited about Apple’s continued innovation and remain confident in the company’s ability to execute, we will look for more information on the product when the company decides to reveal specific details. Our target remains $150.

Dow Chemical (DOW:NYSE; $47.06; 1,500 shares; 2.72%; Sector: Materials): Shares of Dow Chemical were up nicely for the week following last week’s selloff. After a disappointing earnings report last week and a resulting decline in share price, analysts jumped in to defend the name as we expected. Although the second quarter was a mixed bag for Dow, we saw several green shoots, especially as the company was able to deliver meaningful margin expansion and an increase in EBITDA. Overall, we are still comfortable in the name and would remind subscribers that the expected fourth-quarter completion of the Olin sale should provide a significant catalyst as it will insert $5 billion or more of cash into the company, which can then be used to buy back shares aggressively. We reiterate our $60 target.

Facebook (FB:Nasdaq; $94.01; 1,300 shares; 4.70%; Sector: Technology): Facebook shares ended slightly down this week as the stock had run up into its earnings report but quickly declined afterwards. Overall, we were very impressed with the company’s quarter and do not view the selloff as a reflection of the company’s true performance. We continue to be impressed with user growth, and most importantly, engagement levels. Notably, daily active users (DAU) as a percentage of monthly active users (MAU) hit a record 65% in the quarter, which is roughly 50% higher than Twitter's (TWTR) dwindling DAU to MAU ratio. This is up more than 200 basis points from the same period last year with 13% more users, and Facebook is approaching 1 billion daily active users. Even better, Facebook users spend three-quarters of an hour per day on the platform -- a profound figure that the company can use as leverage with its already strong advertising base. The bottom line is that Facebook has nearly half of the world's online population engaged with its platform on a monthly basis, making it the most desirable place for advertisers to allocate their budgets, especially given the success of video. With solid user growth and ad revenue increases, we remain confident in this company moving forward. Our price target is $110 after raising it from $100 earlier this week.

Halyard Health (HYH:NYSE; $40.74; 3,150 shares; 4.94%; Sector: Health Care): Ahead of next Tuesday’s results, we believe sentiment has stabilized and continue to see meaningful long-term upside once the company fully completes its separation from Kimberly-Clark (KMB). Our bullish view is based on upside from low oil prices (that is an input cost for the company), accretion from future tuck-in acquisitions, meaningful R&D ramp, cost-cutting opportunities and geographic expansion. Our target remains $50.

Marathon Oil (MRO:NYSE; $21.03; 1,750 shares; 1.42%; Sector: Energy): We remain cautiously optimistic on Marathon, and believe the company is well positioned in this low oil price environment. If there is a recovery in oil prices, we expect MRO to sustain a higher level of drilling/well count/production in 2016 than is current reflected in consensus estimates. From a cash flow standpoint, we expect Marathon to sustain its 3% dividend yield through 2017. Despite this, we recently lowered our price target slightly, to $30 from $32, to reflect the stubbornly low oil price environment.

Morgan Stanley (MS:NYSE; $38.85; 1,250 shares; 1.87%; Sector: Financials): Shares of Morgan Stanley were down slightly this week on little news. Last week, the company reported a nice top-and-bottom line beat, but the stock has failed to sustain a meaningful rally over the last two weeks. That being said, its shares had ran up into the quarter, so the beat was likely priced in prior to the report. Overall, we were impressed by the company’s ability to attain a return on equity of 9.1%, moving closer to its 10% target set by CEO James Gorman. We remain confident in the company moving forward, especially as the Fed moves closer to a rate hike later in the year. Our target remains $50.

Starwood Hotels & Resorts Worldwide (HOT:NYSE; $79.46; 1,500 shares; 4.59%; Sector: Consumer Discretionary): Starwood shares were down this week following its earnings report on Thursday, when the stock had also ran up initially due to rumors surrounding a potential deal with Intercontinental Hotels (IHG), which ultimately ended up being false. That being said, shares of the hotel name primarily declined due to the company’s unwillingness to address its ongoing strategic review on the conference call. Despite delivering quarterly results ahead of consensus and guidance, investors were disappointed in the lack of visibility into the company’s strategic review, which remains one of the main reasons to invest in the name. In spite of our frustration, we firmly believe that Thursday's huge selloff was overdone. The fact that the company failed to provide a strategic update, while frustrating, does not mean it is not making progress. Year to date, Starwood has completed $566 million worth of asset sales, putting it on pace to exceed the $800 million 2015 target management previously put forth. Overall, while we do belief the selloff was overdone, in order for the shares to approach our $100 price target, the company must dispel the cloud of uncertainty; until then, we guardedly stick with our position. Our target is $100.


General Motors (GM:NYSE; $31.51; 800 shares; 0.97%; Sector: Consumer Discretionary): GM’s stock was up this week on little news, although investors seemed to jump on the name following Ford’s (F) solid earnings report. On top of GM’s surprisingly pleasant report last week, Ford’s positive numbers offered GM’s stock an additional boost. That being said, we do not want to take away from the company’s huge second-quarter beat, where it crushed consensus EPS. The company was able to post record profits in North America and contain its losses in Latin America on the back of strong execution. The Europe region also surprised, as the losses were the least damaging in years, and the company succeeded in the all- important China region. However, despite the satisfying quarter, we remain cautious on the name moving forward and will look closely into any opportunities to trim the name as we did earlier in the week. Our target remains $40.

Twitter (TWTR:NYSE; $31.01; 700 shares; 0.84%; Sector: Technology): Twitter shares were down sharply this week following a top-and-bottom line earnings beat that was overshadowed by unsatisfactory user growth and trends and an even more disappointing conference call. The initial enthusiasm behind the solid revenue and EBITDA beat quickly evaporated as CEO Jack Dorsey and CFO Anthony Noto offered a surprisingly blunt and candid assessment of the company's near-term user growth prospects, revealing that recent efforts such as Instant Timeline and curated Logged Off experiences have failed to ignite user growth or participation rates. Even worse, Twitter's daily to monthly active users ratio (DAU/MAU) had fallen 400 basis points, from 48% nine months ago to 44% currently -- a notion that Noto tried to dismiss by claiming the company doesn’t focus on daily active users. This is incredibly foolish, in our view, as DAUs demonstrate the highest form of engagement and the most attractive figure for advertisers. Again, while we think the long-term opportunity with this company is tremendous, we have to be cautious in the near term as the company remains plagued by its recent challenges (CEO search, user growth trends, etc.). We lowered our target earlier this week to $42.


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

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

Opening Wide for Food Stock, Adding to Bank Position
Stocks in Focus: KHC, BAC

We're initiating a position in Kraft Heinz and buying more Bank of America.

07/31/15 - 01:38 PM EDT
Starwood Hotels Has Become Oversold
Stocks in Focus: HOT

But uncertainty must be eliminated for the stock to advance.

07/31/15 - 06:35 AM EDT
We Aren't Worried About Facebook at All
Stocks in Focus: FB

In fact, we're raising our price target.

07/30/15 - 12:52 PM EDT
Weekly Roundup

It was another active week for the portfolio as we initiated two new positions and exited three others.

07/31/15 - 06:01 PM EDT

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community

Special Subscription Bundles

Want more than one service?
Sign up to one of our packaged services and take advantage of amazing savings!

Portfolio Plus Real Money Pro
Chairman's Club
Action Alerts PLUS checkmark | Portfolio Plus checkmark | Real Money Pro Portfolio checkmark | Chairman's Club
Stocks Under $10 checkmark | Portfolio Plus checkmark | Real Money Pro Portfolio checkmark | Chairman's Club
Growth Seeker checkmark | Portfolio Plus checkmark | Real Money Pro Portfolio checkmark | Chairman's Club
Dividend Stock
checkmark | Portfolio Plus checkmark | Real Money Pro Portfolio checkmark | Chairman's Club
Quant Ratings
checkmark | Portfolio Plus checkmark | Real Money Pro Portfolio checkmark | Chairman's Club
Real Money checkmark | Real Money Pro Portfolio checkmark | Chairman's Club
Real Money Pro checkmark | Real Money Pro Portfolio checkmark | Chairman's Club
Trifecta Stocks checkmark | Chairman's Club
Action Alerts
checkmark | Chairman's Club
Options Profits checkmark | Chairman's Club
Daily Swing Trade checkmark | Chairman's Club
Top Stocks checkmark | Chairman's Club
Quarterly Call
with Jim Cramer
checkmark | Chairman's Club
Started Now Started Now Started Now


Chart of I:DJI
DOW 17,689.86 -56.12 -0.32%
S&P 500 2,103.84 -4.79 -0.23%
NASDAQ 5,128.2810 -0.5040 -0.01%
TURBOCHARGE. Your Profits with Action Alerts OPTIONS!

Action Alerts PLUS Holdings

Holdings 1

Stocks we would buy right now

Symbol % Portfolio
Industry Trade Now
AGN 5.08% Drugs
BAC 1.03% Banking
CSCO 3.00% Computer Hardware
EOG 4.29% Energy
ETP 4.52% Energy
GOOGL 3.78% Internet
HON 4.43% Industrial
HOT 4.57% Leisure
JNJ 3.65% Drugs
KHC 1.52% Food & Beverage
MMM 4.06% Industrial
OXY 4.51% Energy
TGT 3.30% Retail
TMO 4.55% Health Services
TSN 4.42% Food & Beverage
WBA 2.59% Retail
WFC 4.44% Banking
WWAV 5.15% Food & Beverage
Holdings 2

Stocks we would buy on a pullback

Symbol % Portfolio
Industry Trade Now
AAPL 3.81% Consumer Durables
DOW 2.71% Chemicals
FB 4.69% Internet
HYH 4.92% Health Services
MRO 1.41% Energy
MS 1.86% Financial Services
Holdings 3

Stocks we would sell on strength

Symbol % Portfolio
Industry Trade Now
GM 0.97% Automotive
TWTR 0.83% Internet