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Weekly Roundup

BY Jim Cramer and Stephanie Link | 07/11/14 - 06:26 PM EDT

The S&P 500 and Dow Jones Industrial Average gave up recent gains and fell nearly 1% for the week as several industry strategists were outwardly more cautious on the market in an otherwise slow week following the July 4 holiday. The tech-heavy Nasdaq fell nearly 2%, mainly on valuation concerns. With the S&P 500 trading at 17x forward valuation, stocks aren't "cheap" per se, but they are not overly expensive by historical standards, especially when interest rates have been this low. We've seen certain pockets of the market that are frothy (highfliers have retraced gains from spring declines), but we still see areas where there is value. We'd say the environment remains very much an individual stock- picking situation vs. a broad-based market valuation call, and we have been rotating into areas where we still see attractive valuations and further upside -- more of the late-cycle stocks (industrials, materials, and technology). In fact, we found two new positions to add to in the fund this week.

Earnings season officially began with Alcoa's (AA:NYSE) strong report and reiteration of global aluminum guidance, which was encouraging. It was driven by continued strength in aerospace, truck, and auto end-markets. We have ample exposure to these themes (Boeing, United Technology, Cummins, Johnson Controls, General Motors) and continue to like our holdings. Costco (COST:Nasdaq) also reported strong June sales (at a two-year stacked comp basis of up 12% in the U.S. and 16% internationally) and both American Airlines Group (AAL:NYSE) and United Continental (UAL:NYSE) raised earnings guidance on stronger-than-expected demand.

But consistent with this "inconsistent" economy, there were a few noteworthy disappointments. Gap (GPS:NYSE) sales were weaker than plan, The Container Store (TCS:NYSE) earnings missed, and both Lumber Liquidators (LL:NYSE) and Tractor Supply (TSCO:Nasdaq) disappointed on earnings results and guided lower. Wells Fargo (WFC:NYSE) was the first of the big banks to report and we found both positives (8% annualized loan growth) and negatives (higher expense growth) for a neutral report, though management commentary was more positive about the trends in the economy than last quarter.

We await the many companies to post next week (see the list that we are watching below) and reserve judgment until we hear what each have to say. But we have been encouraged with the recent economic data points in ISMs, PMIs, auto sales, and pockets of the housing sector. We believe overall earnings should improve to 6% with an improvement to the top line -- something we haven't seen in many quarters. We also expect stronger guidance as visibility has improved, especially given the strong M&A news. We still have a cyclical bent and the new names in the portfolio this week actually make us even more so.

This week we did more selling than buying to raise some cash and take some gains. Specifically, we trimmed Yum! Brands (YUM:NYSE), Cummins (CMI:NYSE), Apple (AAPL:Nasdaq) and Johnson Controls (JCI:NYSE) and we sold out of Celgene (CELG:Nasdsaq) -- all for gains. We added two new positions in Freeport-McMoRan (FCX:NYSE) and Eaton (ETN:NYSE) and increased our position in Oracle (ORCL:Nasdaq), where expectations on all three remain fairly muted. We had no ranking changes this week.

Earnings will heat up next week with 124 S&P 500 companies reporting, about a fourth of the total index. Key reports include Citigroup (C:NYSE), Goldman Sachs (GS:NYSE), JPMorgan (JPM:NYSE), Yahoo! (YHOO:Nasdaq), Abbott Labs (ABT:NYSE), U.S. Bancorp (USB:NYSE), eBay (EBAY:Nasdaq), Morgan Stanley (MS:NYSE), Yum! Brands (YUM:NYSE), M&T Bank (MTB:NYSE), IBM (IBM:NYSE), Google (GOOG:Nasdaq), General Electric (GE:NYSE), Honeywell (HON:NYSE), and Johnson Controls (JCI:NYSE). Suffice it to say, we'll learn quite a bit next week and we will keep you posted.

Next week, the economic calendar heats up again and our focus is on retail sales, industrial Production, NAHB the survey and consumer sentiment, as well Japan, Europe and China's industrial production figures. A detailed list follows:

Economic Data (All Times ET)

U.S.

Tuesday (7/15)

Retail Sales, June estimates 0.6% (08:30)

Import Prices, June estimates 0.3% (08:30)

Empire State Survey, July estimates 17.00 (08:30)

Business Inventories, May estimates 0.6% (10:00)

Wednesday (7/16)

PPI, June estimates 0.2% (08:30)

TIC Data, May (09:00)

Industrial Production, June estimates 0.3% (09:15)

NAHB Survey, July estimates 50 (10:00)

Beige Book (14:00)

Thursday (7/17)

Initial Jobless Claims (08:30)

Housing Starts, June estimate 1.02 million (08:30)

Philadelphia Fed Survey, July estimates 15 (10:00)

Friday (7/18)

Consumer Sentiment prelim, July estimates 83.3 (09:55)

Leading Indicators, June estimates 0.5% (10:00)

International

Monday (7/14)

Japan Industrial Production, May (00:30)

EC Industrial Production SA, May(05:00)

Tuesday (7/15)

China Retail Sales, June estimates 12.5% (22:00)

China Industrial Production, June estimates 9.0% (22:00)

China GDP, 2Q estimates 7.4% (22:00)

BoJ Monetary Base Target, July

Wednesday (7/16)

ECB Trade Balance SA, May (05:00)

Thursday (7/17)

ECB Construction Output, May (05:00)

ECB CPI, June (05:00)

Friday (7/18)

ECB Current Account SA, May (04:00)

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

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We also want to be sure you're not confused about the terminology that Jim uses on his "Mad Money" television show: When you hear Jim refer to the "charitable trust" on "Mad Money", he is talking about the trust that holds the Action Alerts PLUS portfolio. The winnings from Action Alerts PLUS go to charity after the close of each trading year.

Here's the quick guide to the rating system, too: Ones are stocks we would buy right now, Twos are stocks that we'd buy on a pullback, Threes are stocks we would sell on strength and Fours are stocks we want to unload as soon as my trading restrictions allow.

ONES

Boeing (BA:NYSE; $128.09; 900 shares; 4.10%; Sector: Industrials): Shares were under pressure this week despite better-than0expected earnings guidance from a few of its customers in American Airlines Group (AAL:NYSE) and United Continental (UAL:NYSE). Also, the company secured a 150- plane order with Emirates for the 777X. This adds nicely to the backlog, which is already at a record. The overriding issue is the viability of the Export-Import Bank given recent support to close the organization by incoming House Majority Leader Kevin McCarthy. As we've written, the total loans driven to Boeing have declined over the last several years to 18% of total from 30% in the peak, and we believe financing would get picked up in the private sector. That said, the timetable isn't until Sept. 30, so there will be an overhang on the shares until then. We like the replacement cycle story in the aerospace long term, Alcoa (AA:NYSE) reaffirmed as much in guidance for 8% to 9% growth in this end-market for the full year. And with 7.5 years of backlog (including Airbus) and market share gains in the 737 and 787 lines, we believe the company is positioned right for the long term. We'll remain patient. Near term the next catalyst is the July 14 Farnborough International Airshow and we are expecting positive order news from the company and would not be surprised to see the shares recover some of the 8% declines seen recently. Our target is $145.

Cigna (CI:NYSE; $93.36; 900 shares; 2.99%; Sector: Healthcare): We remain upbeat on the position given its attractive valuation relative to peers and its strong long- term earnings growth. Management was confident in business trends at recent conferences and it reiterated long-term earnings growth in the low teens, with high single-digit organic growth combined with share repurchases. As the fundamentals strengthen, we see increased cash distributions to shareholders, namely in the form of further (larger) dividends and share buybacks. The shares remain cheap at 12x earnings, which is a double-digit percentage discount to peers and unwarranted. Our target is $103.

Dow Chemical (DOW:NYSE), $51.60; 2,000 shares; 3.67%; Sector: Chemicals): We added to the position this week on the pullback, although we see shares remaining in a tight range until earnings are reported later this month. Analysts have been lowering estimates over the last few weeks following DuPont's (DD:NYSE) negative preannouncement on weaker Ag results. We believe this is well understood, as are the ethylene/benzene outages, and believe the more important factor for near-term performance will be updates on the restructuring/asset sales. Having just spent the last two years rightsizing the company and identifying the non- core businesses, the next leg up will be the asset sale execution. So any news on this front should be viewed positively. In the meantime, input costs are falling, we get the 2.8% dividend yield and an activist holding the company's feet to the fire act as support while we await the next announcement. Our target is $65.

Eaton (ETN:NYSE, $77.82; 650 shares; 1.8%; Sector: Industrial): We got back into the position this week as we've seen several data points that non-residential construction is at an inflection point. While the large gains won't be seen until second half 2014, data from Dodge Momentum, a proprietary Cleveland Research report and an acceleration to 7.5% growth in non-residential sales vs. 2.5% q/q at Fastenal (FAST:Nasdaq) pushed us to get back into the stock. ETN derives 60% of its revenue from non- residential construction. We also like its auto, aero and truck exposure. We could see a spin/sale of its vehicles division by year's end and believe there will be an underlying bid on shares given its Ireland domicile. Our target is $89.

Facebook (FB:Nasdaq; $66.34; 1,400 shares; 3.30%; Sector: Technology): Shares were volatile this week, along with the rest of the high-momentum/beta stocks. There was no new information to cause the action and we expect the shares to be volatile until the company reports earnings July 23. Analysts are looking for $0.32 per share in earnings and $2.8 billion in revenue. Of course, mobile monetization will be the key for shares. We do see a strong quarterly report, especially after recent comScore data showed strong penetration in usage growth on a month-over-month basis, solid pricing, and better video monetization. We believe the huge installed base of 1.2 billion positions the company more favorably vs. other social media stocks and at 45x earnings remains attractive relative to its 50% top- and bottom-line growth potential. Our long-term target remains $75.

Freeport-McMoRan (FCX:NYSE, $38.71; 1,550 shares; 2.14%; Sector: Materials): We added this to the fund as we see shares bid higher on inflation hedging and on its strategy to diversify into a new end-market of energy. The restructuring news is exciting as the company finds faster end-market growth, better margins and, again, more diversification, especially since copper assets are getting harder to find and mine. The company has a structurally low cost base, which is an inherent competitive advantage that we believe it will instill in its energy operations. Trading at 4.8x EBITDA and paying a 3.3% dividend yield, we like the risk/reward. Our target is $47.

General Electric (GE:NYSE; $26.55; 3,290 shares; 3.11%; Sector: Industrials): It was another quiet week for the stock and investors are awaiting the 2Q earnings on July 18. Consensus estimates are for $0.39 per share in earnings and $36.3 billion in revenue. More important will be organic growth, which last quarter beat consensus at 8%. Also, we'll be watching the backlog growth, margins and any updates with respect to the recent Alstom joint venture. Management hasn't provided new accretion estimates following the changes to the structure and we are expecting around $0.05 to $0.10 per share to the bottom line following year one. We like the aggressive actions being taken at GE to get back to a nearly pure play in the industrial segment, which should lead to a higher multiple over time. The valuation is at 15x forward estimates and with the 3.2% yield and recent insider buying, we believe shares are poised to work higher into the end of the year. Our target is $32.

Google (GOOGL:Nasdaq; $586.65; 175 shares; 3.65%; Sector: Technology): Shares were volatile this week with the higher growth/momentum stocks down for most of the week. We moved this to One last week in hopes to add to the position, but we were restricted for most of the week. We continue to watch the name and believe the low expectations for 2Q set up the stock favorably on a risk/reward basis. The report date for is 2Q is July 17 and analysts are expecting $6.25 per share in earnings and $15.6 billion in revenue. As is usually the case with this stock, operating leverage will be watched carefully -- operating margins, gross margins and earnings leverage. Longer term, we were encouraged by the company's recent developers' meeting with the introduction of several new Android products, which included a new Android OS named "Android L," Android Auto, Android TV, Android Wear and Google Fit. Clearly, the company is building out its ecosystem to better compete against Apple (AAPL:Nasdaq) and others and we applaud the strategy. Shares trade at an attractive 18 multiple on forward earnings, which is attractive relative to the group and its 20% top- and bottom-line growth. Our target is $645.

Johnson & Johnson (JNJ:NYSE; $105.10; 620 shares; 2.32%; Sector: Healthcare): We expect a strong quarter Tuesday the 15th following recent IMS data. The information showed solid growth at several of the company's newer drugs like Olysio and Invokana in the pharmaceutical portfolio (which accounts for 40% of total sales) and see $0.02 to $0.03 per share of upside in the quarter because of the better-than-expected trends. For 2Q, we expect total sales will likely come in at 6% y/y growth to $18.8 billion driven by higher Pharmaceutical growth, which now looks to come in at 12% vs. prior 11% at $7.5 billion. We expect Medical Devices to grow at 2% y/y growth to $7.1 billion, and Consumer should remain flat y/y at $3.6 billion. Earnings are pegged at $1.54. The company beat consensus last quarter, which was led by the pharmaceutical units but also stabilization in the medical tech division (42% of sales). We will be listening for any color on margin stabilization in the medical device division and their take on the recent M&A activity in this sector. Shares have been on a nice run year to date but we see further upside as it delivers on the new drug pipeline and cost efficiencies throughout the organization. We wouldn't be surprised to see a spinout of the consumer unit and/or a new buyback program in the near term. Our target is $115.

3M (MMM:NYSE; $144.31; 550 shares; 2.82%; Sector: Industrials): Shares were flat this week even after an upgrade by a boutique firm, which cited the balanced portfolio, strong cash flow and increased international exposure as reasons for a positive stance. We agree completely with the move and now await its 2Q results, slated for July 24. Consensus estimates are for $1.91 per share in earnings and $8.08 billion in sales. Commentary from management at recent conferences were bullish about overall business trends, the 3% to 6% organic revenue growth for the year, and the strategy in its Emerging Markets execution, with the company targeting 40% to 45% exposure by 2017 in this region vs. 30% currently. Over time we believe this will lead to higher growth and a premium multiple. Given the consistent results, strong balance sheet and improving dividend yield, we believe shares should trade at a premium to the group. We continue to look for buying opportunities. Our target is $160.

Marathon Oil (MRO:NYSE; $39.14; 2,450 shares; 3.41%; Sector: Energy): Shares were flattish this week even with the decline in oil prices. We like the fact that this is a special situation oil story, one that is shrinking its asset base through asset sales in non-core regions and using the cash to focus on the faster U.S. shale plays, buybacks and, eventually, dividend increases. It should also lead to better production growth, which should lead to a higher multiple. In a way this story reminds us a lot of the Occidental (OXY:NYSE) story two years ago. So, while the catalysts near term are limited, we expect the 2Q to be in line and the company to focus on executing its restructuring story. The company reports August 4. Our target is $45.

Oracle (ORCL:Nasdaq; $40.13; 2,100 shares; 3%; Sector: Technology): We added to the position this week and believe at the current valuation of 13x forward estimates that the stock remains attractive. The quarter did little to change the bulls or the bears, with 23% y/y Cloud revenue growth and the second consecutive growth quarter for hardware being the positives offset by flat software applications. We believe the company is set to see acceleration in all of its business lines in fiscal 2015, and with $39 billion in cash, it will continue to use the money to buy back shares, increase its dividend and find M&A to help the revenue and earnings growth story. We also think the company is in a good position to benefit from stronger capex budgets later this year. Our target is $48.

SunTrust Bank (STI:NYSE; $39.85; 2,300 shares, 3.26%; Sector: Financials): Shares fell slightly this week and we continue to watch it to add on a bigger pullback. Next week there will be multiple data points from bank company earnings, and we believe STI is positioned as one of the best for faster loan growth and expense savings to help offset the NIM pressure. We were encouraged with the 8% annualized loan growth from Wells Fargo this week and believe STI will post similar growth in its 2Q on July 21. Earlier this week the company announced that it settled with the U.S. Attorney's Office of the Western District of Virginia over past mortgage practices and will take a 2Q charge of $204 million, as indicated in its 10Q. The company will offset this charge with a $105 million gain from the sale of RidgeWorth Capital. Core earnings were unchanged at $0.73per share. We like that the company is taking efforts to remove these regulatory overhangs and that it is ahead of its peer group in this effort. Fundamentally, we like the story given its strong foothold in the faster growing Southeast markets. New management, aggressive cost-cutting efforts and a strong balance sheet are other reasons to like the stock. Our target is $45.

United Technologies (UTX:NYSE; $114.13; 875 shares; 3.55%; Sector: Industrials): Shares were under pressure again this week and we added on the pullback. We like that it has multiple levers for growth: the U.S. construction recovery, global aerospace strength, and stabilization in its defense business. At its recent analyst meeting in China, the company was upbeat about its market-share growth in this region, especially the HVAC segment, which is slated to grow double digits and increase its market share to 7% from 6% of the overall revenue mix to low double digits. We expect double-digit earnings growth, strong management execution and the buyback program to support shares ($1 billion for 2014, with $665 million remaining). It is nearing our buy level currently. Our target is $135.

Xilinx (XLNX:Nasdaq; $48.25, 1,850 shares; 3.18%; Sector: Technology): Shares acted well in the decline this week and look like they've stabilized in the mid-$40s. Management is still in "show me" mode following a disappointing gross- margin performance last quarter (posting 67.6% vs. the 68% to 70% guide), but the 15% drop from recent highs has a lot of bad news already priced in. Plus, at recent conferences, management has been upbeat on its business trends and reiterated its comfort in achieving the 68% to 70% target for the full year given improving mix. We see further strength in the communications end-market (49% of sales) driven by 4G deployments in China and North America, and the Industrial and auto end-markets (30% of sales) have also seen a recovery. Overall, we like that expectations remain low for the firm and we believe it will work higher driven by the LTE build-out. Our target is $56.

TWOS

Anadarko Petroleum (APC:NYSE; $104.78; 650 shares; 2.42%; Sector: Energy): Shares fell slightly this week -- not unexpected given the 32% rally year to date. We continue to like the recovery story now that Tronox and Macondo lawsuits have been removed. Now investors can focus on the production growth story, its quality assets globally, and 15% discounted valuation to its peers. In addition to above- average production growth expected going forward, we see the company continuing to find ways to return cash to shareholders via buybacks and dividends. Even though shares have had a strong move off the lows, the valuation remains attractive long term at 8x EBITDA. Our target is $115.

Bank of America (BAC: NYSE; $15.38; 6,300 shares; 3.45%; Sector: Financials): The stock will continue to trade in a tight range until the company reports earnings and provides any color on its CCAR capital plans. The other overhang is the mortgage settlement with the government, but there was no progress during the week. Next week the company will report earnings on the 16th and estimates are for $21.6 billion in revenues and $0.29 per share in earnings. In addition to capital allocation updates, we will be looking for an improvement in NIM and NII (we expect that to be down sequentially, but better than the underperformance last quarter), cost takeouts, and whether the company was able to continue taking market share in capital markets/Investment Banking (as has been the case over the last few quarters). We also expect its mortgage results to show improvement following strong results at Wells Fargo (WFC:NYSE) on Friday and continued momentum in its Global Wealth Management unit. Offsetting these items will be the pressures from FICC, which is an industry-wide issue, the NIM declines and legal costs. A mixed bag for sure, but trading at 1.1x TBV we believe many of these issues are known and we like the fact that expectations have come down significantly since last quarter. Our target is $18.

Costco (COST: Nasdaq; $118.01; 650 shares; 2.73%; Sector: Consumer Discretionary): The company reported 6.3% core June same-store sales and 12% in the U.S. and 16% Internationally on a two-year stacked basis. The product strength throughout the company was across the board in hardlines, softlines, Food & Sundries, and even a rare improvement in consumer electronics, which likely was helped from the recent news that it was selling Apple products for the first time since 2010. The strong results are a stark contrast to the declines seen at Wal-Mart and Target, as well as many others throughout the industry. This speaks to its strong products, the compelling business model with 75% membership fees, and excellent management execution. Shares trade at a premium to the group but rightfully so given the superior returns. We will continue to trade this core position and buy in the low $110s and trim it back in the low $120s. Our target is $124.

Cummins (CMI:NYSE; $152.23; 350 shares; 1.9%; Sector: Industrials): Shares were downgraded one notch by Goldman Sachs this week, still leaving it as a Buy (off the Conviction List). As we indicated last week, we were looking to take profits and did so this week, locking in our 20% profits. We still like the story and it will remain a core position in the fund given strong truck trends and CMI's dominant market share. Both ACT Research and Ward's industry data both posted strong June Class 8 trends, which supports a 300,000 SAAR for the year and confirms earnings estimates for the company, showing the momentum has continued from the strong first half of the year. Separately, the company raised its dividend 25% and added a new buyback authorization program of $1 billion, signaling confidence and visibility in its business. With just 7% debt/cap expected by the end of 2015, there is more leverage to be had here and we expect further upside to these programs going forward. Our target is $165.

Ensco (ESV:NYSE; $53.27; 1,700 shares; 3.22%; Sector: Energy): Shares trended lower this week along with the energy sector as West Texas Intermediate fell 1% and Brent crude declined 4% for the week tied to the stabilization in Iraq and the Ukraine. The Middle East political situation remains fluid and given such, we expect overall oil prices to remain generally elevated in the near term. The CEO of ESV has often said that as long as Brent remains above $80per barrel, their customers will continue to spend on new technologies, which should benefit rig manufacturers like ESV. The stock has fallen 15% from highs on the increased supplies in the deepwater market, and we like the risk/reward, especially for a company with superior technology, a strong balance sheet, and 5.8% dividend yield. We were encouraged by the recent fleet status report which showed a much higher rig day rate for its Angola rig at $650K/day vs. the $400K-$450K/day expectation from Total (TOT:NYSE). This supports our view that when the demand returns, ESV will benefit with its superior product. We continue to like this contrarian play, its $2 billion buyback, superior quality platform and valuation at 7x EBITDA. Our target is $58.

General Motors (GM: NYSE; $37.95; 3,200 shares; 4.32%; Sector: Consumer Discretionary): The company announced a new head of the Cadillac division in efforts to spark sales of this premium division. Johan de Nysschen was the former head of Infiniti and Audi USA and has an excellent reputation for quality, design and innovation. We continue to believe that as the recalls dissipate, investors will focus on the fundamentals, which have held up well considering the negative press. We believe 2Q will be strong excluding the $1.2 billion recall charge, driven by strong market share, sales and pricing power. The company also will continue to focus on cost discipline and we believe there will be positive operating leverage in the next few quarters, with 2Q being the inflection point. GM reports on July 24. Our target is $50.

Goldman Sachs (GS:NYSE; $164.80; 650 shares, 3.81%; Sector: Financials): Shares gave up some ground this week as analyst continued to refine their numbers into the 2Q report Tuesday. Analysts are looking for $3.05 per share in earnings and $7.9 billion in revenue. We like the low expectations into the release and believe that strong M&A will offset weakness in FICC, which will be seen industry- wide. M&A is around 18% of total revenues, but along with ancillary businesses that will benefit and higher fees, this is roughly 50% of total. With M&A volumes up 75% y/y and on a dollar basis up 154% y/y, the setup for this segment looks very positive for the company. June trading data points have suggested a mild pickup, and this will undoubtedly be a key focus for investors to see if we are in fact at the trough for this segment. We continue to like the story, the valuation at 1.3x TBV and exposure to a recovering economy and higher volumes. Our target is $176.

Johnson Controls (JCI:NYSE; $50.73; 1,900 shares; 3.43%; Sector: Industrials): This week the data points were positive for non-residential construction from the Dodge Momentum report, a proprietary Cleveland research survey, and Fastenal's (FAST:Nasdaq) earnings report. Dodge posted the highest figure for non-residential activity of the year at 178, Cleveland indicated pockets of construction strength from multifamily, hospitality and commercial demand, and FAST posted a 14% sales growth figure with 7.5% growth in non-residential construction sales (vs. 2.9% last quarter). JCI has more institutional exposure, which will lag commercial, we but believe we are beginning to see an inflection in growth and the set up in 2015 is positive. We continue to like the new CEO's efforts to expand into non- residential/building efficiency markets and in becoming a multinational industrial company. This should lead to a higher multiple over time. We trimmed this back to lock in gains but it remains a core holding. The company reports earnings next Friday the 18th and analysts are at $0.83 per share in earnings and $10.9 billion in revenue. Our target is $60.

JPMorgan Chase (JPM: NYSE; $55.80; 1,000 shares; 1.99%; Sector: Financials): The company reports next week, which we expect to be mixed: stronger loan growth, fairly steady NIM offset by weak FICC/trading results. The stock has been in a trading range since last quarter's 1Q miss, which was the first bottom line miss in 2.5 years, mainly due to higher legal expenses and muted results across most of its businesses. Much of it, we think, was the fact that the company was under a lot of stress tied to the regulatory settlements, a distraction that it brought on senior management. With the bulk of the issues behind it, we see a much better report this quarter (on expenses and market share) and expect a second half 2014 recovery for the stock. It rarely trades at a discount to the group given its superior balance sheet, returns, and market share trends, but at current levels, it does by 15%. And at 1.3x TBV it is well below its historical average of 1.9x. While regulatory rule changes likely mean it won't get back to the 1.9x TBV valuation, we do see the discount to the group narrowing over time. We will monitor the CEO's health issue, but for now it seems manageable and the company has a deep bench to carry the weight in the short and medium term. Our target is $60.

Macy's (M: NYSE; $58.11; 1,100 shares; 2.27%; Sector: Consumer Discretionary): Shares traded down this week following a number of disappointing same-store sales reports that continue to show the fickleness of the consumer. Management recently met with investors and the body language was good. We expect a snapback to same-store sales in 2Q with more normalized weather, a strong product offering and benefits from its OmniChannel strategy. Shares are down 7% from recent highs and trade at a very attractive 12.7x forward multiple. We'll remain patient on the position, but the next catalyst is likely its 2Q earnings report Aug. 13. We see few catalysts in the near term to get the stock out of this trading range. Our target is $64.

Nike (NKE: NYSE; $77.29; 970 shares; 2.67%; Sector: Consumer Discretionary): We continue to like the stock following its strong fiscal 4Q, where it beat on earnings by $0.03 per share, revenues by $1 million and expanded margins by 170 bps. The operating leverage was a positive highlight as well and should lead to a higher move in the stock over the coming weeks. This has been a big sticking point for investors in the past. North America's futures orders were 11%, Emerging Markets at 25%, and Europe at 19% and all were impressive. China looks to be turning the corner, with sales up 2% (vs. declines seen in the last year) and 6% futures orders. China could easily be the next leg higher for the stock as the inventory issues have dissipated. We believe this could serve as the catalyst to re-rate the stock going forward. Our new target is $84.

Occidental Petroleum (OXY:NYSE; $100.48; 550 shares; 1.97%; Sector: Energy): Shares were flattish despite oil falling for the week. We got the first details of the California Resource Company management decisions and while nothing was too surprising in terms of the leadership movement, we view the news as another confirmation that the deal gets done by the end of the year. This is important for the company with its "shrink to grow" strategy, using proceeds to focus on U.S. Permian Basin assets and the production growth to accelerate. While the delays in its MENA assets could take longer than expected, we still believe a piecemeal operation will take place and that the company will receive $8 billion to $9 billion in additional proceeds to buy back stock and deploy its growth strategy. We will remain patient, collecting the 3% dividend, ahead of further asset sales/divestments. Our sum-of-the-parts valuation remains at $115, showing substantial upside. Our target is $115.

Stanley Black & Decker (SWK:NYSE; $85.89; 1,150 shares; 3.51%; Sector: Industrials): Shares have traded in a tight range since reporting its last quarter, and while the company produced an earnings beat, it still remains in "show me" mode after surprising the Street last year with a 30% miss. We like the mix of business at the company with 50% CDIY, and it benefitting from the residential/non- residential construction trends. We also believe the industrial segment will continue to see upside (28% of total revenue) and that the security division (22% of revenue; the problem being in Europe security, which is 10% of total sales) will either be fixed or sold. We also don't rule out small tuck-in M&A in the medium term. Shares have run up from the low $80s following its earnings beat last quarter and should it pull back to the low $80s, we'll add. Our target is $95.

U.S. Bancorp (USB:NYSE; $43.18; 2,200 shares, 3.38%; Sector: Financials): The stock was upgraded this week after being downgraded last week. We continue to like the regionals vs. the money centers given the leverage they have to higher loan growth and we were encouraged with Wells Fargo's 8% Q/Q annualized loan growth results this week. USB has always produced higher loan growth than the group, but in recent quarters it has also seen elevated expenses. This will be the sticking point with investors when the company reports on July 16. At recent conferences, the company was upbeat about the loan growth and operating leverage potential as it reduces expenses and integrates its small, recent deals. We expect management to continue to focus on cash return to shareholders, proving this recently with its 6.5% dividend increase. We like the risk/reward in the low $40s and the fact that the stock seems to be off the radar of investors. Our target is $48.

THREES

Apple (AAPL:Nasdaq; $95.22; 820 shares; 2.78%; Sector: Technology): We trimmed back the position slightly this week, locking in profits. Over the last few weeks, the sentiment has shifted with several target price bumps on the second-half product cycle story. While we remain bullish on the products coming out, it also has become consensus view at this time, so we pared back and will watch for a larger pullback to buy back. It remains a core position, especially at the current 13x valuation, $151 billion cash hoard ($172 per share) and the new product cycle story with the iPhone 6 and possible iWatch (which was rumored this week to be in production by November). We'll leave it as a Three for now if it runs up into the July 22 print.

Hartford Financial (HIG:NYSE; $36.37; 2,350 shares, 3.04%; Sector: Financials): We continue to like the story of improving profitability, streamlined businesses and shareholder returns via further buybacks and dividends. We believe the new management team will continue to focus on these initiatives. The stock valuation remains attractive as well at 0.8x tangible book value. But we believe the "easy" money has been made with much of the cost cuts and reorganization complete, and we see few catalysts. With the stock near our target, it remains a Three and we'll likely continue to scale back at the $36 level. The company reports on July 30.

Yum! Brands (YUM:NYSE; $82.35; 800 shares; 2.34%; Sector: Consumer Discretionary): Several analysts raised targets this week on the stock on improved business momentum at Taco Bell and easy comparisons in China KFC. The company reports next week on July 16 and expectations are for $0.74 per share and $3.2 billion in sales. This would be 28% y/y earnings growth and would be acceleration from 25% in 1Q -- doable given 1Q had 1x headwinds, China's profitability will likely continue to show improvement and margin expansion, and Taco Bell's breakfast introduction. The shares remain a Three because the stock has rallied 22% from recent lows, which is why we recently trimmed it. We still view this as a core position, however.

Regards,

Jim Cramer, Stephanie Link, and TheStreet Research Team

DISCLOSURE: At the time of publication, Action Alerts PLUS was long AAPL APC BA BAC CI CMI COST DOW ESV ETN FB FCX GE GM GOOGL GS HIG JCI JNJ JPM M MMM MRO NKE ORCL OXY STI SWK USB UTX XLNX and YUM.

Adding to Eaton and Freeport-McMoRan
Action: ETN, FCX

We're seeing improving fundamentals that should support both companies.

07/11/14 - 11:03 AM EDT
Adding to Two
Action: DOW, FCX

We are taking advantage of the market selloff to build up two positions.

07/10/14 - 03:48 PM EDT
Building Up Three Holdings on the Pullback
Action: FCX, ETN, ORCL

Amid the broader downturn, we're adding to Freeport McMoRan, Eaton and Oracle.

07/10/14 - 12:03 PM EDT
Weekly Roundup

We did more selling than buying this week as earnings season began in earnest.

07/11/14 - 06:26 PM EDT

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