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Jim Cramer's Action Alerts PLUS

Weekly Roundup

By Jim Cramer and the AAP Team | 2017-08-18 17:45:02.0

Markets had a volatile week, with political turmoil reaching new highs as easing geopolitical tensions with North Korea (resulting from North Korea pulling back its threats on Guam) could not offset last weekend's tragic events in Charlottesville, Virginia. As a result of dissatisfaction over President Trump's response to the incident, a number of CEO's walked away from his strategic advisory councils, starting on Monday with Merck CEO, Ken Frazier. By Wednesday, several other CEOs had followed in Frazier's footsteps, and both the strategic advisory and manufacturing councils were disbanded.

Also this week, minutes from the Federal Reserve's July meeting were released. The release suggested a mixed outlook among Fed officials regarding the next rate hike. In June, the Fed hinted at the possibility of raising interest rates for a third time this year. However, soft inflation numbers have caused internal debate as to the appropriateness of another hike. The FOMC remains split, as some officials believe another hike should not occur until there is confirmed data indicating inflation is on track to meet the Fed's 2% target, while others think the strong labor market could push inflation above 2%. We are remaining conservative and analyzing out investments with the view that, given the uncertainty, we will likely not see another hike this year.

Treasury yields were relatively flat this week as investors weighed strong earnings against political turmoil. Gold was also relatively flat as the dollar strengthened against the euro. Lastly, oil ended the week flat to slightly lower thanks to a strong bounce on Friday that erased much of the week's decline.

Second-quarter earnings have gotten off to a good start. In the portfolio this week, we heard results from TJX.


On Tuesday, TJX Companies (TJX) reported a top and bottom line beat for its fiscal year 2018 second quarter. The company reported revenue of $8.4 billion, which topped the consensus of $8.29 billion, while the company's EPS came in at $0.85, one penny higher than the consensus.

Importantly, TJX's same-store sales ("comps") increased 3% during the quarter, beating both the street consensus of 2.2% and management's guidance from last quarter. In addition, customer traffic increased in each division of the company, proving that TJX's off-price business model and discount merchandise selection continue to attract customers to its stores. Lastly, management slightly increased their forward guidance and indicated a lower range comp sales growth for next quarter, but we note that this may be a conservative estimate, similar to what they have guided in the past.

Turning to the economic front, on Tuesday, the commerce department reported that retail sales rose 0.62% in July, exceeding of expectations for a 0.4% increase and marking the largest one month jump since December of last year. On a year-over-year basis, sales are up 4.2%. Additionally, June's numbers were revised up to show a 0.3% monthly increase (verse a 0.2% decline previously reported).

Core retail sales (i.e. retail sales excluding autos, gas, building materials and food services) also jumped 0.6%, beating out consensus of 0.4%.

Digging deeper, motor vehicle and parts dealers saw a 1.2% monthly increase following a 0.9% rise in June. Building material and garden equipment/supplies dealers also saw 1.2% increase in July after rising 1.1% in June. Additionally, non-store retailers (i.e. eCommerce retailers) saw a 1.3% increase last month following a 1% monthly rise in June while department stores saw a 1% increase, bouncing back from a 1.3% decline in June. Slightly offsetting the positive results was a 0.5% decline in sales at electronics and appliance stores, a 0.4% decline at gasoline stations and a 0.2% decline at retailers of clothing and clothing accessories.

All in, the report is largely positive as retail sales (especially core retail sales) closely track a major component of GDP -- consumer spending. Recall, the Fed ideally targets GDP inflation of roughly 2%, and looks to readings such as this when weighing its decision on whether to hike rates, something investors are hoping the Fed will do once before the end of the year.

On Wednesday, the U.S. Census Bureau reported that housing starts fell more than expected in July, falling 4.8% month-over-month to a seasonally adjusted annual rate of 1.155 million, vs. expectations of a 0.4% rise to 1.122 million. On a yearly basis, starts are down 5.6%. Additionally, the bureau revised June's estimates down to 1.221 million from 1.22 million previously reported. The drop off in construction is somewhat concerning as a lack of supply has pushed sales prices to record levels in recent months and even pushed some would be buyers out of the market altogether.

Digging deeper, on a monthly basis, single-family housing starts fell 0.5% from June's revised levels while complexes with five or more units plunged 17.1%. By region, total housing starts fell in the Northeast, Midwest and West by 15.7%, 15.2% and 1.6%, respectively. The South was the only region to show a monthly increase, rising 0.6% from June's reading. Single-family homebuilding, which accounts for the largest share of the residential housing market, was up 9.8% in the Northeast and 2% in the South month-over-month. However, single-unit housing starts declined 7.4% in the Midwest and 4.3% in the West. On a yearly basis, total starts are up 14% in the Midwest and 6.8% in the West. Total starts are down 3.7% in the Northeast and a whopping 16.5% in the South.

Compounding the poor reading, building permits fell to a seasonally adjusted annual rate of 1.223 million, short of expectations of 1.24 million. The decline marks a 4.1% decrease from June's revised estimate of 1.275 million and may indicate that construction will be slow in regaining momentum in the months ahead. Total permits are up 4.1% from July of last year.

Digging deeper, permits for single-unit homes and complexes with two to four units were unchanged from last month's reading at 811,000 and 35,000, respectively, while permits for complexes with five or more units fell 12.1%. By region, on a monthly basis, total permits issued rose 19.2% in the Northeast. However, permits were down in the Midwest, South and West by 17.4%, 1.4% and 7.9%, respectively. Year-over-year, total permits increased 17% in the Northeast, 1.3% in the South and 14.1% in the West, while declining 9% in the Midwest.

On Thursday, the Federal Reserve reported that industrial production rose 0.2% in July, missing expectations for 0.3% increase. This follows a 0.4% increase in June. On an annual basis, industrial production is up 2.2%. The disappointing July result can be partially attributed to lackluster performance in the manufacturing index which declined 0.1% month-over-month, pulled down by a material decrease in the production of motor vehicles and parts, which fell roughly 3.5%. However, offsetting the motor vehicles decline was a 0.5% rise in mining output, which rose for the fourth consecutive month and a 1.6% jump in utilities. Excluding autos, the manufacturing index rose 0.4% last month.

Also on Thursday, the Department of Labor reported that initial jobless claims for the week ending August 12 were 232,000, a decrease of 12,000 claims from the prior week's unrevised numbers and 8,000 claims lower than expectations of 240,000 initial claims. Importantly, the four-week moving average for claims (used as a gauge to offset volatility in the weekly numbers) was 240,500, a decrease of 500 from last week's unrevised average. The low rate of layoffs reflects a strengthening labor market as claims have remained below 300,000 -- the threshold typically used to categorize a healthy jobs market -- for an astounding 101 straight weeks (compared with 128 weeks under the older seasonal-adjustment process, according to the updated data), the longest streak since 1970.

On the commodity front, oil moved sharply lower this week, breaking below the $47 level. Following a large selloff on Monday, resulting from weak demand data out of China, prices found support on Tuesday, following and American Petroleum Institute (API) report stating that crude inventories fell by 9.2 million barrels last week, the largest one week decline this year.

The rally, however, was short lived as the weekly report (released every Wednesday) from the U.S. Energy Information Administration (EIA) noted that the draw down in stockpiles (8.9 million according to the EIA), which roughly tripled expectations for a 3-million-barrel decrease, was more than offset by an increase in U.S. oil production. According to the EIA, U.S. crude production jumped to over 9.5 million barrels per day, an increase of approximately 79,000 barrels per day from the week earlier.

While we did get a small bump on Thursday and a larger up move higher on Friday, we are not betting on a sustained rally near-term and expect the sector to remain under pressure for the time being. There is simply too much oil production occurring throughout the world and any positive readings are met with extreme skepticism by investors as any recent up moves have proven to be short-lived. We will continue to monitor the situation and as always, update members as we learn more.

In the portfolio this week, we took advantage of post-earnings weakness to initiate a position in Nvidia (NVDA) . We also used Thursday's selloff to bulk up on several positions we've had our eye on including, Illinois Tool Works (ITW) , Eli Lilly (LLY) , and Nucor (NUE) . On Friday, we used the market pressure to our advantage, buying back shares of Southwest LUV that we had originally sold off when the stock was trading significantly higher.

On Wednesday, we used an up day to trim our position in Newell NWL to accomplish two goals: locking in a profit and reducing our exposure to the battleground retail sector.

We also took advantage of strength on Monday to exit our Wells Fargo (WFC) position, as the company has not been able to sustain any prolonged success without experiencing negative headline risk. As we said in our trade alert, each new development and update to the company's scandal has affected its reputation with the American public, and each time it has immediately caused the stock's share price to drop. Simply put, we feel that at this point the risk outweighs any potential reward.

Moving on to the broader market, second-quarter earnings are well underway and relatively positive vs. expectations, with 72.4% of companies reporting a positive EPS surprise. Total second-quarter earnings growth increased roughly 11% year over year vs. expectations for an overall 10.74% increase throughout the season; of the 401 non-financials that have reported, earnings growth is up 11.6%. Revenue is up 4.8% vs. expectations throughout the season for a 5.03% increase; 72.4% of companies beat EPS expectations, 18% missed the mark and 9.6% were in line with consensus. On a year-over-year comparison basis, 76.02% beat the prior year's EPS results, 2.36% came up short and 21.63% were virtually in line. Healthcare and information tech have had the strongest performance so far this year vs. estimates, whereas consumer staples, telecom and energy have posted the worst results in the S&P 500 thus far.

Next week, 18 companies in the S&P 500 will report earnings. In the portfolio, we will hear from Broadcom on Thursday after the close. Other key earnings reports for the market include: Baozub (BZUN), Zayo Group Holdings (ZAYO), Nordson (NDSN), Premier (PINC), Medtronic (MDT), Coty (COTY), Toll Brothers (TOL), Cheetah Mobile (CMCM), DSW (DSW), Daktronics (DAKT), ZTO Express (ZTO), (CRM), Intuit (INTU), La-Z-Boy (LZB), Lowe's (LOW), Royal Bank of Canada (RY), American Eagle (AEO), Express (EXPR), HP (HPQ), PVH (PVH), Williams-Sonoma (WSM), Guess? (GES), HEICO (HEI), CIBC (CM), Hormel Foods (HRL), J.M. Smucker (SJM), Burlington Stores (BURL), Patterson Companies (PDCO), Signet Jewelers (SIG), Michaels Stores (MIK), Tiffany & Co. (TIF), VMware (VMW), GameStop (GME), Ulta Beauty (ULTA), Brocade (BRCD), Marvell (MRVL), Autodesk (ADSK), Splunk (SPLK), Veeva Systems (VEEV)

Economic Data (*all times ET)


Monday (8/21)

Chicago Fed Nat Activity Index (8:30)

Tuesday (8/22)

FHFA House Price Index MoM (9:00)

Richmond Fed Manufact. Index (10:00): 10 expected

Wednesday (8/23)

MBA Mortgage Applications (7:00)

Markit US Manufacturing PMI (9:45)

Markit US Services PMI (9:45)

Markit US Composite PMI (9:45)

New Home Sales (10:00): 613k expected

Thursday (8/24)

Initial Jobless Claims (8:30)

Continuing Claims (8:30)

Bloomberg Consumer Comfort (9:45)

Existing Home Sales (10:00): 5.56m expected

Friday (8/25)

Durable Goods Orders (8:30): -5.7% expected

Durables Ex Transportation (8:30): 0.5% expected

Cap Goods Orders Nondef Ex Air (8:30): 0.3% expected

Cap Goods Ship Nondef Ex Air (8:30)


Monday (8/21)

Japan All Industry Activity Index MoM (00:30): 0.4% expected

Tuesday (8/22)

UK PSNB ex Banking Groups (4:30): 1.8b expected

Germany ZEW Survey Current Situation (5:00)

Germany ZEW Survey Expectations (5:00)

EU Agg ZEW Survey Expectations (5:00)

Wednesday (8/23)

Japan Machine Tool Orders YoY (2:00)

Germany Markit/BME Germany Manufacturing PMI (3:30)

Germany Markit Germany Services PMI (3:30)

Germany Markit/BME Germany Composite PMI (3:30)

EU Agg Markit Eurozone Manufacturing PMI (4:00)

EU Agg Markit Eurozone Services PMI (4:00)

EU Agg Markit Eurozone Composite PMI (4:00)

EU Agg Consumer Confidence (10:00)

Japan Nikkei Japan PMI Mfg (20:30)

Thursday (8/24)

UK GDP QoQ : 0.3% expected (4:30)

UK GDP YoY : 1.7% expected (4:30)

Japan Natl CPI YoY (19:30): 0.4% expected

Japan Natl CPI Ex Fresh Food YoY (19:30): 0.5% expected

Japan Tokyo CPI YoY (19:30): 0.3% expected

Japan Tokyo CPI Ex-Fresh Food YoY (19:30): 0.3% expected

Friday (8/25)

Germany GDP SA QoQ (2:00)

Germany GDP WDA YoY (2:00)

Germany GDP NSA YoY (2:00)

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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.


Abbott Laboratories (ABT) ; $48.74; 500; 0.91%; Sector: Healthcare -- Shares of Abbott Laboratories traded higher this week, greatly outperforming the overall market. On Monday, the company announced that it was extending its tender offer to acquire all outstanding shares of Alere's series B convertible perpetual stock. ABT is anticipating that its full acquisition of ALR will be complete by the end of next month, and we believe that this integration, along with its past St. Jude Medical deal, will be accretive for the company. In other news, on Tuesday ABT announced that they had signed a $252 million equipment service contract for the supply of analytical equipment and consumables. All in, we expect that the company's integrations and robust product pipeline will help them achieve the double-digit growth aspirations that management has continually targeted. We reiterate our $53 price target.

Activision Blizzard (ATVI) ; $62.01; 1400; 3.25%; Sector: Technology -- Shares pushed higher this week, bucking the overall trend of the market. Of the various video game companies to invest in, we selected Activision as we believe it to be the best positioned to take advantage of the growing eSports industry. In addition to a strong pipeline, including Call of Duty: WW2 and Destiny 2, we believe the company's efforts to establish an official eSports league for its highly successful Overwatch franchise will aid in establishing it as the go-to name for eSports. Thanks to its efforts to sell the rights to cities (comparable to traditional sports leagues), the company has aligned itself with established names in the sports world (such as Robert Kraft, Jeff Wilpon, and Stan Kroenke) who understand the intricacies and dynamics of such an industry. These strategic investors will help garner demand for events and bring eSports mainstream. Along with efforts to establish franchise teams, we believe the company's guaranteed baseline compensation ($50,000/year), healthcare and a retirement savings plan will enable it to attract the best players in eSports, leading to higher quality matches and thus more viewers. We reiterate our $68 target.

Allergan (AGN) ; $223.99; 550; 4.61%; Sector: Healthcare -- Shares continue to be pressured due to the company's ownership of TEVA stock, which was acquired following the sale of AGN's generic business to TEVA last year. As we noted last week, AGN does not plan to hold onto the shares long-term. However, the lockup period for AGN (the period during which the company could not sell its TEVA stake) expired within a few days of TEVA stock plunging on poor earnings, causing AGN to hold off on the sale until a better opportunity presents itself. In our view, the selloff has provided an attractive buying opportunity for those who find themselves underexposed to this high quality, growing pharmaceutical company. We maintain that AGN is the leader in facial medical aesthetics thanks to offerings such as Botox, Juvederm and Kybella and is quickly looking to become a key player in plastic/reconstructive surgery thanks to its acquisition of Zeltiq, the maker of CoolSculpt. Further out, we see upside resulting from the progression of the company's six "star" pipeline drugs, five of which are now in phase three trials. Outside of the TEVA stock ownership, the company is strong and operating efficiently, as validated by its solid quarter. We reiterate our $270 target.

Broadcom (AVGO) ; $249.37; 250; 2.33%; Sector: Electronics -- Shares pushed higher this week, ahead of next Thursday's earnings release after the bell. This week, analysts at RBC, who have designated Broadcom as a top pick, stated their belief that AVGO would exceed estimates and raise guidance. In line with our view, the analysts pointed to the iPhone 8 as a near-term catalyst. Recall, the company is expected to be supplying as many as eight chips for the new model. Outside of the new iPhone, AVGO is strongly positioned to take advantage of the growing demand for data thanks to its wireless and WiFi solutions. Turning to the upcoming report, we are eyeing sales of $4.46 billion with earnings of $4.03 per share. We reiterate our $290 target.

Cimarex Energy (XEC) ; $98.34; 900; 3.22%; Sector: Energy -- While the energy sector remains beaten down due to lingering concerns over the worldwide oil glut, shares of Cimarex pushed higher this week. Last week's top and bottom line earnings beat made it clear that management is doing what needs to be done to produce in the Permian. Following the release, shares jumped 7% and although we aren't out of the woods yet, we are confident that when oil turns, Cimarex will be ready to take advantage. We believe the key to Cimarex's better-than-expected quarter is management's financial discipline in not increasing production simply for the sake of growth. Rather, every decision to increase output is a result of an analysis of expected return on investment. We believe that as long as management keeps with its strategy, Cimarex can differentiate itself from the other names in the sector. That said, while the company is operating smoothly, we can not discount the fact that the overall sector continues to struggle. This is something that is constantly on our minds and a factor that is always taken into consideration when reviewing our energy positions, even Cimarex, a company that had arguably the best quarter of all those operating in the Permian. We reiterate our $150 target.

Comcast (CMCSA) ; $40.52; 2000; 3.03%; Sector: Consumer Discretionary -- Shares moved lower this week, underperforming the overall market. Following discussions with CMCSA management, analysts at Oppenheimer on Monday reiterated their view that shares remain undervalued. In line with our view, the analysts noted management's view of strength in the X1 platform as an aggregator of content from platforms such as YouTube and Netflix. This allows the company to benefit from the over the top (OTT) trend (and buffer against cord cutting) without being forced to heavily invest in original content. Additionally, analysts noted that management's top priority is broadband. We view this as the right mindset given the increasing demand for data and the fact that a move to OTT (think Netflix, Hulu, Amazon Prime), means a move to watching content delivered via the internet (broadband) as opposed to over traditional cable distribution. With higher definition content comes the need for faster data speeds. Additionally, given our belief that eSports will continue to grow (thus our Activision position) we believe the demand for higher internet speeds will also increase as gamers require faster speeds to play the newest online games. We continue to believe in Comcast's strategy of diversifying its business (via strategic moves such as recent investments into mobile) while paying constant and close attention to key segments that continue to grow in demand thanks to increased data consumption and an accelerating shift away from traditional cable offerings. We reiterate our $45 target.

Danaher (DHR) ; $80.87; 1150; 3.48%; Sector: Life Sciences -- Shares of Danaher moved higher this week as the medical equipment industry found some lift. With little specific news driving trading, the stock might have found a support level when it trends below $80. That being said, we expect shares can move higher once management can improve its lagging dental unit, the main driver of Danaher's core sales growth woes. We are being patient with Danaher due to management's track record of fixing struggling units. With this in mind, if management can turn around this business and have it perform closer to its fast-growing diagnostics or life sciences business, then we expect the stock will rise. We reiterate our $94 price target.

DXC Technology (DXC) ; $83.34; 1000; 3.12%; Sector: Tech Services -- Shares continued to move higher this week. Last week, the company reported earnings for its first full quarter since it was formed out of the merger of CSC and HPE ES back in April. Although the company came up short of sales expectations, management is executing effectively in its integration of the two companies and remains on track to realize its year-one target of $1 billion in cost savings. While one quarter does not represent a trend, our belief that management will be able to effectively execute on their synergy generating initiatives has been bolstered by the results. We maintain that for the time being, this remains a cost saving story as the company builds out its digital services and winds down its legacy assets and services. We reiterate our $89 price target.

iShares MSCI Eurozone ETF (EZU) ; $41.47; 1000; 1.55%; Sector: Europe -- Shares moved higher this week outperforming the S&P 500. Despite the euro move lower this week, we continue to view the euro as undervalued relative to the dollar and believe that the European economy is beginning to reaccelerate. In line with this view we will look for any pullback below our basis to increase our position and believe that current levels remain attractive for those who have yet to initiate a position. As we've mentioned previously, we have selected the EZU as it is an unhedged European ETF providing exposure to the euro currency (unlike the hedged version of the EZU, the HEZU) and the broader European market (without us potentially being tied to a sector or region that may be lagging the recovery) with little focus on the UK. We note, it is the lack of UK exposure that ultimately led us to select this ETF over others such as VGK, which holds over 25% of assets in UK based companies; there is simply too much uncertainty surrounding Brexit. Given that this is an ETF encompassing over 200 companies, we will not have a price target.

Eli Lilly (LLY) ; $77.07; 1450; 4.18%; Sector: Healthcare -- Shares of Eli Lilly fell about 5% this week, largely driven by the news that a competing product to the company's star Trulicity diabetes treatment medication reported superior results. Although it was known that the medication would produce a better baseline, the surprise to the street was the favorable effect of patients not developing retinopathy. While the news was discouraging, we note that analysts have not downgraded the stock, and many are keeping their estimates for the product due to potential pricing power and brand loyalty with medication. In addition, we must acknowledge that Eli Lilly has another chance to outperform against its competitors when Trulicity undergoes its next set of testing later next year. Despite the news being a knock to our thesis, we believe that LLY has a promising product pipeline that can launch just as successfully as what Trulicity did. We are looking for this pipeline that features drugs that specialize in arthritis, migraines, and breast cancer, to supplement Eli Lilly's already strong established franchise through its impressive ability to launch new products into the market and gain share. For that reason, we took advantage of the weakness in trading this week to add to our position (members can read more here). We reiterate our $93 price target.

Facebook (FB) ; $167.41; 1000; 6.26%; Sector: Technology -- Shares edged lower this week, but managed to outperform the overall market on relatively little news. We continue to see upside from current levels and believe that as the company further integrates its new video platform, FB will be able to draw in a larger portion of ad dollars originally reserved for traditional TV. Additionally, we believe the increasing amount of video content on the Facebook platform will allow the company to alleviate concerns of a slowdown in ad revenue growth as the newly created ad space can be formed without harming the user experience. Further out we see upside resulting from the company's push into virtual reality, which could be a game changer in terms of how people utilize the platform, hangout online, communicate with one another and share experiences. We reiterate our $175 target.

General Electric (GE) ; $24.55; 2350; 2.16%; Sector: Industrials -- Shares of General Electric continued to decline as the stock has not found any support in recent weeks. The company made a few deals this week that should help with its renewable energy business by partnering with Home Depot HD, and also an Australian wind farm, but these smaller deals did not move the needle. While we recognize how painful the stock has been so far this year, we know that new CEO John Flannery has the reputation of a turnaround artist during his time as head of GE Healthcare, so we are giving him some time in the hopes he can do the same for the whole business. With that in mind, we are evaluating where shares are headed, as we feel it may soon be time to become buyers again. We still feel confident in the long-term prospects of this storied company, and we believe that the CEO transition might be the event that turns the business around. We reiterate our $35 price target.

Alphabet (GOOGL) ; $926.18; 150; 5.20%; Sector: Technology -- Shares were down slightly this week, in line with the overall market. On Monday, we learned that Alphabet purchased Senosis Health, a Seattle-based startup focused on developing technology to turn smartphones into health monitoring devices. We view the move as positive and believe it will allow Google to increase its relevancy in the medical space and compete with the likes of Apple, which has also been looking to increase the medical applications of its smartwatch and was reported to have met with health insurance provider, Aetna, earlier this week. Shares remain under pressure resulting from concerns over rising advertising costs eating away at ad margins. However, we note that these rising costs are a result of an increasing adoption of mobile platforms by users. Although costs are up, volume has also increased to help offset the margin compression and increase results on the bottom line. Furthermore, the company is constantly making efforts to diversify its revenue stream away from online ad sales. Most notable is the company's autonomous driving Waymo unit. However, there are also the company's proprietary machine learning and artificial intelligence capabilities, YouTube, Google Cloud, and its hardware business that continues to engender loyalty to the Google brand via products such as the Google Home and Pixel smartphone (as well as the android operating system found on devices from various manufacturers). Shares appear to have put in a floor at around the $920 level and we view the current price as attractive for those who find themselves underexposed as we reiterate our $1100 price target.

Illinois Tool Works (ITW) ; $135.67; 500; 2.54%; Sector: Industrials -- Shares trended lower this week, underperforming the overall market. We took advantage of this weakness to increase our position and lower our basis. While concerns regarding the company's exposure to the auto and restaurant industry remain, we believe the company to be well enough diversified, both geographically and in terms of industry exposure, to hit its 2-4% organic growth targets. Additionally, we feel the company's 80/20 model (where management focuses on the 20% of customers that generate 80% of revenues) prevents it from becoming so diverse that it loses track of the real growth drivers. We reiterate our $170 target.

KeyCorp (KEY) ; $17.59; 2000; 1.32%; Sector: Financials -- Shares edged higher this week, outperforming the overall market. On Tuesday, we learned that KEY had entered into an agreement to acquire healthcare focused, investment banking and public finance firm, Cain Brothers & Co. According to management, the acquisition will "significantly expand Key's existing healthcare investment banking group in a core strategic vertical." Additionally, Cain Brothers' CEO, Rob Fraiman will be brought on to head the company's healthcare corporate and investment banking business. The move is in line with comments made by CEO, Beth Mooney on the company's recent earnings call, when she stated that the company would continue "to look across our organization and make strategic investments that will drive future opportunities." We are excited by the news as it will aid in building the company's growing investment banking division, which had a record first quarter earlier this year and has helped in differentiating KEY from other regional bank peers. Pending regulatory approval, the transaction is expected to close by the end of the year. We continue to believe KEY to be a best-in-class operator with a strong management team. Given the highly successful integration of First Niagara, which has already resulted in $400 million in synergies and is expected to produce another $50 million in ealry-2018, we are confident that management will be able to smoothly and successfully integrate Cain Brothers. That said, we remind members that much of the near- to mid-term trading action will be linked to investor sentiment regarding a third rate hike this year, something we have become increasingly more skeptical of. We reiterate our $21 target.

Magellan Midstream Partners (MMP) ; $64.84; 1400; 3.40%; Sector: Energy -- Shares of Magellan Midstream Partners moved lower this week. Despite the recent downtrend resulting from the stock's strong correlation to the movements in oil prices, we believe shares should begin seeing support as the decline has pushed the current distribution yield to roughly 5.5%, an attractive return given that Treasury yields remain stuck in the low 2% range. Importantly, we believe the payout to be safe as the company has recently reiterated its target distribution coverage ratio of 1.2x, i.e. the company believes it will be able to generate free cash flow equal 120% of distribution payouts. Given that 85% of the company's revenue is fee based, so long as companies continue to pump in the Permian (and thus need midstream providers such as MMP to transport the oil out) we believe the company will successfully be able to maintain its 1.2x distribution coverage target. We reiterate our $89 target.

Nucor (NUE) ; $54.11; 2050; 4.15%; Sector: Industrials -- Shares of Nucor traded lower this week due to a sharp decline during Thursday's selloff that included an analyst downgrade. While the downgrade was related to spread and volume pressures in the steel industry that may have some investors feeling that another earnings pre-announcement could come, we note that the last time management did this the stock rebounded off the initial decline. That being said, we took advantage of the slight pullback by purchasing more shares (members can read the Alert here). We continue to wait for an update by the Trump Administration on section 232 that would clamp down on cheap Chinese steel imports. Should import tariffs be placed on Chinese steel, we expect the demand for domestic steel to rise, providing a great boost for Nucor. We reiterate our $75 price target.

Nvidia (NVDA) ; $161.5; 200; 1.21%; Sector: Technology -- Shares pushed higher, outperforming the overall market. This week, we called Nvidia up from the bullpen. We have long been fans of the name but did not want to violate our discipline by chasing the runup into earnings. We got our chance to initiate a position during a post-earnings pullback resulting from weaker-than-normal datacenter revenues, in an otherwise very strong quarter. While weakness in a key segment may normally be a concern, we believe it to be temporary. The company is currently transitioning to a new product (Volta V100), which has caused a delay in purchases. However, with Volta production fully ramped, we expect sales to normalize in the next report. We also see upside from the rise of virtual reality and eSports (a key factor in our Activision thesis), both of which should help accelerate the adoption of the company's Pascal GPUs. Further out, we see upside from the shift to autonomous vehicles (which require Nvidia chips), with robot taxis expected to hit roads as early as next year (commercial use by 2019). According to management, fully autonomous vehicles could start making their way into production as early as 2020. For these reasons, we believe that Nvidia represents a strong investment into both the present and future of computing. For more background on the company, members can read our initiation post here. We reiterate our $180 target.

Schlumberger (SLB) ; $63.32; 1400; 3.32%; Sector: Energy -- Shares of Schlumberger ended lower this week, but were helped by a rally in oil on Friday. While little company news affected the stock this week, pressures in the commodity and concerns over Venezuela's ability to continually need (and pay) Schlumberger for its services have been hurting the stock. That being said, we have confidence in SLB's CEO Paal Kibsgaard's ability to put the company back on the right track due to his forward-thinking view of the oil environment, which he greatly detailed during the last earnings conference call. With that in mind, despite all of the recent weakness in trading, we remain holders in our position, as we believe that this company is the best oil services company in the business, and we reiterate our $93 price target.

TJX (TJX) ; $70.47; 1900; 5.01%; Sector: Consumer Discretionary -- Shares of TJX Companies rocked back and forth, but ultimately ended lower this week. Although the company posted a very strong quarter when they reported on Tuesday, weakness in the retail sector continued to be a major drag on the stock. Looking at the quarter, TJX beat the consensus on both the top and bottom lines, and exceeded expectations in same-store sales. The strong quarter has us encouraged that this is the retail name to own as many companies in the industry posted very disappointing quarters, causing the sector to drop. What separates TJX from others is its off-price business model which makes the company less vulnerable to online retail. In addition, we feel confident in this claim because customer traffic for TJX increased during the quarter, as its stores offer a consumer "bargain hunting" experience that online retailers cannot match. To read more of our analysis of the quarter, please read our bulletin here. We reiterate our $85 price target.


Apple (AAPL) ; $157.50; 700 shares; 4.12%; Sector: Technology -- Shares ended flat this week, representing some outperformance compared to the overall market. On Monday, we learned that Apple had held private meetings with health insurance provider Aetna. While details are limited, the two were reportedly in discussions regarding the health-tracking applications of the AAPL's smartwatch and to see if it could be used to improve user health. On Wednesday, The Wall Street Journal reported that Apple has budgeted roughly $1 billion for content creation over the next year. We are encouraged that the company is finally ready to begin ramping up its efforts to break into this highly competitive space. Recall that a major factor of our long-term thesis has been the company's Services business, which has recently reached the level of a Fortune 100 business and is what we believe will continue to drive the stock post the iPhone 8 release. According to the Journal, the budget will be used at the discretion of Jamie Erlicht and Zack Van Amburg, two former Sony executives responsible for overseeing TV shows Breaking Bad and The Crown. We believe this is a crucial step as the tech giant is already late to the party and has a lot of catching up to do if it wants to compete on video with the likes of Netflix and Amazon, both of which have been acquiring or creating content for year. That said, we are confident Apple will be able to drive demand for its offerings. The company is rarely the first to do something, usually waiting until the market is proven before looking for ways to improve upon existing products and offerings; such was the case with the iPod (not the first mp3 player), the iPhone (not the first smartphone) and even the iPad (which came years after the first tablet PCs). We look forward to hearing more updates as production gets under way and believe the Services segment will continue to drive overall growth and aid in expanding margins as the recurring revenue stream increases its mix into overall sales. We reiterate our $165 target.

Arconic (ARNC) ; $24.29; 2,200 shares; 2.00%; Sector: Industrials -- Shares traded higher this week thanks to strong gains on Monday and Tuesday. Little company-specific news drove trading this week, but a rise in the aerospace and defense division helped lift the stock. Last week, interim CEO David Hess spoke at the Jefferies Global Industrials Conference and reiterated the company's revenue goal of 3%-6% year-over-year growth and 6%-9% year-over-year Ebitda growth. In addition, he expects annual revenue growth in its aerospace and defense segment will accelerate in 2018. We are encouraged in this name as the company has been able to beat expectations despite not finding a full-time CEO to head the business. While earlier concerns of the company's accountability in the fatal Grenfell Tower fire in London may have hurt Arconic's CEO search, we believe the company's role may have been overblown by investors. We will look for more updates for this incident, and more specifically to the CEO search, because if Arconic hires a well-received replacement, we expect the company will continue to deliver and improve on its results. We reiterate our $31 price target.

Citigroup (C) ; $66.58; 1,250 shares; 3.11%; Sector: Financials -- Shares ended lower this week on little news. We maintain that C is the most attractive of the big banks due to both management's plans for growth and on a valuation basis as the bank is the cheapest of its peers on price-to-tangible book basis. In addition to management's goals of 11% return on tangible common equity and annual earnings of $9 per share by 2020, the company plans to return over $20 billion to shareholders in the next two years. Furthermore, we believe the company's international exposure sets it up to take advantage of the global economic expansion; recall that over 55% of revenues are generated outside the United States. Near term, we believe shares will benefit as investments into branded cards and the acquisition of the Costco portfolio have just recently begun to bear fruit. However, similar to KEY, we note that trading in the near to mid-term will be closely linked to investor sentiment regarding a third rate hike before the end of the year and Treasury yields. We reiterate that our $74 target, which is in line with our belief that shares are undervalued, represents 1x 2018E tangible book value per share.

Dow Chemical (DOW) ; $63.40; 1,375 shares; 3.26%; Sector: Chemicals -- Shares finished trading slightly higher this week. While there was little chatter coming from the company this week about when its upcoming merger with DuPont would be finalized, we view the no news as good news and believe it will close by the end of the month. Once the deal is complete, the newly formed company will then split up into what is expected to be three companies that better align its divisions. Still, large activist shareholders have been challenging DOW management's plans over the divesture as they seek to unlock more shareholder value. Either way, the post-merger split-up is expected to generate $1 billion in growth synergies, $3 billion in run-rate synergies, and unlock $30 billion in market value. We reiterate our $70 price target.

Southwest Airlines (LUV) ; $53.17; 1,000 shares; 1.99%; Sector: Transportation -- Shares moved lower this week. Since the stock has pulled back since we last sold around $61, we took advantage of the lower levels to add to our position on Friday (read here). In addition to general weakness in the airline industry, the company felt some pressure this week as some of its mechanics picketed for a new contract, and there were some technical glitches in the company's boarding system. Still, LUV received an upgrade on Friday as an analyst who covers the company cited that the pullback has created a buying opportunity due to the positive risk/reward benefits in owning shares. We view this company as the premier airline in the industry, and we expect the company will reap benefits from its new reservation system. We reiterate our $70 price target.

NXP Semiconductors (NXPI) ; $112.45; 550 shares; 2.31%; Sector: Technology -- Shares continue to hover at just over the Qualcomm tender offer price level of $110 as investors are holding off on tendering shares in anticipation of a higher offer. As mentioned numerous times before, we continue to advise that we will not be tendering shares. Backing our approach, not only do we believe shares to be undervalued at $110, but to tender at current levels would be to offer shares at a discount to their current trading price (it would be more profitable to simply sell at the current market price). In line with this view, last week analysts at Morgan Stanley increased their price target to $117.50. Backing their call, the analysts stated that QCOM has more to lose by walking away than by paying a higher price. While QCOM can still realize synergies even if it were to offer a higher price, walking away would cause the company to miss out on diversifying its revenue stream away from smartphones while increasing exposure to the automobile industry (which is increasing the use of chips as autos become more advanced). While we maintain that shares have upside, we reiterate our $110 target for the time being to reflect that until we receive an official update, shares will remain bound to this level.

PepsiCo (PEP) ; $117.60; 600 shares; 2.64%; Sector: Consumer Staples -- Shares moved higher this week, outperforming the overall market. This week, PepsiCo partnered with "Feed the Children" in Chicago for the sixth time to provide 800 families with enough food and essentials to last a week. Regarding the event, a PepsiCo representative stated, "Frito-Lay and PepsiCo are committed to giving back to our communities where we live and work, and providing enough food to supplement meals for a week is a small way we can help make a difference." While this may not directly impact our investment or move the stock in the near term, we feel it is important to have a sense of the values a company holds when investing. Decisions like this can help shape the public's image of a company, which can in turn lead to enhanced customer loyalty, a crucial factor for any company, especially one that operates in such a fiercely competitive industry and competes against the likes of Coca-Cola. We view PEP as best-in-class and believe the stock will continue to benefit as the company diversifies its offerings to include healthier snack and beverage options. From a portfolio perspective, we maintain that the position aids in enhancing overall portfolio stability and diversity. We reiterate our $120 target and will re-examine it as the stock continues to approach this level.


Apache (APA) ; $40.31; 2,250 shares; 3.39%; Sector: Energy -- Shares moved sharply lower as Apache continues to be a drag on the portfolio. However, while the previous quarter was a disappointment, the company has been divesting non-core assets to streamline operations and increase its focus on the one aspect that has kept us in the name, Alpine High. At current levels, we believe there is simply too much negativity baked into the name to sell now and that investors have completely dismissed the value of the company's Alpine High location. We believe that patience will reward us with a better price at which to exit the name. Given our desire to "sell on strength" (in line with our Three rating) we have decided not to reiterate our price target for the time being.

Newell Brands (NWL) ; $49.66; 600 shares; 1.11%; Sector: Consumer Discretionary -- Share traded lower this week, roughly in line with the overall market. When the stock received a nice lift on Monday due to a bounce in the retail sector, we decided to unload half our position (read here). Following the trade, we downgraded the stock from Two to Three as we will be looking to sell the rest of our position on strength. We recognize the challenges in the retail space, and based on Dick's Sporting Goods' disappointing outlook on its outdoor sports division, we believe it will be best to sell Newell as its fishing business may continue to lag. That being said, we will hold onto our position as we think we can get a better price than what is being offered, but we do not have a specific price target in mind for when we would be sellers.

Starbucks (SBUX) ; $52.70; 1,200 shares; 2.37%; Sector: Consumer Discretionary -- Shares moved lower this week on little news. In line with our Three rating, we are looking to scale down on SBUX when opportunities present themselves. Recall that we made this decision following the company's recent earnings release, when (despite resolving the mobile pay "mosh pit" problem) management cut EPS guidance for the third quarter and stated their expectations that full-year revenue growth would fall in the lower end of the previously guided range due to a tougher macro environment. While we are not buyers of the stock, we also believe prices are too low to justify selling. At current levels, we also believe there to be very little downside and that we will be rewarded with a better exit price if we remain patient. Given this decision, we have decided not to reiterate our price target for the time being.

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long ABT, ATVI, AAPL, AGN, APA, AVGO, XEC, CMCSA, DHR, DXC, FB, GE, GOOGL, LUV, KEY, MMP, NUE, NWL, NVDA, ARNC, C, DOW, PEP, NXPI, SLB, SBUX, TJX, EZU, ITW, and LLY.

We're Adding First Data to the Bullpen
Stocks in Focus: FDC

Company specializes in point-of-sale technology.

08/18/17 - 03:00 PM EDT
We Love LUV and We're Replenishing Our Holding
Stocks in Focus: LUV

We view a pullback in Southwest Airlines as an opportunity to buy back shares we last sold at a much higher price.

08/18/17 - 10:33 AM EDT
We're Looking to Trim Our Oil Positions
Stocks in Focus: APA, XEC, MMP, SLB

But we'll be looking to trim.

08/17/17 - 04:07 PM EDT
Weekly Roundup

Political turmoil, terror attack and sharp pullback mark this week's action.

08/18/17 - 05:45 PM EDT


Chart of I:DJI
DOW 21,674.51 -76.22 -0.35%
S&P 500 2,425.55 -4.46 -0.18%
NASDAQ 6,216.5268 -5.3876 -0.09%

Action Alerts PLUS Holdings

Holdings 1

Stocks we would buy right now

Symbol % Portfolio
ABT 0.009094525018689398 Health Services
AGN 0.0459743726883435 Drugs
ATVI 0.03239770598984413 Computer Software & Services
AVGO 0.023265302666296422 Electronics
CMCSA 0.030242934243520266 Media
DHR 0.03470641665985324 Health Services
DXC 0.031101260363462228 Computer Software & Services
EZU 0.015483456833213916
FB 0.06247494597368864 Internet
GE 0.0215299911629355 Industrial
GOOGL 0.05184550994138129 Internet
ITW 0.02531502275924478 Industrial
KEY 0.01312865778241662 Banking
MMP 0.033876266027761545 Energy
NVDA 0.012053884206141468 Electronics
SLB 0.03308212777418046 Energy
TJX 0.04996689529451701 Retail
XEC 0.03301570079620234 Energy
Holdings 2

Stocks we would buy on a pullback

Symbol % Portfolio
AAPL 0.041143675966783186 Consumer Durables
ARNC 0.01994227443367764 Industrial
C 0.031058344057465128 Banking
DOW 0.032532425872148066 Chemicals
NXPI 0.02308057595787413 Electronics
PEP 0.026331952618741238 Food & Beverage
Holdings 3

Stocks we would sell on strength

Symbol % Portfolio
APA 0.03384697098410266 Energy
NWL 0.011119428291213347 Consumer Durables
SBUX 0.023600236445708557 Leisure