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 | 09/23/16 - 07:02 PM EDT

The broader market traded higher this week as the downside prior to the Federal Reserve's policy meeting was limited by a rally in crude oil. Major indices remained relatively range-bound until the middle of the week when the Fed's ultimate decision to maintain interest rates, for the time being, was welcomed by investors, who pushed the Nasdaq toward a record close. The market shook off pestilent concerns regarding a September rate hike and was also aided by the Fed's adjusted expectations for rate hikes in the years ahead (the FOMC lowered its median projections for the fed funds rate to 0.6% for 2016, 1.1% for 2017 and 1.9% for 2018).

With the FOMC's September policy meeting in the rear-view, investors shift their focus to the upcoming earnings season in addition to continued volatility in oil. We expect media reports in advance of and after the OPEC meeting in Algeria next week to drive the oil trade, which will likely have an impact on the broader market. Several individual Fed committee members are also scheduled to speak next week, so we expect further speculation regarding the FOMC's future decisions to add to uncertainty.

For this week, Treasury yields trended lower as the Fed maintained interest rates, and similarly, the dollar was weaker against the euro. Gold ultimately moved higher as bonds offered paltry yields, and crude oil prices moved higher on bullish inventory reports and continued speculation over potential OPEC production agreements.

Second-quarter equivalent earnings were relatively mixed, but somewhat positive compared with expectations, as 71.8% of companies have surprised to the upside vs. estimates. No companies within the portfolio reported earnings.

Moving onto the economic information from the week, the major reports in focus largely dealt with the housing market, which, as most of our members know, has been one of the positives helping to support the economy amid an environment where several other sectors continue to post mixed results.

On Tuesday, the Commerce Department reported that groundbreaking on new homes (i.e., housing starts) decreased 5.8% in August to a seasonally adjusted annual pace of 1.14 million units, missing expectations for a 1.19 million unit pace. The decline in August was a discouraging sign for building activity given that June and July had both posted increased activity. That being said, we note that the decline, although not the extent, was largely expected given that building permits had largely been lagging behind starts. Permits are an indicator of future building activity in the months ahead (as they are agreements for future construction), so they tend to provide a relatively trustworthy predictor for starts in the out months. Additionally, persistent bad weather in the South played a role in the decline.

Breaking down the housing-starts report, activity on single-family homes dropped 6%, marking the lowest levels since October 2015. Construction of single-family homes has mostly been subdued as the market is flooded with previously owned homes in this category. Permits, however, did rise in this category, so builders are expecting a rebound in the months ahead. On that note, a homebuilders survey on Monday indicated that confidence had hit an 11-month high in September, a trend that should prove beneficial for the housing market as we close out the year. Investors will continue to watch these trends closely as a key indicator, along with the labor market, for the overall health of the economy.

On that note, on Thursday, the National Association of Realtors reported that existing home sales declined 0.9% in August to an annual rate of 5.33 million units, noticeably falling short of expectations for a 1.1% rise to a 5.45 million unit pace. The culprit again appears to be the shortage of inventory that is contributing to surging home prices across the majority of the country. The number of unsold homes on the market fell 3.3% in August, whereas inventories were down 10.1% compared to a year ago. The median house price rose 5.1% to $240,200.

From a positive viewpoint, existing home sales were still up 0.8% over last year's August pace, confirming that a tightening labor market has continued to support home sales. Month-to-month numbers can be volatile, but August's weak figures certainly warrant keeping an extra eye on the data.

Also on Thursday, the Department of Labor reported that initial jobless claims for the week ending Sept. 17 were 252,000, which was 8,000 claims lower than last week's figure and 10,000 claims lower than expectations. Claims have remained below 300,000 -- the threshold typically used to categorize a healthy jobs market -- for an astounding 81 straight weeks, which remains the longest streak since the early 1970s. The four-week moving average for claims (used as a gauge to offset volatility in the weekly numbers) fell 2,250 claims to 258,500.

The report came the day after the Fed decided to leave interest rates unchanged following its policy meeting, citing continued strength in the labor market and recent economic strength as reasons confirming a strengthening case for a rate hike, although the committee members prefer to see further evidence of broadly positive economic data before making a move on interest rates. Initial jobless claims have certainly been one of the consistent bright spots for the economy.

On the commodity front, crude oil got off to a rocky start, but ultimately trended higher for the majority of the week, boosted by a weaker dollar following the Fed's decision to maintain interest rates, and in turn, helping to provide a spark to the broader market.

Heading into the week, key OPEC members put a lid on expectations for a production limit at this month's meeting of producers in Algeria. Mohammed Barkindo, the secretary-general of the Organization of Petroleum Exporting Countries, said on Saturday that no decision would be made at what he referred to as informal talks among the cartel's members next week. Specifically, Barkindo called the gathering "not a decision-making meeting." As we have noted over the past several weeks and months, rumors of an output agreement have helped prop up oil prices throughout the summer, so this news certainly seemed to dampen the outlook for crude prices headed into the week. Libya, Iran and Nigeria – which combined want to increase their own output by about 1.5 million barrels a day this year -- remain the key roadblocks to any potential deal.

Oil prices wouldn't be deterred, however, as Tuesday proved to be the beginning of a weekly rally. Speculation of increased demand for crude on the planned restart of the main gasoline line for Colonial Pipeline Co. contributed to increased optimism. The positive sentiment continued throughout the day and was further buoyed by a surprising inventory draw in the American Petroleum Institute's (API) weekly report.

Despite news on Wednesday of Libya resuming its oil cargo exports from its key ports, traders continued to push crude prices higher as the Energy Information Administration's (EIA) inventory report confirmed what the API's figures had indicated the night before. According to the report, U.S. crude stockpiles fell by 6.2 million barrels, leading to the lowest levels since the middle of February. Even though stockpiles still stand 11% above year-ago levels, the short-term bullish news was enough to keep the rally going. A strike in Norway of more than 300 offshore oil- service workers, although not impactful enough so far to affect production, also helped boost prices as any escalation could potentially result in a short-term halt in output.

The momentum continued into the end of the week, with prices also benefiting from a weak dollar. Comments from Saudi Arabia, noting that it would commit to an output freeze if Iran agreed to cut production, also served to support prices on Friday. Evidently, it appears some members of OPEC will say anything to keep the market intrigued about a possible production agreement. The market continues to hold out some hope, figuring, why not? The last two OPEC meetings held in Algeria -- in 2004 and 2008 -- succeeded with unexpected production cuts to prop up prices.

The outlook dampened to close out the week, however, as a Bloomberg report indicated that Saudi Arabia in fact doesn’t expect the OPEC to reach an agreement at its meeting in Algeria. The constant back-and-forth only adds to the uncertainty and the belief that oil prices are nothing more than a manipulated fallacy.

All in, the huge swings continue to characterize the oil trade and we do not expect any sustainable balance in the short term, remaining range-bound, but volatile, between $40 and $50. We will see if any limit is in fact agreed upon in Algeria, but regardless, the long-term outlook continues to be clouded by an oversupply and inconsistent demand expectations. At least with the Fed likely out of the picture until December, any continued weakness in the dollar should provide some support for oil prices and, likely in turn, the overall market.

Within the portfolio this week, we added to our Alcoa and Occidental positions after the Fed's decision to maintain interest rates and also added to our TJ Maxx position later in the week. We exited our position in Thermo Fisher Scientific.

On Alcoa (AA:NYSE), we took advantage of recent volatility to the downside to add to this long-term holding in advance of the split, which will allow Arconic (value-add business) to crystallize its value proposition, differentiate its business model from the commoditized core Alcoa and offer enhanced visibility into the strong, lucrative, growth-oriented company. We remind subscribers that this investment is likely to remain volatile in the short term and is more for those with a longer-term horizon.

As for Occidental Petroleum (OXY:NYSE), the stock recently broke out of its trading range, which had been $73-$77 for the majority of the summer, providing us an opportunity to add to the name below our cost basis. Ultimately, the dollar could remain weak for some time, thereby helping to keep oil prices propped higher, and with interest rates lower for longer, OXY's 4%+ dividend yield, which is safe, remains extremely attractive.

We also bulked up our TJ Maxx (TJX:NYSE) position below our cost basis as we believe recent and future competitor store closings make TJX's value proposition even more compelling for consumers.

We booked a victory on Thermo Fisher (TMO:NYSE) when we exited our position on Friday. We have been the company's biggest fans since initiating a year and a half ago at roughly $128 a share. Our thesis -- predicated on the company's proven track record of consistent growth, operational execution, strategic capital allocation, lucrative and diverse end-market exposure with leadership positioning and ultimately shareholder value creation -- has played out in spades, with Thermo firing on all cylinders in five of its last six earnings releases. Our confidence in TMO's business model is unwavering, yet we wanted to avoid the temptation of greed, so we locked in the sizable gains ($30 a share, or 21%+ above our cost basis).

Moving onto the broader market, second-quarter earnings were mixed, but largely better than expected, proving to be positive compared to estimates. Total second- quarter earnings growth was down 3.1%; of the 408 non-financials that reported, earnings growth was down 2.2%, vs. expectations for an overall 3% decrease throughout the season. Revenues were flat vs. expectations throughout the season for a 0.04% increase; 71.8% of companies beat EPS expectations, 17.6% missed the mark and 10.6% were in line with consensus. On a year-over-year comparison basis, 62.2% beat the prior year's EPS results, 34.1% came up short and 3.7% came in virtually in line. Health care, information tech and consumer staples had the strongest performance vs. estimates, whereas materials and utilities posted the worst results in the S&P 500.

Next week, nine companies in the S&P 500 will report earnings. Two companies in the portfolio will report: PepsiCo (PEP) and Costco (COST). Key reports for the broader market include: Carnival (CCL), Vail Resorts (MTN), Synnex (SNX), Thor Industries (THO), ConAgra (CAG), Cintas (CTAS), Nike (NKE), BlackBerry (BBRY), Paychex (PAYX), Pier 1 Imports (PIR), Accenture (ACN) and McCormick (MKC).

Economic Data (*all times ET)


Monday (9/26)

New Home Sales (10:00): 595k expected

Dallas Fed Manf. Activity (10:30): -3.0 expected

Tuesday (9/27)

Markit US Services PMI (9:45):

Markit US Composite PMI (9:45):

Consumer Confidence Index (10:00): 98.8 expected

Richmond Fed Manufact. Index (10:00): -2 expected

Wednesday (9/28)

MBA Mortgage Applications (7:00):

Durable Goods Orders (8:30): -1.00% expected

Durables Ex Transportation (8:30): -0.50% expected

Thursday (9/29)

GDP Annualized QoQ (8:30): 1.30% expected GDP Price Index (8:30): 2.30% expected

Wholesale Inventories MoM (8:30): 0.00% expected

Initial Jobless Claims (8:30):

Continuing Claims (8:30):

Personal Consumption (8:30): 3.00% expected

Core PCE QoQ (8:30):

Bloomberg Consumer Comfort (9:45):

Pending Home Sales MoM (10:00): -0.30% expected

Friday (9/30)

Personal Income (8:30): 0.20% expected

Personal Spending (8:30): 0.20% expected

Chicago Purchasing Manager (9:45): 52.0 expected

U. of Mich. Sentiment (10:00): 90.0 expected


Monday (9/26)

Germany IFO Business Climate (4:00):

Germany IFO Expectations (4:00):

Germany IFO Current Assessment (4:00):

Tuesday (9/27)

Eurozone M3 Money Supply YoY (4:00):

Wednesday (9/28)

Germany GfK Consumer Confidence (2:00):

Japan Retail Trade YoY (19:50): -0.70% expected

Japan Retail Sales MoM (19:50): -0.50% expected

Thursday (9/29)

Germany Unemployment Change (000's) (3:55):

Germany Unemployment Claims Rate SA (3:55):

United Kingdom Mortgage Approvals (4:30): 59.8k expected

Eurozone Consumer Confidence (5:00):

Germany CPI YoY (8:00):

Germany CPI MoM (8:00):

Germany CPI EU Harmonized YoY (8:00):

Germany CPI EU Harmonized MoM (8:00):

Japan Jobless Rate (19:30): 3.00% expected

Japan Job-To-Applicant Ratio (19:30): 1.38 expected

Japan Natl CPI YoY (19:30): -0.50% expected

Japan Natl CPI Ex Fresh Food YoY (19:30): -0.50% expected

Japan Natl CPI Ex Food, Energy YoY (19:30): 0.20% expected

Japan Tokyo CPI YoY (19:30): -0.50% expected

Japan Tokyo CPI Ex-Fresh Food YoY (19:30): -0.40% expected

Japan Tokyo CPI Ex Food, Energy YoY (19:30): 0.10% expected

Japan Industrial Production MoM (19:50): 1.30% expected

Japan Industrial Production YoY (19:50): 3.50% expected

China Caixin PMI Mfg (21:45): 50.1 expected

Friday (9/30)

Japan Housing Starts YoY (1:00): 7.60% expected

United Kingdom GDP QoQ (4:30): 0.60% expected

United Kingdom GDP YoY (4:30): 2.20% expected

Eurozone CPI Core YoY (5:00):

Eurozone CPI Estimate YoY (5:00):

Eurozone Unemployment Rate (5:00):

China Manufacturing PMI (21:00): 50.4 expected

China Non-manufacturing PMI (21:00):

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 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, 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.


Alcoa (AA:NYSE; $9.76; 7,500 shares; 2.92%; Sector: Metals & Mining): Shares finally caught traction this week, reversing the commodity-driven selloff of the prior weeks. We added to the name twice this week on relative weakness, scaling further into this deep-value position with shares trading below our cost basis. Our rationale remains unchanged: We expect the company's upcoming split into two independently traded companies -- the value-add downstream segment (Arconic) and the upstream segment (core Alcoa) -- to create shareholder value and enhance visibility. Shares should only be owned for those with higher risk tolerance and time horizon, given the likelihood of interim trading volatility. We leave our $12 price target unchanged.

Apple (AAPL:Nasdaq; $112.71; 820 shares; 3.69%; Sector: Technology): Shares cooled off slightly after a recent breakout to the highest levels since the beginning of April on the back of positive iPhone 7 sentiment. If anything, the product launch along with Samsung's operational mishaps validate why shares of Apple should be owned, not traded. What Apple lacked in flash it gained in credibility. The same dogged pursuit that drove Samsung to stretch the limits of the Galaxy Note 7 and categorically unseat the iPhone atop the high-end smartphone market leaderboard has since led to the South Korean company's troubles, after the continuous incidents of combustible phones forced a mass recall that, according to multiple South Korean research analysts, will continue to help Apple recover its top position in the high- premium smartphone market (phones priced above $600). In fact, IBK analyst Lee Seung- woo noted on Monday that Apple's Korean component vendors foresee a 17%-25% spike in demand for iPhone 7 units by year-end (from 80 million-85 million to more than 100 million). As a result of the slew of positives supporting Apple stock recently, we aren't surprised to see the analyst community, in typical "pack fashion," raise their price targets. Again, this is why we have always owned, not traded, the stock. Ultimately, we believe the iPhone 7 launch was indeed a surprise to the upside and see additional opportunity given a shift toward the larger "plus" model (an RBC survey indicated the 46% of responders plan to purchase the larger phone) and the mid-tier memory versions of the phone (away from lower-storage models), both of which will contribute to higher average selling prices. We reiterate our $130 target.

Allergan (AGN:NYSE; $243.94; 500 shares; 4.87%; Sector: Health Care): AGN shares were volatile this week as investors digested the company's recent acquisitions and long-term strategy. Initially, AGN shares sold off on news of the acquisition of Tobira as the 700% premium seemed unjustified for a company whose leading drug candidate had failed to reach its primary end point in a recent trial study. However, as Allergan CEO Brent Saunders pointed out on the company's conference call and on Mad Money earlier this week, these impressions were misguided for a couple of reasons. First off, according to Saunders, AGN paid a "competitive price" for Tobira as there were several other bidders involved. Second, Allergan has done extensive research into NASH (fatty liver disease), building analysis for over two years in order to determine the potential market and the best treatment options available. Tobira's candidate drug is far and away the best option in development. In addition, Saunders noted that the failed clinical trial results were misinterpreted as the secondary end point, which Tobira's drug satisfied, is actually the instance on which the FDA will be evaluating NASH treatments. Perhaps most importantly, we are confident Allergan is likely privy to certain information regarding the drug's potential for success given its focused research on NASH over the past two years. In addition, seeing that there is a fair degree of information from the recently completed Phase II study that has yet to be shared widely with the Street (it was as likely to be made available at November's American Association for the Study of Liver Diseases), we would not be surprised if Allergan has a precise sense of how the drug will perform. All in, we remain confident in Allergan's strategy to target steppingstone deals and believe the management team has identified truly unique assets that will surely benefit from Allergan's massive research team, open science model and relationships with physicians. Regardless, selloffs like the one we saw earlier this week simply provide Saunders and his team a chance to buy back shares at levels that will be more accretive in the long term. Read our Alert from earlier in the week detailing the Tobira acquisition. We reiterate our $270 medium target, although we believe shares could reach $325 over the longer term for those willing to wait out any volatility.

Bristol-Myers (BMY:NYSE; $56.48; 500 shares; 1.13%; Sector: Health care): Shares moved nicely higher this week as the European Medicines Agency validated an extended indication of the company's flagship immuno-oncology drug Opdivo in the treatment of a defined niche within locally advanced bladder cancer. More broadly, the stock appears to have found a temporary floor at $55 a share, yet incremental upside will likely be contained by lack of near-term catalysts for BMY and myriad upcoming catalysts for its competitors, particularly in the treatment of first-line non-small cell lung cancer (NSCLC) after BMY's failed study opened the door for new market entrants. Although this investment is a difficult one given the lack of near- term gratification and steep uncertainty, we invested with full understanding around the risk and long-term time horizon necessary. To assume Bristol-Myers is sitting idly after one study (which came on the heels of a litany of successful studies), which failed by design, not quality, is incredibly short-sighted. Bristol-Myers has dominated immuno-oncology because of its very innovation, and it has always stated that Opdivo is a monolithic line of therapy that is far inferior to the combination with Yervoy, yet in the interim it is the best option. Bottom line: The battleground has shifted dramatically against Bristol for the near to medium term, but the $25 billion erosion in market value associated with the $5 billion erosion in peak Opdivo sales fails to add up, presenting what we consider a solid value investment for members willing to embrace a 12- to 24-month minimum horizon (plus, the 2.75% dividend yield tracks well against 10-year Treasury notes at 1.7%, lest negative- yielding sovereign debt). We reiterate our $70 long-term target.

Cisco Systems (CSCO:Nasdaq; $31.34; 3,900 shares; 4.88%; Sector: Technology): Shares traded higher this week as the company announced an enhanced partnership with Salesforce (CRM). The two companies will jointly develop and market solutions that include Cisco's collaboration, Internet of Things (IoT) and contact center platforms with Salesforce Sales Cloud, IoT Cloud and Services Cloud. While we, of course, want to see how this plays out, we are particularly intrigued as Cisco's focus remains on growing its software portfolio -- who better to partner with than Salesforce? The majority of the integrated services are expected to be available in the back half of next year while Cisco's Unified Contact Center and CRM's Service Cloud are available immediately. Ultimately, we believe Cisco continues to make the right moves into software, a shift that should continue to push for an upward rerating of shares. The partnership with CRM should further drive product and customer stickiness, helping to maintain recurring revenue growth and establish visibility into the future. We reiterate our $35 price target.

Citigroup (C:NYSE; $47.15; 2,250 shares; 4.23%; Sector: Financials): Shares traded higher this week despite the Federal Reserve's decision to keep interest rates unchanged following its policy meeting this week. Although rates will remain lower for longer, the committee did indicate that the case for a hike continues to strengthen, boosting confidence in a potential December rate hike. Regardless, a strong economy continues to support the banks. Citigroup remains our favorite financial for its ability to bridge its steep valuation discount to tangible book value (25%+) through a combination of share buybacks and dividend payouts, which we expect to hit roughly $7 a share (or 15% accretion) for full-year 2016. The bank appears relatively well positioned amid uncertainty around rates, regulation and everything in between as it has engendered regulatory trust and divested non-core (and toxic) assets, while building capital and enhancing operational efficiency. In addition, Citi's rate sensitivity falls near the lower tiers of its large-cap banking peers as it has done a brilliant job of structurally hedging its operations and trading books. Therefore, although a rate hike will certainly help, it is not essential for Citi to outperform. In addition, recent analyst meetings with the bank's management have indicated there was no material business impact at this point following the Brexit vote in the U.K., with management noting that the markets are still active and client engagement remains strong. There has been some compression of M&A activity in the U.K., but Citi has already developed a plan to address the post- Brexit operating environment. The valuation remains attractive, and while it will take some time to close the gap toward tangible book, we are willing to take a long- term view. We reiterate our $55 target.

Dow Chemical (DOW:NYSE; $52.24; 1,475 shares; 3.08%; Sector: Chemicals): Shares took a breather this week on little news. On Thursday, analysts at Wells Fargo hosted management meetings, emerging with incremental confidence in their Buy thesis. Among takeaways included synergy targets for both the Dow Corning transaction and impending DuPont (DD) merger, progress on regulatory approvals, feedstock dynamics and others. Confusion around whether or not the DuPont deal will close has represented a near-term overhang, yet despite scrutiny on behalf of the European Commission, with a more seamless approval process expected in remaining jurisdictions, a first-quarter 2017 close is still the expectation. The combined entity expects to start realizing synergies on day one, with Dow's CFO indicating he felt "really good about the $3 billion target" (we swear, his words not ours). With the Dow Corning transaction closed early, initial forecasts for incremental cost synergies had recently been raised to $500 million ($400 million cost-based, $100 million sales-focused). Given all the moving pieces, and in light of all of the potential growth catalysts in the near term, Dow's shares remain attractive. Its recently boosted dividend yield (3.5%) is among the highest in the industry, while share buybacks remain a key theme. We reiterate our $60 price target.

Facebook (FB:Nasdaq; $127.96; 1,000 shares; 5.11%; Sector: Technology): Shares underperformed this week after news got out that the company had inflated its video consumption metrics by not counting videos viewed for less than three seconds. Shares stumbled on Friday as investors took it as a reason to take profits in this name that has continued to charge higher. Ultimately, while this may be slightly damaging in the near term to the FB brand, we do not believe there will be a long-term impact as FB remains the prized advertising vehicle for all of the top marketers given the platform's 1.6 billion users who spend roughly an hour per day on the platform. Should video ads lose popularity in the near term, we would expect those dollars simply to shift toward other types of ads on Facebook, such as carousel or canvas. Advertisers need Facebook. Digging deeper into the story, the loudest voice in The Wall Street Journal report is Publicis, which has been put on the defensive as a corporate investigation into its practices has yielded interesting results (to say the least), including shielding prices it pays for ad loads, conflict of interest and kickbacks. Evidently, Publicis wants to protect itself and is going after Facebook as a way to shield its $75 billion ad budget. In fact, Facebook had publicized the change to the video engagement metrics several weeks ago in a blog post directed at its customers describing measurement practices moving forward. We view this as more of a broader ad agency problem -- in the way these companies deploy, sometimes questionably, their large budgets -- and Facebook has been roped in as somewhat of a scapegoat. We believe the initial reaction to the news, which is delayed considering FB's blog post three weeks back, is unjustified and will pass as investors take the opportunity to buy any dip in shares. In other news (but somewhat related to the conversation), Instagram reported this week that its advertising base has grown from 200,000 to over 500,000 in just over six months, clearly exemplifying FB's long runway for growth. FB has many levers of growth to pull and we expect shares to continue charging higher over the long term. We reiterate our $160 long-term target.

General Electric (GE:NYSE; $29.89; 2,350; 2.80%; Sector: Industrials): Shares traded slightly higher on some incremental news, including from GE Power, which announced over $800 million in new orders across the Asia-Pacific (APAC) region. In and of itself, the news would be somewhat immaterial given the law of large numbers, but we learned that the $800 million worth of orders fall under the umbrella of the GE Digital transformation. The key theme is efficiency and enhanced productivity, which appear validated in light of the large order number and nature of other orders. Separately, the company announced that it plans to invest $10 billion in Argentina over the next decade, which will make it a pioneer within a country that has government-sponsored plans to enhance legacy infrastructure. We reiterate our $35 price target.

Alphabet (GOOGL:Nasdaq; $814.96; 150 shares; 4.88%; Sector: Technology): Shares outperformed this week as broader tech continued to push higher. On Thursday, The Wall Street Journal reported that Google Capital (Alphabet's investment arm) led the latest fundraising round for Airbnb, the online home-sharing company that has worked to disrupt the hotel industry. While this doesn't have any direct impact on Google's core business, we think the move is evident of the optionality that Google has with its large cash balance and, perhaps more importantly, the willingness of management to invest in high-growth companies. This characteristic is one that has helped, and will continue to help, Google be a leader in technological innovation, a trend that certainly bodes well for future growth. We reiterate our $900 long-term price target.

Newell Brands (NWL:NYSE; $51.97; 500 shares; 1.04%; Sector: Consumer Discretionary): Shares traded solidly higher this week on little incremental news. For anyone who missed our initiation last week, we believe in top- and bottom-line growth rates in the newly combined Newell Brands portfolio as the company reaps the benefits of stronger innovation and execution. This follows the successful integration of Jarden and Newell Rubbermaid in a deal that was announced last December and completed in April. Ultimately, we are confident in the company's ability to drive 5%-plus core sales growth long term and view the stock, which trades at a 25% discount to its lower-growth peers, as undervalued. We would be buyers under $50. Our $60 price target applies a 20x multiple to 2017 EPS of about $3, which represents a 10% discount to its peer group. We recognize that the stock may experience near-term volatility and would only recommend members invest with a one- year minimum time horizon.

NXP Semiconductors (NXPI:Nasdaq; $83.90; 1,000 shares; 3.35%; Sector: Information Technology): Shares traded slightly higher this week, but underperformed the market on little news. The stock continues to oscillate between the low and high $80s as investors grapple with recent rallies in semiconductor names, seasonality and getting comfortable with growth. As the market searches for both value and growth, we believe NXP represents a long-term investment opportunity that offers both, and the intangibles of management's credibility and heightened visibility add to the upside case. Investors have traded the name in volatile fashion over the past week given confusion around the chip company's evolving business (beyond traditional consumer electronic market and into the auto market, where it boasts leadership position by a wide margin). Its growth algorithm is predicated on its ability to grow market share at least 50% faster than its next-largest competitor. Secondary concerns around its leverage are unjustified: Its robust cash flow generation is supplemented by the $2.8 billion ($2 billion post-tax) cash sale of its Standard Products division, set to close in the first quarter of 2017. NXP can pay down debt (reducing interest expenses) while aggressively buying back shares, both of which help drive upward earnings revisions. Longer term, we see room for upward re-rating with shares, which are trading at 12x forward earnings. We would be buyers under $80 and we reiterate our $110 long-term target.

Panera Bread (PNRA:Nasdaq; $199.02; 600 shares; 4.77%; Sector: Consumer Discretionary): Shares traded below $200 this week on little company-specific news, although investors have thrown out restaurant stocks en masse given a challenging backdrop and intermediate-term horizon, with declines in traffic year over year coupled with rising labor costs on the horizon serving up an earnings algorithm that no investor likes to see (rising costs, slowing sales). However, to cast off the entire industry with one fell swoop is short-sighted, as several players are redefining the way in which retail and/or consumer discretionary companies compete amid a constantly evolving landscape. Panera represents a company that bet on current trends ranging from value to convenience to health and technology roughly five years ago, with the investments paying off in accelerating fashion as the company assumes a leadership position across each of these trends. Most potently, Panera's technological 2.0 initiatives -- which rely on mobile innovation to enhance the customer experience -- have paved the path for peers to follow suit, although at a laggard's pace. The proven success of the initiatives -- which have driven comparable sales growth acceleration at an alarming rate relative to stores that have not been revamped -- have yet to flow through results in a meaningful way, which should make 2017 an inflection year for the company as sales momentum accelerates and incremental investments in technology fade (the latter should help buttress rising labor costs). Ultimately, we view shares as patently undervalued and would pound the table as buyers under the $200 level if we did not already have significant exposure. We reiterate our $235 price target.

Schlumberger (SLB:NYSE; $75.92; 1,000 shares; 3.03%; Sector: Energy): Shares took a hit this week in lockstep with oil. We learned that SLB has been selected by Petroleos de Venezuela S.A. to provide integrated drilling services for the construction of 80 horizontal wells. Potential revenue for SLB is estimated at about $500 million over 30 months. Assuming 25%-30% operating margins, we estimate the annual EPS impact could be $0.02 to $0.03. The announcement is clearly positive, although we would await incremental clarity before making a sweeping judgment. What we do know is that the company can weather the choppy oil environment longer than any of its competitors, customers and/or other peers. What we know is that SLB is the undisputed king in oilfield services space, pays a solid 2.6% dividend with ease, and will emerge from the downturn as the strongest player across its industry. The problem is that we have no ability to predict when the cyclical downturn will reverse, stabilize and return to growth, which is why we refuse to trade around the name amid commodity-driven volatility. We reiterate our $85 price target long-term.

Starbucks (SBUX:Nasdaq; $54.43; 1,750 shares; 3.80%; Sector: Consumer Discretionary): Shares traded higher this week, although they continue to lag the broader market as shareholders struggle to accept the reality that the days of double-digit or high-single-digit comp growth are over. We have taken advantage of the recent decline in shares to add to our position below our cost basis. Thankfully, the new growth reality remains differentiated and lucrative: consistent mid-single- digit comp growth driven by innovation through continuously improving technological capabilities and customer loyalty, coupled with among the most proven management teams in the market. Recent channel checks have been positive as well, as Nielsen data indicated that SBUX dollar share of the total ground-coffee category increased to 12.9% vs. 11.8% last year. Sales were up on unit growth and some net pricing growth. Overall, we understand that the company will have to prove to investors that it continues to grow and innovate, but we believe management has developed the right plan and is executing on the right initiatives to do so. The upcoming quarterly results (in a little over a month), will be an opportunity for the company to demonstrate its growth profile. We would consider adding more shares at less than $50, but remain content with our decision to add to the position on weakness last week. We reiterate our $65 target.

T.J. Maxx (TJX:NYSE; $76.02; 1,300 shares; 3.95%; Sector: Consumer Discretionary): Shares outperformed this week on little company-specific news. We added to the position on Thursday, below our cost basis, as we remain confident in the company's long-term prospects given its unique customer value proposition. The company's business model is built for flexibility, enabling it to deftly navigate a carousel of economic cycles. Its track record speaks volumes. In its 40-year history, it has had only one year with a comparable-store sales (comps) decline, while delivering annual comp increases for 20 consecutive years. It boasts a return on equity in excess of 50%, double-digit growth in sales and a consistent comp growth trajectory that ranks among the top across all of consumer/retail. Our thesis is emboldened by Macy's decision to close 100 stores and Kmart's decision to close 64. TJX stands as the key beneficiary for two reasons. First, the customer who typically shops at the lower-tier Macy's (or Kmart) stores that are being closed are more likely to choose TJX as their new off-price shopping alternative. Second, as stores shut down at underperforming locations, vendors will buy back excess inventory at fire-sale prices and offload to TJX, which has significant competitive advantages by virtue of its size (3,300+ stores), scope (18,000+ vendor relationships) and merchants (buying organization of more than 1,000 experienced merchants). We reiterate our $85 price target and believe the stock's 30%+ discount to retail peers exhibiting similar growth trajectories is unwarranted, especially in light of management's cautious nature and proven track record.

Walgreens Boots Alliance (WBA:Nasdaq; $82.05; 1,150 shares; 3.77%; Sector: Health Care): Shares nudged higher this week after Rite Aid (RAD) reported results and indicated on its conference call that it expects the takeover to close by year- end. We are desperate for clarity, and believe the market will push the stock higher regardless of the outcome, as long as certainty is restored. We reiterate our $90 price target but understand that it will take some time for shares to attain those levels given the market's increasing skepticism regarding the timing of a decision for the merger.


American Electric Power (AEP:NYSE; $66.66; 500 shares; 1.33%; Sector: Utilities): Shares moved higher this week on the heels of the Federal Reserve's decision not to hike rates, which sent yields of 10-year Treasury notes lower, making AEP's 3.4% dividend yield that much more attractive. Last week, the company announced an agreement to sell four competitive power plants (i.e., non-PPA assets) for roughly $2.17 billion. Investors have been waiting for this decision as the company looks to de-risk its profile and focus on regulated assets. The company will provide further details on how it plans to use the proceeds at its investor conference on Nov. 1, but we expect further investments in regulated businesses and potential share buybacks. We reiterate our $70 target.

Comcast (CMCSA:Nasdaq; $67.15; 600 shares; 1.61%; Sector: Consumer Discretionary): Shares outperformed the market on incremental news. Presenting at Goldman Sachs' Tech Conference, CEO Brian Roberts announced the company will be entering the wireless business by the middle of next year. Rather than building a wireless network from scratch, Comcast will operate as a mobile network virtual operator (MVNO) reselling Verizon's service while building upon it with its 15 million Wi-Fi hotspots. The strategy is tactical and a clear attempt at staying ahead of the growing use of mobile content and shift toward cord-cutting. We believe Comcast's strong momentum will persist as the company drives X1 deeper into its subscriber base while investing in the customer experience. Better-than-expected Olympic-related strength has led several sell-side analysts to raise estimates for NBCUniversal. Overall, the company's solid cable segment growth, combined with steady improvements in NBCU, helps create a well-diversified cash flow stream coveted in the media world. We expect most of the free cash flow to be applied toward shareholder value creation, specifically its near-2% dividend yield (albeit low, nicely above 10- year Treasury yields) and buyback program. We reiterate our $70 price target.

Costco Wholesale (COST:Nasdaq; $152.53; 400 shares; 2.44%; Sector: Consumer Staples): Shares underperformed this week, but did trade slightly higher. The shares have endured a sharp selloff as comparable store sales (or comps) have lagged, exacerbated by the fact that sell-side analysts fail to calculate the critical metric consistently, with some using reported growth and others adjusting for currency, gas deflation and/or food deflation headwinds. Although we trimmed our position above $165 a share in June given what we viewed as an accelerated run-up in shares, we use the example as a teaching lesson in conviction as we should have been more aggressive in slashing our exposure to the position. We are intrigued by shares under $150 but await the company relinquishing control of its story -- thereby adding visibility -- before we can take a firmer stance toward what we view as a strong long-term investment suffering from an interim growth identity crisis. The company is set to report earnings next week, but we do not necessarily expect the event to be much of a needle mover given that the Street is largely prepared for results as the company reports monthly sales figures. We do, however, believe the company could benefit from a lower bar given the recent selloff. That being said, we look for further commentary on trends heading into the back of the year and for more details on the continued transfer over to the Visa rewards cards. We reiterate our multiyear $175 price target.

Occidental Petroleum (OXY:NYSE): $69.60; 825 shares; 2.29%; Sector: Energy): We added to our OXY position this week after months of the stock trading in a tight range. Shares were off nearly 10% over the past two weeks following multiple Wall Street ratings downgrades. Sentiment has soured given the company's lack of near-term growth, yet we view this perspective as short-sighted as the company has positioned its balance sheet to support its 4.4% dividend yield irrespective of oil prices. It has strategically slashed capex amid the downturn and intends to invest in growth once prices stabilize going forward. For the here and now, we couldn't be more confident in the company's ability to pay out its compelling dividend. With even the most bearish analysts valuing the company at between $75 and $80 per share, we feel comfortable in the risk/reward setup with shares trading at $71 and change at the time of our purchase. With interest rates now lower for longer, OXY's 4.4% dividend yield is quite lucrative on a relative basis (certainly in respect to bonds, which range from sub-1.7% yield on 10-year Treasury notes to negative yields for the Japanese 10-year). We reiterate our $75 price target, which we feel reflects the upside while risk-adjusting for uncertainty in oil prices near term.

PayPal Holdings (PYPL:Nasdaq; $40.07; 1,200 shares; 1.92%; Sector: Technology): Shares traded lower this week on little news, catching their breath following a prolific multiweek rally. PYPL appears to be trading higher recently as investors are becoming increasingly comfortable with the company's deals with Visa and MasterCard. (Read our earnings Alert for details on the Visa deal and last week's roundup for details on the MA deal, which is very similar to the V deal.) Initially, investors were skeptical that these deals would be immediately dilutive and were more out of necessity for PYPL. Concerns especially focused on margin pressure, and while CFO John Rainey was quick to dismiss those concerns at a tech conference last week, we remain concerned that the management team is falling victim to elevating expectations ahead of earnings. Even if this elevated enthusiasm is deserved -- partially or otherwise -- we prefer investing behind management teams that under-promise and over-deliver. For this reason, we plan to exit our position next week once our restriction is lifted if shares remain above $40, which would reflect a 13% gain above our cost basis. We love the story but worry the risk/reward is skewed to the downside at current levels. We reiterate our $40 price target and will be looking to exit assuming flat to incremental strength.

PepsiCo (PEP:NYSE; $107.34; 900 shares; 3.86%; Sector: Consumer Staples): Shares of PEP traded solidly higher this week, approaching our $110 price target slowly but surely. Although we appreciate the company's salty snacks and non- carbonated soft-drink exposure, sales continue to get dragged down by deceleration in carbonated soft-drinks (CSD), which is reflective more of the entire category than it is PepsiCo's brands in particular. Although PEP's core sales growth tracks higher than Coca-Cola (KO) while also possessing one of the most impressive, operationally efficient and highly productive business models across the entire consumer-goods space, shares appear a bit stretched and we fear investors have priced in best-case scenarios once the valuation approaches $110 a share. We would trim if not outright exit if shares traded above $110 but are comfortable standing pat for now given the relative stability and visibility baked into the company's proven track record of delivering value creation amid an industry plagued by inertia and/or lack of innovation. We reiterate our $110 price target.

Visa (V:NYSE; $82.54; 1,075 shares; 3.54%; Sector: Information Technology): Shares moved higher this week on little news. We believe the company's stock price has become somewhat overvalued, with its price to earnings growth (PEG) ratio -- which measures a stock's P/E multiple relative to its growth prospects -- appearing stretched at 1.85x for calendar-year 2016 P/E and a more digestible 1.5x for calendar-year 2017 P/E. We struggle to make sense of the valuation in light of strong sales growth yet expectations for slight margin deterioration. Within the payments space, however, shares of Visa appear relatively attractive as the entire complex is up 9% year to date on average on the heels of being up 11% in 2015 (vs. -0.7% for the S&P 500). Visa's 18% rise in 2015 appears somewhat tempered by its 7% rise year to date. We are not ready to exit the name as we consider it to be high-quality, highly proven and financially sound on nearly every financial metric, yet do not anticipate adding to the name unless shares dropped below $80 and to the mid-$70s (preferably below $77). We reiterate our $84 price target for the time being.

Wells Fargo (WFC:NYSE; $45.74, 2,300 shares; 4.20%; Sector: Financials): The outrage over Wells Fargo's improper sales practices (read our previous Alerts here, here and here) continued this week as CEO John Stumpf journeyed to Capitol Hill to address the Senate Banking Committee's most pressing concerns. Mainly, legislators focused on the bank's unethical motivations as it carried out excessive and unwarranted cross-selling practices in an effort to meet and exceed sales goals. Even so, the stock traded slightly higher this week, rebounding from last week's selloff. Apologies aside, Stumpf ultimately endured fire from all angles as members of both parties unleashed the wrath of their constituents, calling for increased accountability at the bank's upper echelons of management. While many are calling for Stumpf to step down as CEO of Wells Fargo, we believe the first step to turning around this reputational disaster would be for him to agree to give up pay -- and have other top executives follow suit. The trustworthy brand that was once Wells Fargo has all but been swept away in this sandstorm of controversy. Management needs to make changes, and quickly, to begin the process of earning back customer trust. The road to redemption is undoubtedly a long one. From an investment perspective, let's be clear: This is an extremely tough situation that faces Wells Fargo, and it is likely to continue for some time. Cases of fraud or accounting irregularities or anything of the sort that attracts massive public scrutiny always requires almost a complete washout and subsequent rebirth of the company brand. Wells will have to regain public trust, and in order to do so, noticeable changes will need to be made moving forward -- in addition to retroactive penalties against those responsible, especially members of the top brass. That being said, although the outlook certainly looks bleak on the surface, we are standing pat, as we believe the valuation has come down to a point where we believe the upside (over the long term) outweighs the subsequent downside facing shares in the coming months. This is by no means a moral vindication: We are categorically against those involved with these fraudulent practices and do not approve of Wells' actions. From an investment perspective, however, we are not reverting to panic. The now 3.3%-yielding dividend is safe, and the massive deposit base is mostly cemented. Regardless, we recognize that uncertainty will plague shares for the next several months as headline risk continues to run rampant. We are willing to take a long-term horizon amid the sea of volatility (spurred by further investigations, management shake-up, etc.) and advise members holding shares to recognize that the choppiness is likely to continue through year end. All in, we are neither buyers nor sellers of Wells at these levels, and do not intend to trade around volatility. What we can say is that we continue to like the fundamentals over the long term, and believe downward re-rating, while certainly justifiable given the headline risk, now offers some support for shares when combined with the safe, robust dividend and the potential for impending rate hikes over the next six to 12 months. We reduced our price target to $50 to account for regulatory overhang and overarching uncertainty, and reiterate our Two rating.


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

DISCLOSURE: At the time of publication, Action Alerts PLUS was long AA, AAPL, AGN, BMY, CSCO, C, DOW, FB, GE, GOOGL, NWL, NXPI, PNRA, SLB, SBUX, TJX, WBA, AEP, CMCSA, COST, OXY, PYPL, PEP, V and WFC.

Exiting One Position and Adding to Another
Stocks in Focus: TMO, AA

We are getting out of Thermo Fisher and building our stake in Alcoa.

09/23/16 - 12:14 PM EDT
Investors Warm Up to Allergan Deals
Stocks in Focus: AGN

CEO Saunders says initial impressions were misguided.

09/22/16 - 04:12 PM EDT
We're Buying More TJ Maxx
Stocks in Focus: TJX

Competitors' store closings make it an even better bargain.

09/22/16 - 02:55 PM EDT
Weekly Roundup

With the Fed decision behind it, the market focuses on earnings and oil. In the portfolio, we added to three positions and exited from one.

09/23/16 - 07:02 PM EDT


Chart of I:DJI
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASDAQ 5,305.7470 -33.7760 -0.63%

Action Alerts PLUS Holdings

Holdings 1

Stocks we would buy right now

Symbol % Portfolio
AAPL 3.68% Consumer Durables
AGN 4.86% Drugs
BMY 1.12% Drugs
C 4.23% Banking
CSCO 4.87% Computer Hardware
DOW 3.07% Chemicals
FB 5.10% Internet
GE 2.80% Industrial
GOOGL 4.87% Internet
NWL 1.04% Consumer Durables
NXPI 3.34% Electronics
PNRA 4.76% Leisure
SBUX 3.79% Leisure
SLB 3.02% Energy
TJX 3.94% Retail
WBA 3.76% Retail
Holdings 2

Stocks we would buy on a pullback

Symbol % Portfolio
AEP 1.33% Utilities
CMCSA 1.60% Media
COST 2.43% Retail
OXY 2.29% Energy
PEP 3.85% Food & Beverage
PYPL 1.92% Financial Services
V 3.53% Financial Services
WFC 4.19% Banking