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Jim Cramer's Action Alerts PLUS

Weekly Roundup

By Jim Cramer and the AAP Team | 2018-02-16 18:24:13.0

Markets rebounded, having their best week since 2013 (although we note that last week was the worst in two years), with the S&P 500 closing above its 50-day simple moving average (SMA) on Thursday and turning back to positive for the year. However, with equities bouncing back so fast, we are maintaining a cautious view as 10-year Treasury yields remain solidly above the 2.8% level (potentially becoming competition for equities), inflation is on the rise and should we return to previous levels too fast, levels many believed were too high on a valuation basis, we could once again return to "overbought" status. Also, this week, we hosted our monthly members-only call, which can be watched here. Lastly, as a reminder, U.S. markets will be closed on Monday for President's Day.

Treasury yields trended slightly higher this week, although ended Friday off the week's high of 2.94%. Gold moved higher as the euro advanced relative to the dollar. Lastly, oil bounced back this week, pushing back above the $60 level.

Fourth-quarter earnings are underway and are so far relatively positive vs. expectations. Within the portfolio we heard from PepsiCo (PEP) , Cimarex (XEC) and Waste Management (WM) .


PepsiCo reported a top- and bottom-line beat for its fourth quarter. Revenues of $19.53 billion exceeded the consensus of $19.39 billion, and adjusted earnings per share of $1.31 topped the consensus by a penny.

Core sales growth was 2.3% in the fourth quarter, in-line with the full year results. Frito-Lay North America organic revenue increased 5% and organic volume grew 3%. Quaker Foods North America organic revenue was flat, but organic volumes grew 0.5%. Headwinds persisted in North American Beverage (NBA) as organic revenue declined 3% and organic volumes decreased 2%. Although the NAB results were negative, growth improved sequentially. Looking ahead to 2018, management expects organic revenue to grow at least 2.3% and core EPS is expected to increase 9%.


Cimarex reported better-than-expected results with its fourth-quarter earnings release. On the top line, revenues of $550.9 million (+44% year over year) exceeded expectations of $532 million. On the bottom line, adjusted (non-GAAP) earnings per share of $1.47 topped expectations of $1.39.

Adjusted cash flow from operations was $357.1 million, which was ahead of expectations of $330 million. Total production volumes averaged 201 thousand barrels of oil equivalent (MBOE) per day. Management also released its 2018 capital investment plans. Cimarex plans to spend between $1.6 billion to $1.7 billion with an additional $80 million to $90 million set aside for midstream and infrastructure. Management also expects total production in 2018 to average 211-221 MOBE per day, up 14% year over year at the midpoint.

Waste Management

Waste Management reported a top- and bottom-line beat with its fourth-quarter results. Revenue of $3.65 billion (up 5.5%) topped the consensus of $3.46 billion, and adjusted earnings per share of $0.85 (up 11.8%) beat Street expectations by two pennies.

Total collection revenue was $2.352 billion (up 5.7% year over year). Landfill revenue increased 13% year over year to $883 million. Transfer revenue was $399 million (up $21 million year over year), and recycling revenue of $210 million was down from fourth quarter 2016's result of $388 million. Free cash flow was $342 million in the fourth quarter, making Waste Management's 2017 total $1.77 billion. Looking ahead, management excepts adjusted earnings per share for full year 2018 to be between $3.97 and $4.05, with free cash between $1.95 billion and $2.05 billion.


On the economic front, while it was a slow start to the week with all eyes on Wednesday's consumer price index release as inflation, or more specifically, a faster than expected rise in inflation has been a cause for concern as it has pushed interest rates higher, resulting in increased competition from the bond market (as it relates to equities). On Wednesday, these concerns were given credence as the U.S. Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose 0.5% in January, exceeding expectations of a 0.3% increase and coming on the heels of December's 0.2% advance. The CPI also gained 2.1% on an annual basis, exceeding expectations of a 1.9% gain but unchanged from December's annual increase.

So-called "core" CPI, which excludes food and energy costs due to their volatility, also rose 0.3% month over month following a 0.2% advance in December. That's above analyst expectations of a 0.2% increase, and also marked the largest monthly gain since January 2017. For reference, monthly core CPI gains haven't exceeded 0.3% since March 2005, when they hit 0.4%. On a yearly basis, core CPI advanced 1.8% during January, unchanged from December's reading but a tick higher than analyst expectations of a 1.7% annual gain.

These strong annual gains are bittersweet. On one hand, a return of inflation can indicate that the U.S. economy is healthy and growing. Remember, the Fed's ideal rate of inflation is 2%. On the other hand, inflation means that consumers' cost for goods is on the rise. Companies could also potentially face margin compression, as the increased cost of goods sold (or "COGS") means a decrease in gross margins (i.e., sales minus COGS). For a more detailed analysis of the release and what we believe it means to our investments, see here.

On Thursday, The U.S. Bureau of Labor Statistics reported that the Producer Price Index (PPI) for final demand advanced 0.4% in January, meeting expectations. That followed a flat December reading and a 0.4% advance in November.

On an annual basis, PPI rose 2.7% vs. 2.6% advance in the 12 months ending in December. Driving the latest headline numbers was a 0.3% monthly increase in prices for final demand services, which followed a 0.1% drop in December. The BLS also reported a 0.7% monthly advance in prices for final demand goods, which built on a 0.1% increase for December.

Core PPI -- which excludes volatile food, energy and trade services and is often considered the more-relevant metric than overall PPI -- increased 0.4% in January following a 0.1% gain in December. January's gain marked that greatest monthly increase since a 0.5% boost last April. Core PPI also rose 2.5% for the 12 months ended in January, representing an acceleration from December's 2.3% annual reading. For our more in depth analysis, see here.

Also, on Thursday, the Department of Labor reported that initial jobless claims for the week ending February 10 were 230,000, an increase of 7,000 claims from the previous week's revised level of 223,000 (revised up from 221,000), and in line with expectations. Claims taking procedures in the Virgin Islands and Puerto Rico have yet to return to normal. Importantly, the four-week moving average for claims (used as a gauge to offset volatility in the weekly numbers) was 228,500, an increase of 3,500 from last week's revised level of 225,000 (revised up from 224,500). 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 incredible 154 consecutive weeks, the longest streak since 1970. For the official weekly release, please see here.

Finally, on Friday, The U.S. Census Bureau reported that housing starts surged 9.7% in January to a seasonally adjusted 1.326 million annual rate. That's the strongest showing since October 2016, as well as significantly above 1.234-million-unit increased that analysts had expected. Boosting the report's good news, the Census Bureau upwardly revised December housing starts to 1.209 million from the 1.192 million previously reported. Adding in January's advance, housing starts are now up 7.3% from the same time last year. For our detailed analysis, see here.

Key Global Economic Readings


On the commodity front, oil prices bounced back this week, with WTI closing above the $60 level as the dollar weakened, essentially making the commodity cheaper for foreign buyers that purchase in currencies other than the dollar. Adding to the weaker dollar, on Monday, OPEC raised its global demand forecast by 60,000 barrels per day (bpd) to 1.59 million bpd. However, while the organization (and Russia) remains committed to reducing output by 1.8 million bpd, it did upwardly revise its non-OPEC production growth forecast by 250,000 bpd (150,000 bpd being attributed to rising U.S. production) to 1.4 million bpd. With this, OPEC expects that countries outside of the committee to pump a total of 59.26 million bpd.

On Tuesday, the International Energy Agency (IEA) raised its estimates for oil demand growth in 2018 to 1.4 million bpd (matching non-OPEC supply growth estimates), from 1.3 million bpd, noting that the revision was, "partly due to an optimistic GDP forecast from the IMF," however, mentioning that relentless U.S. production could serve to offset the demand increase (in line with OPEC's view).

The bullish demand commentary was compounded by upbeat supply data on Wednesday, when the U.S. Energy Information Administration (EIA) reported that in the week ending February 9, crude inventories rose by 1.8 million barrels, below expectations of a 2.8-million-barrel build even as refineries reduce operating activity for seasonal maintenance. Recall, due to the delicate supply/demand dynamic gripping the global oil market, any disruption in supply, or a reading below expectations on the supply side can be viewed as positive as it works to aid Russia/OPEC efforts to reduce global supplies. However, helping to confirm the IEA's that U.S. production could offset demand growth, U.S. production increased by 20,000 bpd to 10.27 million bpd a record should it be confirmed by the monthly data report. This was, however, slightly offset by a small rise in exports, which increased by 35,000 bpd from the week prior, to 1.32 million bpd.


In the portfolio this week, we initiated a position in Goldman Sachs (GS). In addition to the benefits of a rising interest rate environment, the return of inflation has brought with it the return of volatility. We believe that Goldman Sachs greatly benefits from a volatile market as the bank's trading arm thrives during periods of volatility.

We also increased our positions in Eli Lilly (LLY), Honeywell (HON) and Cimarex (XEC). For Eli Lilly, we purchased shares because we felt that the selloff was overdone, the trade improved our basis, and shares yielded almost 3% at that price. In the case of Honeywell, as we noted in our alerts, we believe that the company is too high quality of a name with too strong of management team to fall victim to long-term weakness. As for Cimarex, we purchased 50 shares on Tuesday believing that the stock has become victim to the recent weakness in crude oil and the market selloff. We then added another 25 shares on Thursday following a mixed quarterly release as we feel the selling had become overdone because Cimarex's guidance was back-end loaded and investors may not be willing to sit through a weaker first quarter.

We also used strength in Allergan (AGN) to reduce our stake, as past spurts of strength have proven to be head fakes and we believe investors will not respect this name until the company claws out of this narrative. Then, on Friday we trimmed both Nucor (NUE) and Arconic (ARNC) after Commerce Secretary Wilbur Ross released his recommendations on foreign steel and aluminum.

Lastly, we closed out our position in First Data (FDC) as de-leveraging and revenue growth is taking much longer than what we originally anticipated. As we noted in our trade alert here, we initially thought that as the company paid down its debt, the equity value of the company would increase. However, challenges in the company's joint venture delayed this outlook because its growth has not lived up to expectations.

Moving on to the broader market, fourth-quarter earnings are underway and have so far been positive verse expectations, with 76.4% of companies reporting a positive EPS surprise. Thus far, fourth-quarter earnings growth has increased roughly 16.6% year over year vs. expectations for an overall 15.76% increase throughout the season; of the 316 non-financials that reported, earnings growth is up 17.0%. Revenues are up 8.2%, surpassing expectations throughout the season for a 7.45% increase; 76.4% of companies beat EPS expectations, 15.0% missed the mark and 8.7% were in line with consensus. On a year-over-year comparison basis, 82.41% beat the prior year's EPS results, 15.22% came up short and 1.84% were virtually in line. Materials, Financials and Information Technology have had the strongest performance vs. estimates, whereas Telecom, Utilities and Real Estate posted the worst results in the S&P 500 for the fourth quarter so far.

Next week, 68 companies in the S&P 500 will report earnings. Within the portfolio, Apache (APA) will report on Thursday, before the opening bell.

Other key earnings reports for the market include: Wal-Mart (WMT), Home Depot (HD), Medtronic (MDT), Duke Energy (DUK), Flour (FLR), Devon Energy (DVN), FirstEnergy (FE), Sempra Energy (SRE), Southern (SO), DISH (DISH), Advanced Auto (AAP), WEX (WEX), Wolverine (WWW), Energy Transfer (ETP), Sunoco (SUN), Avis (CAR), Jack in the Box (JACK), Magna (MGA), Leidos (LDOS), Hormel Foods (HRL), Wayfair (W), HP (HPQ), Hewlett Packard Enterprise (HPE), Intuit (INTU), Herbalife (HLF), GoDaddy (GDDY), Royal Bank of Canada (RY), Entergy (ETR), Public Services (PEG) and Potbelly (PBPB).

Economic Data (*all times ET)


Monday (2/19)

***Market Closed for President's Day***

Tuesday (2/20)

Wednesday (2/21)

MBA Mortgage Applications (7:00)

Markit US Manufacturing PMI (9:45): 55.5 expected

Markit US Services PMI (9:45)

Markit US Composite PMI (9:45)

Existing Home Sales (10:00)

Thursday (2/22)

Initial Jobless Claims (8:30)

Continuing Claims (8:30)

Bloomberg Consumer Comfort (9:45)

Leading Index (10:00)

Friday (2/23)


Monday (2/19)

Tuesday (2/20)

Japan Machine Tool Orders YoY (1:00)

Germany PPI YoY (2:00)

Germany PPI MoM (2:00)

Germany ZEW Survey Current Situation (5:00)

Germany ZEW Survey Expectations (5:00)

Eurozone Agg ZEW Survey Expectations (5:00)

Eurozone Agg Consumer Confidence (10:00)

Japan Nikkei Japan PMI Mfg (19:30)

Japan All Industry Activity Index MoM (23:30): 0.4% expected

Wednesday (2/21)

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

Germany Markit Germany Services PMI (3:30)

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

Eurozone Agg Markit Eurozone Manufacturing PMI (4:00)

Eurozone Agg Markit Eurozone Services PMI (4:00)

Eurozone Agg Markit Eurozone Composite PMI (4:00)

UK Claimant Count Rate (4:30)

UK Jobless Claims Change (4:30)

UK ILO Unemployment Rate 3Mths (4:30): 4.3% expected

UK PSNB ex Banking Groups (4:30): -9.5b expected

Thursday (2/22)

Germany IFO Business Climate (4:00)

Germany IFO Expectations (4:00)

Germany IFO Current Assessment (4:00)

UK GDP QoQ (4:30): 0.5% expected

UK GDP YoY (4:30): 1.5% expected

Japan Natl CPI YoY (18:30): 1.3% expected

Japan Natl CPI Ex Fresh Food YoY (18:30): 0.8% expected

Friday (2/23)

Germany GDP SA QoQ (2:00)

Germany GDP WDA YoY (2:00)

Germany GDP NSA YoY (2:00)

Eurozone Agg CPI Core YoY (5:00)

Eurozone Agg CPI YoY (5:00)

Eurozone Agg CPI MoM (5:00)

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Abbott Laboratories (ABT) ; $60.17; 800 shares; 1.66%; Sector: Healthcare -- Shares pushed higher this week, outpacing the broader market. We continue to like Abbott as the company recently reported solid earnings driven by strong results in Diagnostics, Established Pharmaceuticals, and Medical Devices. Furthermore, we learned that the past acquisitions of St. Jude Medical and Alere exceeded both management and analyst expectations. Looking ahead we believe shares will continue to grind higher as the FreeStyle Libre gains traction in the US market and the Alinty system, Abbott's "flexible diagnostics ecosystem, which has been very successful internationally, launches in the US markets. We believe these factors will allow management to achieve their bullish guidance of double digit earnings growth and 6% to 7% organic sales growth. We reiterate our $65 price target.

Apple (AAPL) ; $172.43; 700 shares; 4.16%; Sector: Technology -- Shares rallied this week as investors appreciated how overdone the stock's selloff was as Apple is a cheap on earnings consumer products company with the best technology. Also, news that Warren Buffet had increased his stake in the company by over 23% as of the end of 2017, according to an SEC filling spurred sentiment as well. Compounding the show of confidence, Strategy Analytics released a research report this week noting that not only have worldwide smartphone revenues reached an all-time high of $120B in 4Q17, but Apple captured 51% of the sales; i.e. iPhone sales in the period, globally, accounted for more than all other smartphone sales combined. We believe this speaks to our view that the business is as strong as ever and analyst talk of a "super cycle" resulted in expectations for the recent quarter simply being unreasonably high. That said, we remind members that our longer-term thesis on Apple is based on the company's rapidly growing Services segment as this provides a transparent recurring revenue stream at higher margins than other business segments. Not only does this segment stand to benefit from Apple's smartphone dominance but with Apple computers and tablets also seeing record installed base numbers and the newly released HomePod making its way onto the scene, there are more Service outlets than ever before. We reiterate our $190 target.

Broadcom (AVGO) ; $248.89; 200 shares; 1.72%; Sector: Electronics -- Shares pushed higher this week as CEO Hock Tan came on Squawk on the Street to appeal to shareholders over his takeover attempt of Qualcomm (QCOM). Also, on Wednesday, the management teams of the two companies met to sort out how Broadcom would adhere to regulatory challenges in the event a deal was accepted. With the two companies meeting this week, we believe the uncertainty surrounding the Broadcom's takeover attempt that has held shares back will soon be removed as Broadcom's $82 offer was best and final. As we've noted previously, we believe either outcome to Broadcom will be win-win: if they succeed and acquire Qualcomm, they will benefit from increased exposure to 5g wireless and become the third-largest semi manufacturer behind Intel (INTC) and Samsung. If they fail and move on, and investors can once again turn their focus to the strong trends working in Broadcom's favor and the stock will rise back to its levels before the takeover attempt was announced. As a reminder, with the iPhone X release behind us we believe Broadcom stands to benefit in the mid-term from the pending upgrade of wireless networks to 5g as they develop chips that will be required for mobile devices to take advantage of the new standard. Longer-term we believe it is the rapidly growing demand for data that will aid the company as they create several solutions that play to the trend including 5G WiFi (not to be confused with 5g wireless) and last-mile solutions that address bottleneck issues when internet providers transmit high speed internet to end customers. We reiterate our $290 target and will continue to monitor for updates regarding the Qualcomm takeover effort.

Comcast (CMCSA) ; $39.79; 2000 shares; 2.75%; Sector: Consumer Discretionary -- Shares pushed higher this week, however, underperformed that broader market. We continue to like Comcast for its robust cash flow, business diversity and significant exposure to the benefits of US tax reform as over 90% of revenues are generated domestically and Comcast had an effective tax rate of roughly 35% prior to reform. On that note, we remind members that during their recent conference call, management guided for the company's effective GAAP tax rate to decline to 24%-26%. As for business diversity, we believe this is crucial to our thesis as cable subscriptions are in decline nationwide, a trend we believe will continue as more subscribers opt for over the top alternatives such as Netflix and Hulu (which is part owned by Comcast via a joint venture with Disney and 21st Century Fox). And while video subscribers will likely continue to decrease (although we note that the X1 platform has helped Comcast remain more resilient to the trend than others), we believe Comcast will be able to more than offset the decline as customers subscribe for higher speed internet, required for the streaming of high definition video and gaming content. Recall, we saw this into play in the last release when broadband adds outpaced expectations. We reiterate our $45 target. 

Danaher (DHR) ; $97.54; 1000 shares; 3.37%; Sector: Life Sciences -- Shares of Danaher pushed higher this week and the stock is now firmly above its market selloff lows. On Wednesday, the stock was initiated with an overweight rating at Barclays. The research analysts believe that Danaher's core top-line growth looks appealing, capital deployment will step up in 2018, and profit margins will expand more in 2018 than 2017.On the downside, they think that headwinds in Dental's traditional consumable business will continue but taper through the year, and also specialty consumables sales will continue to grow. We think Danaher could have a big 2018 as the company's core revenue growth should post robust numbers thanks to strong acquisitions that have both integrated into the business and have improved through the application of the Danaher Business System. We reiterate our $104 price target.

DowDuPont (DWDP) ; $71.95; 1375 shares; 3.41%; Sector: Chemicals -- Shares of DowDuPont pushed higher this week, in-line with the broader market. It was a quiet week for the company outside the Wednesday report that DuPont previously downplayed groundwater contamination at a facility in New Jersey. Despite the headline, the stock was not deterred that day. We will watch this situation for an official comment by management. DowDuPont remains one of our favorite names in the portfolio because it has exposure to growing industries, it has catalyst in the upcoming breakup, and shares pay a solid dividend. The only softness in the company's last earnings report was in management's agriculture revenue guide, but we believe this will be smoothed out over time due to a season shift in Brazil. Also, on the last print, management increased its breakup synergy targets by $300 million, and the planned spinoffs are now expected to be completed ahead of schedule, with the Materials Science segment expected to be spun by the first quarter of 2019, and the Agriculture and Specialty Products spins expected to be completed by June 1st, 2019. We reiterate our $85 price target.

iShares MSCI EMU Index ETF (EZU) ; $44.56; 1000 shares; 1.54%; Sector: Europe -- Shares bounced back this week, however, slightly underperformed the S&P 500. The biggest update regarding our EZU position came in the form of the Eurozone's second reading on fourth quarter GDP growth. Recall, GDP estimates are released three times as more data becomes available. On Wednesday, we learned that the second reading confirmed the preliminary reading released last month, indicating a 0.6% quarter over quarter increase and a 2.7% annual advance, both in line with expectations. Additionally, for the entirety of 2017, GDP growth was confirmed at 2.5%. We believe the in-line results indicate that the expansion remains intact and as a result, we continue to like the EZU as a means of gaining passive exposure to the European markets and euro currency. Recall, we selected the EZU over other European ETFs because it has minimal exposure to the UK, a region we decided was best to avoid given remaining uncertainty surrounding Brexit and provides us with euro currency exposure as it is unhedged (the HEZU being the hedged version). Given that this is an ETF encompassing over 200 companies, we will not have a price target.

Facebook (FB) ; $177.36; 800 shares; 4.90%; Sector: Technology -- Shares were fractionally higher this week on little news. We continue to like Facebook as the company is a dominant force in the online advertisement industry and is actively working to diverse its revenue stream while maintaining the integrity of its core platform. Regarding revenue diversification, we point to the ongoing investments into video (including original content and the rights to stream sports, including eSports, via the "Watch" tab) and virtual reality via the company's Oculus segment. As for brand integrity, Facebook continues to invest in security following claims that the platform may have been used to influence the 2016 US election and has recently decided to modify its Newsfeed to increase focus on more "meaningful" connections between friends and family. And while the news of the change was initially met with skepticism and selling as it has resulted in less engagement time per user, buyers returned as management noted that the time that was spent on the platform was of higher quality and leading to increased return on advertisers' investments, allowing Facebook to charge more per advertisement. We believe management is making all the right moves for long-term success and reiterate our $220 target.

Goldman Sachs (GS) ; $267.62; 50 shares; 0.46%; Sector: Financials -- Shares rallied this week outperforming the broader market. This week, we initiated Goldman Sachs as we want to increase our financial exposure and believe that one of Goldman's biggest revenue generator, its trading business, is primed for a turnaround thanks to the return of volatility. Recall, the reason Goldman had a poor quarter in its previous release was a 50% year over year decline in FICC (fixed income, currency and commodity) revenues (housed within the Institutional Client Services segment) due to a lack of volatility in 2017, something that anybody who tracks the market can tell you, is no longer the case. Further bolstering our conviction that this business will recover is CFO, Marty Chavez's comments from the company's quarterly release, where he stated that, "higher interest rates and more active central banks often correlate with higher client activity," as we are certainly seeing these two factors come back into play this year. For more detail on our thesis in Goldman Sachs, see our initiation alert here. We reiterate our $285 target

Honeywell (HON) ; $154.03; 650 shares; 3.45%; Sector: Industrials -- Shares of Honeywell pushed higher week, about even with the broader market. We continue to have high expectations in the multi-industry company, and we jumped on the opportunity to build up our position and lower our cost basis during the market downturn. We believe that the upcoming spinoffs by the company will unlock value for shareholders as it will allow management to focus more on the high-performing, strong margin areas like defense and aerospace. Also, we expect management will be active in the merger and acquisition market this year as they have plenty of cash available, which has been made possible by strong free cash flow generation and disciplined spending. Lastly, we understand our main catalyst will not be completed until the end of 2018, which is why we appreciate the company's capital return policy as an additional means of generating a return. We reiterate our $175 price target.

Illinois Tool Works (ITW) ; $162.55; 550 shares; 3.08%; Sector: Industrials -- Shares trended higher this week on little news. As the company moves into phase two of its strategic framework, characterized by bolt-on acquisitions and potentially the addition of a new operating segment, we believe shares will continue to push higher progress is made on this front. Furthermore, we believe management's intense focus on its 80/20 business model (which places intense focus on the 20% of products/customers responsible for 80% of sales/profits) will ensure that any acquisitions made do not stretch the company too thin or derail past streamlining efforts (the focus of phase one of the company's strategic framework). Moreover, we value ITW for both its significant internal diversification (which has allowed it to remain resilient despite weakness here and there in or two operating segments) and high quality, cash backed earnings. Recall, when the company last reported quarterly earnings, we learned that free cash flow was 106% of net income. We reiterate our $185 target.

JP Morgan Chase (JPM) ; $114.68; 200 shares; 0.79%; Sector: Financials -- Shares rallied this week as the financials remain the top beneficiary of rising rates. JPMorgan, the largest U.S. bank in terms of total assets, remains one of our favorite ways to play the global economic expansion and rising interest rate environment. Recall, the bank's global presence will allow it to lend to those companies seeking to borrow capital overseas, where it may be more financially beneficial to borrow following U.S. tax reform, as interest on debt can be used to offset taxable income (something companies will look to do in countries with tax rates now higher than those found domestically). Regarding the rising interest rate environment, JPMorgan stands to benefit as it will be able to expand its net interest margin (the difference between the bank's cost of borrowing and charge for lending) and thus increase profitability. Lastly, with the Fed previously announcing that this year's "stress test" will be more difficult, we believe the company's "fortress like" balance to be as important as ever. We reiterate our $120 price target.

Eli Lilly (LLY) ; $78.97; 1000 shares; 2.72%; Sector: Healthcare -- Shares of Eli Lilly rebounded this week, but slightly less than the broader market. On Tuesday, the company announced positive top line results in its COAST-V Phase 3 study on the safety and efficacy of Taltz for the treatment of Ankylosing spondylitis. Taltz showed a statistically significant improvement in the signs of symptoms of this disease as measured at a response of 16 weeks, compared to placebo. A few members of the management team also spoke at a LEERINK Global Healthcare conference on Thursday, where they said that the central nervous system is a key focus area of the company. They also said that the mid-stage pipeline is the company's next opportunity area for innovation, and it features programs in diabetes, psoriasis, and inflammatory bowel disease. With a robust number of products either new to launch or in the pipeline, we view Eli Lilly as one of the better growth stories in large cap pharma. However, the stock continues to get disrespected by the street for its heavy exposure to the competitive diabetes market and a declining Animal Health Business that management is trying to sell/spin. Ultimately, we believe that Lilly can move past that negative sentiment over time as investors focus on how well the business is growing, and we reiterate our $93 price target.

Nordstrom (JWN) ; $51.5; 1500 shares; 2.67%; Sector: Retail -- Shares jumped this week, outpacing the broader market. We continue to view Nordstrom as a top beneficiary from the economic expansion, wage inflation and tax reform as these factors ultimately result in higher levels of disposable income (i.e. income after taxes). Our conviction in the name was bolstered when luxury brands such as Michael Kors, Estee Lauder, Lululemon and Tapestry all reported strong quarterly results, indicating that retail demand has indeed returned along with the rise in wages and disposable income. Additionally, while luxury goods sales are key, Nordstrom is also exposed to discount shoppers via the Nordstrom Rack chain a segment in which we believe trends can improve as the company plays catch up with competitor Kohls. Lastly, we believe the overall business is set to improve as, back in January, Nordstrom preannounced a positive same store sales increase for the crucial November/December months, coming in at 1.2%, more than double expectations of a half a percent rise. We believe the New York store opening later this year will be able to capitalize on the return to brick and mortar and keep this trend going. We reiterate our $54 target.

Microsoft (MSFT) ; $92; 1100 shares; 3.49%; Sector: Technology -- With shares bouncing back this week, Microsoft remains one of our favorite ways to play the move to the public cloud, and the company we believe poses the biggest threat to Amazon AWS' dominance. Furthermore, analysts at Deutsche Bank published a note this week discussing their takeaways from "The Information's inaugural Cloud/AI event." The most important takeaway in our opinion was that for the most part, companies will likely not move entirely to the public cloud (and if they do it could take decades to get there), choosing instead to adopt a hybrid model, with some information stored in the public cloud and some on local servers. Furthermore, thanks to Microsoft's legacy enterprise solutions (Microsoft servers have been the go-to for company data storage for years) the analysts noted that consensus at the conference was that Microsoft is best-positioned to take advantage of the hybrid cloud environment as Amazon ad Google will likely need to partner with on-premise providers to fulfill hybrid cloud needs. Outside of the cloud Microsoft stands to benefit from tax reform as it can now bring back roughly $128 billion dollars from overseas and the trend of video games going mainstream thanks to its Xbox platform. On the gaming front, we also note that the move to online gaming can lead to an increase in recurring revenue from Xbox Live subscriptions (required for online play) and the new Game Pass, which is essentially the gaming equivalent of Netflix. We reiterate our $100 target.

PepsiCo (PEP) ; $111.06; 500 shares; 1.92%; Sector: Consumer Staples -- Shares of PepsiCo were pressured this week due to the company's fourth quarter earnings print and strong numbers from competitor Cola-Cola (KO). On Tuesday, the company reported a top and bottom line beat as revenues of $1.953 billion topped the consensus of $19.39 billion and adjusted earnings per share of $1.31 beat estimates by a penny. Core sales growth was 2.3% in the quarter as the fast-growing Frito-Lay North America business (+5% organic revenue) was held back by North American Beverage (-3% organic revenue). We believe that the challenges in North American Beverage are incorrectly overshadowing the strength of Frito-Lay North America, which is absolutely on fire. That misjudgment by the market, coupled with the announced 15% increase to the dividend and the new $15 billion buyback program are why we view the selloff as overdone, and as a result, we are upgrading shares to a ONE. To read our analysis of the quarter, please see here. We reiterate our $130 price target.

Raytheon (RTN) ; $217.73; 300 shares; 2.25%; Sector: Aerospace -- Shares pushed higher this week as defense stocks remain in high demand. As we noted on this week's members only call, we continue to like Raytheon as U.S. defense spending is on the rise and roughly 32% of sales come from abroad, with plenty of demand coming out of Europe, Asia Pacific, and the Middle East and North Africa. The demand is coming largely thanks to the company's Patriot Air and Missile Defense system as nations seek to increase their defense capabilities. Furthermore, with NATO countries being pushed to meet their minimum defense spend of 2% their GDP we expect Raytheon will benefit from those nations who have yet to meet their spending requirements. Finally, Raytheon is a beneficiary of the reduction in the corporate tax rate as the company paid nearly a 36% tax rate in 2017, and management expects this will fall to about 19% in 2018, a factor that should allow the company to return capital to shareholders in the form of dividends and share buybacks. We reiterate our $232 target.

Schlumberger (SLB) ; $66.28; 1500 shares; 3.43%; Sector: Energy -- Shares of Schlumberger pushed higher this week, though trailed the broader market. On Tuesday, management spoke at the Credit Suisse annual energy summit in Vail, Colorado, where they reiterated the commentary from their last earnings call. The first quarter is expected to be light due to weather related issues and other transient factors, however, management kept its full year expectations intact. As we said when the company reported, we are looking past the soft first quarter because we are not short-sighted. This management team has often been prescient in predicting the moves in the energy market, and they believe the current environment sets up well for 2018. We reiterate our $93 price target.

Constellation Brands (STZ) ; $219.45; 375 shares; 2.84%; Sector: Consumer Staples -- Shares bounced back this week, in line with the overall market. When it comes to Constellation, it's all about premiumization. We believe management's strategy of focusing on premium offerings will aid in pushing shares higher as progress is made on this front. Backing this view, we note that in the previous quarter, while overall wine sales came in a tad soft, sales of premium wines were less impacted. Just as important as the decision to focus on premium, if not more so, is management's ability to spot industry trends before others. Speaking to this, we point to the company's past acquisition of Casa Noble. Whereas the Constellation management team spotted the growing demand for premium tequila back in 2014 and paid only $30 million for the premium tequila brand, competitor Diageo recently spent $5.1 billion to acquire premium tequila brand Patron. We believe these two factors (management's keen eye and focus on premiumization) will aid in pushing shares higher and note that with the economy still in expansion mode and wage inflation potentially making a comeback, consumers will likely seek out higher quality (i.e. premium) options thanks to higher levels of disposable income following tax reform. We reiterate our $242 price target.

Waste Management (WM) ; $85.15; 1100 shares; 3.23%; Sector: Industrial -- Shares of Waste Management greatly pushed higher this week and outperformed the S&P 500. On Thursday, the company reported a terrific quarter, beating on both the top and bottom lines. Each of the company's businesses fired all on cylinders during the quarter except recycling, which faced pressure throughout the year and will continue to do so in 2018. Even with this headwind, management expects operating EBITDA to be between $4.2 billion and $4.25 billion in 2018, and this is ahead of what analysts estimated. Also, management expects 2018 adjusted earnings per share to be between $3.97 and $4.05, and the complains plans to generate free cash flow between $1.95 billion and $2.05 billion. All in, Waste Management represents an excellent play off the increased amount of construction in the U.S. To read our analysis of the quarter, please see here. We reiterate our $94 price target.

Cimarex (XEC) ; $98.73; 675 shares; 2.30%; Sector: Energy -- Shares of Cimarex fell this week, with the majority of the decline came on Thursday, a day after the company reported its fourth quarter earnings after the bell. The company posted a top and bottom line beat with its fourth quarter results as revenue of $550.9 million (up 44% year over year) topped estimates of $532 million, and adjusted earnings per share of $1.47 topped estimates of $1.39. Although the headline results and production numbers were solid, investors were concerned with management's 2018 capital investment plan and the 2018 production guide. The company plans to spend about $1.6 billion to $1.7 billion in exploration and development, and this figure came in higher than what analysts expected. Also, 2018 production of 211-221 thousand barrels of oil equivalent (MBOE) per day was lighter than what analysts estimated, and this is due to a soft first quarter guide. In our view, we believe that concerns over the program and guide are short-sighted because the company continues to do an excellent job growing earnings without focusing on production quotas. In other words, the company spends within its means, which is critical in this environment. To read our analysis of the quarter, please see here. We reiterate our $150 price target.


Activision Blizzard (ATVI) ; $70.19; 1250 shares; 3.03%; Sector: Technology -- Shares rallied this week and we believe ATVI will continue to grind higher as video games become more mainstream and as the company works to increase monetization of its new eSports Overwatch league. Furthermore, we believe 2018 will be a strong year for the Activision segment as rumors are swirling that this year's Call of Duty release will be Black Ops 4, a strong positive if confirmed as Black Ops is the franchise's most popular subseries and stands to benefit from the strong momentum built off the highly successful release of Call of Duty: WW2 at the end of last year. Compounding the strong company-specific factors, the video game industry overall stands to benefit from margin expansion due to the shift to digital downloads and a longer monetary life for games thanks to in-game purchases and downloadable content. We reiterate our $80 target.

Allergan (AGN) ; $164.04; 600 shares; 3.40%; Sector: Healthcare -- Shares of Allergan moved slightly higher this week, but underperformed verse the market. Notably, the stock jumped about 5% higher on Wednesday, and we used this strength to make our first trim. In our trade alert, which you can read here, we discussed how management has been unable to shake the trough earnings year narrative, even as they posted positive Phase 3 results for the migraine portfolio last week. On the negative side, shares were pressured this week when the management provided an update to its Esmya drug. Last week, the European Medicine Agency's PRAC (Pharmacovigilance Risk Assessment Committee) recommended that no patients should begin on Esmya and if a patient previously completed a treatment, an additional treatment should be put on pause. Our plan with this stock is to keep our tight leash by down in chunks when we can as the company and the stock keeps missing our expectations. We believe that there are better times ahead for the company, but we will not let this stock continue to burn us. We reiterate our $242 price target.

Alphabet (GOOGL) ; $1095.5; 125 shares; 4.73%; Sector: Technology -- Shares of Alphabet climbed higher this week alongside the broader market rally. This past week, the company released its AMP (Accelerated Mobile Pages) stories for visual storytelling on mobile devices. The company expects this will increase engagement and make visual information more easily consumed. On Thursday, the company announced its agreement to acquire Xively, an IoT division of LogMeIn (LOGM). The company believes this deal "will complement Google Cloud's effort to provide a fully managed IoT service that easily and securely connects, manages, and ingests data from globally dispersed devises." On Friday, it was reported that Alphabet's autonomous driving technology unit Waymo was preparing to launch a ride-hailing driverless van service. We believe that 2018 could be a big year for Waymo, and given the potential market of autonomous driving, we believe this unit is underappreciated by the market. Although we believe shares will go higher, as we said during our members-only call, we are not a buyer at current levels because we are looking to finance shares to make a move into Amazon (AMZN), potentially as early as next week, because Alphabet is not crushing the numbers like its FANG counterparts. For that reason, we are taking the stock down to a TWO rating. We reiterate our $1300 price target.

Apache (APA) ; $38.11; 1500 shares; 1.97%; Sector: Energy -- Shares of Apache bounced back slightly from last week's selloff as WTI crude and the markets pushed higher, though natural gas ticked lower. There were no news from the company this week, but we will hear from management when the company reports next Thursday. Current estimates are for earnings per share of revenue of $1.538 billion and adjusted earnings per share of $0.21. We will also be listening closely to what management expects 2018 production will be, including estimates in the Alpine High. Recall that the Alpine High is central to our thesis in the company as we believe that the asset is being undervalued by the market due to the lack of infrastructure in place to export its energy. We reiterate our $60 price target.

Arconic (ARNC) ; $25.36; 1300 shares; 1.14%; Sector: Industrials -- Shares of Arconic pushed higher this week but underperformed against the broader market. There were a few bits of news of importance this week as it was reported that former interim CEO and current Board of Director David Hess purchased approximately 40,300 shares at an average price of $24.80. We believe this shows that Hess has confidence that CEO Chip Blankenship will improve the company's cost structure as he looks to streamline the company. Rising costs in the Engineered Products and Solutions segment plagued the company when they reported last Monday, but we believe that Blankenship has the right experience to fix this, and we look forward to his future strategy and portfolio review update expected by the end of the year. On Friday, the stock jumped higher after Commerce Secretary Wilbur Ross made his updates to section 232 regarding steel and aluminimum. We used this move higher to trim a portion of our position. We reiterate our $31 price target.

Citigroup (C) ; $76.82; 1050 shares; 2.78%; Sector: Financials -- Shares pushed higher as the financials remain in favor given expectations of multiple rate hikes this year. We continue to like Citigroup as it's significant global presence will allow it to take advantage of the global economic expansion, while its strong financial position puts it in a good place for the next Fed "stress test," which will be harder this year and feature "severely adverse" scenarios. Compounding these factors, we believe shares will grind higher as milestones from the company's turnaround efforts are reached. As a reminder, Citigroup is targeting earnings of $9 per share and 11% return on tangible common equity by 2020. Additionally, management plans to return $20 billion to investors this year and next. We reiterate our $80 target.

DXC Technology (DXC) ; $100.82; 700 shares; 2.44%; Sector: Tech Services -- We continue to like DXC following last week's earnings release when the company beat expectations on the top and bottom lines and perhaps more importantly, management noted that the company is on track to exceed it's $1 billion fiscal year-one synergy target by $100 million (10%) or more. Recall, our thesis in DXC has largely been based on the company's ability to achieve these targets and given management's history of exceeding synergy targets, we were happy to see that this time is no different. With synergies on track we turn our focus to the pending spinoff of the company's US Public Services business, which will unlock value as DXC will retain 86% ownership while freeing up the business to trade at a higher multiple, more in line with other pure-play peers in the government services industry. Because of the better than expected synergy results, we are raising our price target to $110 as we believe this, compounded with the approaching spin off of the USPS business will allow DXC to trade at a slightly expanded multiple.

General Electric (GE) ; $15.05; 2450 shares; 1.27%; Sector: Industrials -- Shares of General Electric moved higher this week but underperformed the broader markets. Late Thursday, the company announced that it had reached an agreement to sell parts of its overseas lighting business for an undisclosed sum. This move is part of CEO John Flannery's push to streamline the company and make the business more sustainable for the long-run. On Friday, stakeholders filed a proposed class action lawsuit against General Electric that claimed that the company provided misleading statements with failure to disclose information regarding its account practices and insurance policies. The SEC is currently investigating the company's handling of the reinsurance portfolio and the massive write down the company has undertaken, and shares may be stuck in holding pattern until this investigation concludes. We continue to keep General Electric as a pure hold because we believe that better times are ahead for the company, they just need to move past the current pressures. We believe that Flannery is doing all that he can to help turnaround the company, and we want to give him a fair shot and see how he performs. We reiterate our $21 price target.

Magellan Midstream (MMP) ; $66.64; 1700 shares; 3.91%; Sector: Energy -- Shares ended marginally higher this week on little news. We continue to value Magellan Midstream for its majority fee-based revenue (roughly 85-90% of sales) and strong 1.2x cash back distribution yield. Furthermore, we believe that with the oil market coming into balance, prices will begin to level out and that management is doing everything necessary to take advantage of rising U.S. production, capacity strains and increasing US exports. As a reminder, regarding rising production, management is analyzing potential pipeline expansion projects as all that oil will ultimately need to be transported out of the Permian. As for storage, Magellan is currently building out a new marine storage facility in Pasadena, Texas. Lastly, on the export front, management is preparing for this via their investment in an Aframax compatible dock in Houston, which will be able to support tankers capable of transporting 500,000 to 700,000 barrels of crude. We reiterate our $89 target and while we would like to see shares come down a bit more before pouncing, we believe MMP to be a strong contender for those looking for income, energy exposure and growth potential.

Nucor (NUE) ; $68.54; 600 shares; 1.42%; Sector: Industrials -- It was a great week for Nucor shareholders as the stock gained almost 11%. In addition to the general recovery in the market, shares spiked higher Friday after the Commerce Department unveiled its findings and recommendations on foreign steel. To read Commerce Secretary Wilbur Ross' findings, please see here. Even though the imposition of tariffs on steel imports represents our central thesis in the name, we trimmed shares on Friday because we wanted to lock a terrific gain on the announcement. Following our trade, we believe that we have plenty of exposure left to benefit from future upside, but most importantly, we wanted to protect our gains from either a "sell the news" event, a delayed response from the White House, or a modification to the suggested remedies below the Commerce Department's recommendation. We reiterate our $75 rice target.

NVIDIA (NVDA) ; $243.84; 150 shares; 1.26%; Sector: Technology -- With shares rallying back strong following the recent market selloff, Nvidia remains one of our favorite ways of playing the trend in artificial intelligence (AI), autonomous driving and the mainstream adoption of video games. We believe these to be multi-year secular trends and note that Nvidia GPUs are at the heart of all of them. On the artificial intelligence front, these chips are required for the processing of massive amounts of data collected in the "cloud" (company data centers) and used in the training of artificial intelligence applications. As for autonomous driving the requirements are similar as these GPU chips are needed to process the massive amounts of real world data in real time and translate it into actionable commands in what is quite literally a life or death scenario. Finally, on the gaming front, Nvidia chips are required to process the cutting-edge graphics seen in today's games without glitching or impacts to game play. We believe the rise of eSports will only serve to accelerate upgrades on this front as gamers seek out the latest tech to play the newest games. Lastly, we remind members that, CUDA, the company's proprietary parallel computing platform and application programming interface, is fast becoming the standard for developments in AI and accelerated computing, a factor that we believe will keep users and AI researchers coming back to Nvidia with each upgrade. We reiterate our $250 price target.

NXP Semiconductors (NXPI) ; $118.5; 550 shares; 2.25%; Sector: Technology -- Shares of NXPI remain at a premium Qualcomm's tender offer price of $110/share as investors continue to hold the opinion that the current offer significantly undervalues what NXPI brings to the table. Recall, last week, the company released better than expected earnings that consisted of a 12% YoY increase in Automotive and 31% YoY gain in Connected Devices. As a result, we continue to hold the view that Qualcomm will ultimately elect to raise its offer rather than walk away as NXPI's attractive presence in automotive, industrial, and security industries will lead to the strong accretion that Qualcomm needs as management will still be able to realize synergies at a higher takeover price. As a result, we will continue to hold onto our shares for the time being and not tender, noting that financially, it would be more profitable to simply sell in the open market rather than offer up shares at the tender offer price. That said, we reiterate our $110 target pending any updates from either Qualcomm or NXPI.

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long ARNC, AAPL, ABT, AGN, APA, ATVI, AVGO, C, CMCSA, DHR, DWDP, DXC, EZU, FB, GE, GOOGL, HON, ITW, JPM, LLY, MMP, MSFT, NXPI, RTN, JWN, NUE, NVDA, PEP, SLB, STZ, GS, WM and XEC.

Trimming Nucor and Arconic
Stocks in Focus: ARNC, NUE

Locking in gains that have come on heels of Commerce Secretary's tariff proposals.

02/16/18 - 01:36 PM EST
Jim's Daily Rundown
Stocks in Focus: AVGO, QCOM

Jim shares his thoughts on the meeting between Broadcom and Qualcomm earlier in the week, and then discusses his game plan for next week.

02/16/18 - 12:03 PM EST
Weekly Roundup

Markets extend losses in volatile week.

02/09/18 - 06:43 PM EST


Chart of I:DJI
DOW 25,219.38 +19.01 0.08%
S&P 500 2,732.22 +1.02 0.04%
NASDAQ 7,239.4655 -16.9645 -0.23%

Action Alerts PLUS Holdings

Holdings 1

Stocks we would buy right now

Symbol % Portfolio
AAPL 0.04164902722480842 Telecommunications Equipment
AVGO 0.017176372003517067 Semiconductors
CMCSA 0.027459835349750657 Cable/Satellite TV
DHR 0.03365710404642723 Medical Specialties
DWDP 0.034137168081741893 Chemicals: Major Diversified
EZU 0.015375851510239876
FB 0.04895980294176202 Internet Software/Services
GS 0.0046172412266274636 Investment Banks/Brokers
ITW 0.030849182330435827 Industrial Machinery
JPM 0.007914284789920597 Financial Conglomerates
MSFT 0.03492002183205286 Packaged Software
PEP 0.019161154272074064 Beverages: Non-Alcoholic
RTN 0.022538941759366212 Aerospace & Defense
WM 0.032319998467383704 Environmental Services
XEC 0.022995714278142697 Oil & Gas Production
Holdings 2

Stocks we would buy on a pullback

Symbol % Portfolio
AGN 0.033962136648201295 Pharmaceuticals: Generic
APA 0.019725326561554367 Oil & Gas Production
ARNC 0.011375921736750182 Aluminum
ATVI 0.03027465825582745 Recreational Products
C 0.027832844673865768 Financial Conglomerates
DXC 0.02435222945430137 Data Processing Services
GE 0.012723206571169656 Industrial Conglomerates
GOOGL 0.04725158586587686 Internet Software/Services
MMP 0.039091101119660125 Oil & Gas Pipelines
NUE 0.014190227053570575 Steel
NVDA 0.012620896428153809 Semiconductors
NXPI 0.022489253190751436 Semiconductors