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Jim Cramer's Action Alerts PLUS

Weekly Roundup

By Jim Cramer and Jack Mohr | 10/21/16 - 07:09 PM EDT

The markets remained relatively muted again this week as a slew of economic data and earnings reports failed to spark a breakout in the major indices. Despite some range- bound fluctuations over the past couple of weeks, both the Dow Jones Industrial and the S&P 500 sit roughly where they did last month and slightly lower on a three-month basis.

Focus this week centered on corporate earnings, economic data and varying momentum in oil prices, but all was overshadowed by the anticipation heading into Wednesday's presidential debate. Biotech and pharma continue to feel pressure as investors speculate on the outlook for those industries depending on the future administration. That being said, although the week started on a rough note, the health care industry recovered as the week pushed forward.

Overall, as we mentioned earlier this week, the markets continue to appear to be stuck in a waiting period, characterized by uncertainty and caution ahead of the election, yet investors remain open to companies that can prove operational excellence via strong quarterly reports. Corporate earnings will remain in focus over the next couple of weeks and we expect continued rhetoric surrounding the election, rates and oil prices all to play a role in the direction of markets.

For the week, Treasury yields were steady, but slightly lower; the dollar, on the other hand, was strong against a basket of currencies and against the euro; gold trended higher, reversing the pattern of the last three weeks; and oil was roughly flat despite a rally in the middle of the week (more below).

Third-quarter equivalent earnings have kicked off and have been relatively strong thus far and positive compared with expectations, as 77.8% of companies have surprised to the upside vs. estimates. Walgreens, Schlumberger and General Electric each reported earnings in the portfolio this week.

Walgreens Boots Alliance (WBA:Nasdaq) delivered a solid bottom-line beat with its fiscal-fourth-quarter and full-year 2016 results, with earnings in the quarter of $1.08 a share (up 21.6% year over year) coming in $0.09 better than consensus estimates for $0.99. Walgreens' management team has delivered EPS beats in seven out of the last eight quarters, demonstrating the continued success of focused efforts on improving margins and cutting costs. Revenue for the quarter came in a tad light -- at $28.6 billion (up 0.4% year over year, but 2.5% on a constant-currency basis) compared to consensus of $29.1 billion, although buy-side expectations heading into the print were calling for a starkly worse performance. Sales were mainly affected by FX headwinds in the Boots Alliance units of the business. Digging deeper, solid SG&A management (down almost 5% year over year), free cash flow of $2.2 billion and better pharmaceutical wholesale results (up 2.9% on a constant-currency basis) were the main positives within the quarter. Prescriptions within retail pharmacy USA also rose 3.9% on a yearly comp, driven by continued growth in Medicare Part D volumes. On the other hand, retail pharmacy USA same-store sales were only up 3.2% year over year vs. sell- side expectations for around a 4% increase. Front-end comps (retail sales) were down 0.3% in the quarter, due to weaker sales of seasonal items, but the company saw higher sales in the branded health, wellness and beauty categories, where the majority of future growth is expected. We expect an inflection in front-end sales is lingering, given management's focus on promotion of branded products -- and as the new, differentiated beauty format has rolled out to roughly 1,600 stores in the U.S.

Schlumberger (SLB:NYSE) reported a third-quarter bottom-line beat after today's close, with EPS of $0.25 coming in 3 cents ahead of consensus expectations. Revenues of $7.02 billion (down 17.2% year over year) narrowly missed consensus. Digging deeper, on a sequential basis, revenues actually increased 1%, excluding the addition of Cameron's (CAM) operations. This increase in revenue leveraged management's strong execution and transformation efforts to generate incremental margins north of 65%, excluding the effects of last quarter's impairment charges. Free cash flow generation of $699 million in the quarter also proved to be a positive, outpacing sell-side estimates. The solid performance here is an indication of management's discipline on capex investments, a trait that has been essential for top-tier companies to hone throughout the oil downturn. Management maintained capex guidance of $2 billion for fiscal 2016.

General Electric (GE:NYSE) reported a third-quarter bottom-line beat, with earnings of $0.32 a share coming in 2 cents ahead of consensus estimates. Revenue of $29.3 billion (up 4%) fell slightly short of consensus of $29.6 billion. Within the quarter, top-line growth continued to be weighed down by difficulties in the oil and gas business, where revenue fell 25% in the quarter and is down 20% on an organic basis so far this year. The company noted that weakness in this segment will likely persist throughout the end of the year, although management is making focused cost- cutting changes to navigate through the difficult macro. As for future guidance, GE has lowered its full-year 2016 industrial organic sales guide down to 0% to 2% -- from 2% to 4% -- while the EPS guide range was narrowed to $1.48 to $1.52 from the prior $1.45 to $1.55 (due to a larger-than-expected FX impact -- now at a $0.04 to $0.06 headwind against an initial $0.02 expected impact). Even so, the midpoint of $1.50 is slightly higher than consensus of $1.49. The company also increased its buyback program by $4 billion.

Moving onto economic information, a data-filled week kicked off with the release of September's industrial production figures -- a broad measure of output at factories and utilities. The headline number rose a seasonally adjusted 0.1% in September from August, according to the Federal Reserve, a tick below estimates for a 0.2% increase. While the miss is less than ideal, the slight move higher is positive against August's downwardly revised 0.5% drop.

Overall manufacturing output, which makes up roughly three-quarters of the headline number, rose 0.2% in September, marking the third month in the last four to show increases. Importantly, in the third quarter as a whole, manufacturing output rose at a 0.9% annualized rate, which, although anemic, was the best quarterly performance in the last year, following a 1.0% decline in the second quarter. On the other hand, mining production also rose 0.4%, a nice bump after the sector had been hampered by a continued drop in commodity prices. Mining includes oil drilling, which has seen an increase throughout the summer as rigs come back online in response to rising crude oil prices. Even so, while stabilization is a positive sign, mining output still remains 9.4% lower than levels seen last year.

Continued improvement in the industrial sector will continue to be an important topic among investors as we await GDP numbers for the third quarter after a relatively muted 1.4% expansion in the second quarter. On the positive side, manufacturing does appear to be gaining some momentum -- as we noted a couple of weeks back, the ISM Manufacturing index indicated that the manufacturing sector rebounded in September, with the index rising to 51.5 in September from 49.4 in August. These two reports provide a cautiously positive outlook for the rest of the year as the beleaguered sector looks to stage a rebound. That being said, growth still seems to be a struggle, so each month's data reports will continue to be closely watched in order to help determine a distinctive trend.

On Tuesday, the Labor Department reported that the consumer price index (CPI) increased 0.3% in September from August, beating August's 0.2% rise and matching economists' forecasts. For the prior 12 months, the CPI was 1.5% higher, also matching consensus expectations, but marking the largest year-over-year increase since October 2014. The CPI has now grown in six of the last seven months, largely driven by continued increases in oil prices. Energy prices climbed 2.9% since August (although they were lower by the same amount compared with the prior year). The core CPI, which excludes food and energy costs due to their volatility, rose a lesser 0.1% in September compared with a 0.3% gain in August. In the last year, the core CPI was up 2.2% in September.

From a higher level, recall that the Fed has a 2% inflation target and tracks an inflation measure (PCE index) that is running below the core CPI (in fact, the core PCE has been stuck around 1.6%-1.7% since March). Inflation continues to be a concern for the Fed, as the other major indicator -- the labor market -- has proven to be more than healthy over the long term. This week's CPI report provides some reassurance that inflation is picking up from historically weak levels. It is up to the Fed to decide if this is enough to warrant an increase in rates.

Heading into the middle of the week, the Commerce Department reported on Wednesday that housing starts totaled 1.05 million in September, lower than the expected 1.18 million increase. Overall, this meant groundbreaking activity dropped 9% in the month, largely due to a 38% plunge in the multifamily segment, whose monthly numbers tend to be more volatile than construction in single-family units. Importantly, starts for single-family homes, which account for the lion's share of the housing market, jumped 8.1% in September, suggesting continued underlying growth in housing. Supporting this, overall building permits were reported to have risen 6.3% in September. Recall that permits are a barometer for future construction. Although single-family permits saw a slight increase of 0.4% last month, the multifamily segment's approvals surged 16.8%, indicating a rebound in starts from September's bleak performance. Regardless, we remind subscribers that housing activity tends to be volatile month to month. We will continue to keep an eye on the numbers as housing has been one of the stronger sectors of the economy throughout the recovery, boosted by continued tightening in the labor market.

Providing another gauge of housing market, existing home sales reportedly rose 3.2% in September to an annual rate of 5.47 million, the highest figure since June, according to a report by the National Association of Realtors released on Thursday. Importantly, the increase ended a two-month slide and sales growth was evident throughout the country, indicating a broadly healthy market. The report was a pleasant upside surprise given that expectations had called for a modest 0.4% increase in month-over-month performance. That being said, supply constraints continue to plague the housing market, driving prices up 5.6% compared to last year. There were 2.04 million homes available for sale in September, down 6.8% from the same period in 2015.

Fortunately for the housing market, continued strength in the labor market along with historically low mortgage rates have provided enough temptation for buyers to purchase homes. Strong performance in existing home sales, which make up the vast majority of buying activity, will be of utmost importance for the housing market moving forward, especially considering that the Fed specifically noted that "the sluggishness in the housing sector appeared to have continued into the third quarter" in the latest meeting minutes. Housing could be one of the swing factors in determining the timeframe for the next rate hike.

Also on Thursday, the Department of Labor reported that initial jobless claims for the week ending Oct. 15 were 260,000, up 13,000 claims from last week's revised figure and 10,000 claims higher than expectations. The increase in claims vs. expectation is likely due in part to Hurricane Matthew, which devastated many areas along the southeastern U.S. coast. Further, claims have remained below 300,000 -- the threshold typically used to categorize a healthy jobs market -- for an astounding 85 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) rose 2,250 to 251,750 last week. Despite the slight increase on this report, historically low claims figures still paint a positive outlook for a tightening jobs market.

On the commodity front, crude oil prices picked up some momentum above the $50-per- barrel mark toward the middle of the week, hitting a 15-month high before pulling back on profit taking and a stronger dollar, which makes dollar-denominated commodities more expensive for foreign buyers. The dollar hit a seven-month high on Thursday and a three-month high vs. the euro.

The week started on a somber note as oil prices dipped on Monday amid rumblings from OPEC members who are reportedly unhappy with the way production amounts have been calculated. Iran's commitment to continued production increases does not help the cause. Any indication that the agreed-upon production limit may not have a positive impact has proven to immediately pressure oil prices.

A weaker dollar helped support prices through Tuesday, however, as traders continued to flip-flop on their bets around the $50-per-barrel threshold. Kuwait's acting oil minister attempted to urge upward momentum as well when he noted he was optimistic about the OPEC deal, claiming that oil prices ranging between $50 and $60 were logical and acceptable.

Wednesday proved to be the big breakout day for crude, which shot to more than a one- year high during the day following bullish inventory reports, which showed larger drawdowns in oil stockpiles than expected (inventories have declined for six of the last seven weeks), in addition to comments from the Saudi Arabian oil minister who warned of an impending supply shortage in the oil market. Of course, we must take these comments with a grain of salt given the supply glut across the world, but any comments from the world's leading oil power have significant impact on the direction of prices, regardless of their veracity. Many do believe the recent downturn has caused companies to pull back investment, a move that could eventually lead to a drop in output. Especially on top of another decline in U.S. stockpiles, prices almost have no choice but to tick higher as traders are left wondering, "Maybe the situation isn't as bad as it seems."

Prices did give up gains as the week closed out, however, on the stronger dollar, as we mentioned above. Regardless, it appears that the $50 threshold is a level of support as prices look to head higher in the wake of the proposed OPEC deal. Commentary surrounding the potential cuts and/or limits will continue to drive prices until the Nov. 30 meeting in Vienna, but in the meantime, the impact from higher prices is sliding over into equities and providing some support for energy stocks.

Within the portfolio this week, we added to our Alcoa (AA:NYSE) position, once our restrictions were lifted, as we believed the selloff following last week's earnings report was more than overdone. We continue to view the separation into Arconic and Alcoa as the key catalyst.

Moving onto the broader market, as we mentioned, third-quarter earnings have been strong and largely better than expected, proving to be positive compared to estimates. Total third-quarter earnings growth is up 3%; of the 78 non-financials that reported, however, earnings growth is flat vs. expectations for an overall 0.7% decrease throughout the season. Revenues are up 2.7% vs. expectations throughout the season for a 2.39% increase; 77.8% of companies have beaten EPS expectations, 18.2% have missed the mark and 4% have been in line with consensus. On a year-over-year comparison basis, 71.7% have beaten the prior year's EPS results, 25.3% have come up short and 3% have been virtually in line. Telecom, financials and real estate have had the strongest performance vs. estimates thus far, whereas consumer discretionary and materials have posted the worst results in the S&P 500.

Next week, 171 companies in the S&P 500 will report earnings. Within the portfolio, Visa (V:NYSE), Apple (AAPL:Nasdaq), Panera (PNRA:Nasdaq), Comcast (CMCSA:Nasdaq), NXP Semi (NXPI:Nasdaq), Bristol-Myers (BMY:NYSE), Dow Chemical (DOW:NYSE), Alphabet (GOOGL:Nasdaq) and Newell Brands (NWL:NYSE) will report earnings. Other key reports for the broader market include: 3M (MMM), AK Steel (AKS), Baker Hughes (BHI), Baxter (BAX), Caterpillar (CAT), Centene (CNC), Corning (GLW), DuPont (DD), Eli Lilly (LLY), Entergy (ETR), Fiat Chrysler (FCAU), Freeport-McMoRan (FCX), General Motors (GM), JetBlue (JBLU), Keycorp (KEY), Lockheed Martin (LMT), Masco (MAS), Merck (MRK), Novartis (NVS), Pentair (PNR), Polaris Industries (PII), Procter & Gamble (PG), Ryder System (R), Spirit Airlines (SAVE), Sprint (S), TD Ameritrade (AMTD), Under Armour (UA), United Tech (UTX), Valero Energy (VLO), Watsco (WSO), Waters (WAT), Whirlpool (WHR), Akamai (AKAM), AT&T (T), Chipotle (CMG), Chubb (CB), Discover Financial Services (DFS), Edwards Lifesciences (EW), Express Scripts (ESRX), Juniper (JNPR), McDermott (MDR), AllianceBernstein (AB), Ally Financial (ALLY), Biogen (BIIB), Boeing (BA), Boston Scientific (BSX), Coca-Cola (KO), Garmin (GRMN), GrubHub (GRUB), Hess (HES), Hilton Hotels (HLT), Lear (LEA), Mondelez (MDLZ), Norfolk Southern (NSC), Northrop Grumman (NOC), Penske Auto (PAG), Six Flags (SIX), Southwest (LUV), Waste Management (WM), Barrick Gold (ABX), Buffalo Wild Wings (BWLD), Cheesecake Factory (CAKE), F5 Networks (FFIV), Fiserv (FISV), O'Reilly Auto (ORLY), ServiceNow (NOW), Shutterfly (SFLY), Tesla (TSLA), Texas Instruments (TXN), Universal Health (UHS), VMWare (VMW), Aetna (AET), Altria (MO), AutoLiv (ALV), Avnet (AVT), Blackstone (BX), Celgene (CELG), ConocoPhillips (COP), Dr Pepper Snapple (DPS), Ford Motor (F), GNC (GNC), Invesco (IVZ), LendingTree (TREE), Marathon Petroleum (MPC), Nokia (NOK), Potash (POT), Raytheon (RTN), Stanley Black & Decker (SWK), Thermo Fisher (TMO), UPS (UPS), AFLAC (AFL), Amazon (AMZN), Amgen (AMGN), (BIDU), Eastman Chemical (EMN), Expedia (EXPE), Flex (FLEX), Fortinet (FTNT), LinkedIn (LNKD), McKesson (MCK), MobileIron (MOBL), Twitter (TWTR), AbbVie (ABBV), Anheuser-Busch InBev (BUD), AutoNation (AN), Chevron (CVX), Exxon (XOM), Hershey (HSY), MasterCard (MA), Phillips 66 (PSX), Sanofi (SNY) and Xerox (XRX).

Economic Data (*all times ET)


Monday (10/24)

Chicago Fed Nat Activity Index (8:30): -0.25 expected

Markit US Manufacturing PMI (9:45): 51.4 expected

Tuesday (10/25)

House Price Index MoM (9:00): 0.5% expected

Consumer Confidence Index (10:00): 101.8 expected

Richmond Fed Manufacturing Index (10:00): -4 expected

Wednesday (10/26)

MBA Mortgage Applications (7:00):

Wholesale Inventories MoM (8:30): 0.1% expected

Markit US Services PMI (9:45): 52.1 expected

Markit US Composite PMI (9:45):

New Home Sales (10:00): 600k expected

Thursday (10/27)

Initial Jobless Claims (8:30):

Continuing Claims (8:30):

Durable Goods Orders (8:30): 0.1% expected

Bloomberg Consumer Comfort (9:45):

Pending Home Sales MoM (10:00): 1.2% expected

Friday (10/28)

Employment Cost Index (8:30): 0.6% expected

GDP Annualized QoQ (8:30): 2.5% expected

Personal Consumption (8:30):

Core PCE QoQ (8:30):

U of Mich Sentiment (10:00): 88.1 expected


Monday (10/24)

Germany Markit Manufacturing PMI (3:30):

Germany Markit Services PMI (3:30):

Germany Markit Composite PMI (3:30):

EU Markit Manufacturing PMI (4:00):

EU Markit Services PMI (4:00):

EU Markit Composite PMI (4:00):

Tuesday (10/25)

Germany IFO Business Climate (4:00):

Germany IFO Current Assessment (4:00):

Wednesday (10/26)

Thursday (10/27)

EU M3 Money Supply YoY (4:00):

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

UK GDP YoY (4:30): 2.1% expected

Japan Jobless Rate (19:30): 3.1% expected

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

Japan National CPI YoY (19:30): -0.5% expected

Japan Tokyo CPI YoY (19:30): -0.4% expected

Friday (10/28)

EU Consumer Confidence (5:00):

Germany CPI MoM (8:00):

Germany CPI YoY (8:00):

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


Alcoa (AA:NYSE; $26.88; 2,700 shares; 2.89%; Sector: Metals & Mining): Shares bounced back this week after dropping sharply last week as management issued a disappointing forecast. We took advantage of the weakness and added to the position this week into the relative carnage as we consider the selloff to be overdone and look to build our position below our cost basis ahead of the impending separation in the first week of November (the move we have always noted as the key catalyst). As we mentioned on our members call last week (which can be found at the top right of this page), we viewed AA as a buy on the weakness, although we were restricted at the time. With our restrictions lifted, we are adding to the name -- despite the upswing today -- so we can bulk up our position before shares run away from us. That being said, we are still leaving room to add further, should shares show any additional signs of weakness. We reiterate our $36 long-term price target.

Allergan (AGN:NYSE; $230.47; 500 shares; 4.59%; Sector: Health Care): Shares outperformed the market this week as investors seemed to become more comfortable with the potential regulatory environment and future administration post-election as the week moved forward, despite a selloff earlier in the week. As we have continued to note, biotech and pharma will likely be plagued by their link to the election in the near term. Not helping the situation, campaigns for Proposition 61 (a.k.a. the California Drug Price Relief Act) are adding to the uncertain outlook. The California proposal essentially aims to lower prescription drug prices statewide for patients on Medicare by requiring state agencies to pay the same prices that the U.S. Department of Veterans Affairs pays for prescription drugs. A tweet by Sen. Bernie Sanders over the weekend about this issue, targeting price gougers, sent fear across the industry at the beginning of the week. Unfortunately, Allergan's ongoing dedication to novel, innovative treatments and fair pricing simply doesn't matter in this politically driven environment. Ultimately, we recognize that the political headlines will continue to weigh on the stock until the election has passed, with volatility the new norm in the meantime. Although it will take time for these concerns to abate (we cannot expect a reversal of sentiment immediately after the election), Allergan's superior innovation, growth profile and dedication to shareholder returns continue to power our conviction over the long term. However, we reiterate that this one is not for the faint of heart in the near term as markets become comfortable with the state of the government's plans and proposed actions, regardless of whether Allergan has proven itself as committed to both innovation (via an early-stage acquisition) and pricing controls (via CEO Brent Saunders' commentary on Mad Money and in company blog posts where he expressed Allergan's intent to limit price increases to single digits annually). We reiterate our $270 target, although we continue to see longer-term upside beyond those levels.

Apple (AAPL:Nasdaq; $116.60; 820 shares; 3.81%; Sector: Technology): Apple shares traded modestly lower this week ahead of its earnings release next week. After the close today (Friday), The Wall Street Journal reported that Apple had approached Time Warner (TWX) several months back and is currently "monitoring" the situation following reports that Time Warner is in advanced conversations with AT&T (T). Although we will look for more information (including current level of interest, valuation sensitivity, etc.), we believe this validates the company's strategic intent to diversify through profitable avenues of growth, content being a key area where the company has the potential to disrupt while preserving and potentially emboldening current iPhone loyalty. In fact, while we have emphasized the company's shifting focus toward Services -- i.e., its App ecosystem and the carousel nature of its product bundling -- the potential foray into TV/video content, oft discussed yet rarely understood, appears to be gaining traction. Specifically, analysts at Goldman Sachs published a deep dive this week, arguing TV/video is the key battleground, making a case for Apple to pursue a tightly integrated content strategy, not dissimilar to an "Apple Prime" subscription bundle that includes iPhone, Apple Music, Apple TV, access to the iTunes media library (including free content), original media content and potentially live sports. The report comes at a critical juncture, where the company's iPhone sales -- which are expected to exceed guidance given near-term boosts at the high-end from Samsung share gains -- become less of a growth driver and more of a captive platform, one that is orbited by an ecosystem of value-add content. We reiterate our $130 long-term price target on Apple.

Cisco Systems (CSCO:Nasdaq; $30.15; 3,900 shares; 4.68%; Sector: Technology): Shares of CSCO ended the week essentially flat. This remains among our highest- conviction ideas, even after disappointing pre-announcements by several "peer" companies, primarily Fortinet (FTNT) and Ericsson (ERIC). Although Cisco's legacy business overlaps with Fortinet in network security and Ericsson in networking service, we reinforce our high conviction in the company's transformational shift from a beleaguered enterprise hardware juggernaut to a pioneer in enterprise services and solutions. The company has been driving change instead of waiting for that change to occur, which in our view should allow shares to command a more deserving premium for a company that is posting higher-growth, higher-margin, highly recurring sales across every division within its Internet of Things platform. Throw in a 3.5% dividend yield and the company represents value, growth and income all packaged into one. We continue to view the company as a core holding for the long term and reiterate our $35 target.

Citigroup (C:NYSE; $49.57; 2,250 shares; 4.44%; Sector: Financials): Shares bounced back this week after trading slightly lower last Friday following the company's solid third-quarter results. We were pleased with the quarter, yet understand that the company's successful turnaround strategy to date carries little weight between now and the Federal Reserve's December meeting. We appreciate management's execution of its portfolio simplification, cost optimization and regulatory compliance initiatives -- in fact, we expect the payoff to be tremendous long term -- but recognize that the near-term directional movement in Citi's share price will ultimately be dictated by the interest rate environment, with higher rates (as we saw this week) driving a large portion of fund flows. While volatility is all but a certainty with the financials in the short term, we stand by Citi for the long term as our most heavily weighted financial. We reiterate our $55 target.

Dow Chemical (DOW:NYSE; $54.10; 1,475 shares; 3.18%; Sector: Chemicals): Shares continued to outperform sharply this week. While the stock may begin to trade sideways as investors look for names with less regulatory risk and certain near-term catalysts, DOW is a stock to own for the long term. In addition, we would be remiss not to point out the 3.5% dividend yield that pays investors for their patience. Irrespective of the rate environment or the outcome of the impending DuPont (DD) merger, Dow as a stand-alone remains a high-quality, bankable holding. We reiterate our $60 price target.

Facebook (FB:Nasdaq; $132.07; 1,000 shares; 5.26%; Sector: Technology): Shares outperformed the market this week as the company announced enhancements to its local business services with the addition of food ordering. The new product feature fits perfectly within the company's overall goal to help facilitate connections and discovery for users in our new, connected world. In addition to food ordering, the platform will now a) facilitate recommendations for users in their current location (or location they post), b) provide users with the ability to get a quote from local businesses, c) offer the option to buy tickets to movies and events, and d) provide the option for users to request an appointment at a local business from the business' page. All of these additions are about keeping the user engrossed in the FB interface -- more eyeballs for a longer period of time result in higher allocation of ad dollars from marketing partners. We continue to appreciate the management team's drive for innovation as they are never comfortable with their current position -- this should help the company remain a leader in the tech space for years to come. We reiterate our $160 long-term target.

General Electric (GE:NYSE; $28.98; 2,350; 2.71%; Sector: Industrials): Shares traded lower following GE's earnings report on Friday, when the management team painted a meager picture of the macro economy, especially in the oil and gas segments. That being said, we have always touted the long-term story for this company as it shifts its focus toward digital and transforming the industrial space. Providing a peek into the future, GE's digital business delivered strong growth in the past quarter, with digital and software orders up 11% and revenues up 13% in the quarter. Digital and software orders were higher in four key segments: Power was up 72%, grid was up 43%, transportation up 21%, and oil & gas was up 10%. Importantly, Predix -- the company's pioneering industrial Internet of Things software platform -- now has 219 partners. We note that this part of the business is still in a growth stage and does not contribute as much to the business as legacy GE. Therefore, we believe the performance will still run under the radar and will go under-appreciated, as investors focus on difficulties in the core areas of the business, likely dragging the stock down in today's trading. Ultimately, it will take time for traditional multi-industrial investors to appreciate the power of the company's transformation, but therein also lies the opportunity for the long term. All in, the positive takeaways from the release include the continued growth within digital, a 22% buyback boost, cash flow that is ahead of the initial 2016 plan, and a focused effort on controlling costs given a tough macro environment. In addition, the narrowed 2016 guidance kept the midpoint unchanged, despite additional FX headwinds. That being said, as we mentioned above, the majority of focus will remain on the near-term difficulties in the core industrial segments, which are evident. Long term, however, we continue to like GE for the upward re-rating on shares that the company's digital- industrial revolution will begin to command. As we wait, the attractive 3.1% or higher dividend yield and 10 or more quarters of orders backlog should help support shares in what continues to be a market and macroeconomic environment characterized by uncertainty. We reiterate our $35 long-term price target.

Alphabet (GOOGL:Nasdaq; $824.06; 150 shares; 4.92%; Sector: Technology): Shares hit an all-time high this week as the stock gains momentum on the back of its continued growth initiatives. We have always been backers of the company's long-term vision, and we laid out our continued conviction in a piece for members this week. We have always viewed Google and its subsidiaries through a long-term lens of what it could (and still can) be, rather than simply what it is today. With GOOGL trading at roughly only 20x fiscal 2017 consensus earnings (which does not include significant upside impact from growth areas such as YouTube and Cloud) and somewhere around 16x fiscal 2018 consensus earnings, we actually believe the stock trades at a low valuation compared to what it could be, especially in a market starved for growth. All in, despite the recent rally, we believe shares have a long runway for growth ahead and we urge subscribers to re-read our bulletin from earlier this week (link above) to relive the journey thus far and for a clear idea of where the company is headed. We understand there can be some bumps along the road as tough comps remain a lingering concern, but we are confident in the growth prospects of the company over the long term. We raised our price target to $1,000 from $900.

Hewlett Packard Enterprise (HPE:NYSE; $21.63; 1,000 shares; 0.86%; Sector: Tech hardware): HPE hosted an analyst meeting this week where the company was able to lay out key themes it has learned throughout its journey over the past couple of years and how management plans to implement these lessons into the operations as the company pushes toward the future. Management outlined three core strategic opportunities -- Hybrid IT, Intelligent Edge and Technology Services -- that have been the focus of the company's transformation for the future. Importantly, there is about a $250 billion total addressable market across Hybrid IT ($100 billion), Edge ($37 billion) and Services ($116 billion TAM), growing 2%-3% annually in aggregate. Management has positioned itself well for this transformation to the "hybrid cloud" (private and public) with strategic investments and partnerships with services, such as Microsoft's (MSFT) Azure. While the public cloud is likely to pressure margins, participating in the space opens the door for incredible opportunity in the services business and CEO Meg Whitman is confident customers will follow HPE's leadership. As for some of the financials, management provided a combined company fiscal 2017 EPS outlook of $2-$2.10, better than expectations for $2.02. HPE also noted that about 30% of its revenues and about 60% of its profits are recurring, a shift that is becoming increasingly important to investors (think of Cisco's transformation). As for the impending spinoffs of Software and Enterprise Services, the deals will bring $8.7 billion and $11.6 billion to shareholders, respectively, and both are expected to be completed in the middle of 2017. We note that the stock may be choppy until then as investors continue to work through the fuzzy financials of the combined company. Overall, we remain confident in the long term given the company's strong free cash flow generation (which should continue to power buybacks and create significant optionality) and a proven management team that has the experience to execute on their restructuring plans and spinoffs (which will provide a more nimble operating environment and significant cost synergies). We are patiently waiting for our opportunity to pounce and buy more shares; we view under $21 as compelling value and will keep subscribers updated as we evaluate possibilities. We reiterate our $25 target.

Newell Brands (NWL:NYSE; $52.50; 700 shares; 1.46%; Sector: Consumer Discretionary): Shares traded roughly in line with the market this week as positive sentiment cooled off from the company's recent divestiture announcements. As additional deals are announced and the company continues to prove the effectiveness of the Jarden integration, we expect shares to continue to react positively. Newell continues to be our favorite new name and we look for any selloff to bulk up on our position, something that has been tough as the market has recently recognized the opportunity. We reiterate our positive stance on Newell and appreciate management's drive to streamline its business model, focusing on growth and margin opportunities and exiting non-core businesses, as the Jarden integration continues. A recent sale of the tools business (which we discussed last week) to Stanley Black & Decker (SWK) is an example of management's shrewd and swift decision-making (read our NWL commentary within this larger note for details on that deal). We are not opposed to adding to this one above our basis (as we did last week), although we prefer to wait for the stock to drop from where it currently trades. All in, we view NWL as one of the few names that can outperform in this uncertain macro environment as management executes on its focused branding initiatives and enjoys synergies from the Jarden acquisition. We reiterate our $60 target.

NXP Semiconductors (NXPI:Nasdaq; $101.40; 650 shares; 2.65%; Sector: Information Technology): Shares traded around the $100 level this week after reports emerged on Friday indicating the company had agreed to a $110-a-share all-cash takeover bid from Qualcomm (QCOM), with official confirmation expected in the next week. Although no reports can be confirmed until both companies validate them, we view the offer as a fair valuation for the business. The all-cash component is critical, as it allows NXP shareholders to cash out for an enormous gain (assuming they invested when we did initially in the low $80s and then in the mid-to-high $70s) rather than assume any risk of owning shares of the combined entity. We would note that since initiating a position in the stock at roughly $80 a share earlier this year, our $110 price target, One rating and No. 1-ranked stock within our Value index have remained unchanged. We certainly are not going to tweak it now.

Panera Bread (PNRA:Nasdaq; $196.86; 600 shares; 4.70%; Sector: Consumer Discretionary): Shares enjoyed a nice week, finally gaining some momentum after what had seemed like a persistent decline. The roughly 11% decline since the beginning of September suggests concern over the upcoming quarterly report, and more specifically, doubts regarding comps (same-store sales). While quarter-to-quarter volatility certainly does occur in the restaurant space, we view Panera as well-positioned to buck the larger trend given its continued transformation courtesy of the Panera 2.0 initiative. Importantly, the third quarter represents four quarters since the third quarter of 2015, when 108 company cafes converted to 2.0, nearly doubling the 181 cafes that previously featured 2.0. Why is this important? PNRA has proven to show a 3%-4% sales lift from 2.0 beginning in the fourth quarter following conversion of stores. In addition, for this upcoming report, there appears to be some concern given weak industry performance in September, but we note that September sales offer the easiest compare in the back half of the year when compared to results over the last two years. All in, while we recognize the volatility in the industry, our long-term view on PNRA is unchanged and we do believe the company has proven its ability to out-execute its peers, boding well for this quarter's results. Even so, the recent decline has appeared to more than discount the lessened expectations, lightening the load heading into the print. We reiterate our $235 price target.

Schlumberger (SLB:NYSE; $80.47; 1,000 shares; 3.21%; Sector: Energy): As we mentioned above, SLB reported earnings this week in the face of what has been a very tough macro backdrop, even despite the slow recovery in the oil market that we have witnessed since the beginning of the summer. The company was able to deliver a bottom-line beat on focused margin expansion, driven by continued efficiency improvements and capex discipline. Management noted in the print that visibility into investments from its E&P customers continues to remain limited as these companies remain in the planning process as they navigate the oil recovery. SLB management reiterated their view that this will not be a simple V-shaped recovery given the continued fragile state of the industry. Reasons for optimism do exist, however, as the company has seen improvements in activity in North America, the Middle East and Russia. As is typical of this seasoned management team, the company is optimally positioning itself to capture a large share of this upside, when it occurs, in order to deliver positive earnings contributions. We continue to view Schlumberger as best- in-class in a still-beleaguered sector that continues to undergo a recovery. SLB's technological leadership, cost and cash discipline, industry expertise, free cash flow generation and pricing advantages will continue to support shares moving forward, although we remind subscribers that the stock will remain hostage to the direction of oil prices in the short term. We reiterate our $85 target.

Starbucks (SBUX:Nasdaq; $53.63; 1,750 shares; 3.74%; Sector: Consumer Discretionary): Shares outperformed the market this week as the company announced progress on its key initiatives in China. A slew of positive analyst recommendations, reiterating their long-term views for SBUX and return to 5% same-store-sales growth in the Americas (whether it be this quarter or a quarter in the near future) also helped the stock. The company is scheduled to report earnings in early November, and with shares trading near their lows since August 2015, the stock should benefit from relatively lower expectations heading into the print compared to the sky-high expectations it had faced in previous quarters. Separately, CEO Howard Schultz appeared on CNBC this week to discuss Starbucks' recent progress in China, including the promotion of Belinda Wong as the company's first CEO of the China business. Schultz noted that the company now has 2,300 stores in the region, up from 400 in 2011. Impressively, the business has set a goal to reach 5,000 stores -- roughly double what it has now -- by 2021. Growth in China will clearly be a major driver for shares in the long term and Starbucks' positive standing in the country currently, with its focused efforts on employee benefits and satisfaction, should help the company continue to penetrate the market. In terms of current share levels, we have remained on the sidelines for the time being given our exposure to retail and restaurants, but would be remiss not to add to the position if shares dropped below $50. That being said, we do see compelling long-term value at current levels, but recognize that there could be some volatility associated with the upcoming quarter. For more details on our current view, read this recent Forum post. We reiterate our $65 price target long term on SBUX.

T.J. Maxx (TJX:NYSE; $73.49; 1,400 shares; 4.10%; Sector: Consumer Discretionary): TJX shares underperformed this week on little news. That being said, the brutal re-rating across retail continues, bringing TJX shares down along with the rest of the industry. Given our exposure to the name, we are on the sidelines for now, although we believe the shares do offer compelling value at these levels. We continue to view TJX's business model as unique in a space that is becoming overridden by online retailers, namely Amazon (AMZN). TJX's ecosystem of stores, along with the in-store experience and unmatched deals on high-quality products it provides, has resulted in a defensible and Amazon-proof business model built for flexibility, enabling it to successfully navigate through many economic cycles. Beyond its commanding ecosystem, our confidence in TJX is defined by three factors: a proven track record of continued, reliable growth; opportunistic store expansion, both by concept and region; and management's unwavering commitment to shareholder return through a powerful capital deployment program and investments in growth initiatives. We recognize, however, that the company must now prove its capability through solid earnings reports as investors question the opportunities in what seems like a fading space. We believe TJX has the ability to so and view the recent selloff as more than discounting TJX's true value. We reiterate our $85 price target.

Walgreens Boots Alliance (WBA:Nasdaq; $81.57; 1,150 shares; 3.74%; Sector: Health Care): Shares of WBA performed sluggishly throughout the beginning of the week until the company's earnings report on Thursday, when positive commentary surrounding the merger with Rite Aid (RAD) had investors fighting to get back into the name. Management explicitly noted that the pending acquisition is "progressing as planned." Further, the company reiterated that it "remains actively engaged with the Federal Trade Commission (FTC) … and continues to expect that the parties will be required to divest between 500 and 1,000 stores." WBA believes it will be able to complete all required divestitures by the end of calendar year 2016, a confidence that is a positive for those concerned about the deal's approval prospects. That being said, management did note that the timeline for approval has now been pushed back to early 2017. While that may seem like a negative on the surface, we actually view this as a slight positive in that it indicates that the FTC is taking more time to review the divestiture possibilities and working with the two companies to come up with a solution, rather than flat-out blocking the deal. This by no means is a clear indicator that the deal will in fact be approved, however, and we expect the pending merger to remain the dominant driver (overhang) for shares in the short term, likely resulting in another period of range-bound volatility. We believe shares are attractive at current levels, although the rally this week could result in a pullback if no additional positive merger news is released. In the end, we note that this remains a long-term play, as the FTC review process continues (volatility is guaranteed on any news report regarding the merger) and the branded-product strategy begins to take shape. We reiterate our $90 price target.


American Electric Power (AEP:NYSE; $62.48; 500 shares; 1.24%; Sector: Utilities): Shares stabilized this week after giving back gains made in the first half of the year, driven largely by secular rotation/macro factors and less by fundamentals beyond the company's stated ability to grow its business and dividend in a profitable manner. The extended decline in AEP shares from their highs was most pronounced in the three weeks prior as the sharp spike in 10-year yields caused a rotation out of safe-haven "equity bonds" like utilities and into a blend of value and growth. This is a trend we have highlighted and expect to continue as the yield-fueled rally continues to fade and the relative attractiveness of stocks like AEP diminishes. We reiterate our $68 price target.

Comcast (CMCSA:Nasdaq; $64.06; 600 shares; 1.53%; Sector: Consumer Discretionary): We remain committed to shares of Comcast long term, and while we expect earnings estimates around the company's NBC Universal division to come down, we believe share gains in video combined with the company's powerful broadband offering to drive 2017 estimates higher and ultimately a continued yet steady upward re-rating. We reiterate our $70 price target.

Costco Wholesale (COST:Nasdaq; $148.97; 400 shares; 2.37%; Sector: Consumer Staples): Shares traded marginally lower this week, and though tempting, we would only consider buying if shares fell into the low $140s. We love the long term and do believe the company possesses sustainable competitive advantages that -- albeit not entirely Amazon-proof -- still allow it to command an increased membership fee by the end of the first half of next year. To refresh, we trimmed our position in the mid- $160s given valuation concerns yet have avoided buying into the steep retail-wide selloff. Stabilization in sales growth must occur before investors feel comfortable paying a solid premium for its unique competitive positioning and, to use finance jargon, its steep competitive moat. We reiterate our multiyear $175 price target.

Occidental Petroleum (OXY:NYSE; $74.61; 825 shares; 2.45%; Sector: Energy): Shares continued to outperform this week on little news. As part of our fourth- quarter market outlook, we recommend keeping low but select exposure to commodity- levered names, and specifically view OXY and Schlumberger (SLB) as distinct, yet solid long-term investments given sector leadership, fortified balance sheets that support solid yields and ability to weather the commodity backdrop long term. With the shares yielding 4%, we are comfortable holding for the long term as we await a more sustainable, proven stabilization/turnaround. We reiterate our $75 price target, which we believe reflects the upside while risk-adjusting for uncertainty in oil prices near term.

PepsiCo (PEP:NYSE; $10.62; 900 shares; 3.79%; Sector: Consumer Staples): Shares traded lower this week on little news. The company is getting hit along with all consumer-staples names, which have experienced outflows in lockstep with rising rates along with a broad-based rotation into riskier assets. We consider PEP to be among the few consumer food companies with both sustainable organic sales growth and margin expansion, yet understand that macro factors -- namely the rotation out of safe-haven assets akin to "equity bonds" that offer strong dividends amid higher interest rates -- will likely dictate the near-term directional trade. Long term, we reiterate our $115 price target and believe the shares are compelling in the low $100s.

Visa (V:NYSE; $82.35; 1,075 shares; 3.53%; Sector: Information Technology): Earlier this week, Visa announced the surprise resignation of CEO Charlie Scharf, effective Dec. 1, and the subsequent appointment of Alfred Kelly, a current Visa board member, as the incoming CEO. The company cited personal reasons as the only factor behind Scharf's decision to retire. Shares traded slightly lower on the day after the announcement, although they rebounded the next day. While the news certainly comes as a shock to Visa's investor base, which has benefited significantly with Scharf at the helm, we do not believe the change represents any issues in the company's short- or long-term fundamentals and trust Scharf's motivations in wanting to spend time with his family. A surprise change in command can often signal underlying issues at a company, but we have no reason to believe this is the case here. The responsibilities of the CEO of Visa are enormous and we understand that the job can make it difficult to get quality family time. So what to do with the stock? This move doesn't change our view on Visa. We continue to like the long-term fundamentals of the company and would be buyers on any meaningful pullback into the mid-$70s, even at levels above our cost basis. We continue to look for more color on the Visa Europe acquisition, where we see potential additional upside to our $84 target. The company is set to report on Monday, so we expect to receive additional details on the company's progress on the call. Although we would not be surprised to see a handful of investors immediately get out of the name in order to avoid any uncertainty, we view any such move as near term in nature. In fact, a slight pullback in the stock ahead of the company's earnings report helps soften expectations. This is important for a stock that has run nearly 11% in the last three months heading into this report. We maintain our $84 target.

Wells Fargo (WFC:NYSE; $45.09; 2,300 shares; 4.13%; Sector: Financials): Shares stabilized this week after the company delivered solid results last Friday, and following last week's news that CEO John Stumpf was stepping down, replaced by Tim Sloan. We believe the decision to replace Stumpf was critical, both from a cultural and regulatory perspective, as the company eliminates one overhang at a time. Regardless of Wells' results, we recognize the bank will likely continue to trade on an odd concoction of macro trends and news related to its sales practices and ongoing investigations. We believe the stock will underperform the broader financial sector today, and we expect analysts to key in on newly minted CEO Sloan, and his commentary on the call, to indicate whether he can inspire investor confidence moving forward. As we mentioned last week, while we believe the downside risk is minimized in the $44 to $45 level -- as the valuation has come down significantly -- we remain on the sidelines given the lack of immediate catalysts and continued headline risk.


Bristol-Myers (BMY:NYSE; $50.02; 500 shares; 1.00%; Sector: Health care): Shares of BMY experienced a boost this week, closing above $50 after wallowing below the critical psychological level for the better half of last week. Shares got hit last week after the company released additional disappointing analysis on its key cancer drug, Opdivo, in relation to its efficacy in the treatment of first-line lung cancer as presented at the European Society for Medical Oncology 2016. As we mentioned on our members call last week, although we did not want to sell on the news into panic, we are inclined to exit for a small relative loss (BMY has been our smallest position in the portfolio since we initiated it as a deep-value name, only buying after shares fell from the mid-$70s to the mid-$50s). Last week we downgraded the name to Three from One; although we see upside in the combination therapy opportunities with Opdivo, we recognize that those benefits are not until the out years. Read our Alert from earlier in the week here to see a detailed explanation of this past weekend's report. And we urge subscribers to re- watch the members call (upper right corner of this page), where we discuss our outlook on BMY beginning at roughly the 23:05 mark.


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

DISCLOSURE: At the time of publication, Action Alerts PLUS was long XXX.

General Electric Delivers Bottom-Line Beat
Stocks in Focus: GE

Although many investors are focused on short-term challenges, we continue to like GE for its long-term digital-industrial revolution.

10/21/16 - 09:33 AM EDT
Schlumberger Reports Bottom-Line Beat
Stocks in Focus: SLB

Decline in sales doesn't surprise investors.

10/20/16 - 05:05 PM EDT
Walgreens Delivers Bottom-Line Beat
Stocks in Focus: WBA

We believe shares are attractive at current levels, but this remains a long-term play pending regulatory approval for the Rite Aid merger.

10/20/16 - 09:17 AM EDT
Weekly Roundup

Flood of earnings, data and reports restrains the market, with no help from Wednesday's debate. We added to one of our portfolio positions.

10/21/16 - 07:09 PM EDT


Chart of I:DJI
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASDAQ 5,257.4020 +15.5690 0.30%

Action Alerts PLUS Holdings

Holdings 1

Stocks we would buy right now

Symbol % Portfolio
AAPL 3.81% Consumer Durables
AGN 4.59% Drugs
C 4.44% Banking
CSCO 4.68% Computer Hardware
DOW 3.18% Chemicals
FB 5.26% Internet
GE 2.71% Industrial
GOOGL 4.92% Internet
HPE 0.86% Telecomm
NWL 1.46% Consumer Durables
NXPI 2.63% Electronics
PNRA 4.70% Leisure
SBUX 3.74% Leisure
SLB 3.20% Energy
TJX 4.10% Retail
WBA 3.73% Retail
Holdings 2

Stocks we would buy on a pullback

Symbol % Portfolio
AEP 1.24% Utilities
CMCSA 1.53% Media
COST 2.37% Retail
OXY 2.45% Energy
PEP 3.78% Food & Beverage
V 3.52% Financial Services
WFC 4.13% Banking
Holdings 3

Stocks we would sell on strength

Symbol % Portfolio
BMY 1.00% Drugs