This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Jim Cramer's Action Alerts PLUS

Weekly Roundup

By Jim Cramer and Jack Mohr | 2016-12-02 17:59:30.0

Markets pushed through an interesting week as weakness in the Nasdaq and S&P 500 was offset by a continued rally in the Dow Jones Industrials as investors continued their rotation into banks and industrials. Although the Dow has enjoyed a more sustained rally since the election, all of the major indices, including the Russell small-cap, benefited from an explosive November as investors put the election in their rear-view mirrors. Reports of an agreed-upon OPEC deal sent oil prices surging and added another layer to the rally, sparking renewed optimism for the energy companies. A solid-enough jobs report on Friday closed out the week and all but confirmed a rate increase for December.

Looking ahead, we will remain focused on commentary from the Fed's upcoming policy meeting (Dec. 13-14), any updates on the progress of the production cuts outlined in the OPEC deal, and reactions from the Italian referendum this weekend. Heading into the end of the year, there remain many moving parts that can impact a market adjusting to new macro dynamics.

For this week, Treasury yields again moved higher despite a slight pullback on Friday following the jobs report (more below); the dollar was volatile vs. the euro but ended the week in roughly the same range; gold moved lower again as investors largely fled safe-haven assets, especially gold given its strong yearly move; and oil surged higher, above the $50 mark, following reports of a larger-than-expected production cut agreement for OPEC.

Third-quarter equivalent earnings have wound down and were relatively strong compared with expectations, as 72.5% of companies have surprised to the upside vs. estimates. No companies within the portfolio reported earnings this week.

Moving on to the economic backdrop, markets had a busy week with an influx of information detailing the country's economic performance in recent months and throughout the quarter. Last in order, but certainly not least in terms of importance, was the comprehensive jobs report released on Friday.

First, on Tuesday, the Commerce Department reported that the domestic economy expanded at an upwardly revised 3.2% annualized basis in the third quarter, better than the previous 2.9% estimate and expectations for a 3% increase. The figure marks the strongest growth on record since the third quarter of 2014 and is a nice uptick from the second quarter's 1.4% sluggish pace.

As was largely expected, growth was aided by a boost in consumer spending as personal consumption grew by 2.8%, stronger than the initial 2.1% estimate. Consumer spending accounts for more than two-thirds of economic activity. Another major contributor was the growth in exports, mostly in soybeans, as poor harvests in major South American countries left a hole for U.S. producers to fill. In addition, business investment was better than expected in structures (like oil and gas wells) and inventory contribution was lower, meaning there is more room to place new orders and further boost economic growth. Ultimately, the strong growth profile in the third quarter strengthened the already assumed high chances for a December rate hike.

Following up on the GDP report, the Commerce Department reported that consumer spending increased 0.3% in October following an upwardly revised 0.7% gain in September. October falls outside the third-quarter GDP data discussed above. The October rise was slightly lower than expectations for a 0.4% jump, but September's revision was 20 basis points higher than the initial 0.5% reading. Regardless, the 0.3% move in October is enough to suggest the economy sustained momentum to kick off the fourth quarter. While we will have to wait for November's figures, the month can tend to be strong given the holiday shopping season.

The Commerce Department also noted that the personal consumption index rose 0.2%, pointing to signs of further inflation. The index was up 1.4% in the 12 months through October, marking the largest gain since October 2014. The core PCE index, which is a preferred measure of tracking inflation for the Federal Reserve, rose 0.1% in October, contributing to a year-over-year increase of 1.7%. Recall that the Fed targets 2% inflation for the economy. Signs of firming inflation are another data point contributing to high expectations for a December rate hike. Personal income was also reported to have risen in October, jumping 0.6% on a 0.5% gain in wages and salaries. The Fed appears to be building up enough ammo for a move next month.

Also on Wednesday, the National Association of Realtors reported that pending home sales (i.e., contracts to buy existing homes) rose 0.1% in October, a sluggish rise off a downwardly revised September figure, perhaps indicating that home sales could be stalling heading into the end of the year. That being said, we cannot ignore other bullish housing market signals we received recently, such as the existing home sales and housing-starts figures (read last week's roundup for more information). Housing figures tend to be volatile month to month, so we are careful not to put too much stock into one report.

However, we also recognize that mortgage rates are likely to continue to rise, adding an extra burden to the cost of owning a home, and supply remains low, a tightening that has caused housing prices to continue to rise. The major question is what will happen to the housing market following the explosion in rates that occurred in early November. Builders ramped up production last month, but with construction still below historical norms, the housing market could be running into a wall. That being said, the labor market continues to expand, underpinning strong demand for housing. The builders will follow demand, but we must watch how consumers react to the changing dynamics.

On Thursday, the Department of Labor reported that initial jobless claims for the week ending Nov. 26 were 268,000, an increase of 17,000 claims from the prior week and 15,000 claims higher than expectations. Claims have remained below 300,000 -- the threshold typically used to categorize a healthy jobs market -- for an astounding 91 straight weeks, the longest streak since 1970. This recent figure, however, marked the highest level for claims in the past five months. We note, however, that claims tend to be volatile during this period as the model backing the report does not fully account for changes in timing of holidays. The four-week moving average for claims (used as a gauge to offset volatility in the weekly numbers) rose 500 claims to 251,500 last week. Importantly, this data have no bearing on the nonfarm payrolls report released on Friday as the timing falls outside of the survey period.

On Friday morning, the Labor Department reported that the U.S. economy added 178,000 jobs in November, virtually in line with expectations and certainly strong enough to validate expectations for a December rate hike. As a reminder, the Federal Reserve will hold its next policy meeting Dec. 13-14, and markets have largely priced in a decision to increase the benchmark interest rate. The November payrolls figure came in just under the revised average monthly jobs gain of 180,000 for the year. Beyond the headline jobs number, revisions from the prior months showed a net decrease of 2,000 jobs from initial estimates, with an increase in September offset by a decline in October.

While the jobs number was roughly in line with expectations, other aspects of the report -- specifically, the unemployment rate and wages -- require a closer look. The unemployment rate dropped to 4.6% in November from October's 4.9% and marked the lowest level since August 2007. Although the figure is certainly encouraging, we have to be careful in how we analyze the unemployment rate. As we have mentioned, the number can reflect those who found jobs but also those who dropped out of the workforce, as 400,000 people did in November. This move could potentially signal a loss of faith in the job market but also reflects the retirement of more baby boomers.

The labor force participation rate declined a tenth of a percent to 62.7%, slightly above the 62.5% levels we had seen earlier in the year but still near four-decade lows. The underemployment rate, which is viewed as a broader measure of unemployment and reflects people who work part time because they can't find full-time work, fell to 9.3% in November, the lowest level since April 2008 and down from 9.5% the month prior. The number is encouraging, but still indicates there are many in the country who are willing to work more hours but can't necessarily find the jobs they desire. Regardless, the drop in both unemployment and underemployment indicates continued strength in the labor market when combined with the headline payrolls number.

The knock on this most recent report will be on wages as hourly earnings declined 0.1%, contrasting with the renewed expectation of rising inflation. Earnings have been stronger over the year, however, rising 2.5% compared with last November's levels. While impressive, this was still lower than expectations for a 2.8% jump. As such, 10-year Treasury yields are trading down in the early session, moving off a 17- month high reached after a long rout of bonds following the election. The slight decline in wages for December is viewed as a surprise given recent worries regarding higher inflation. The drop in yields caused the recent rally in financials to cool off as investors questioned recent positioning given the now more-tempered expectations for rates. Although the jobs report is a major factor in the move lower on yields, we also point out that many turned to U.S. Treasuries as a safe-haven asset ahead of the Italian referendum this weekend.

Despite the slight surprise on the wages side of the report, markets are pricing in a 95% probability for a rate hike in December, up slightly from the 93% noted prior to the jobs report. All in, the report showed continued strength in the labor market and is likely the final steppingstone required for the Fed to raise rates in December. That being said, the question now becomes at what pace the Fed will raise rates or at least at what pace they it signal it intends to raise rates in the coming years. With markets fully expecting a move in December, we will be keying in on the specific forward-looking commentary following the Fed's meeting later this month, as any surprise, especially on the faster side of the coin, would likely be a shock to markets following this report, which exhibited both strengths and weaknesses.

On the commodity front, crude oil dominated the broader markets this week leading up to and following the OPEC meeting in Vienna. We have been harping on the importance of this meeting since the middle of the summer, discussing the various movements and rumors within each prior Weekly Roundup. This week, we finally received a conclusion, with OPEC reportedly agreeing to a production cut of 1.2 million barrels per day, equal to 1% of global supply. Reports also indicate that Russia (a non-OPEC member) is willing to cut its production by 300,000 barrels per day, part of a broader 600,000 decline in production from non-OPEC countries.

Although OPEC has recently proven to be a difficult group to trust, the deal suggests that all members involved came to play ball -- especially Saudi Arabia, who, by all counts, is the key player when all is said and done. The Saudis are making a clear bet that they can make back any losses as improved sentiment pushes prices higher.

The takeaway here is that not only has OPEC reportedly agreed to a production cut, which the market had strongly been betting against in recent days and weeks, but it also seemingly has reached a deal that would be larger than any previous commentary or report had indicated. Importantly, this builds on a report earlier in the week from Goldman Sachs, whose analysts noted that demand would start outpacing new production by the second half of next year, with or without an OPEC agreement. As a result, crude oil prices surged higher as renewed bullishness, coupled with scared short-traders covering positions, reignited optimism into the energy space.

So where does a deal of this magnitude leave us when evaluating the market implications? First, should the deal actually be signed (literally or verbally) and then subsequently enforced appropriately, the producers in the U.S. appear to be major winners. While OPEC takes on the role of stabilizing market forces (i.e., addressing the global glut), this frees up U.S. energy companies to increase output and benefit from higher prices without contributing too much toward downward pressure on crude prices.

Secondly, will all member countries do as they promised, or will some cheat to take advantage of potential market share opportunities? If the latter occurs, will Saudi Arabia be willing to shoulder more of the cuts than expected? These are important concerns given the cartel's historically untrustworthy commentary.

Of course, Iran and Iraq have also insisted in recent months that they sought to continue pumping at full tilt, so we must be wary of the fact that any agreement will proceed on fragile footing. This is widely known in the market, but traders and investors alike simply can't ignore the possibility that an accord could in fact be appropriately enacted and enforceable. All in, OPEC appears to be targeting prices as high as $55-$60 per barrel and has noted it is willing to take further action. We are careful to take OPEC at its word, but recognize that its commentary carries massive weight in short-term trading. The upcoming trading days and weeks will surely be interesting as more details, commentary and rumors regarding the deal begin to emerge.

Within the portfolio this week, we remained busy as we looked for opportunities to adjust along with the market rotations. As such, we added to our Adobe and Arconic positions while we trimmed our Visa, Wells Fargo and Occidental positions.

We took advantage of the throw-away-tech trade to add to our newest position, Adobe (ADBE:Nasdaq), which we recently added to our core holdings. We believe the tech selloff is part of a broad-based rotation into industrials and banks that is lacking enough money to sustain recent rallies in other sectors. We believe Adobe's prospects remain bright.

As for Arconic (ARNC:NYSE), the stock sold off on Wednesday on apparent profit-taking after a recent rally in the name, so we pounced on the chance to add further, below our cost basis, as we expect the name to gradually move higher as the company builds an investor base and benefits from an improving economy.

On Visa (V:NYSE), we trimmed over half our position after removing the company from our core holdings last week. We wanted to hedge against increased risk in the name given recent management changes and policy/macro uncertainties.

We took some off the table on both Wells Fargo (WFC:NYSE) and Occidental (OXY:NYSE) as both had experienced explosive rallies in recent trading -- Wells over the past couple of weeks and OXY following the announcement of the OPEC production agreement.

We also downgraded Schlumberger (SLB:NYSE), Dow Chemical (DOW:NYSE) and Walgreens (WBA:Nasdaq) to Twos from Ones (more details in stocks portion below).

Moving on to the broader market, as we mentioned, third-quarter earnings were strong and largely better than expected, proving to be positive compared to estimates. Total third-quarter earnings growth was up 2.9%; of the 431 non-financials that reported, earnings growth is 1.2% vs. expectations for an overall 3.3% increase throughout the season. Revenues are up 2.2% vs. expectations throughout the season for a 2.26% increase; 72.5% of companies beat EPS expectations, 20.7% missed the mark and 6.8% were in line with consensus. On a year-over-year comparison basis, 69.7% have beaten the prior year's EPS results, 27.3% have come up short and 3% have been virtually in line. Information technology, consumer staples and financials had the strongest performance vs. estimates, whereas materials and telecom posted the worst results in the S&P 500.

Next week, six companies in the S&P 500 will report earnings. Within the portfolio, Costco (COST:Nasdaq) will report. Key reports for the broader market include: AutoZone (AZO), Bank of Montreal (BMO), GW Pharma (GWPH), HD Supply (HDS), Michael's (MIK), Toll Brothers (TOL), Dave & Buster's (PLAY), Brown-Forman (BF.B), Vera Bradley (VRA), H&R Block (HRB), Lululemon (LULU), Ollie's Bargain Outlet (OLLI), United Natural Foods (UNFI), Acushnet (GOLF), Ciena (CIEN), Science Applications (SAIC), Broadcom (AVGO), DAVIDsTEA (DTEA), Finisar (FNSR) and Vail Resorts (MTN)

Economic Data (*all times ET)

U.S.

Monday (12/5)

Markit US Services PMI (9:45): 54.7 expected

Markit US Composite PMI (9:45):

ISM Non Manufacturing Composite (10:00): 55.0 expected

Tuesday (12/6)

Trade Balance (8:30): -$41.5 billion

Factory Orders (10:00): 2.6% expected

Durable Goods Orders (10:00): 0.7% expected

Wednesday (12/7)

Mortgage Applications (7:00):

Thursday (12/8)

Initial Jobless Claims (8:30):

Continuing Claims (8:30):

Bloomberg Consumer Comfort (9:45):

Friday (12/9)

Wholesale Inventories MoM (10:00): -0.4% expected

U of Mich Sentiment (10:00): 94.2 expected

International

Monday (12/5)

Germany Markit Services PMI (4:30):

Germany Markit Composite PMI (4:30):

UK Markit Services PMI (4:30): 54.3 expected

UK Markit Composite PMI (4:30):

Eurozone Markit Services PMI (5:00):

Eurozone Markit Composite PMI (5:00):

Tuesday (12/6)

Germany Factory Order MoM (2:00):

Eurozone GDP QoQ (5:00):

Eurozone GDP YoY (5:00):

Wednesday (12/7)

Germany Industrial Production (2:00):

UK Halifax House Prices (3:30):

UK Industrial Production MoM (4:30): 0.2% expected

UK Industrial Production YoY (4:30): 0.4% expected

UK Manufacturing Production MoM (4:30): 0.2% expected

UK Manufacturing Production YoY (4:30): 0.8% expected

Japan Trade Balance (18:50):

Japan GDP QoQ (18:50): 0.6% expected

Japan Annualized GDP QoQ (18:50): 2.3% expected

Thursday (12/8)

Japan Eco Watchers Survey (00:00):

Eurozone ECB Main Refinancing Rate and Meeting (7:45):

China CPI YoY (20:30): 2.2% expected

China PPI YoY (20:30): 2.1% expected

Friday (12/9)

Germany Trade Balance (2:00):

UK Trade Balance (4:30):

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

To learn more about how we construct and trade the portfolio, click on the "Getting Started" link directly above the "Weekly Roundup" headline. You can also get your alerts faster by following us on Twitter @CramerAndMohr.

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

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

ONES

Apple (AAPL:Nasdaq; $109.90; 820 shares; 3.58%; Sector: Technology): Shares traded lower this week along with the broader technology sector. We do not believe the story has changed and reiterate our view that Apple is a name to own, not trade. Specifically, we see significant benefits for the company under a Trump administration, outweighing concerns about a potential China trade war. Please refer to our commentary in the Weekly Roundup two weeks ago for more details. While we recognize that the market remains focused on continued performance for the iPhone 7 and any updates on the iPhone 8 (which will be the 10th-anniversary phone), we remain content in our long-term view, a thesis where smartphone dominance is buoyed by strength and continued growth in Services. We reiterate our $130 price target.

Adobe (ADBE:Nasdaq; $99.73; 750 shares; 2.97%; Sector: Technology): Shares traded sharply lower this week on little company-specific news. The stock, however, fell victim to the throwaway-tech trade as investors rotate into financials, energy and industrials and use other sectors and recent winners as sources of funds. We added to the position twice this week as we believe the fundamentals remain strong and view Splunk's (SPLK) quarterly results (released this week) as a potential strong read-through for ADBE given the strong enterprise customer spending. That being said, we recognize that trading could be choppy in the near term as the market adjusts to changing economic and political dynamics and we wait for new money to enter the market following what has been an incredible rally since the election. To add to the near-term pain, Workday's (WDAY) commentary regarding fourth-quarter deal slippage from its partners due to election uncertainty and other global macroeconomic events (e.g., the Italian referendum) raised questions across the broader tech space. Adobe shares showed solid resilience. Some speculated that this type of slippage could also impact Adobe's customers, but we believe that reaction is overdone and baked into the stock from the prior selloff. In addition, just as we are careful not to hang too much on another company's positive results, although we recognize the economic linkage, we are careful not to extrapolate too much from another company's negative results. Adobe has proven its business model to its customers and believe any hiccup (if there were any) would be short-term in nature. The company is set to report in the coming weeks, providing a more detailed outlook for the business. We believe the selloff in ADBE and our other tech names is largely overdone and we take a long-term view, remaining patient as the company executes on its strategic vision. We reiterate our $125 target.

Allergan (AGN:NYSE; $189.69; 550 shares; 4.14%; Sector: Health Care): Shares traded lower this week along with the broader biotech sector. The stock continues to muddle through no-man's-land as investors weigh the impacts of the new administration along with the company's recent updated outlook provided on its latest earnings report. Understandably, management's guidance reduction unwound shareholder confidence in management's forecasts. Also pressuring the stock has been the fact that management refused to provide full-year 2017 guidance on their Nov. 1 conference call in a move that was received poorly by investors. It created a level of uncertainty, preventing sell-side and buy-side analysts alike from being able to model the company's 2017 estimates with certainty. Although this has caused near-term pressure, it incidentally has provided an opportunity for the company to execute its ferocious buyback plan at truly accretive levels. In fact, the company announced on Friday that approximately 40.5 million shares worth $8 billion were received and retired during November. This adds to CEO Brent Saunders' recent $1 million purchase of shares a couple of weeks ago, illustrating management's belief that shares remain undervalued. We agree, but cannot stress enough that this investment is not for the faint of heart given the fragile footing of the company in investors' minds as well as the highly scrutinized nature of the pharma industry. Just this week, Saunders noted a false sense of relief among drug makers over the Trump victory. Expectations that regulatory actions are over with are misguided and Saunders believes Trump may draw on populist anger over drug prices as an opportunity to strike. This commentary sent drug stocks lower later in the week. Allergan tends to be grouped within the horde of companies thought of as "price gougers" but, as we have mentioned time and again, AGN is committed to research, innovation, customer education and single-digit price increases, even outlining a plan and guidelines for the future. We encourage members to read Saunders’ recent blog post here here and the company’s social contract with patients here here. We believe these validate AGN as a leader in social responsibility within the drug industry. We reiterate our $270 target and believe there is upside as the company continues to build out its new product brands while it benefits from established franchises.

Arconic (ARNC:NYSE; $19.69; 4,400 shares; 3.44%; Sector: Metals & Mining): Shares traded lower this week, cooling off from a recent rally. In our view, investors are simply missing the point that Arconic stands to benefit as an industrial in this improving macro. We nibbled again under our cost basis and believe this industrial remains underappreciated, misunderstood and undervalued. We expect the shares to move higher, slowly but surely, as the company builds a steady investor base and adds the appropriate analyst coverage from those who understand the business beyond the commodity-levered dynamics involved with the old combined Alcoa. We reiterate our $22 target.

Facebook (FB:Nasdaq; $115.40; 1,000 shares; 4.58%; Sector: Technology): Shares traded sharply lower this week as investors quickly rotated out of tech and high growth. While it is understandable that FB is a target for profit takers given a) the stock's terrific performance over the years and b) the expectation for higher rates causes investors to want to pay less for future earnings streams, we believe the selloff is shortsighted and more a reflection of the lack of new money entering the market. FB remains healthy and the dominant player in social media, which only continues to attract more eyeballs. We noted that we viewed the selloff as an opportunity for members who are underexposed to nibble at shares -- while we cannot claim to perfectly time a bounce-back, slowly buying a quality company like FB on these sharp moves lower provides the capability to capture upside when the market rationalizes. The stock showed some strength on Friday as investors across the market similarly could no longer ignore the opportunity. We reiterate our $160 target and advise members to take a long-term view on FB (and other tech) as they are just getting started (e.g., monetizing Messenger, WhatsApp and Instagram, along with leadership in virtual reality and continued improvements to the core platform).

General Electric (GE:NYSE; $31.34; 2,350; 2.93%; Sector: Industrials): Shares traded roughly flat this week as a rally to close out the week offset losses through Wednesday. The company appears to be in a sweet spot to benefit from several recent developments. First off, the industrial business looks to improve on the stronger macro outlook and increased spending under the Trump administration. In addition, the company's recent move to combine its oil and gas business with Baker Hughes (BHI, read our analysis here) not only was a savvy move for a struggling business but also offers additional upside with oil prices surging on the OPEC deal. While our long-term thesis remains underpinned by the broader shift of the company toward pioneering the industrial Internet of Things (i.e., its Predix platform), the short term appears to getting brighter. We reiterate our $35 target.

Alphabet (GOOGL:Nasdaq; $764.46; 150 shares; 4.55%; Sector: Technology): GOOGL suffered a similar fate as FB shares this week, declining on the broader throwaway tech and growth trade. As with FB, we viewed the move in GOOGL as overdone and recommended to nibble as a starter position on Thursday for members who were underexposed to the name. Both companies remain in a dominant position in their respective fields and continue to diversify their business models -- specifically for Google via new revenue streams like Cloud, YouTube and new ad products. We cannot pretend to be able to time rotations precisely, but we do view the recent selloff as an opportunity. The rotation has potential to continue in the short term, but the bottom line is that FB and GOOGL continue to look cheap on a valuation basis (specifically on 2018 earnings expectations) and their growth outlooks are too strong to ignore for much longer. We reiterate our $1,000 price target on GOOGL.

Hewlett Packard Enterprise (HPE:NYSE; $23.85; 1,000 shares; 0.95%; Sector: Tech hardware): We upgraded HPE shares to One during last week's shortened holiday trading week. We wanted to be sure to recirculate our reasoning for those members who may have missed our analysis. Our decision to upgrade HPE comes on the heels of what was a mixed earnings report, which at first glance was disappointing (sales of $12.5 billion fell short of $12.8 billion consensus), while mix/margin expansion helped boost the bottom line with earnings of $0.61 a share coming in a penny above consensus. Taken alone, the results were the definition of mixed -- server and networking revenues declined and fell short of expectations, with secular challenges in campus switching impacting delays in E-Rate upgrades. The great thing about HPE's investment thesis is that the quarter's "mixed" results actually were highly impressive in the select areas that matter. This is unlike Cisco (CSCO), which relies on both macro and secular tailwinds to spur the top line, or a Nimble Storage (NMBL), which declined immensely following results that demonstrated remarkable growth yet not enough to justify its multiple, which had been based on a hope trade rather than good old fundamentals. As we look to value HPE, we arrive at a risk-adjusted 12-month price target of $27 a share, which represents a sum-of-the-parts (SOTP) valuation of the core business (HPE minus expected divestments) combined with independent valuation of the company's anticipated asset sales. We value HPE through the lens of its post- divestment "RemainCo" and add its stake in two "merge-spins" (in other words, merging then spinning off a business unit in a tax-free deal). Please read our detailed bulletin here for more details on the upgrade and deeper company analysis.

Kraft Heinz (KHC:Nasdaq: $80.91; 600 shares; 1.93%; Sector: Consumer Staples): Shares declined this week as the rotation out of staples continued until a slight bounce back on Friday. Kraft-Heinz is at the top of our radar of names to buy or add to, but we are looking at closer to $79 before we pull the trigger. As we noted in a forum post this week, we like this name for its synergy optimization, cost-cutting/self-help efforts and potential for 3G Capital to make additional moves. We believe staples have been over-punished as rates have moved higher and we like KHC as an opportunity to take advantage of the recent selloff in the sector. We reiterate our $90 target.

Newell Brands (NWL:NYSE; $45.68; 1,700 shares; 3.08%; Sector: Consumer Discretionary): Shares traded lower this week on little news, but investors preferred to rotate into clearer near-term opportunities. Newell, as we have mentioned, is a long-term play as the company transitions via the Jarden integration and divestiture of non-core brands. The result will be a stronger, higher-growth, higher-margin company led by a proven management team. That being said, investors are waiting for tangible evidence of the benefits after a recent messy quarter with a lot of moving parts. Given the noticeable opportunities in other sectors across the market thanks to expectations of the new administration's policies and actions, investors have been less focused on long-term opportunities. We reiterate our confidence in the NWL story and believe current levels are attractive for those who have not yet started a position or only have small positions. We reiterate our $60 price target.

NXP Semiconductors (NXPI:Nasdaq; $97.97; 650 shares; 2.53%; Sector: Information Technology): Shares traded lower on little news. The semiconductor space broadly was dragged lower on the rotation out of tech, making NXPI an easy target for profit-takers given the recent run due to the merger announcement with Qualcomm (QCOM) and the inherent uncertainty regarding approval that accompanies the merger. We recognize that many members likely received an offer from QCOM to tender their shares for $110. We note that this is simply the commencement of the merger, with QCOM attempting to get a feel for the level of shareholder support. What does this mean? Well, even if investors accept the tender offer, a litany of hurdles must be surpassed for investors to actually get paid that money and for the tender offer to officially close. First off, somewhere between 70% and 95% of shareholders have to accept the tender offer. Then, the regulatory approval still needs to occur. Therefore, an investor could accept the tender offer, but not officially be paid the $110 if these terms aren't met, in which case the tender would expire and investors would hold onto their shares. If every single NXPI shareholder took QCOM up on their offer, then the deal could close quickly, pending regulatory approval, but that is not likely to happen on this initial offer as shareholders tend to drag their feet. Should the tender expire, QCOM would likely post a very similar tender shortly after. The idea is to complete the deal as swiftly as possible. For the record, NXPI has officially recommended that shareholders take the $110 per share. We approve of those members who want to take the offer as the $110 price tag is a nice payout from our earlier purchases in the $70s during Brexit. That being said, we wanted to let members know that this particular tender may not officially close (give reasons explained above). The major downside to accepting the tender appears to be if another bidder came in for NXPI and created a bidding war to push shares higher, but we do not necessarily see that happening and view the $110 as a win regardless, protecting against any potential downside. Otherwise, we continue to hold onto NXPI shares (i.e., not selling out) as an anchor within the portfolio with gradual appreciation toward the all-cash takeover price, but will be constantly monitoring news and commentary regarding the deal should any risks emerge. We reiterate our $110 target.

PepsiCo (PEP:NYSE; $100.60; 1,000 shares; 4.00%; Sector: Consumer Staples): Similar to KHC, PEP shares traded lower this week on the broader market rotation. Investors have also been concerned over the city taxes across the nation potentially imposed on soda. As mentioned on Mad Money earlier this week, we believe Coca- Cola (KO) is much more vulnerable to this given Pepsi's terrific Frito Lay exposure. On that note, we believe PEP carries a diversified portfolio, whose organic growth potential has been lost during the recent decline. Although we were restricted this week and have virtually a full position in the name, we view current levels as attractive for those looking to initiate a position or bulk up on an underexposed position. This is in line with our decision to upgrade to One a couple of weeks ago. We reiterate our $115 long-term target.

T.J. Maxx (TJX:NYSE; $77.10; 1,550 shares; 4.75%; Sector: Consumer Discretionary): Shares cooled off this week from a recent rally sparked by the company's strong earnings report, even though the market initially reacted poorly to the report. As the retail earnings season moved forward, investors grew to appreciate TJX's strong quarter and unique value proposition, which continues to grow in the marketplace. All in, we viewed the quarter as better than expected and view the slight decline initially in trading as shortsighted given what appears to be an intense focus on the conservative guidance for the holiday season. Management has historically guided conservatively only to beat those numbers on the actual results. Ultimately, we believe the company remains on track to continue to deliver value to a consumer increasingly aware of price. Over the long term, we expect the company to benefit from its compelling business model (which has been engrained in the marketplace, creating high barriers to entry), e-commerce expansion and bricks-and- mortar consolidation. We reiterate our $85 target.

TWOS

American Electric Power (AEP:NYSE; $58.70; 500 shares; 1.17%; Sector: Utilities): Shares traded lower this week as the stock continues to be a victim to the quick rotation out of utilities and into expected winners under the new administration and rising rates environment. AEP had benefited immensely over the year from a lower-for- longer rates view, but investors have been quick to take profits amid the changing macro environment. We continue to like the company and view its recent announcement of a transition to a more regulated business will serve the company well as one of the premier large-cap earnings growth stories in the utilities space over the long term. Of course, we cannot forget about the dividend, which, now above 4%, is surely less attractive given the recent rise in interest rates, but still a nice, steady stream of income nonetheless. That being said, we recognize the changing investing environment, which is why we have kept a small position. We reiterate our $65 price target and would look to buy ideally under our cost basis.

Citigroup (C:NYSE; $56.02; 2,250 shares; 5.01%; Sector: Financials): Shares traded slightly lower this week following a selloff on Friday that came after a strong start to the week. We are not surprised to see the pullback given the incredibly fast swing upward for financials since the election. We expected as much and downgraded the name to Two a couple of weeks back. We continue to like the investment as it provides exposure to the hot financials and given its immensely improved regulatory standing. The bank stands to benefit greatly by the improved macro and even more from deregulation, should that occur. That being said, for those members needing cash, we would not be opposed to locking in profits at these levels after a great run. Given the discount to tangible book value, we remain holders and confident for the long term, but we simply recognize that the sector is bound to show some incremental weakness following the quick surge and we are not incremental buyers here, especially given our full weighting. We reiterate our $60 target.

Comcast (CMCSA:Nasdaq; $68.78; 1,000 shares; 2.73%; Sector: Consumer Discretionary): Shares sharply outperformed the S&P 500 this week on various developments, all of which we outlined in a comprehensive note earlier this week. The specific news of the week centered on the AT&T (T) release of DirecTV Now, which turned out to be less of a threat than many had expected. In addition, investors continue to ponder the prospect of deregulation in the cable and Internet space as the new administration likely looks to appoint a new chairman of the Federal Communications Commission, ousting current pro-regulation director Tom Wheeler. On the same day as the DirecTV Now detailed release, we also received a solid sell-side analyst price target hike (Wunderlich) to $85 from $78 and further details from Nintendo on its partnership with Universal Parks. All of these developments perfectly collided on Tuesday to boost the stock, at points, above our $70 target. You can read our detailed Alert here. We have noted multiple times in recent weeks that we are awaiting more clarity around the administration's developments as we continue to evaluate our price target. This remains the case, although we specifically note that we see upside beyond our under-review $70 target as deregulation seems more likely with each passing day and the stock will command an upward re-rating should that occur. Even if speculation continues on that front, we believe the company's diversified business model, on top of the better-than-feared DirecTV Now announcement, should provide shares with a runway for gains. We will keep members updated when we decide to raise our price target, but again note that we see upside beyond the $70 level. That being said, we likely wouldn't be buyers until shares dropped into the mid or lower $60s.

Costco Wholesale (COST:Nasdaq; $152.09; 400 shares; 2.42%; Sector: Consumer Staples): Shares traded roughly flat this week amid mixed signals from the retail sector along with a better-than-expected November sales report. The company reported same-store sales (comps) of +1% for the month, slightly below Wall Street estimates of +1.4%, but core comps -- which strip out gas prices and foreign-exchange impacts - - of +2% were largely in line with consensus expectations. Digging deeper into the numbers, overall U.S. comps were up 1%, Canada up 1% and Other International down 2%. Stripping out gas prices and FX, the U.S. business was still up 1%, Canada rose 3% and Other International rose 4%. For the month, overall traffic accelerated 2.25%, with a better showing in the U.S. of +2.75%, buoyed by an accelerated performance in the back half of the month (first two weeks of traffic were up less than 1%). During the last two weeks of the month, total company traffic increased 3.5% and U.S. traffic was up 4%. The last time we saw that type of momentum was last March, adding to improved sentiment on the name. Traffic trends for November were roughly stable on a two-year basis and slightly below October's figures. Overall, we are encouraged by Costco's November results, especially given the uptick in traffic momentum to close out the month. Our bullishness remains tempered, however, by deflationary pressures and weakness in tobacco, and we are not necessarily itching to chase at these levels. We still prefer the mid- to low $140s as levels to add, although we'd note that the premium valuation has certainly come down over the past year, leaving room for an upward re-rating should comps and traffic trends continue to improve. We remain constructive over the long term given the prospect for better traffic and sales in the months ahead (especially in light of easier comparisons), with potential for the added benefit of an upcoming fee increase (the company has historically raised fees every five to six years). Our long-term $175 price target remains intact, yet, as we have mentioned, our proclivity to buy with momentum is low until the retail giant gives us a more stable, visible and upward-sloping growth trajectory.

Cisco Systems (CSCO:Nasdaq; $29.25; 3,300 shares; 3.83%; Sector: Technology): We recently downgraded Cisco to Two and lowered our price target to $33 from $35 following the company's earnings report, which showed the downside of being such a large company undergoing a transition, no matter how beneficial we expect that transition to be over the long term. You can read our detailed analysis here and our explanation of our price target revision here. Prior to the quarter, we trimmed our position as our stake had grown into large following the 20% rally since May and we found it prudent to lower our exposure and take some profits. See the trade here. Bottom line: We remain confident in the company's long-term vision but recognize the hiccups that are bound to occur for such a large company exposed to various areas of the macro. We reiterate our Two rating and $33 price target.

Dow Chemical (DOW:NYSE; $55.42; 1,475 shares; 3.25%; Sector: Chemicals): Shares traded higher this week as the materials sector continued to benefit from the Trump rally. We are downgrading shares to Two on the recent move higher as we would await a pullback before adding to the position. We note, however, that this does not reflect any decreased confidence in the company whatsoever. Rather, given the lingering uncertainty regarding the merger with DuPont (DD), which may have increased under the new administration due to testier international relations, we recognize that the stock could fall lower on any downside news and we view the current upside toward our $60 target as limited. That being said, we remain confident in the company, with or without the merger, but note that a decision either way will have an impact on the stock, so investors are stuck waiting until that time comes. The fundamentals remain solid, with the company again showing strong volume growth in its most recent quarter, something that should continue under the new administration. We also continue to love the stock for its steady 3.3% dividend yield, which pays us to wait for the benefits from the merger. We reiterate our $60 price target.

Panera Bread (PNRA:Nasdaq; $213.67; 300 shares; 2.55%; Sector: Consumer Discretionary): Shares traded roughly in parity with the broader market this week despite an initial selloff to kick off the week following a sell-side analyst's downgrade purely based on valuation. The research note came a week after we suggested members ring the register on their PNRA shares following a strong rally in recent weeks that brought the stock to above $217. The stock had run roughly 36 points since we pounded the table one month ago with shares trading in the $180s, highlighting the irrational, prolonged slide that had plagued shares for much of October. Quite bluntly, we viewed the move suspiciously and overtly expressed the fact that we could not make sense of the insensible selloff, recommending members buy shares (which we would have done if not restricted). Panera's run over the past several weeks is an enormous reversal in and of itself and representative of what was clearly an irrational selloff. That said, despite the fact Panera was our top pick heading into the year, we also would not want to succumb to greed amid an incredibly profitable swing. We reiterate our $235 target, but we would await a pullback before adding back to our position.

Schlumberger (SLB:NYSE; $85.01; 1,000 shares; 3.38%; Sector: Energy): Shares traded higher this week along with the surge in oil prices. Last week, we added Schlumberger to our core holdings list as the company has become more dominant via Permian exposure and, critically, the integration of Cameron International, a move that further embeds Schlumberger's technological leadership across both the offshore and now onshore drilling verticals. Although the energy sector had been dampening prior to news of the OPEC deal, our view on SLB has never wavered, and we continue to view it as best-in-class in the oilfield services space. Management has done an incredible job cutting costs, increasing efficiencies and capitalizing on its industry expertise. The company has noted that $50 oil is a key threshold to beat its internal expectations, so any continued increase in prices only adds to our bullishness. We reiterate our $85 target, although we are actively considering upwardly revising, but we want to allow additional time for the OPEC deal to begin to play out to determine if we can trust the swift uptick in crude oil. That being said, we are downgrading our rating to Two for now as we would await a pullback below $80 before purchasing additional shares and we do not want to be too quick to trust OPEC on their word. We want to be clear, however, that SLB is best-in-class and we continue to view it as a core holding for the long term.

Starbucks (SBUX:Nasdaq; $57.21; 1,750 shares; 3.98%; Sector: Consumer Discretionary): Shares traded roughly flat as gains earlier in the week were offset by a decline on Friday following the company's announcement that Howard Schultz would be stepping down as CEO. The stock initially sold off more than 12% in after hours on Thursday evening, but quickly recovered and opened on Friday down roughly 3%. The pain eased as the day wore on as investors showed increasing trust in the duo of Kevin Johnson (former COO) as the new CEO and Schultz as the executive chairman focusing on the strategic buildout of the premium brands. Read our detailed analysis here. We reiterate our $65 long-term price target on SBUX.

Visa (V:NYSE; $75.72; 475 shares; 1.43%; Sector: Information Technology): Shares traded lower this week on little company-specific news, although the broader rotation out of recent winners and into specific sectors expected to benefit from the Trump administration has been noticeable. We trimmed V shares earlier in the week by more than half of our position in the high $70s as we recognized the worsening sentiment in the name and across the fin-tech and payments space. First off, the strong U.S. dollar -- which has ripped higher relative to major foreign currencies following President-elect Trump's victory -- places downward pressure on the company's overseas business given the unfavorable exchange rate (i.e., currency risk). A secondary risk relates to potential protectionism attitudes and a slowdown in global trade, which would pressure cross-border transaction volumes. These volumes underpin sales and stand at the heart of Visa's global business. Secondly, although we consider Alfred Kelly a very strong CEO to replace Charlie Scharf (especially relative to the abrupt nature of Scharf's announcement), we view any turnover at the top of the ship as an added layer of uncertainty. We would expect Kelly to be conservative around forward guidance in his initial quarters as CEO (official start date was Thursday). Thirdly, we would be remiss not to acknowledge the fact that Visa is managing an ongoing federal inquiry related to the company's debit-card "best practices" following merchant pushback, a development that resulted in Visa modifying its debit routing and processing policies. Bottom line: Visa's headwinds have increased in lockstep with related macro and company-specific uncertainty. We are on the sidelines for now, although we believe the shares become attractive in the lower $70s, where we would revisit our stance. For now, we reiterate our long-term $84 target as we do believe shares of Visa become attractive for investors willing to take a longer-term time horizon (in which it could surprise to the upside given its potential to be a beneficiary if it can steal away American Express' (AXP) deal with Starwood Hotels, the latter of which was taken over by Marriott (MAR). Visa assumes no credit/default risk (the bank it partners with takes on the liabilities), so any major co-brand contract wins flow right to the company's bottom line.

Walgreens Boots Alliance (WBA:Nasdaq; $85.11; 1,150 shares; 3.89%; Sector: Health Care): Shares outperformed the S&P this week amid growing confidence in the approval of the pending merger with Rite Aid (RAD). Specifically, specialty news outlet CTFN reported earlier this week that Federal Trade Commission members had been removed from the WBA/RAD review process and placed on a separate deal review. Investors took this as a positive sign, potentially indicating that the WBA/RAD review was nearing a conclusion. This comes after recent commentary from the WBA Chief Operating Officer Alex Gourlay on the RAD deal, indicating that Walgreens had buyers for stores lined up and ready (see our Alert here). While the news is undoubtedly a positive for Walgreens -- as a reminder, we have continuously noted the importance of a decision on the merger, either for or against, as the overhang of uncertainty has plagued the stock - - we are also wary of the quick move higher over the last couple of weeks given that much of the move hangs its hat on an approval. Reports suggest that such an announcement could be coming, but we have time until the next update from management and we recognize that any negative news regarding the merger can still emerge and would push the stock down from these levels (visibility into approval is still limited and speculative). As such, we are downgrading the name to Two on valuation as the stock approaches our current $90 target, but maintain our confidence long term and would remain buyers under $80. We point to our recent Alert here, where we recommended members purchase shares (although we were restricted) in the high $70s following what we viewed as an unwarranted selloff. Bottom line: We like Walgreens' business and future prospects. We will continue to follow reports regarding the merger and we are constantly evaluating our levels, which are subject to change as more information emerges. We reiterate our $90 target.

Wells Fargo (WFC:NYSE; $53.58; 1,900 shares; 4.04%; Sector: Financials): Shares continued to trade higher this week as the financials rallied on expectations for deregulation and the prospects for higher rates. The companies enjoyed an added boost when oil prices surged higher as the move lessens skepticism over loans and debt stuck with many oil companies. We trimmed our WFC position on the rally, just as we had recommended members do a couple of weeks back. The recent bank rally has been predicated on expectations for rising interest rates and speculation regarding potential deregulation as part of the new administration, both of which bode well for WFC, especially considering the tender footing on which the bank stands following its sales-practices scandal. These forces have provided an overall boost in investment toward financials, which have seemingly been searching for a reason to rally, boasting attractive valuations ever since the industry underwent regulatory overhaul following the financial crisis. While we believe the rally has largely been deserved, we also recognize that the swift move higher has priced in many benefits, which, at this point, still rely solely on speculation. When it comes to WFC, we found it prudent to take some off the table in a name to which the portfolio was heavily weighted in order to help de-risk ourselves from any further headlines and regulatory action while still being able to benefit from further upside. We update our target slightly to $55 from $53 to reflect strength in oil and the broader improving macro. We see a clear improving sentiment, not only in the broader sector but also specifically in WFC as investors focus on macro benefits and ignore the company's recent woes.

THREES

Occidental Petroleum (OXY:NYSE; $70.85; 700 shares; 1.97%; Sector: Energy): Shares enjoyed a nice rally this week, benefiting from the surge in oil prices following OPEC's production cut agreement. We took advantage of the more than 7% move in just two days to take some off the table in our sole Three-rated name. That being said, while we still have concerns regarding management's shift in strategy, we also recognize that it will benefit immensely should prices remain at these new levels (or higher), as its Permian investments will pay off hugely -- benefiting from high efficiencies that lead to greater profit as prices rise. As such, we did not completely sell out of the name as we understand that shares will continue to push higher should crude prices see any additional boost. However, shares remain vulnerable to any collapse in crude oil prices (e.g., if the OPEC deal turns out to be more "talk than walk") -- this is why we found it prudent to trim our position and hedge against any downside scenario. We maintain our Three rating as we remain skeptical over management's shift in strategy.

Regards,

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

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

Starbucks Passes the Coffee Cup
Stocks in Focus: SBUX

Johnson faces a daunting assignment in replacing CEO Schultz.

12/02/16 - 02:07 PM EST
Dissecting the November Jobs Report
Stocks in Focus: WFC, C

Continued strength is likely the final stepping stone to a December rate hike, but questions linger.

12/02/16 - 11:24 AM EST
Trimming Occidental, Buying More Adobe
Stocks in Focus: OXY, ADBE, FB, GOOGL, KHC

We're moving with the market rotations.

12/01/16 - 02:29 PM EST
Weekly Roundup

OPEC deal is among the highlights as markets finish off an explosive November. In the portfolio, we adjust the size of some of our positions.

12/02/16 - 05:59 PM EST

Markets

Chart of I:DJI
DOW 19,170.42 -21.51 -0.11%
S&P 500 2,191.95 +0.87 0.04%
NASDAQ 5,255.6520 +4.5450 0.09%

Action Alerts PLUS Holdings

Holdings 1

Stocks we would buy right now

Symbol % Portfolio
Weighting
Industry
AAPL 0.03575271191945102 Consumer Durables
ADBE 0.029674576330978693 Computer Software & Services
AGN 0.0413908715040321 Drugs
ARNC 0.03437129041760313 Metals & Mining
DOW 0.032430674887365056 Chemicals
FB 0.04578289526514845 Internet
GE 0.029218929405397904 Industrial
GOOGL 0.04549288403084322 Internet
HPE 0.009462062842927128 Telecomm
KHC 0.019259761122546765 Food & Beverage
NWL 0.030808635309448596 Consumer Durables
NXPI 0.025264104522810103 Electronics
PEP 0.039911258784002895 Food & Beverage
SLB 0.03372620386906646 Energy
TJX 0.04741148092427699 Retail
WBA 0.03883075865181371 Retail
Holdings 2

Stocks we would buy on a pullback

Symbol % Portfolio
Weighting
Industry
AEP 0.011644089913623111 Utilities
C 0.05000610947743186 Banking
CMCSA 0.02728724034953995 Media
COST 0.024135599795065608 Retail
CSCO 0.0382945750907145 Computer Hardware
PNRA 0.025430930410669673 Leisure
SBUX 0.03971983550007366 Leisure
V 0.014269266845767714 Financial Services
WFC 0.040388130881998635 Banking
Holdings 3

Stocks we would sell on strength

Symbol % Portfolio
Weighting
Industry
OXY 0.019675933194757685 Energy