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Jim Cramer's Action Alerts PLUS

Weekly Roundup

By Jim Cramer and the AAP Team | 2018-06-22 18:59:41.0

Markets had a tumultuous week as we went back and forth in the news debating the potential of an all-out trade war with China. There is no denying that the news cycle is as fast as it has ever been. Because of this, it can be easy to get distracted and wrapped up in day-to-day events. However, we want to remind members to stay focused, keep emotion out of trade decisions (as much as possible) and reiterate that sometimes, taking a step back and making no move can be the best move of all. Additionally, when considering new positions, contemplate the exposure to foreign markets, especially China. For example, when the trade war talk really started to heat up, we made the defensive move to take positions in heavily domestic names including, Darden Restaurants DRI, UnitedHealth Group UNH and Kohl's KSS due to their heavily U.S. based revenue. All three have been strong performers for us as they have been largely insulated from the trade war talk.

Treasury yields were relatively flat hovering around the 2.9% level. Gold moved lower as the euro strengthened slightly versus the dollar. Lastly, oil ended the week higher, staging a Friday rally on OPEC announcements that it would be looking to increase production modestly by around 600,000 barrels per day (bpd), i.e. reducing the previous reduction of 1.8 million bpd to 1.2 bpd (more below).

First-quarter earnings are wrapping up and have been relatively positive vs. expectations.


On Tuesday, the U.S. Census Bureau reported that housing starts jumped 5% month over month in May to a seasonally adjusted annual rate of 1.35 million, up from April's revised rate of 1.286 million and above expectations for 1.86% monthly increase. With May's monthly advance, housing starts are up a whopping 20.3% from the same time last year. Offsetting the strong advance in housing starts, units authorized by building permits declined 4.6% month over month to a seasonally adjusted annual rate of 1.301 million, below expectations for a 1.03% decline. This follows a revised April reading of 1.364 million. With May's monthly advance, permits are up 8% from the same time last year. See here for our full analysis.

On Wednesday, the National Association of Realtors (NAR) reported that existing home sales -- completed transactions for single-family homes, townhomes, condominiums and co-ops -- declined 0.4% in May, to a seasonally adjusted annual rate of 5.43 million, down from April's downwardly revised 5.45 million rate. With May's move lower, which missed expectations of 5.52 million (or +1.1%), existing home sales are down 3% from the same time last year and have now shown annual declines for three consecutive months. Regarding the pricing environment, median existing home prices hit an all-time high, rising 4.9% year over year to $264,800 and marking the 75thconsecutive month of year-over-year price gains. See here for our full analysis.

On Thursday, the Department of Labor reported that initial jobless claims for the week ending June 9 were 218,000, a decrease of 3,000 from the previous week's revised level of 221,000 (revised up from 218,000) and 2,000 claims below expectations of 220,000. Importantly, the four-week moving average for claims (used as a gauge to offset volatility in the weekly numbers) was 221,000, a decrease of 4,000 from last week's revised level of 225,500 (revised up from 224,250). The low rate of layoffs reflects a strengthening labor market as claims have remained below 300,000 -- the threshold typically used to categorize a healthy jobs market -- for an incredible 172 consecutive weeks, the longest streak for weekly records dating back to 1967. The previous longest stretch ended in April 1970 and lasted for 161 weeks. For the official weekly release, please see here.

Finally, on Friday, the IHS Markit Group reported that the Flash U.S. Composite Purchasing Managers Output Index (PMI) for June pulled back to a two-month low of 56, down from 56.6 in May. Making up the headline reading, the Flash U.S. Services Business Activity Index also hit a two-month low at 56.5, down from 56.8 in June. That said, the pullback was from a multi-year high and June's reading was the second strongest since April 2015, led by service sector growth. Offsetting this was inflationary pressure as input costs increased at their fastest pace since September 2013 with service providers noting increased costs for fuel, salaries and steel related items. The commentary on steel is a positive readthrough for our Nucor position but a potential headwind that we will continue to monitor for those companies using steel as an input, a perfect example of why we always stress the need to hold a diversified portfolio. This was compounded by a decline in the Flash U.S. Manufacturing PMI, which pulled back to a 9-month low at 54.6, from 56.4 last month as a result "weaker gains in new business volumes." See here for our full analysis.

Note: T is the most recent period, T-1 is the prior period's reading and T-2 is two periods back, the intent being to illustrate any trends)


On the commodity front, the big news of the week came on Friday out of Vienna where OPEC agreed to increase production limits. Recall, the organization had previously been withholding 1.8 million barrels per day (bpd) to reduce the global glut and bring supply more in line with demand. Yet, as demand continued to increase, and prices pushed higher, the committee, led by Saudi Arabia, looked to increase its output to offset the supply lost from disruptions in Venezuela and the sanction on Iran.

However, while an increase was indeed agreed upon, given the vast number of moving parts when it comes to oil (the number of countries involved and political conflicts that arise), it is difficult to determine exactly how many bpd will come online. So even though OPEC announced it would add 1,000,000 barrels a day to the global markets, spare capacity only totals to an additional 600,000 barrels per day. This was taken as a bullish sign pushing prices higher into the weekend, along with our energy names, Anadarko Petroleum (APC) , Cimarex (XEC) and Schlumberger (SLB) .

Perhaps most interesting, one factor being toted as a reason for the less than 1 million bpd increase is that some countries simply cannot produce more because the production capacity just isn't there. We view this as most positive for Schlumberger SLB and believe it backs CEO Paal Kibsgaard's comments that years of underinvestment are straining production capacity and global E&Ps will soon have no choice but to invest. Bottom line, the news was a win for out energy holdings and we will continue to monitor for OPEC compliance going forward.

On the domestic front, on Wednesday, the U.S. Energy Information Agency (EIA), reported that in the week ending June 15, U.S. stockpiles (excluding those in the Strategic Petroleum Reserve) decreased by 5.9 million barrels, exceeding expectations of a 3 million barrel draw down. U.S. production was flat, holding at an all-time high of 10.9 million bpd. Net imports declined by 201,000 bpd as imports increased by 143,000 bpd and exports increased by 344,000 bpd. See here for the full report.

Lastly, we note that the spread between WTI and Brent has contracted, however, it still sits at comfortable $7/barrel. Recall, this is a key metric as the wider the spread, the more attractive U.S. based crude (WTI) becomes to foreign buyers, though we note that strength in the dollar can offset this effect as foreign buyers convert their home currencies to the dollar.


In the portfolio this week, we added to our position in Schlumberger, a move that paid off on Friday as OPEC increased production by a lesser amount than expected. We also added to our WestRock (WRK) holding on weakness that has brought the dividend yield to 3%. We continue to believe that e-commerce related demand for corrugated boxes will boost the company's numbers. Lastly, we increased our stake in Raytheon (RTN) as shares moved below our basis on what we believe to be a completely overblown selloff.

Offsetting these buys, we booked profits in Nordstrom (JWN) and Kohl's (KSS) as both names have had strong moves since our most recent buys. We also trimmed our Constellation Brands (STZ) position because we have concerns about the upcoming quarter. Though we believe the May month was boosted by a strong Cinco de Mayo holiday (recall that Constellation's beer portfolio is weighted toward the Hispanic market), poor weather trends at the beginning of the quarter suggest much lower-than-anticipated sales.

Finally, we closed out our position in Darden Restaurants (DRI) following a very strong quarterly release that pushed the stock nicely past our stated price target.

Moving on to the broader market, first-quarter earnings are finally complete and have been relatively in line with lofty expectations, with 78.2% of companies in the S&P 500 reporting a positive EPS surprise. For the first-quarter, earnings growth increased roughly 24.3% year over year vs. expectations for an overall 24.51% increase throughout the season; for the 431 non-financials that reported, earnings growth is up 23.7%. Revenues are up 7.8%, marginally below expectations throughout the season for a 7.9% increase; 78.2% of companies beat EPS expectations, 15.6% missed the mark and 6.2% were in line with consensus. On a year-over-year comparison basis, 87.57% beat the prior year's EPS results, 11.22% came up short and 0.80% were virtually in line. Information Technology, Healthcare and the Financials have had the strongest performance vs. estimates, whereas Real Estate, Telecom and the Utilities have posted the worst results in the S&P 500 for the first quarter so far.

Next week, 12 companies in the S&P 500 will report earnings. Within the portfolio, we will here from Constellation Brands when the company reports earnings on Friday before the opening bell.

Other key earnings reports for the market include: Carnival CCL, FactSet FDS, IHS Markit INFO, JinkoSolar Holding JKS, Lennar LEN, AeroVironment AVAV, Determine DTRM, Sonic SONC, General Mills GIS, Paychex PAYX, UniFirst UNF, Bed Bath & Beyond BBBY, CalAmp CAMP, Rite Aid RAD, Pier 1 Imports PIR, Walgreens WBA, Accenture CAN, ConAgra CAG, McCormick MKC, NIKE NKE, KB Home KBH and Synnex SNX

Economic Data (*all times ET)


Monday (6/25)

Chicago Fed Nat Activity Index (8:30)

New Home Sales (10:00): 669k expected

Dallas Fed Manf. Activity (10:30): 24 expected

Tuesday (6/26)

Richmond Fed Manufact. Index (10:00): 15 expected

Conf. Board Consumer Confidence (10:00): 127.1 expected

Wednesday (6/27)

MBA Mortgage Applications (7:00)

Wholesale Inventories MoM (8:30)

Durable Goods Orders (8:30): -0.40% expected

Durables Ex Transportation (8:30)0.50% expected

Cap Goods Orders Nondef Ex Air (8:30)

Pending Home Sales MoM (10:00): 1.00% expected

Thursday (6/28)

GDP Annualized QoQ (8:30): 2.20% expected

Initial Jobless Claims (8:30)

Continuing Claims (8:30)

Personal Consumption (8:30)

GDP Price Index (8:30): 1.90% expected

Core PCE QoQ (8:30)

Bloomberg Consumer Comfort (9:45)

Friday (6/29)

Personal Income (8:30): 0.40% expected

Personal Spending (8:30): 0.50% expected

Chicago Purchasing Manager (9:45): 60.3 expected

  1. of Mich. Sentiment (10:00): 99 expected


Monday (6/25)

Germany IFO Business Climate (4:00): 101.8 expected

Germany IFO Expectations (4:00): 98 expected

Germany IFO Current Assessment (4:00): 105.7 expected

Tuesday (6/26)

Wednesday (6/27)

EU Agg M3 Money Supply YoY (4:00)

Japan Retail Sales MoM (19:50): -0.80% expected

Japan Retail Trade YoY (19:50): 1.60% expected

Thursday (6/28)

Germany GfK Consumer Confidence (2:00): 10.6 expected

EU Agg Consumer Confidence (5:00)

Germany CPI MoM (8:00): 0.20% expected

Germany CPI YoY (8:00): 2.20% expected

Germany CPI EU Harmonized MoM (8:00): 0.20% expected

Germany CPI EU Harmonized YoY (8:00): 2.40% expected

Japan Job-To-Applicant Ratio (19:30): 1.59 expected

Japan Jobless Rate (19:30): 2.50% expected

Japan Tokyo CPI YoY (19:30): 0.40% expected

Japan Tokyo CPI Ex-Fresh Food YoY (19:30): 0.60% expected

Japan Industrial Production MoM (19:50): -1.20% expected

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

Friday (6/29)

Japan Housing Starts YoY (1:00): -6.50% expected

Germany Unemployment Change (000's) (3:55): -5k expected

Germany Unemployment Claims Rate SA (3:55): 5.20% expected

UK Mortgage Approvals (4:30): 62.1k expected

UK GDP QoQ (4:30): 0.10% expected

UK GDP YoY (4:30): 1.20% expected
EU Agg CPI Core YoY (5:00): 1.00% expected

EU Agg CPI Estimate YoY (5:00): 2.00% expected

China Non-manufacturing PMI (21:00)

China Manufacturing PMI (21:00)

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



Abbott Laboratories (ABT) ; $61.94; 900 shares; 2.03%; Sector: Healthcare -- Shares fell modestly this week on little news. Led by the excellent CEO Miles White, we believe Abbott Laboratories represents one of the best medical device companies out there. Supporting the company's lofty organic growth target of between 6% and 7% for the year are several new devices it has recently introduced to the market including the HeartMate 3, Confirm RX ICM, and the FreeStyle Libre continuous glucose monitor. Additionally, Abbott has a strong Diagnostic business that was boosted by 2017's acquisition of Alere, a deal that management has previously said has tracked ahead of expectations. Combined with their solid franchises in Nutritionals and Established Pharmaceuticals, we expect Abbott will deliver another year of double digit earnings per share growth. We reiterate our $65 price target.

Amazon (AMZN) ; $1,715.67; 100 shares; 6.26%; Sector: Healthcare -- We remain bullish on shares of Amazon and note that while ecommerce players, including Amazon, got hit this week on news that the Supreme Court voted to require online business with no physical presence in a state to collect sales tax, Amazon has already been doing this and therefore the status quo remains unchanged by the ruling. As a result, there is no change in our thesis and we continue to believe that the company will lead the way in ecommerce. Outside of online sales, we continue to view the public cloud space as a rapidly growing industry with plenty of room to run and believe that AWS will remain the dominant player as more and more companies move to the cloud. Finally, with the ad business still in its early stages, despite operating at a run-rate of $8 billion and will benefit from the massive amount of data Amazon collects from both the consumer side and merchant side of its online sales and cloud operations. We reiterate our $1,850 price target.

Anadarko (APC) ; $74.11; 500 shares; 1.35%; Sector: Energy -- Shares stormed higher on Friday after OPEC announced that it will only raise output by 600,000 barrels per day. This news was a strong signal that current energy prices are sustainable, which is good news for Anadarko because it generates significant free cash flows at these prices. This combined with their strong balance sheet has allowed management to take on shareholder friendly approach to capital allocation. Anadarko has already pursued one large buyback this year (expected to be completed in June), but due to their excellent free cash flow generation at these levels, management has hinted that they could expand a buyback program later this year. We reiterate our $77 price target.

Comcast (CMCSA) ; $33.81; 2,400 shares; 2.96%; Sector: Consumer Discretionary -- Shares closed the week relatively flat. On Wednesday morning, Disney (DIS) amended its agreement with Fox (FOX) for the same assets that Comcast is vying for by increasing its offer to $38 per share, or $71.3 billion. This new agreement is $3 more per share than the bid Comcast previously offered which you can read about here. With a higher bid in place, CNBC's David Faber reported on Friday that he is hearing that it is unlikely that Comcast will revise its bid next week, but a higher offer is still likely. We view the current share price as a win-win level for shareholders willing to have patience. On one hand, if Comcast wins the bid, it will acquire key global intellectual property that increases its global scale. And if Disney wins, we expect Comcast will announce a substantial buyback program to make up for its reduced share price. We reiterate our $45 price target. (CRM) ; $135.01; 500 shares; 2.46%; Sector: Information Technology -- We remain bullish on Salesforce as we continue to believe that regardless of the industry a company finds itself in, there is always a benefit to knowing more about one's customers and helping companies do just that is what Salesforce is all about it. Furthermore, as we noted on this month's members-only call, the prior acquisition of Mulesoft has effectively served to expand the company's total addressable market (TAM) while increasing integration capabilities and allowing companies with legacy systems that were previously difficult to onboard, to take advantage of the Salesforce platform. We have confidence that the company will continue to benefit from what management calls the fourth industrial revolution (digitalization) and hit its FY 2022 revenue target of $21 billion and $23 billion. We reiterate our $155 price target.

DowDuPont (DWDP) ; $67; 1375 shares; 3.36%; Sector: Chemicals -- Shares fell this week on trade tensions and concerns of a slowdown in the worldwide economic expansion. Despite this, signs are pointing to a solid second quarter based on a Thursday note by analysts at Deutsche Bank. The analysts recently met with DWDP management, and in their research note they called out management's confidence in achieving their Q2 targets in Agriculture, a business that we think is too often scrutinized. Perhaps more importantly, the note said that "global demand trends, geographies, and end-markets remain healthy with little to no change since the end of Q1." And although shares remain in a bit of a holding pattern due to the long-time horizon of its upcoming breakup into three (or more) separate entities, we believe this trend will abate once management files the Form 10s for the new entities (expected in September). This will help investors gain a better understanding of what the new company balance sheets will look like. Until then, we prefer to not be nimble with our position because we think momentum in the stock and admiration of the value creation track record of CEO Ed Breen will kick in later this year. We reiterate our $85 price target.

Emerson (EMR) ; $69.87; 1,100 shares; 2.80%; Sector: Technology -- Shares fell this week on trade fear concerns. With about 10% of revenue based in China, per FactSet estimates, the company does have some exposure to escalating trade tensions. That said, CEO David Farr has been very constructive about how tax reform more than offsets tariffs, and as a Director on the US-China Business council, we believe he has plenty of experience to navigate challenges. But more specific to Emerson, the company's Automation Solution business has been on fire thanks to increased capital investment and large project momentum in 2019 should help sustain growth in the business. Emerson has terrific balance sheet optionality too. The company has already announced two acquisitions so far this year (Tools and Test from Textron and Triton), and commentary at a recent conference suggested that more bolt-on deals could be on the way. Thanks to an addition $4 billion of available debt capacity (and 60% of that will be dedicated to M&A), management has plenty of flexibility to pursue more opportunistic deals. We reiterate our $80 price target.

Alphabet (GOOGL) ; $1,169.29; 70 shares; 2.99%; Sector: Technology -- Shares climbed this week as  the company announced a $550 million investment and a strategic partnership with, a Chinese e-commerce retailer. This investment should expand Google's retail and e-commerce footprint into different high-growth regions and make Google more competitive in the retail environment. A larger presence in retail should attract more consumers onto the Google website, thus strengthening the ability of the company's flagship advertising business. And while advertising related traffic acquisition costs have increased as a result of the expansive opportunity the company has on mobile platforms, its high profitability is evidenced by the terrific earnings per share growth at the company. Plus, it represents a source of capital to fund Alphabet's push to become a diversified tech giant through the Google Cloud and autonomous driving. Google is one of the three main players in the cloud, an industry we believe to be in secular growth. And with Waymo, Alphabet is developing the best-in-class technology for an industry that is still in its infant stages. We reiterate our $1,300 price target.

Goldman Sachs (GS) ; $226.02; 500 shares; 4.12%; Sector: Financials -- While Goldman Sachs passed the first round of the Fed's annual stress test this week, some concerns were raised because some of its key ratios flirted near the Fed's minimums. However, as we noted in our alert (here), the bank released a statement following the release noting, "our models and the Federal Reserve's models diverge, which we expect to discuss with the Federal Reserve. We are examining that divergence and will provide more specificity around our planned capital return after the release of next week's CCAR results. Therefore, the DFAST ratios that are published today may not represent our firm's actual capital return capacity, which may be higher than this year's test would otherwise indicate." As a result, we will be watching closely for next week's results where we expect to be updated on the bank's capital return program, however, we believe that ultimately the bank will be able to resume its share buyback program, which was put on hold in the second quarter, perhaps because management had some idea of what the tests would entail and knew there might be some divergence between their models and the Fed's. Backing this view that the buybacks will resume, analysts at Morgan Stanley wrote in a note today that, "This statement [by Goldman Sachs] suggests that GS sees a reasonable possibility of getting close to their $5-6B buyback guidance, despite being 10 bps above the minimum on the Supplementary Leverage Ratio. We are currently at $5B in total buybacks for GS for the 2018 CCAR period." We reiterate our $285 target.

Honeywell (HON) ; $144; 850 shares; 4.46%; Sector: Industrials -- Shares moved lower as the selloff in industrials weighed down the stock. Despite the pressure in the group, in our opinion, Honeywell represents one of the best industrial stories. Its terrific aerospace business had a great first quarter of 8% organic revenue growth, a number so large that it forced management's hand in upping its full year guide. In addition to Aerospace, Honeywell's Safety and Productivity Solutions has developed into a play off e-commerce, and CEO Darius Adamczyk noted last month at a conference that Intelligrated continues to receive large orders. And to make these divisions more valuable to the eye of investors, the company's upcoming breakup will unlock the organic growth stories within these two divisions. Though the stock is in a bit of a holding pattern right now, the spinoffs of the Homes and Transportation business can be the catalyst needed to increase shareholder value. And all during this time, management has several billion dollars in cash available for mergers and acquisitions and/or share buybacks. We reiterate our $175 price target.

Illinois Tool Works (ITW) ; $141.46; 475 shares; 2.45%; Sector: Industrials -- This week, analysts at Citi reiterated their buy rating shares. In line with our view, the analysts pointed to ongoing improvements which, thanks to the 80/20 business model, as leasing to enhanced margins and improved organic growth rates. Additionally, while the analysts noted that the increased dividend payout target of 50% of free cash flow is likely already being factored in, they believe there could be upside to the company's $1 billion share buyback guidance due to the recent weakness in shares thanks to repatriation. To that point, we note that ITW has already repatriated $1 billion in cash and plans to repatriate another $1 billion by the end of the year. Lastly, we remind members that we are in phase two of the company's strategic framework, characterized by acquisitions (according to management), and as a result continue to be on the lookout for any updates on this front. Lastly, while we are waiting for a move below our basis before adding additional shares, we believe current levels to be attractive for those who have yet to start a position or are looking to lower their cost basis. We reiterate our $175 price target.

JPMorgan (JPM) ; $105.75; 700 shares; 2.70%; Sector: Financials -- Shares remained muted this week. On Thursday, we learned that JPMorgan, as well as the 34 other banks tested, passed the first round of the Fed's Comprehensive Capital and Review Analysis, or "stress test" exam. We believe that CCAR represents both a catalyst and an inflection point for the banks because many firms plan their capital return allocation strategy around the annual review. We hold this view because the passing of the second round is typically followed with dividend increases and new and robust buyback programs. Looking back at 2017, JPM raised its quarterly dividend by $0.06 and announced a new equity repurchase program of up to $19.4 billion. JP Morgan has said before that it plans to increase its medium-term net payout ratio to about 100%, so we anticipate another strong plan. We look forward to second round results which will be released next Thursday, June 28th at 4:30 pm and we reiterate our $130 price target.

3M (MMM) ; $196.50; 525 shares; 3.76%; Sector: Industrials -- Shares of 3M are expected to be woeful any time trade tensions with China escalate. With about 10% of revenues coming from mainland China, per FactSet, and in total about 60% of revenues from outside the United States, per FactSet, shares fall whenever there is a break in the global growth thesis. However, we believe the stock is de-risked at these levels because 3M is a high quality company with a strong balance sheet and a large buyback in place. Furthermore, recent commentary from management suggests confidence in the current business and the eight focus areas that total to an addressable market opportunity of +$30 billion. We reiterate our $250 price target.

Nucor (NUE) ; $66.20; 800 shares; 1.93%; Sector: Industrials -- We continue to view shares as disconnected from company fundamentals and reiterate that tariffs are providing a boost to the steel pricing environment and thus should aid in expanding margins. To this point, we remind members that just last week, management preannounced second quarter earnings (expected to be officially released on July 19th) of $2.05 - $2.10 (+100% YoY), vs. $1.68 expected. As a result, we continue to see upside from current levels and reiterate our $75 target.

Paypal (PYPL) ; $85.12; 1,200 shares; 3.73%; Sector: Technology -- This week, PayPal announced the acquisition of Hyperwallet for $400 million, a move that comes roughly a month after the company's acquisition of iZettle and one that enhances the company's business offerings. Whereas iZettle works to increase exposure to brick and mortar business, Hyperwallet, similar to Braintree, plays to the needs of online and mobile merchants by offering easily integrated global payment solutions; existing customers include Expedia, HomeAway and more. Acquisitions aside, we continue to see PayPal growth coming from the rapid adoption of digital payments, which stands to benefit from the growth in ecommerce and mobile applications, and the coming monetization of Venmo. We reiterate our $90 target.

PepsiCo (PEP) ; $108.37; 650 shares; 2.57%; Sector: Consumer Staples -- We have been steadfast in our belief in PEP and our conviction is being rewarded as shares continue to grind higher. As we've noted previously, we believe the company's North American Beverage (NAB) will see an inflection as we work through the rest of the year and that the company's Frito-Lay division is effectively picking up the slack to allow the company to hit organic growth targets. Furthermore, we believe that should competitor Coca-Cola raise prices, it will allow PepsiCo to follow suit without compromising its market share. Lastly, we reiterate, from a portfolio management perspective, we were once again reminded this week of the benefits of holding a diversified portfolio with a reliable staple that can be counted on then investors seek safer names in market wide selloffs, as was the case this week resulting from a resurgence of trade wars fears. We reiterate our $130 target.

Raytheon (RTN) ; $193.38; 450 shares; 3.17%; Sector: Industrials -- We added to our position this week as we believe the selling in the defense sector, and Raytheon in particular to be completely overblown. Despite the ongoing (and far from over) talks with North Korea, we reiterate our view that security will always remain a national priority and defense spending is on the rise. And while current defense spending levels are largely set at this point, we would not be surprised to see an increase in out years resulting from President Trump's push for an expansion of the military to include a 6th branch, dedicated to space related activities. Furthermore, while part of this week's selling may have been China related, we point to CNBC's interview with CEO Tom Kennedy (here), where he notes that Raytheon does not sell products to China and therefore remains largely insulated from trade war related events. As for steel, an input cost for the company, Kennedy also noted that Raytheon sources the majority of its steel from U.S. companies already and therefor has not seen much if any impact from the implementation of tariffs. As a result, we continue to view levels as attractive for those looking to initiate a position or lower their basis and reiterate our $232 price target.

Schlumberger (SLB) ; $66.58; 1400 shares; 3.40%; Sector: Energy -- Shares were boosted on Friday after OPEC decided to boost output by 600,000 barrels a day, a number that was positive to the global energy markets. One reason why OPEC did not increase their capacity closer to the 1 million barrels per day level that many expected was due to several countries already producing at maximum capacity. The lack of ability to raise production by several large producers fits exactly to what Schlumberger management has said about how the global industry remains under-invested, and to combat this, producers will be forced to increase investment (by utilizing Schlumberger's services) to keep up with rising global demand. We reiterate our $93 price target.

Textron (TXT) ; $67.06; 900 shares; 2.20%; Sector: Industrials -- We are itching to add to our position, however, we are remaining disciplined for any move below our basis before doing so. On Thursday, analysts at Jefferies reiterated their buy rating on shares while bumping up their price target; in line with our view, the analysts pointed to military spending as a factor that will aid the company's military helicopter business, noting that "The Army continues to view the FVL [future vertical lift program] as a priority with FY20 a pivotal budget year." Outside of defense spending related tailwinds we reaffirm that there is a rebound in business jet demand that stands to benefit the company's "Latitude" line and remind members that NetJets management has previously called out the model as its most in-demand jet. We reiterate our $72 price target.

WestRock (WRK) ; $57.97; 1250 shares; 2.64%; Sector: Materials -- While shares have been unable to gain much traction, we continue to see longer-term upside resulting from the growth in ecommerce as WestRock remains a prime beneficiary due to the simple fact that increased online orders means more shipping which means more demand for boxes in which the items are shipped. Additionally, the acquisition of KapStone provides a significant competitive advantage as it reduces delivery time to key customers such as Amazon while being immediately accretive to earnings and resulting in an estimated $200 million in cost synergies. Outside of ecommerce, we also believe the growing global trend away from single-use plastics, such as drinking straws, could provide for another tailwind as these plastic items are replaced with more environmental friendly items such paper. To this point, we note that McDonald's has already announced a transition to paper straws in the UK and Ireland by 2019 with tests already in progress in Belgium and expected to begin in U.S., France, Sweden, Norway and Australia by the end of the year. And while WestRock has not yet announced any plans to begin production of paper straws, the company has taken advantage of the move away from plastics in other ways such as with their paper can collars. We reiterate our $75 target.

Cimarex (XEC) ; $97.69; 625 shares; 2.23%; Sector: Energy -- The stock finally reversed from its oversold nature this week and jumped more than 10%. Helping push the stock was support from several research firms who either raised their price targets or upgraded their ratings to buy. Included in this was the research firm Cowen who said that the stock price reflected "an extreme bear case or a worse case scenario in which commodity prices, production growth, or Permian differentials collapse." Shares also received a boost on Friday after OPEC decided to raise output by 600,000 barrels per day. We have view the current share price as disconnected from its peers and the price of oil (though this week's double-digit rally has made it far less pronounced) we think that the stock should converge to higher levels over time. We reiterate our $130 price target.


Apple (AAPL) ; $184.92; 450 shares; 3.04%; Sector: Technology -- While trade war fears continue to provide resistance for shares, we see longer-term upside resulting from the growth in Services, a segment that feeds off the growth and sustained demand for Apple devices and wearables, an emerging tech category that is becoming increasingly popular in our increasingly more connected world. Additionally, we note that the growth in wearables provides another outlet with which Apple can sell its Services subscriptions such as iCloud backups and Apple Music. Finally, we remind members, the reason for Services being the brunt of our longer-term thesis is because it provides for a more transparent, recurring revenue stream at higher margins than the overall business. This is crucial for three reasons, first, as the segment grows, so too will overall profitability; second the recurring nature of the subscriptions will lead to less focus on bulkier iPhone sales; and third, we believe that as recurring revenue grows to become a larger portion of total sales, it will justify shares trading at an expanded multiple, more in line with software focused companies. We reiterate our $190 target.

Citigroup (C) ; $67.2; 950 shares; 2.33%; Sector: Financials -- This week, Citigroup passed for the Fed's annual stress test for a fourth straight year. As a reminder, this was only phase one, with part two results, which will include more detail and the results of whether capital allocation plans have been approved, coming next week. As we noted in our Friday alert (here), after the second round results in 2017, Citigroup increased its quarterly dividend to $0.32 per share and announced a $15.6 billion share repurchase program, bring the total return program to $18.9 billion. Given the strong balance sheet and first round results, which appear to indicate that the banks are somewhat over capitalized (perhaps in anticipation of the more difficult test this year), we would not be surprised to see an increase to the bank's already announced $20 billion capital allocation return program this cycle. We reiterate our $80 target.

Danaher (DHR) ; $99.30; 950 shares; 3.44%; Sector: Life Sciences -- We continue to like Danaher as we reaffirm our view that prior acquisitions, which have now worked their way into core numbers, will continue to result in strong organic revenue growth. Given the success on this front, and the maturing of past large acquisitions, we expect management to remain active in looking for opportunistic M&A. Furthermore, we value the company for its focus on consumables, which must be replaced as they are used and thus provides for recurring revenue and therefore, smoother sales numbers. Looking forward, we remind members that EVP of Life Sciences Rainer Blair recently expressed strong optimism for the business as the recent acquisition of IDT provides exposure to the "fast-growing, highly attractive" genomics consumables space and believes the biologics space as an "extraordinary tailwind." Finally, we are continuing to monitor for an inflection in the dental market and believe that any progress on this front (which is an industry issue and not specific to Danaher) will provide the boost shares need to break out of their recent trading range. We reiterate our $114 price target.

Facebook (FB) ; $201.74; 475 shares; 3.50%; Sector: Technology -- This week, we learned that Instagram has broken the 1 billion monthly active users (MAU) mark, up from 800 million in September and driving shares to new all-time highs. The update is critical as it further serves to back our thesis that while core Facebook may be maturing, and monetization growth may slow in coming years as management does not want to increase ad loads to the point of detracting from the user experience, Instagram will be able to pick up the slack. Recall, just last week analysts at KeyBanc called out Instagram as being the primary driver of revenue growth by 2020 as the platform is still in the early stages of monetization and is seeking to increase engagement via long-form videos. On that note, we also saw IGTV go live this week, the company's answer to Alphabet's YouTube platform; the new feature will provide users with the ability to upload content up to one hour in length. Outside of Instagram, a factor we expect will begin to garner even more attention in coming months and years as it increasingly becomes the primary growth driver, we also see upside coming from the company's investments in original content and virtual reality. We reiterate our $220 price target.

Kohl's (KSS) ; $73.84; 900 shares; 2.42%; Sector: Consumer Discretionary --Despite trimming some shares this week, a move we felt discipline required given the strong move it has had over the past month and because apparel could be in the crosshairs of a China trade war, we continue to see longer-term upside as the U.S. economy remains strong and consumers are finding more cash in their pockets. Recall, increased levels of disposable income, thanks to wage increases and tax reform, have been a substantial portion of our thesis on the retail sector in general and Kohl's in particular as the company plays to middle income consumers where the gains may be more impactful on shopping activity. We also believe the company's partnership with Amazon to be a key factor. And while the partnership is still in test mode at a few locations, there have been noticeable improvements in foot traffic and as a result, same store sales at those locations as consumers seeking to return Amazon purchases must walk through the store to get to the Amazon lockers, a smart move as it forces those coming in to do some browsing while they're there. We believe any expansion of the partnership could prove to be a significant catalyst to same-store sales and reiterate our $84 target.

Eli Lilly (LLY) ; $85.92; 750 shares; 2.35%; Sector: Healthcare -- Shares fell modestly this week. The only major news from Lilly this week was the completed acquisition of Armo Bioscience. Recall that in May, Eli Lilly paid $1.6 billion in cash for this 2018 IPO that specializes in immune-oncology. In our Alert here, we wrote how this deal improves Lilly's standing in the immune-oncology field, a key industry that has found the support of investors. Deals like this is all part of the terrific optionality the company has and that should continue once we receive the strategic update to the Elanco Animal Health division. We believe a spin or sale of this asset could unlock value to shareholders and could lead to an additional cash windfall. And as for the current operations, we believe Lilly's diabetes franchise is underappreciated, and Lilly's robust late-stage pipeline makes the company one of the better growth stories in large cap pharma. We reiterate our $93 price target.

Nordstrom (JWN) ; $51.43; 1,500 shares; 2.81%; Sector: Consumer Discretionary -- Shares continued their run this week and were supported by a UBS initiation with a buy rating on Thursday. Part of the firm's view on the stock is that they think margins are about to inflect, however this is not priced into the stock yet. For some back story, management has guided that margins would inflect in 2018, but a lack of color on how this will be achieved has kept expectations low. Stronger profitability trends would be a boost to bottom line numbers and likely create lead to some multiple expansion as well. And in the long run, the company breaking into the Manhattan market through its new Men's store and the 2019 opening of the new flagship store represents two big bets that we think will pay off. But in the near-term, rising oil prices could weigh on the stock because consumers will spend more at the pump and have less discretionary income to spend on apparel. This dynamic was evidenced by the stock's movement on Friday. We reiterate our $60 price target.

Microsoft (MSFT) ; $100.41; 1,000 shares; 3.66%; Sector: Technology -- This week, Microsoft announced plans to increase its cloud computing investments in Europe, this follows last week's news that Salesforce would also be looking to increase investments in the region. The investment includes two new data centers in Norway. The company's significant global footprint has been a key factor in our investment thesis as it provides a solution for those companies that want to be close to their data or require that data stored in the cloud be located within national borders for security purposes. On that note, Norwegian petroleum company, Equinor announced a partnership with Microsoft this week for cloud services tied to the new data centers. Outside of this, our core thesis remains unchanged; we continue to see upside resulting coming from cloud adoption and reiterate that Microsoft's advantage lies in the hybrid-cloud ecosystem as Azure can seamlessly merge the public cloud with private on-premise data centers. We reiterate our $110 target.

NVIDIA (NVDA) ; $250.95; 150 shares; 1.37%; Sector: Technology -- With shares consolidating at around the $260 level, we continue to see longer-term upside as the company remains at the center of the strong secular growth trends, gaming, the cloud and further down the line, autonomous driving. We continue to believe that gaming, thanks largely to eSports and cord cutting, will push deeper into the mainstream. We believe that as this happens, NVidia GPU demand will continue to grow as graphics become ever more more realistic and note that the need for increasingly more powerful GPUs will only intensify as virtual reality and augmented reality become more affordable and popular. As for the cloud, we reiterate that this is the future of computing as more and more companies move workloads to remote data centers (the cloud) and Nvidia stands to benefit as its GPUs are required to process the massive amounts of data being stored (a process known as GPU-acceleration). On that note, we also remind members that gaming companies are also investing heavily to make cloud-based, streaming gaming a reality, a factor that stands to benefit both cloud growth and therefore graphics cards tied to the cloud. Finally, autonomous driving will only be possible if the vehicles are able to recognize and process the environment around them and translate this data into commands in real-time. The stakes will be incredibly high as any delay could literally be the difference between life and death. This will require the most advanced GPUs to become a reality and we therefore believe Nvidia to be the leader in this space. Like our view that gaming will feed the cloud, autonomous vehicles will also need to send data to the cloud for processing in order to continuously improve vehicle capabilities, this will further feed cloud growth and thus the need for GPUs. Bottom line, we view Nvidia as being at the heart of the future of computing and believe that the three main segments in which Nvidia operates, stand to become more synergistic as time goes on. We reiterate our $275 price target.

Constellation Brands (STZ) ; $231.52; 125 shares; 1.06%; Sector: Consumer Staples -- Shares fell this week on little company news. After all our profit taking efforts thus far, we remain constructive with our remaining shares. We have greatly scaled down our position out of downside protection because we do not want to let our gains turn into a loss as we head into the upcoming print. Even though Constellation outpaces the industry, our concerns relate to a slowing beer category that was hurt by inclement weather. Though we think a strong May month that was boosted by Cinco de Mayo should offset some of this weakness, and we admit this is short-term thinking, we want to reduce our exposure to a sell-side panic while keeping some on in case there is an upside surprise. We will get some clarity next week when the company reports earnings. Current FactSet estimates are $2.04 billion of revenue with $2.44 earnings per share. We reiterate our $247 price target.

UnitedHealth Group (UNH) ; $254.37; 200 shares; 1.86%; Sector: Healthcare -- With trade war fears coming back in full force this week, we were once again reminded of the value of holding a diversified portfolio with companies that generate the majority of their revenue domestically. Recall, we initiated our position in UNH during the previous trade related selloff for precisely this reason. We believe the resiliency shares showed on Tuesday serves to back this view that the company is indeed insulated and while we are maintaining our Two rating as shares have continued to grind toward our target we believe United to be a stock that members should be keeping a close eye on for any meaningful pullback. Longer-term, we continue to see upside resulting from a still growing job market, which will provide for more workers signing up for employer healthcare plans and reiterate that United has a competitive advantage compared to peers thanks to the data it can collect as a result both its sheer size and exposure to both the benefits side via UnitedHealthcare and the services side via Optum. To this point, we note that analysts at Piper Jaffray pointed out in a note this week that the company has amassed and astounding 86 petabytes of claims data, vs. competitor Anthem, which has collected around 17 petabytes. We reiterate our $260 target.

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long ABT, AMZN, AAPL, APC, XEC, CRM, CMCSA, DHR, EMR, FB, GOOGL, GS, HON, JPM, JWN, KSS, MMM, MSFT, NUE, NVDA, C, DWDP, PEP, SLB, TXT, ITW, LLY, RTN, STZ, UNH, WRK and PYPL.

Selling Some Nordstrom Shares
Stocks in Focus: JWN

We will further lock in our terrific gains in the position, and increase our ability to put capital to work if trade tensions rise over the weekend.

06/22/18 - 01:43 PM EDT
June's Flash PMI Pulls Back
Stocks in Focus: NUE

We do not believe it to indicate a trend as other macroeconomic readings have pointed to a strong US economy.

06/22/18 - 11:54 AM EDT
Jim's Daily Rundown
Stocks in Focus: RHT

Jim discusses the first round of CCAR, how the Red Hat quarter is affecting the market, and more!

06/22/18 - 11:22 AM EDT
Weekly Roundup

Markets had a tumultuous week starting with increased trade war fears and ending with a modest oil production increase from OPEC.

06/22/18 - 06:59 PM EDT


Chart of I:DJI
DOW 24,580.89 +119.19 0.49%
S&P 500 2,754.88 +5.12 0.19%
NASDAQ 7,692.8175 -20.1349 -0.26%

Action Alerts PLUS Holdings

Holdings 1

Stocks we would buy right now

Symbol % Portfolio
AMZN 0.06258426904689342 Internet Retail
CMCSA 0.029599736123736613 Cable/Satellite TV
EMR 0.028035922794809535 Electrical Products
GOOGL 0.02985738047974809 Internet Software/Services
ITW 0.024510867953641626 Industrial Machinery
Holdings 2

Stocks we would buy on a pullback

Symbol % Portfolio
AAPL 0.03035483143301561 Telecommunications Equipment
C 0.02328757707457539 Financial Conglomerates
DHR 0.034411553623591315 Medical Specialties
FB 0.0349556235046491 Internet Software/Services
JWN 0.02814097953349183 Apparel/Footwear Retail
KSS 0.02424184245093957 Department Stores
LLY 0.023506445280163504 Pharmaceuticals: Major
MSFT 0.03662759420517097 Packaged Software
NVDA 0.013731244048084337 Semiconductors
STZ 0.010556743116200059 Beverages: Alcoholic
UNH 0.018557835151816235 Managed Health Care