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Jim Cramer's Action Alerts PLUS

Thoughts and Explanations on Apache and Allergan

By Jim Cramer and the AAP Team | 2018-02-22 17:39:19.0
Stocks in Focus: APA, AGN, PFE, NXPI

Given the flurry of activity this week in some of our most challenged names, we want to follow up and explain to the club what happened in the past, and what we are accomplishing here. For our initial thoughts on these sales, please re-read Wednesday's Alert here.

Apache (APA) and Allergan (AGN) are holdovers from a period where there were great hopes for both names. However, these hopes failed to materialize.

Management of Apache led us to believe that its Permian holdings in Alpine High were going to be more tilted to oil. Instead, that turned out to not be the case. They are natural gas rich at a time when the natural gas glut is frighteningly thick, and many oil-and-gas companies flare it off because it is too expensive to ship.

Apache's natural gas is pretty much landlocked and therefore the stock is going to keep selling at a discount to others in the group. We believe that APA's selloff today after earnings confirms this thinking, and its natural gas mix will only increase as the Alpine High ramps.

As for Allergan, we have actually owned AGN since the time of the Pfizer (PFE) bid and we managed to turn a small gain into a large loss. We are extremely unhappy about this, and believe that while the company is extremely undervalued, that is not enough in this tape.

The two factors holding Allergan stock back are:

  1. Allergan is a drug company, a group that is not liked;
  2. This is a company that is having a down earnings year, which is unforgiveable in any group, including even the steels and the coppers and aluminums.

We thought that the company would see our break-up analysis (members can check it out here) and take action, but that has not happened, and we need the cash for better opportunities.

Both of these situations were exercises in failed discipline. Once Apache's Alpine High holdings turned out to be more natural gas than oil, we should have immediately exited even at a large loss rather than battle. When we had the bird in the hand from the Pfizer bid and it failed, we should have exited Allergan. It was not like the NXP Semiconductor (NXPI) situation. It was a financially driven bid, created by a tax break that then Secretary Jack Lew told me could not be changed without legislative approval and then, literally, a few weeks later, he got rid of it on his own. Sometimes, I think you can say, you just get had.

Bottom line: These two companies' facts have both greatly changed from the time we first bought them to now, and we should have taken action when that occurred instead of waiting. But we vowed at the beginning of this year that these two must be addressed if they could not turn it around.

We are not celebrating these losses, but we believe that through the cash we raised from these sells, we have positioned ourselves to take advantage of whatever the market brings.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long APA and AGN.

Trimming More Allergan
Stocks in Focus: AGN, NXPI, QCOM, APA, GE, AMZN, GS, JPM, JWN, UTX

Our theme of the week has been to scale down in our positions with limited upside (for varying reasons) to build up our cash.

02/22/18 - 03:17 PM EST
Buying More Goldman and Amazon
Stocks in Focus: AMZN, GS, NXPI, AGN, APA, GE, ABT, JPM

We do not want to see these stocks run away from us.

02/22/18 - 01:04 PM EST
Weekly Roundup
Stocks in Focus: WM, XEC, PEP, APA, NXPI, NVDA, NUE, MMP, GE, DXC, C, ARNC, GOOGL, AGN, ATVI, ABT, AAPL, AVGO, CMCSA, DHR, DWDP, EZU, FB, GS, HON, ITW, JPM, LLY, JWN, MSFT, RTN, SLB, STZ, INTC

Markets rebound this week.

02/16/18 - 06:24 PM EST

Markets

Chart of I:DJI
DOW 24,962.48 +164.70 0.66%
S&P 500 2,703.96 +2.63 0.10%
NASDAQ 7,210.0856 -8.1423 -0.11%

Action Alerts PLUS Holdings

Holdings 1

Stocks we would buy right now

Symbol % Portfolio
Weighting
Industry
AAPL 0.041978025854062746 Telecommunications Equipment
AVGO 0.02167126448594316 Semiconductors
CMCSA 0.026977182660664754 Cable/Satellite TV
DHR 0.03384663020415361 Medical Specialties
DWDP 0.03438330579348869 Chemicals: Major Diversified
EZU 0.015348487299849858
FB 0.04511299349501906 Internet Software/Services
ITW 0.031227479506145264 Industrial Machinery
JPM 0.007994423871967096 Financial Conglomerates
MSFT 0.03507833327331258 Packaged Software
PEP 0.018991797535465406 Beverages: Non-Alcoholic
RTN 0.022460590429642123 Aerospace & Defense
WM 0.03231351969470089 Environmental Services
XEC 0.022395928625842075 Oil & Gas Production
Holdings 2

Stocks we would buy on a pullback

Symbol % Portfolio
Weighting
Industry
AGN 0.013853617642106837 Pharmaceuticals: Generic
APA 0.009086547832385633 Oil & Gas Production
ARNC 0.011090542284027408 Aluminum
ATVI 0.03019723619667516 Recreational Products
C 0.027840556799037963 Financial Conglomerates
DXC 0.024605206922343678 Data Processing Services
GE 0.006226132124499684 Industrial Conglomerates
GOOGL 0.038585019375092545 Internet Software/Services
MMP 0.03835557426483432 Oil & Gas Pipelines
NUE 0.013964863756171434 Steel
NVDA 0.012627303056597882 Semiconductors