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Jim Cramer's Action Alerts PLUS

Weekly Roundup

By Jim Cramer and the AAP Team | 2017-02-24 17:09:29.0

Markets edged higher this week but were met with some resistance toward the end of the week as investors adopted a more risk-off approach. The Nasdaq, which has been the outperformer for the year, saw the most pressure as a downtrend in chipmakers hurt the broader index, causing it to lose some of the gains from its remarkable rally. The Dow Jones Industrial Average remained steady for the week as investors digested Secretary Treasury Steven Mnuchin's commentary regarding the timing for tax reform, which he expects to be passed through Congress before August. Looking ahead, as earnings season winds down, all eyes will remain focused on commentary from the new administration as well as the Federal Reserve's reactions to macro data ahead of its March policy meeting.

For this week, Treasury yields traded lower in the risk-off environment, the dollar traded roughly flat versus the euro and gold saw some momentum higher as investors bulked up their safe-haven positions. Oil was volatile for the week, trending higher after reaching bottom midweek.

Fourth-quarter equivalent earnings are nearing a close and have been relatively positive versus expectations thus far, with 66% of companies reporting a positive EPS surprise. Within the portfolio, TJX Companies, Apache and HP Enterprise reported earnings this week. TJX Companies (TJX:NYSE) reported a top- and bottom-line beat with its fiscal 2017 fourth-quarter results, which also came in ahead of the company's internal plans. For the quarter, revenue of $9.5 billion (up 6% year over year, and above the prior year's 8% increase) edged out consensus of $9.44 billion and EPS of $1.03 came in about $0.03 ahead of consensus. The company delivered 3% same-store-sales growth, beating consensus expectations of +2.6% and coming in above management's previous guidance of 1% to 2% growth. The comps increase was impressive, given that the company was lapping a 6% surge in the prior year's quarter. Importantly, same-store sales were higher across all of the company's business segments -- Marmaxx (U.S.), HomeGoods (U.S.), TJX Canada and TJX International. The year 2017 marked the 21st consecutive year of comps increases (at +5% overall) for the company.

Apache (APA:NYSE) reported mixed fourth-quarter results, missing on the top and bottom lines but providing an optimistic outlook through the end of 2018. Fourth- quarter revenue of $1.46 billion fell slightly short of consensus estimates of $1.51 billion and an adjusted EPS loss of $0.06 came in roughly $0.13 below consensus. Earnings before interest taxes amortization and exploration expenses (EBITDAX, a common metric used to evaluate an E&P company's financial performance by excluding the costly capex required to discover and drive future production) came in at $878 million, missing Street expectations for around $900 million. Total production of 490,000 barrels of oil equivalents per day (Mboe/d) was also light, falling short of consensus for 503,000 Mboe/d. That being said, fourth-quarter capital spend also came in below expectations -- roughly $563 million versus consensus of $581 million -- meaning the production miss was not on higher expenses. Investors focused more closely on the outlook, which we delve into below.

HP Enterprise (HPE:NYSE) reported disappointing fiscal-first-quarter results after Thursday's closing bell, missing on both the top and bottom lines while lowering its fiscal 2017 outlook below prior expectations and consensus estimates. Revenues were lower in all the company's major segments, other than financial services. As the company noted on the call, "revenue was impacted by a tough market environment, particularly in core servers and storage." Enterprise Group revenue was $6.3 billion, down 12% year over year, down 6% when adjusted for divestitures; Enterprise Services revenue was $4 billion, down 11% year over year, down 6% when adjusted for divestitures; Software revenue was $721 million, down 8% year over year, down 1% when adjusted for divestitures and currency; and Financial Services revenue was $823 million, up 6% year over year. More importantly, the company issued downside guidance for the second quarter and full fiscal year. Management sees second-quarter EPS coming in around $0.41 to $0.45, matching consensus at the high end. As for fiscal 2017, management lowered the EPS outlook to $1.88-$1.98, a 12-cent drop at the midpoint from the prior guidance range and below consensus of around $2.03.

On the economic front, housing data and the Federal Reserve meeting minutes were at the top of investor minds in this shortened week.

On Wednesday, the National Association of Realtors reported that existing home sales surged 3.3% to a seasonally adjusted rate of 5.69 million units in January, marking the highest levels since February 2007 and above expectations for a 5.54 million unit pace. Positively, December's sale pace was revised higher. Overall, in the 12 months through January, sales were higher by 3.8%, highlighting continually strong demand in the housing market. The strength of the labor market, which is finally beginning to show signs of wage growth (but had been strong in terms of employment in recent years), has been underpinning the solid performance of the housing market over the last couple of years.

On the other side of the coin, tightening supply has been the major overhang worrying investors about the health of the housing market moving forward. Low inventories have not been able to keep up with demand, sending prices higher and putting an additional burden on homebuyers, considering that mortgage rates have surged in recent months. That being said, inventories did rise 2.4% in January, although they were down 7.1% from a year earlier. The increase in January is a positive, but December is a seasonally slow time for listings, thereby offering an easier compare. As we move through the year, the supply/demand dynamic will be driven by the health of the labor market and the industry's ability and/or willingness to keep up with demand.

Also on Wednesday, the Federal Reserve released its minutes from the policy meeting held at the end of last month (read our reaction). Although the initial reaction to last month's meeting indicated a lower likelihood for a March rate increase, the minutes themselves appeared to offer some stronger language that could bring the March meeting in play. Policymakers noted that they could raise rates "fairly soon" and suggested that proposed tax cuts and new spending could prompt them to lift rates further in order to keep track of inflation. The committee has been consistent in its commentary, however, that it will not make decisions based on expected changes under the new administration, but rather, the policymakers will focus on the impacts of new policies once they are in fact implemented. Even so, the possibility of raising rates in the near future is consistent with Fed Chair Janet Yellen's commentary last week, when she testified that an increase could come in the "upcoming meetings."

According to CME Group data, investors pegged the probability of a move next month at around 22% Wednesday afternoon, up from about 18% on Tuesday but still unlikely. The situation can certainly change in the coming weeks, however, as the Fed will see new inflation and employment data before the March meeting. Regardless of whether a move in March is made, the Fed still believes it is on track to gradually raise interest rates, with three hikes in each of the next two years -- the notes from this meeting warned that some Fed committee members were concerned that the commentary "might be misunderstood as a commitment to only one or two rate hikes per year," indicating they aim to stick to their original plan for three. Without a hike in March, that would mean a back-half-loaded pace of raises or a slightly slower-than-expected pace. A lot will depend on the policy actions taken by the new administration and how much the Federal Reserve intends to be reactive or proactive against those changes.

On Thursday, the Department of Labor reported that initial jobless claims for the week ending Feb. 18 were 244,000, an increase of 6,000 claims from the prior week's revised numbers and 3,000 claims higher than the market's already-low expectations. The low figure extends the streak of positive labor market indicators. The overall trend continues to remain strong with claims having remained below 300,000 -- the threshold typically used to categorize a healthy jobs market -- for an astounding 103 straight weeks, the longest streak since 1970. Claims have remained under 275,000 since the middle of November. The four-week moving average for claims (used as a gauge to offset volatility in the weekly numbers) fell by 4,000 claims to 241,000 last week, the lowest level since July 1973. Importantly, the report builds upon better-than-expected nonfarm payrolls figures reported at the beginning of February, indicating that underlying strength in the labor market continues to support economic growth in the country. This week's claims report will be included in the survey period for the Labor Department's comprehensive jobs data for February (to be released in early March). The four-week average of claims fell 6,500 between the January and February payrolls survey weeks, suggesting another month of strong job gains.

On the commodity front, oil prices traded in similar fashion to that of prior weeks, but trended toward the higher end of the recent range. The shortened week kicked off on a positive note on Tuesday as prices traded higher toward 19-month highs on expectations for a potential extension of OPEC production cuts. OPEC's secretary- general noted at a conference in London that the decision to extend cut agreements would be based on how far global inventories fall. Given the increase in domestic production of late (and expectations moving forward), this is viewed as a positive sign that the group could be ready to do whatever is required in order to support prices and tame the global oversupply. On the other hand, skepticism regarding the compliance of countries involved in the cuts continues to be an overhang on prices. Although compliance was strong for the first month, the market wants to see consistency throughout the duration of the agreements.

As has been typical in recent weeks after a gain the prior day, oil prices fell on Wednesday as the focus shifted back toward concerns regarding surging U.S. inventories. Investors prepped for the American Petroleum Institute's (API) inventory report to be released Wednesday evening while also fearing the more widely followed Energy Information Administration (EIA) report to be released the following day (note: these reports are typically released on Tuesday and Wednesday, respectively, but were pushed back due to the holiday weekend). Also contributing to the pressure, Mohammed al-Sada, the oil minister of OPEC member Qatar, noted on Wednesday that non- OPEC members appear to be operating at roughly 50% of promised production cuts, far below the compliance of the agreements among just OPEC countries. The reaction to the downside was limited to what would be expected on such news as OPEC gave the indication that the participants would be boosting compliance throughout the duration of the deals.

To the market's surprise, the API inventory report Wednesday night actually showed a drawdown of stockpiles, a sigh of relief for the bulls. The EIA report followed on Thursday to show an increase in inventories, but at a lower level than expected. Even so, the amount of oil storage has increased for seven straight weeks, hitting record highs along the way. The lower-than-expected build this week was largely due to sharply smaller volumes of imported crude, perhaps indicating that international supply cuts are seeping into the domestic markets. The news helped prices reverse from Wednesday's loss, and while the underlying sentiment appears bullish, investors are still waiting for a reason to push prices through the recent band while keeping track of overarching concerns.

Within the portfolio this week, we added to Cimarex, Snap-On, Apache and Schlumberger, while we trimmed our Kraft Heinz and Starbucks positions. We also exited our small Costco (COST:Nasdaq) and Panera (PNRA:Nasdaq) positions, booking nice double-digit gains on each.

We took advantage of a rare down day for stocks in this recent rally to bulk up Cimarex (XEC:NYSE) and Snap-On (SNA:NYSE), two of our newest positions. We like each for the long term and will continue to look for opportunities to scale into the positions in a disciplined fashion. See below for specifics on each stock.

As for APA, we viewed the selloff following earnings as overdone and virtually discounting any upside from Alpine High and the company's other attractive plays in the Delaware Basin. We also upgraded the name to One following the selloff.

On Schlumberger (SLB:NYSE), we upgraded the name and added to our position as shares fell below the $80 threshold.

We trimmed half our Kraft Heinz (KHC:Nasdaq) position as we wanted to de-risk the portfolio away from a volatile and speculative M&A environment surrounding the story. On Starbucks (SBUX:Nasdaq), we booked some profits as we aimed to lower the weighting of the position in the portfolio while the company works on fixing its same-store sales and through-put issues.

In addition to our trades, we downgraded our American Electric Power (AEP:NYSE) position to Two from One on the stock's recent rally. We remain confident in the business, but simply would not be buyers at these levels as shares have risen in a more risk-off environment. We also downgraded PepsiCo (PEP:NYSE) to Two on valuation (more below) even though we continue to view the position as a core holding.

Moving on to the broader market, as we mentioned, fourth-quarter earnings are winding down and have been better than expected, proving to be somewhat positive compared to estimates. Total fourth-quarter earnings growth is up 5.2% year over year; of the 389 non-financials that reported, earnings growth is 4.5% versus expectations for an overall 5.3% increase throughout the season. Revenues are up 3.9% versus expectations throughout the season for a 4.06% increase; 66.4% of companies beat EPS expectations, 22% missed the mark and 11.6% were in line with consensus. On a year-over-year comparison basis, 72% have beaten the prior year's EPS results, 25.1% have come up short and 2.9% have been virtually in line. Information tech, financials and health care have had the strongest performance versus estimates thus far, whereas real estate, telecom and utilities have posted the worst results in the S&P 500.

Next week, 26 companies in the S&P 500 will report earnings. No companies in the portfolio will report. Key earnings reports for the market include: AES (AES), Halyard Health (HYH), Horizon Pharma (HZNP), Shutterstock (SSTK), Sotheby's (BID), Tegna (TGNA), AppFolio (APPF), CST Brands (CST), Hertz Global (HTZ), Kindred Healthcare (KND), Medpace (MEDP), Nutrisystems (NYRI), The Priceline Group (PCLN), Tenet Healthcare (THC), Autozone (AZO), Domino's Pizza (DPZ), Global Partners (GLP), NRG Energy (NRG), SeaWorld Entertainment (SEAS), Sempra Energy (SRE), Target (TGT), Valeant Pharma (VRX), Ambarella (AMBA), AMC Entertainment Holdings (AMC), Blue Buffalo (BUFF), CB&I (CBI), LogMeIn (LOGM), TASER (TASR), Tesaro (TSRO), Universal Health (UHS), Weight Watchers (WTW), XO Group (XOXO), ZELTIQ Aesthetics (ZLTQ), Best Buy (BBY), Dollar Tree (DLTR), GRAY Television (GTN), Broadcom (AVGO), Juno Therapeutics (JUNO), Monster Beverage (MNST), Planet Fitness (PLNT), Shake Shack (SHAK), Teledoc (TDOC), Abercrombie & Fitch (ANF), Anheuser-Busch InBev (BUD), Barnes & Noble (BKS), Burlington Stores (BURL), Costco (COST), (JD), Kroger (KR), Sears Holdings (SHLD), Toronto-Dominion Bank (TD), Valspar (VAL), American Outdoor Brands (AOBC), Autodesk (ADSK), Marvell (MRVL), Nutanix (NTNX), Big Lots (BIG), Bioscrip (BIOS), Dixie Group (DXYN) and Staples (SPLS).

Economic Data (*all times ET)


Monday (2/27)

Durable Goods Orders (8:30): 2.0% expected

Durable Ex Transportation (8:30): 0.5% expected

Cap Goods Orders Nondef Ex Air (8:30): 0.5% expected

Cap Goods Ship Nondef Ex Air (8:30)

Pending Home Sales MoM (10:00): 0.9% expected

Dallas Fed Manf. Activity (10:30): 20.0 expected

Tuesday (2/28)

GDP Annualized QoQ (8:30): 2.1% expected

Personal Consumption (8:30)

GDP Price Index (8:30): 2.1% expected

Core PCE QoQ (8:30)

Wholesale Inventories MoM (8:30): 0.4% expected

Chicago Purchasing Manager (9:45:) 53.0 expected

Conf. Board Consumer Confidence (10:00): 111.0 expected

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

Wednesday (3/1)

MBA Mortgage Applications (7:00)

Personal Income (8:30): 0.3% expected

Personal Spending (8:30): 0.3% expected

PCE Core MoM (8:30): 0.3% expected

Markit US Manufacturing PMI (9:45)

ISM Manufacturing (10:00): 55.8 expected

ISM Prices Paid (10:00): 68.0 expected

Construction Spending MoM (10:00): 0.7% expected

Thursday (3/2)

Initial Jobless Claims (8:30):

Continuing Claims (8:30):

Bloomberg Consumer Comfort Index (9:45):

Friday (3/3)

Markit US Services PMI (9:45)

Markit US Composite PMI (9:45)

ISM Non-Manf. Composite (10:00): 56.5 expected


Monday (2/27)

Eurozone M3 Money Supply YoY (4:00)

Eurozone Consumer Confidence (5:00)

Japan Industrial Production MoM (18:50): 0.4% expected

Japan Industrial Production YoY (18:50) 3.9% expected

Japan Retail Trade YoY (18:50) 1.1% expected

Japan Retail Sales MoM (18:50): 0.4% expected

Tuesday (2/28)

China Non-manufacturing PMI (20:00)

China Manufacturing PMI (20:00): 51.1 expected

China Caixin China PMI Mfg (20:45): 50.7 expected

Eurozone CPI Estimate YoY (5:00)

Eurozone CPI Core YoY (5:00)

Japan Housing Starts YoY (0:00): 3.2% expected

Japan Capital Spending YoY (18:05): 0.6% expected

Japan Nikkei Japan PMI Mfg (19:30)

Wednesday (3/1)

Eurozone Markit Eurozone Manufacturing PMI (4:00)

Germany Markit/BME Germany Manufacturing PMI (3:55)

Germany Unemployment Change (000's) (3:55)

Germany Unemployment Claims Rate SA (3:55)

Germany CPI MoM (8:00)

Germany CPI YoY (8:00)

Germany CPI EU Harmonized MoM (8:00)

Germany CPI EU Harmonized YoY (8:00)

Japan Vehicle Sales YoY (0:00)

Japan Monetary Base YoY (18:50)

UK Markit UK PMI Manufacturing SA (4:30)

UK Mortgage Approvals (4:30)

Thursday (3/2)

China Caixin China PMI Composite (20:45)

China Caixin China PMI Services (20:45)

Eurozone PPI MoM

Eurozone PMI YoY

Eurozone Unemployment Rate (5:00)

Japan Jobless Rate (18:30): 3.0% expected

Japan Job-To-Applicant Ratio (18:30): 1.44 expected

Japan Natl CPI YoY (18:30) 0.3% expected

Japan Natl CPI Ex Fresh Food YoY (18:30): 0.0% expected

Japan Tokyo CPI YoY (18:30): -0.1% expected

Japan Tokyo CPI Ex Fresh Food YoY (18:30): -0.2% expected

Japan Nikkei Japan PMI Services (19:30)

Japan Nikkei Japan PMI Composite (19:30)

UK Markit/CIPS UK Construction PMI (4:30)

Friday (3/3)

Eurozone Markit Eurozone Services PMI (4:00)

Eurozone Markit Eurozone Composite PMI (4:00)

Germany Markit Germany Services PMI (3:55)

Germany Markit/BME Germany Composite PMI (3:55)

UK Markit/CIPS UK Services PMI (4:30)

UK Markit/CIPS UK Composite PMI (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 the Action Alerts PLUS staff 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.

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.


Apple (AAPL:Nasdaq; $136.66; 820 shares; 4.08%; Sector: Technology): Shares traded roughly flat this week on little news. We upped our price target to $150 last week, believing the stock will continue to command a higher multiple as the Services business garners more appreciation in the market. We reiterate our view to own, not trade, this name, and we remain confident in the management team and the company's premiere global brand. We reiterate our $150 target.

Allergan (AGN:NYSE; $245.37; 550 shares; 4.91%; Sector: Health Care): AGN traded slightly lower this week on little news. We are not surprised to see the stock pull back slightly following the strong rally in the name since the beginning of the year. The momentum was carried even further when the company reported strong earnings a few weeks back and followed up with a strategic acquisition. The company met with analysts from Leerink at a conference this week, and noted that they remain confident in their "six stars" (i.e., large-opportunity pipeline drugs). We continue to believe the pipeline remains underappreciated in the market, and while we reiterate our $270 target for now, we do see more upside as the company executes on its go-to-market plans.

Apache (APA:NYSE; $53.41; 2,050 shares; 3.99%; Sector: Energy): Shares traded lower this week as the pressure from last week's disappointing Alpine High well results continued with the company's conservative 2017 guidance released along with its quarterly results on Thursday. Apache's 2017 production guidance appears light on the headlines -- production outlook of 486 to 506 Mboe/d (thousand barrels of oil equivalent per day) is below consensus of 510 Mboe/d. But, when digging deeper, we see this is largely impacted by a slowdown in the first half of the year due to planned lower spend in 2016 and annual maintenance/shutdowns -- some of which are shifting from the typical third quarter into the second quarter. As a result, APA expects second-quarter 2017 production to decline to 372 to 384 Mboe/d, and increase to 425 to 455 Mboe/d in the fourth quarter. We expect many bears are focusing on the first-half disappointment, especially as this adds to the recent downtrend in sentiment, skewing even more to the negative. Capital spend expectations of $3.1 billion (up more than 60% over 2016) came in slightly higher than Street expectations for around $3 billion. These expenses, however, are expected to exceed cash flow from operations for the year, spooking some investors who had higher expectations for cash flow (which will likely be impacted by the first-half slowdown mentioned above). The company noted that the additional spend will be funded through the sale of non-core assets, acting as a way for management to make operations even leaner -- and focus on future growth. Importantly, management is allocating roughly two-thirds of this spend to the Permian Basin, $500 million of which will be for infrastructure at Alpine High. The company has several other attractive plays in the Midland and Delaware Basin portions of the Permian, especially in the Bone Spring formations. The focused spend on the Permian is a certain positive, as the company expects production from the region to increase to 55% of total production by the fourth quarter of 2018, up from 36% as of the end of 2016. Even so, the market was disappointed in the outlook, preferring to take a wait-and-see approach. We believe this nearsighted view provides an opportunity for those who have a long-term outlook, which is why we decided to purchase shares on the selloff. As we mentioned in the trade, "while we highlighted our mistake in jumping into the name too early in last week's detailed analysis and in our members call earlier this month, we believe the selloff is overdone and discounts the opportunity in the back half of 2017 and into 2018." We reiterate our $77 target and upgrade our rating to One as we believe traders have been washed out of the name on lowered near-term expectations, opening an opportunity for upside from the company's high-quality Permian plays.

Cimarex (XEC:NYSE; $126.03; 650 shares; 2.98%; Sector: Energy): Shares traded lower this week as E&Ps continued to be pressured by investors, especially toward the end of the week as the market took a more risk-off approach. We remain buyers of XEC and believe the ramp into the end of 2017 and into 2018 is not appreciated in the current share price. We reiterate our $150 target.

Comcast (CMCSA:Nasdaq; $37.89; 2,000 shares; 2.76%; Sector: Consumer Discretionary): Shares traded roughly flat this week as the company executed its 2- for-1 stock split. As we reviewed in our earnings bulletin, holders of Comcast shares at the close of business on Feb. 8 were eligible for a 100% stock dividend payable on Feb. 17 (last Friday). The stock dividend was an additional one share for every share held and was payable in shares of Class A common stock on the existing CMCSA shares and Class B common shares. Upon completion of the split, the outstanding shares of CMCSA increased to roughly 4.74 billion, up from 2.37 billion (according to the numbers at the time of the announcement), and the annualized dividend will be $0.63 per share (i.e., half of $1.26 annualized dividend pre-split). While stock splits are more aesthetic and psychological in nature than anything else, they sometimes can reignite interest in shares from retail investors at lower absolute prices and also provide increased liquidity. The move really is nothing more than cosmetic, but we wanted to bring it to the attention of members to keep you updated with any housekeeping items. As a result of the split, our new price target is $43, or roughly half our prior $85 price target. We maintain our One rating on Comcast.

Danaher (DHR:NYSE; $86.08; 600 shares; 1.88%; Sector: Life Sciences): Shares traded higher this week, boosted by an upgrade from analysts at Citigroup who put a $98 price target on shares and are beginning to appreciate the company's transformation process along with the rest of the market. Just as we have noted since our initiation, Citi analysts agree that "DHR is a best-in-class asset with underappreciated margin expansion potential." We believe DHR is just beginning to profit from its separation with Fortive (FTV) and expect the company's consistent DBS operating model will drive value for the long term. We would love to bulk up on this name, but would prefer to wait until shares dropped into the lower $80s. We reiterate our $94 target and One rating.

Facebook (FB:Nasdaq; $135.44; 1,000 shares; 4.93%; Sector: Technology): Shares outperformed the broader market this week, showing some momentum after a period of stagnation following FB's recent earnings report. The upward move was due in large part to reports that the company will be pursuing a deal with Major League Baseball to stream games on its platform. We are not surprised to see the reports as the company has been linked to media discussions in the past as a way to continue to increase user engagement and attract new users, thereby bolstering (even further) the company's attraction for advertisers. We delved deeper into why FB could be a destination for TV and media in the future in this bulletin as well as in our continuing commentary of the company. While we do not want to get too excited about the development -- not only because nothing is set in stone yet but also because we do not know the details or scope of such a rollout -- we are confident the FB management team will make the right decisions for the expansion of the business, as they have always done in the past. FB has several growth/monetization levers to pull moving forward -- including Instagram, WhatsApp and Messenger -- but we also like to see the company continue to focus on improving the user experience on its core platform. We reiterate our $160 target.

General Electric (GE:NYSE; $30.19; 2,350; 2.58%; Sector: Industrials): Shares traded lower this week as some pressure resulted from sell-side analyst reports that continued to call into question the $2 EPS target for 2018. The market has, rightfully so, been skeptical of this target for some time. While we appreciate the 3.2%-plus dividend and believe the company is on the road toward a digital transformation in the long term (powered by Predix), we are on the sidelines for now as the market waits for GE to prove it can hit its $2 EPS 2018 target. Management provided a bridge to that goal at its analyst meeting in December, but investors need to see concrete evidence that the company is steadily moving toward those numbers. We believe the current weighting in the portfolio is appropriate to balance the near-term risks with the long-term reward and ongoing dividend, although we will re-evaluate buying opportunities should shares drop in the $28-$29 range. We believe the dividend provides support in the near term as the market remains skeptical. We reiterate our long-term $35 target.

Alphabet (GOOGL:Nasdaq; $847.81; 150 shares; 4.63%; Sector: Technology): Shares traded roughly in line with the market this week on little news. We are becoming enthralled with the opportunity within the company's newest division, Waymo, the autonomous-driving unit. While we have highlighted the business as one of the key differentiators for the company moving forward, we have become even more incrementally positive following a trip to Silicon Valley. From a high level, we believe Alphabet is making all the right moves to diversify away from a sole reliance on the core Search business, which continues to perform well, by the way, and management continues to innovate to drive consistent growth. Aside from Search, however, Waymo and its leadership in autonomous-driving technology will change the perception of the overall company as one that appears now, by many in the market, to be beholden to Search. In the same way that Facebook has several monetization opportunities, Alphabet is developing several new revenue streams (such as machine learning and consumer products, in addition to Waymo). Waymo is light-years ahead of the competition in three categories -- cost, miles driven and disengagement (i.e., how often real drivers need to get involved to prevent accidents). Importantly, Waymo is not yet even factored into estimates, to the point where it discounts the immense opportunity given the licensing fees this division could be charging two to three years from now. We reiterate our $1,000 price target on GOOGL, but continue to view this as a core holding and see long-term upside beyond these levels.

Hewlett Packard Enterprise (HPE:NYSE; $22.96; 2,000 shares; 1.67%; Sector: Tech hardware): Shares traded sharply lower this week following the company's disappointing earnings report on Thursday. We note that expectations had increased heading into the report despite the company's efforts to highlight pressures facing the business (which were again noted in today's press release) at recent conferences and analyst meetings. As such, we have been consistent in our discipline to wait for shares to drop toward the $22 level before adding to our small position. As we wrote previously, "we want to leave room to be cognizant of the uncertainties, which could lead to better levels as the near-term concerns are washed out." We have always viewed the parts as worth more than the whole, and that's why we have waited to time the right price to scale into the position. While the reaction to the report after hours and in the selloff on Friday was certainly daunting, we highlighted in our analysis that the decline did not even give back all of the gains earned since the Jan. 30 bottom. We have kept this position small purposely, given the extent of the moving parts -- e.g., divestitures, spin-merges and restructurings -- and given our recognition of the macro headwinds facing the company's legacy divisions, but we have always said this position is about management's ability -- namely CEO Meg Whitman's ability -- to drive shareholder value through its transformation. Bottom line: HPE's restructuring and refocusing, in addition to its M&A activity, will help drive improved fundamentals beyond 2017, but we do note that sentiment remains foggy until a clearer picture of stand-alone HPE emerges post-spinoffs. The quarterly miss and disappointing guidance do not change our view that Whitman will position the company, however she has to, to drive value for shareholders, but we are also cognizant of the deteriorating fundamentals in the near term that add just another thing for management to worry about. We reiterate our $27 target but we are keeping our position small for the time being.

Magellan Midstream Partners (MMP:NYSE; $77.98; 500 shares; 1.42%; Sector: Energy): Shares traded lower this week on little news and we took advantage of the opportunity to finally add to the name, as we have been waiting for a drop into the high $70s since the stock rallied 15% after our recommended initiation price. We had previously wanted to buy here but were unable to due to our restrictions. As we mentioned in this recommendation, while a purchase at these levels was above our current cost basis, the stock's swift rise after our initiation offered little chance to bulk up our position. We plan to scale into the position in a disciplined fashion, leaving additional room should the weakness in shares continue for any extended period (which would be unwarranted, in our view). We believe the market's reaction to the company's conservative guidance (initiated along with its recent earnings report) discounts the upside opportunity from its growth projects and its expected distribution growth. We reiterate our $89 target.

Newell Brands (NWL:NYSE; $48.67; 1,900 shares; 3.37%; Sector: Consumer Discretionary): Shares traded higher this week, boosted by a rally on Friday following the company's presentation at a CAGNY conference. As we noted in our larger bulletin on Friday, the company updated its Jarden integration synergy targets to $1 billion through 2021 from the previous target of $500 million through 2018. NWL also reaffirmed its fiscal 2017 outlook, confirming its expectations to achieve EPS between $2.95 and $3.15, bracketing consensus of $3.05. The company also reiterated its revenue view of $14.52 billion to $14.72 billion for the year, in line with consensus of $14.66 billion. This guidance assumes core sales growth of 2.5% to 4%. Along with these updated synergy targets, NWL also announced a set of medium-term goals through 2021, where the team expects to deliver annual core sales growth of 3%-5%. This outlook is a bullish sign for investors as the targets are more in line with what the market had been expecting for the company to reach prior to the release of its downside guidance for the year. During this time, management also expects to deliver double-digit EPS growth with a focus on cash flow generation. As a positive, this guidance does not take into account any strategic M&A, which could provide further upside in the future (NWL sees $3 billion in dry powder by 2019 while maintaining the target leverage ratio and about $7.5 billion by 2021). Lastly, we also wanted to note that the stock has benefited from an Axios report indicating that the White House does not support the current GOP border tax adjustment plan. This is a major positive development for NWL (and the retail sector) as the company, through its supply chain, imports most of its products, and as such would be negatively impacted by a border adjustment tax. That being said, management did also address the issue at the conference today, noting that the company is confident that there are opportunities where NWL is advantaged versus foreign competitors and smaller peers, who would have less ability to combat the headwinds. Even so, 66% of NWL's profits are domestic, so any reduction to the 33% tax rate it pays would be a major benefit. All in, we view the updates as a positive for NWL, cementing the longer-term opportunity that the market is beginning to appreciate. We went to battle for NWL and we believe this decision will continue to pay off for the long term. We reiterate our $60 target.

NXP Semiconductors (NXPI:Nasdaq; $102.83; 650 shares; 2.43%; Sector: Information Technology): Shares traded roughly flat this week on little news. The stock had shown some strength in recent weeks, an upward move sparked by the company's earnings report, where it expressed confidence in the closing of its Standard Products divestiture, and growing positive sentiment toward the name in the market as investors recognize the opportunity with or without Qualcomm (QCOM). We have held onto this name as we believe the company is potentially worth even more should the QCOM deal ultimately be rejected. While we believe the deal will likely go through (although there is, of course, risk), we believe the stock is a solid anchor for the portfolio as we await official word. We reiterate our $110 target.

Schlumberger (SLB:NYSE; $80.15; 1,200 shares; 3.50%; Sector: Energy): Shares traded slightly lower this week on little news. We took advantage of the opportunity to bulk up our position as shares crossed below the $80 level, which we have been watching for some time, ever since the company's latest earnings report. Our patience paid off and we upgraded SLB to One along with the move. Our bullishness was heightened earlier in the week when peer Transocean (RIG:NYSE) reported solid results, with management noting that the drilling market bottom is on the horizon. This is consistent with SLB management's commentary from the quarterly conference call: "We maintain our constructive view of the oil markets, as the tightening of the supply and demand balance continued in the fourth quarter. … This trend was further strengthened by the December OPEC and non-OPEC agreements to cut production, which should, with a certain lag, accelerate inventory draws, support a further increase in oil prices, and lead to increased E&P investments." We continue to view SLB as best in class, driven by its experienced management team, leading free cash flow generation and operational efficiencies. We reiterate our $93 target.

Snap-On (SNA:NYSE; $171.36; 450 shares; 2.81%; Sector: Industrials): Shares traded lower on little news this week. We took advantage of the pressure to scale further into the position, as we have been waiting to do since our initiation. While the stock often sees pressure following its earnings reports, so too does it typically see strength as we move further away from the report as investors begin to appreciate the consistency embedded in the business model. We believe SNA can grow into a higher multiple in this environment -- with an improving economy, deregulation and a focus on America first -- while also benefiting from higher growth from some of its new product divisions. We reiterate our initial $190 target.


Adobe (ADBE:Nasdaq; $119.31; 750 shares; 3.26%; Sector: Technology): Shares traded lower this week on little news. We downgraded the stock in our last Weekly Roundup, not to reflect any changes in our views of the business, but more so as a near-term recognition of the recent rally both in ADBE shares and in the broader Nasdaq. We continue to appreciate the company's top- and bottom-line growth in the coming years and believe management has done a tremendous job shifting the business into every important industry on the Web. ADBE remains a core holding and we reiterate our $125 target for now.

American Electric Power (AEP:NYSE; $67.15; 1,000 shares; 2.45%; Sector: Utilities): Shares traded higher this week as investors headed back toward some of the defensible names, recognizing the market's virtually uninterrupted run in recent months. AEP shares had lagged initially following the election results while investors left behind dividend-yielding stocks, but have since rallied from the high $50s, the levels where we bulked up our position. While we continue to believe AEP is a best-in-class utility -- with the most attractive growth profile among its large- cap peers (adding potential for a dividend growth story) -- we are downgrading the name to Two on the recent rally. We reiterate our $68 target and keep the stock in the portfolio as a steady name to diversify away from riskier sectors.

Arconic (ARNC:NYSE; $29.32; 3,500 shares; 3.74%; Sector: Metals & Mining): Shares underperformed the market this week as the stock has, for now, lost its luster while the ongoing proxy battle has faded from the headlines. We recently downgraded the name to Two and trimmed the position, protecting our 45% profits in the name. Even if Elliott Management does not emerge the victor, we believe the proxy fight will urge Arconic to get its act together and focus on dramatically improving operations. While the battle between CEO Klaus Kleinfeld, the current board and Elliott Management creates a "sticky" situation, we believe this is a win-win for us as shareholders. Helping the investment story, ARNC recently monetized its stake in Alcoa (AA) shares left over from the separation, adding cash for the company to pay back debt and lower interest expenses. We reiterate our $31 target and our Two rating for now as we wait for the proxy battle to play out.

Citigroup (C:NYSE; $59.56; 1,750 shares; 3.80%; Sector: Financials): Shares traded lower this week as the financial sector was pressured while Treasury yields fell lower. Investors shifted toward safe-haven assets this week, buying into bonds and straying away from riskier equities. We continue to believe in C's long-term opportunity to benefit from deregulation as the company looks to execute its plans to buy back 7% of shares and increase its dividend payout, helping shares close the gap to tangible book value (TBV). We reiterate our $64 target, which was the company's rough TBV as of the latest quarterly update.

Cisco Systems (CSCO:Nasdaq; $34.32; 3,000 shares; 3.75%; Sector: Technology): Shares traded slightly higher this week, building on the momentum since the middle of December that was pushed even further by last week's positive earnings report. Cisco's transformation appears to be taking shape, rapidly shifting the company to a recurring revenue via subscription model for wireless-WiFi enterprise, cybersecurity and, most recently, with its AppDynamics acquisition. Essentially, CEO Chuck Robbins aims to create an ecosystem where, say, you might pick AppDynamics or its cybersecurity business and then subscribe to the rest of the products. Many tech companies, such as Alphabet and Amazon (AMZN) are taking the same approach with their own consumer products, bringing users into their ecosystems with high-touch products that foster loyalty and lifetime value. Cisco's on pace to turn the way Adobe did when it wanted to become more than Acrobat, and now Adobe's ecosystem powers anything involved in marketing and creativity on the Web. If Cisco can pull this off fully -- and we believe it can over the long term (hence our belief that shares should re-rate higher given the increased earnings visibility and higher growth and margins) -- then its current valuation seems cheap, valuing the company as a legacy hardware business and not as a high-multiple software machine. We reiterate our $35 price target, but see upside from there as the company continues to execute on its transformation, and we are actively evaluating upgrading the name to One for those willing to take a long-term view. We temper this desire with the stock's incredible run in recent months.

Dow Chemical (DOW:NYSE; 63.55; 1,475 shares; 3.41%; Sector: Chemicals): Shares traded higher this week on news that the EU was nearing approval of the impending merger with DuPont (DD). According to the reports, two sources familiar with the review process indicate that regulators are pleased with the companies' recent changes to their concession plans. You can review our analysis of these changes here and an earlier update here. Moreover, after receiving feedback from customers and peer companies, the European Commission requested some minor changes, to which Dow and DuPont complied, fine-tuning their proposal one last time. According to Reuters' sources, the European Commission will not seek a third-party review of the latest updates, "a clear sign that [the Commission] will approve the deal." While we do not want to get too caught up in the speculation, the reporting is a positive sign, at least in terms of the progress of the ongoing review. Reuters has been close to the story from the beginning, staying up to date with the regulatory extensions and multiple iterations of the concession plans. We will not count on a definitive approval until an official announcement is made, but we are incrementally more positive on the merger's approval prospects. We continue to hold DOW shares, as we view the stock as a win in the long term, with or without the merger. While we wait for the regulators to complete their review, we are content in collecting the near-3% dividend yield as a steady income stream for the portfolio. We reiterate our $67 price target for now, although we see more potential upside should the deal be approved.

Kraft Heinz (KHC:Nasdaq: $93.08; 400 shares; 1.36%; Sector: Consumer Staples): Shares traded lower this week, pulling back after last Friday's surge on reports that the company had pursued an offer for Unilever (UN). Over the weekend, however, the companies released a joint statement noting that KHC had "amicably agreed to withdraw its proposal for a combination of the two companies." We took the opportunity on Wednesday to trim half of our position given the uncertainty surrounding the M&A environment and the stock continued to trade lower throughout the week as investors were left wondering whether a deal would be coming. For now, we are left to speculate as to whether management and their backers will, in fact, pursue a merger somewhere across the sector. Mondelez (MDLZ) and General Mills (GIS) have been mentioned as possible targets in the past, explaining why we saw these names moving higher earlier in the week. One thing is sure, given Unilever's international focus and footprint in various end-markets other than food, the pursuit of UN has opened up the opportunity for other names potentially to come into play -- say, Colgate-Palmolive (CL). Effectively, knowing that KHC might consider moving into new verticals (e.g., household products) opens up new avenues of interest for investors. All in, although KHC appears interested in a deal, there is always the possibility that 3G Capital decides to use a different vehicle as a means to deploy its recently raised funds, especially if the group is focused on a different consumer vertical other than food. Given the plethora of potential outcomes, we expect shares to be somewhat volatile as investors decipher how best to play the situation. We reiterate our $100 target and have left some shares on the table to benefit from any deal upside, but would not add back to the position unless shares fell into the mid-$80s. We are leaning more toward selling the remaining shares next week when unrestricted.

PepsiCo (PEP:NYSE; $109.83; 1,000 shares; 4.00%; Sector: Consumer Staples): Shares traded higher this week, continuing their momentum after an initial selloff following the strong earnings report last week, when the company also raised its dividend. The stock was also helped this week by the risk-off approach taken by investors, helping the consumer staples (i.e., more defensive) names with strong dividend yields and consistent business models. While we continue to view PEP as a core holding and a best-in-class organic grower in its space, we are downgrading the name to Two after this recent rally, which we believe is due in part to speculation regarding Kraft-Heinz's next potential takeover target. We do not want to get caught up in that game with Pepsi, and while we are confident in the fundamentals, we believe a downgrade is appropriate to reflect our views of the move on this speculation. The position has climbed near and over 4% of the portfolio, so we would not be buyers until shares dropped back into the lower $100s. We reiterate our $115 target.

Starbucks (SBUX:Nasdaq; $57.48; 1,400 shares; 2.93%; Sector: Consumer Discretionary): Shares traded roughly in line with the broader market this week on little news. We took the opportunity to trim the position this week as the stock was trading above our cost basis and we wanted to de-risk the portfolio away from the uncertain comp story, which has been impacted by a difficult macro backdrop and SBUX's own through-put issues. SBUX shares have risen more than 7% since the lows following the company's disappointing earnings report. While we have long-term confidence in the management team, we recognize there are increased risks with the transition of CEO Howard Schultz into more of an overarching innovation role and as the company looks to implement a plan to combat recent sales pressures. We expect investors to remain skeptical until a specific strategy is enacted to battle through- put concerns. We have left nearly 3% of the position on the table as we respect SBUX as a premiere global brand (which is growing internationally, with a specific focus on China) and we want to be able to benefit from the company's long-term growth initiatives, but we are actively monitoring the position and would be more inclined to trim on further moves higher. We keep our $65 long-term price target on SBUX.

T.J. Maxx (TJX:NYSE; $78.25; 1,400 shares; 3.99%; Sector: Consumer Discretionary): Shares traded higher after reporting earnings earlier this week. Although the initial stock reaction was muted, investors jumped into the name on Thursday, respecting the company's virtually unprecedented ability to drive traffic through their stores in a stagnating bricks-and-mortar retail environment. Along with earnings, management announced a 20% increase to the company's quarterly dividend payout -- up to $0.3125 (or $1.25 on an annual basis, resulting in a 1.64% yield as of Tuesday's closing price). This move marks the 21st consecutive year that TJX has raised its dividend -- consistency that we value for the portfolio and a sign that the company continues to generate ample cash and earnings to cover both investments in the business and payouts for shareholders. In addition to the dividend boost, management also announced a plan to repurchase approximately $1.3 billion to $1.8 billion of TJX stock during fiscal 2018. While the quarter was strong across the board, management issued conservative fiscal 2018 guidance, which could be a point of emphasis for the bears. TJX sees fiscal 2018 EPS coming in around $3.69 to $3.78, representing 1% to 2% comp growth, versus consensus of $3.79 -- and sees fiscal first-quarter EPS coming in around $0.76 to $0.78, slightly lower than consensus of $0.81. All in, we continue to appreciate the company's ability to deliver solid results against a difficult backdrop, transcending downward trends across the retail space. We believe management is smart to remain conservative in its guidance, given the uncertainty of the macro environment -- opening the possibility for beats and raises moving throughout the year. We reiterate our $85 target.

Walgreens Boots Alliance (WBA:Nasdaq; $87.61; 900 shares; 2.87%; Sector: Health Care): Shares traded higher again this week as investors continue to bet on an approval of the impending Rite Aid (RAD) deal. As we mentioned last week, our view on Walgreens remains the same -- we are positive on the name with or without the RAD deal. That being said, we do not want to feed into the speculation regarding the review process, as investors have been burned by such reports in the past. As we have been vocal about throughout the review process of this pending merger, the New York Post has proven to be unreliable and incorrect in terms of the timing of upcoming decisions reported in their various articles covering the deal. We have left a nicely sized position in order to benefit from an approval, but we would not be buyers unless the stock dropped back toward $80. We maintain our $90 target.

Wells Fargo (WFC:NYSE; $57.81; 1,900 shares; 4.00%; Sector: Financials): Shares underperformed the market this week as interest rates trended lower for the majority of the week. The banks have largely become a play on the economy and the potential for deregulation, which we believe will certainly help the industry. We remain on the sidelines for now with WFC, holding the position as we await additional rate hikes from the Federal Reserve throughout the year. We reiterate our $60 target.


Jim Cramer, Portfolio Manager & the AAP Team
Action Alerts PLUS

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

We Went to Bat for Newell Brands, and Now it Is Paying Off
Stocks in Focus: NWL

Shares are trading sharply higher on improved long-term guidance.

02/24/17 - 03:08 PM EST
We're Buying More Cimarex
Stocks in Focus: XEC

Shares trading lower as oil slips.

02/24/17 - 01:11 PM EST
Snapping Up Some More Snap-on
Stocks in Focus: SNA

We believe SNA can grow into a higher multiple in this environment, while also benefiting from higher growth from some of its new product divisions.

02/24/17 - 10:47 AM EST
Weekly Roundup

Market shifts attention from earnings to Trump administration plans. Among several portfolio moves, we exit 2 positions.

02/24/17 - 05:09 PM EST


Chart of I:DJI
DOW 20,821.76 +11.44 0.06%
S&P 500 2,367.34 +3.53 0.15%
NASDAQ 5,845.3060 +9.7990 0.17%

Action Alerts PLUS Holdings

Holdings 1

Stocks we would buy right now

Symbol % Portfolio
AAPL 0.04080575017724421 Consumer Durables
AGN 0.0491417083392354 Drugs
APA 0.03986966041575101 Energy
CMCSA 0.02759438367991389 Media
DHR 0.01880700354051455 Health Services
FB 0.049318861515011046 Internet
GE 0.02583432227166813 Industrial
GOOGL 0.04630798580298454 Internet
HPE 0.016721220619974213 Telecomm
MMP 0.014197743727630543 Energy
NWL 0.033672940644400594 Consumer Durables
NXPI 0.02433880717832679 Electronics
SLB 0.03502280050586062 Energy
SNA 0.028079415602078647 Industrial
XEC 0.029830009420252122 Energy
Holdings 2

Stocks we would buy on a pullback

Symbol % Portfolio
ADBE 0.03258398571704796 Computer Software & Services
AEP 0.02445187205207466 Utilities
ARNC 0.03736784973914969 Industrial
C 0.037954112047471955 Banking
CSCO 0.0374916566862488 Computer Hardware
DOW 0.03413293807358575 Chemicals
KHC 0.013557588983512192 Food & Beverage
PEP 0.03999328529381027 Food & Beverage
SBUX 0.029302919549881637 Leisure
TJX 0.039891326631493355 Retail
WBA 0.02871192344652323 Retail
WFC 0.0399965625365276 Banking