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Jim Cramer's Action Alerts PLUS

Buying More American Electric Power

By Jim Cramer and Jack Mohr | 2016-12-05 12:53:44.0
Actions Taken:
Symbol Action # Shares Traded Recent Price % of Portfolio* Shares Owned*
AEP Buy 300 $58.11 0.0183 800

* Indicates results after trade.

We will purchase 300 shares of American Electric Power (AEP:NYSE) after you receive this Alert at around $58.11. Following the trade, AEP will represent roughly 1.83% of the portfolio.

As we have alluded to in recent weeks, we have been waiting for AEP shares to come down to around the $58 threshold or below to bulk up on our position. We have patiently held off from pulling the trigger as we watched the continued selloff in bonds push Treasury yields higher, but we believe now is the time to strike.

We believe the swift, steady decline in bonds since the election results -- the 10- year Treasury yield has risen from 1.88% on the day of the election to 2.4% today (and slightly higher last week) -- is overdone. While the adjacent move lower in staples and utilities has been deserved in theory, we believe the magnitude of the decline and subsequent lack of support have provided an opportunity in these throwaway sectors, just as we see tech catching a bid today. Recall that we alerted members last week that we believed the tech selloff was also approaching a pivot point. We added to Adobe (ADBE:Nasdaq) and pointed to Facebook (FB:Nasdaq) and Google (GOOGL:Nasdaq) as potential opportunities for those who were underexposed.

As for AEP, we believe the now-4%-plus dividend is compelling, especially given the company's recent shift toward focusing on its regulated business, a move that will make it one of the faster-growing large-cap utilities over the long term. AEP also stands to benefit under the Trump administration given the likelihood for more favorable (less restrictive) coal policies that will free up cash flow for AEP to focus not only on its capital plan but also to fund further dividend boosts. We believe the market is discounting AEP's core growth and its capability to develop into a dividend growth story.

Bottom line: Markets are grouping utilities together into a larger batch, valuing all as placeholders for bond-equivalent investments and ignoring the company-specific drivers. We believe this provides us with an opportunity to scale into AEP, which is best of breed. We do note that we are leaving more room to add to the position should the utilities' selloff extend further.

Regards,

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

DISCLOSURE: At the time of publication, Action Alerts PLUS was long AEP, ADBE, FB and GOOGL.

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Markets

Chart of I:DJI
DOW 19,216.24 +45.82 0.24%
S&P 500 2,204.71 +12.76 0.58%
NASDAQ 5,308.8920 +53.24 1.01%

Action Alerts PLUS Holdings

Holdings 1

Stocks we would buy right now

Symbol % Portfolio
Weighting
Industry
AAPL 0.03535490729185173 Consumer Durables
ADBE 0.030214804469009936 Computer Software & Services
AGN 0.041550517902395626 Drugs
ARNC 0.03522600659912273 Metals & Mining
FB 0.046403459065500564 Internet
GE 0.028889442962532128 Industrial
GOOGL 0.04612803361230586 Internet
HPE 0.009566786544969503 Telecomm
KHC 0.019033993155641922 Food & Beverage
NWL 0.030699861490238768 Consumer Durables
NXPI 0.02512022390184681 Electronics
PEP 0.03979640945658317 Food & Beverage
TJX 0.047364286883926555 Retail
Holdings 2

Stocks we would buy on a pullback

Symbol % Portfolio
Weighting
Industry
AEP 0.018714705112340174 Utilities
C 0.05092802354050679 Banking
CMCSA 0.027139483680648713 Media
COST 0.02398928036232997 Retail
CSCO 0.03850779768776262 Computer Hardware
DOW 0.032675061099698914 Chemicals
PNRA 0.02531108544258288 Leisure
SBUX 0.03976282098668138 Leisure
SLB 0.03336322957421623 Energy
V 0.014511108104130784 Financial Services
WBA 0.03862674038706191 Retail
WFC 0.040806039345984126 Banking
Holdings 3

Stocks we would sell on strength

Symbol % Portfolio
Weighting
Industry
OXY 0.019633843712241004 Energy