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Jim Cramer's Action Alerts PLUS

Weekly Roundup

By Jim Cramer and the AAP Team | 2017-09-22 17:37:58.0

Markets were relatively flat this week as we heard from President Trump on Tuesday, when he addressed the UN General assembly to discuss the global state of affairs, the administration's U.S. first policy and America's stance on foreign policy. On Wednesday, Federal Reserve Chairwomen Janet Yellen spoke following the Fed's two-day meeting. While Yellen's comments were largely in line with what the market was expecting, we received confirmation that the Fed will begin unwinding its balance sheet in October and that members have not ruled out a third rate hike before the end of the year. Treasury yields and the financials both trended higher on the news. For more on the Fed meeting, see out Alert from earlier in the week here. Lastly, on Friday, we got an update from OPEC and non-OPEC nations regarding their joint efforts in reducing global oil supplies (more below).

Treasury yields pushed higher as investors sold off treasuries ahead of the Fed's planned start to unwinding its balance sheet in October. Gold also moved lower, in line with the move out of bonds. The euro was relatively flat against the dollar, with the uptrend started in April remaining intact. Lastly, oil pushed higher, again bumping up against the $50 resistance level, as we saw positive news out of OPEC.

Second-quarter earnings are officially in the books and have been largely positive vs. expectations. No portfolio companies reported this week.


Turning to the economic front, on Tuesday, the U.S. Census Bureau reported that housing starts declined for the second month in a row in August, falling 0.8% month-over-month to a seasonally adjusted annual rate of 1.18 million. It is worth noting that while economists were looking for an increase in home starts, the monthly decline can be attributed to an upwards revision to July's reading, which was raised to seasonally adjusted annual rate of 1.19 million, from 1.16 million previously reported. On a yearly basis, starts are up 1.4%. The lack of construction growth can be attributed to a mix factors, including a lack of land, skilled workers and a rising cost of materials. However, with the recent destruction caused by hurricanes Harvey and Irma, we may see an uptick in construction moving forward as homes are rebuilt.

Digging deeper, monthly, single-family housing starts increased 1.6%. However, the rise was offset by a 5.8% decline in housing starts for complexes with five or more units. By region, total housing starts fell in the Northeast and South by 8.7% and 7.9%, respectively; they rose in the Midwest and West by 22.0% and 4.0%, respectively. Single-family homebuilding, which accounts for the largest share of the residential housing market, fell 1.5% in the Northeast and 4.3% in the Midwest; offset by a 1.3% rise in the South and a 6.5% increase in the West.

On a yearly basis, total starts are up 17.6% in the Midwest and 4.3% in the West and 0.2% in the South. Total starts are down a whopping 21.1% in the Northeast.

Offsetting the decline in housing starts, building permits jumped 5.7% month-over-month, to a seasonally adjusted annual rate of 1.23 million, above expectations of 1.2 million. This marks the highest reading since January and suggests that the impact of Hurricane Harvey was limited. Total permits are up 8.3% from August of last year.

Digging deeper, monthly, permits for single-unit homes, and complexes with two to four units fell 1.5% and 10.0%, respectively in August; while permits for complexes with five or more units surged 22.8%. By region, monthly, total permits issued rose 8.8% in the Midwest, 3.7% in the South and 15.3% in the West; slightly offsetting the positive readings was a 13.0% decline in the Northeast. Year-over-year, total permits increased 27.0% in the West and 6.6% in the South, offset by a 3.6% decline in the Midwest and an 8.5% drop in the Northeast.

Moving to Wednesday, the National Association of Realtors (NAR) reported that existing home sales fell 1.7% in August to a seasonally adjusted annual rate of 5.35 million. This follows a 1.3% decline in July and marks slowest pace since August of last year. The reading was well short of expectations of 5.44 million and is the fourth decline in five months. Supply continues to be the biggest drag on existing home sales numbers (as demand remains strong) and was heavily impacted last month due to a steep decline in the Houston area, resulting from Hurricane Harvey.

According to NAR economist, Lawrence Yun, "...sales will be impacted the rest of the year in Houston, as well as in the most severely affected areas in Florida from Hurricane Irma. However, nearly all of the lost activity will likely show up in 2018."

As we've seen in previous months, a lack of supply has continued to push prices higher. Median existing home prices are up 5.6% from August of last year, coming in at $253,500 and marking the 66th consecutive month of year-over-year price gains. Additionally, it appears a lack of supply will continue to drive prices as inventory levels at the end of August were down 2.1% from July and have declined 6.5% from the same time last year. Inventory levels have now decreased, year-over-year for 27 consecutive months and, as of the end of August, represent roughly a 4.2-month supply (at the current pace of sales), down from 4.5-months last year and well below the ideal six-month supply level.

Digging deeper by region on a month-over-month basis, sales rose 10.8% in the Northeast and 2.4% in the Midwest. Offsetting this, sales fell 5.7% in the South and 4.8% in West. On a yearly basis, sales are up 1.4% in the Northeast, 0.8% in the Midwest and 0.8% in the West. However, sales are down 0.9% in the South compared to the same time last year.

On Friday, IHS Markit Group reported that the Flash Manufacturing Purchasing Managers Index (PMI) for September reached a two-month high of 53.0 (up from 52.8 in August), in line with expectations. Offsetting the rise in manufacturing, Flash Services PMI declined slightly to two-month low of 55.1, down from August's 21-month peak of 56.0 and indicating expansion at a slower rate compared to the month prior. As a reminder, anything over 50 represents expansion while anything below 50 indicates a contraction. We also note, "flash" data are a preview to the official release and are based on roughly 85% of expected survey data.

Commenting on the results, IHS Markit Chief Business Economist, Chris Williamson said, " The US economy showed encouraging resilience in a month of hurricane disruption. Although the September surveys indicated a moderation in growth of business activity, the overall rate of expansion remained robust. Historical comparisons of the PMI with GDP indicate that the surveys point to the economy growing at an annualized rate of just over 2% in the third quarter." The readthrough to GDP growth is key as this is a key factor considered by the Fed when determining whether to hike short-term interest rates. Something we learned this week, following the Fed's September FOMC meeting, is still a possibility for later this year.

On Thursday, the Department of Labor reported that initial jobless claims for the week ending Sept. 16 were 259,000, a decrease of 23,000 claims from the prior week's revised level (revised down to 282,000 from 284,000 previously reported) and 41,000 claims below expectations of 300,000 initial claims. As was the case last week, the effects of hurricanes Harvey and Irma continue to impact the number of weekly claims. Importantly, the four-week moving average for claims (used as a gauge to offset volatility in the weekly numbers) was 268,750, an increase of 6,000 from last week's revised level (revised down to 262,750 from 263,250 previously reported). 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 133 consecutive weeks, the longest streak since 1970.


On the commodity front, oil has finally managed to hover around the $50 level as sentiment in the sector appears to be shifting, something that has caused us to hold off on our decision to begin trimming exposure before it crossed this $50 level. That said we remain cautious given the volatility in the sector and past behavior in the commodity, selling off at the $50/barrel mark.

Aiding the move higher, as we noted in our post from earlier this week, here, on Monday, Saudi Arabia stated that exports of crude had decreased month over month, from 6.889 million barrels per day (bpd) in June to 6.693 million bpd in July. Additionally, on Tuesday, Iraq's oil minister said crude production was currently at 4.32 million bpd, down from May and June's totals of 4.5 million bpd.

Following up on OPEC related news, on Friday, OPEC and non-OPEC members (who have joined forces in an ongoing effort to reduce global supplies) met in Vienna, Austria to discuss compliance with the current production cut agreement and the potential for an extension given the upcoming March deadline. At the meeting, members also placed intense focus on production in Nigeria and Libya. Recall, both countries were initially exempt from the cuts as civil unrest had significantly impacted their oil industries. However, both countries also recovered faster than expected and the renewed output has greatly offset cuts from complying countries. While nothing was decided regarding Nigeria and Libya, Russian energy minister, Alexander Novak, stated "If these countries stabilize around certain levels and hold them around a period of time, then this would be the time for them to join this initiative."

Regarding an extension of production cuts, while no decisions were made, consensus from those attending the meeting was that progress is being made, the oil market is recovering and should circumstances call for it, an extension beyond next March may be considered. We will continue to monitor the situation and remain hopeful that with the March deadline rapidly approaching, the potential of Nigeria and Libya to join in capping production and things on track for higher oil prices into the end of the year, member nations will be more motivated to comply with the agreement than we've seen in the past. OPEC will meet next in Vienna on November 30th.


In the portfolio this week, we increased our position in First Data Corporation (FDC) , adding 1,000 shares following last week's secondary offering, which pushed prices lower. As we noted in our Trade Alert here, this transaction has zero implications on FDC's business or operations, causing us to view the move lower as an attractive discount opportunity. We also added to our Allergan (AGN) position, adding 25 shares as the stock broke down below the $220 level. The move lower was due to advancements in a state attorney general investigation into Allergan's opioid marketing and sales practices, as well as concerns over the upcoming IPR ruling on Restasis. However, we do not think Allergan will be affected by this investigation as opioids contribute a minuscule amount to AGN's revenues and given that these products were acquired via legacy acquisitions. Importantly, we also note that the company has not promoted the two products in question, Kadian and Norco since 2012 and 2003, respectively.

Lastly, on Friday, we upgraded Apple (AAPL) from a Two to a One as the stock has seen a material pullback (what we look for in our Two-rated names) from its all-time highs resulting from what we believe to be overblown concerns regarding demand of for the new iPhones and connectivity issues with the company's new wireless-enabled watch. Bottom line, the cause for the pullback, in our view, is near sighted, the long-term Apple story remains intact and current levels represent a great starting point for those who have been patient in waiting to initiate a starting position in Apple.

Moving on to the broader market, second-quarter earnings have come to an end and were largely positive vs. expectations, with 72.0% of companies reporting a positive EPS surprise. Total second-quarter earnings growth increased roughly 11% year over year vs. expectations for an overall 10.74% increase throughout the season; of the 434 non-financials that reported, earnings growth is up 11.6%. Revenues are up 4.9% vs. expectations throughout the season for a 5.08% increase; 72.0% of companies beat EPS expectations, 18.4% missed the mark and 9.6% were in line with consensus. On a year-over-year comparison basis, 75.2% beat the prior year's EPS results, 22.6% came up short and 2.2% were virtually in line. Information tech and healthcare have had the strongest performance vs. estimates, whereas energy, consumer staples and telecom have posted the worst results in the S&P 500 for the second quarter.

Next week, eight companies in the S&P 500 will report earnings. No portfolio companies will report. Other key earnings reports for the market include: Synnex (SNX), Red Hat (RHT), Darden Restaurants (DRI), HIS Markit (INFO), FactSet (FDS), NIKE (NKE), Micron (MU), Landec (LNDC), Worthington (WOR), Actuant (ATU), Jabil (JBL), Thor Industries (THOR), Pier 1 Imports (PIR), Progress Software (PRGS), Accenture (CAN), Rite Aid (RAD), ConAgra (CAG), McCormick (MKC), Ferrellgas Partners (FGP), BlackBerry (BBRY), Vail Resorts (MTN), Omnova Solutions(OMN), AngioDynamics (ANGO), KB Home (KBH), SMART Global (SGH) and CalAmp (CAMP).

Economic Data (*all times ET)


Monday (9/25)

Chicago Fed Nat Activity Index (8:30)

Dallas Fed Manufacturing Activity (10:30): 13 expected

Tuesday (9/26)

New Home Sales (10:00): 600k expected

Conf. Board Consumer Confidence: (10:00): 119.3 expected

Richmond Fed Manufacturing Index: (10:00): 13 expected

Wednesday (9/27)

MBA Mortgage Applications (7:00)

Durable Goods Orders (8:30): 0.9% expected

Durables Ex Transportation (8:30): 0.3% expected

Cap Goods Orders Nondef Ex Air (8:30): 0.4% expected

Cap Goods Ship Nondef Ex Air (8:30)

Pending Home Sales MoM (10:00): -0.5% expected

Thursday (9/28)

GDP Annualized QoQ (8:30): 3.2% expected

Personal Consumption (8:30)

GDP Price Index (8:30): 1% expected

Core PCE QoQ (8:30)

Initial Jobless Claims (8:30)

Continuing Claims (8:30)

Wholesale Inventories MoM (8:30)

Bloomberg Consumer Comfort

Friday (9/22)

Personal Income (8:30): 0.3% expected

Personal Spending (8:30): 0.2% expected

PCE Core MoM (8:30): 0.2% expected

PCE Core YoY (8:30): 1.4% expected

Chicago Purchasing Manager (9:45): 57.5 expected

Univ. of Mich. Sentiment (10:00): 95.5 expected


Monday (9/25)

Germany IFO Business Climate (4:00)

Germany IFO Expectations (4:00)

Germany IFO Current Assessment (4:00)

Tuesday (9/26)

Wednesday (9/27)

Japan Machine Tool Orders YoY (2:00)

Eurozone Agg M3 Money Supply YoY (4:00)

Thursday (9/28)

Germany GfK Consumer Confidence (2:00)

Eurozone Agg Consumer Confidence (5:00)

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 Jobless Rate (19:30)

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

Japan Natl CPI YoY (19:30)

Japan Natl CPI Ex Fresh Food YoY (19:30)

Japan Tokyo CPI YoY (19:30)

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

Japan Retail Sales MoM (19:50)

Japan Retail Trade YoY (19:50)

Japan Industrial Production MoM (19:50)

Japan Industrial Production YoY (19:50)

China Caixin China PMI Mfg (21:45)

Friday (9/29)

Japan Housing Starts YoY (1:00)

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

Germany Unemployment Claims Rate SA (3:55)

UK Mortgage Approvals (4:30)

UK GDP QoQ (4:30)

UK GDP YoY (4:30)

Eurozone Agg CPI Estimate YoY (5:00)

Eurozone Agg CPI Core YoY (5:00)

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.


Apple (AAPL) ; $151.89; 700; 3.86%; Sector: Technology - Shares of Apple pulled back roughly 5% this week as investors were concerned about the company's recent product launch and how it will impact sales. Early in the week, negative reviews about the cellular connectivity in the new Apple Watch Series 3 came out which we described as overly critical in a post here. We think the demand for this product will be strong and we are not concerned about the transitory issue as Apple is already working on the new software to fix the bugs. Remember, cellular was the biggest want for the new watch series, so we expect demand to be strong here. On Friday, the iPhone 8 hit stores and the product experienced tepid global demand. This reaction was very different compared to previous iPhone launches that are typically characterized by long-lines and packed stores, so the stock to moved lower based on the weak demand. However, we view the quieter-than-usual sales as a positive for the company. We believe that customers are simply holding out for the iPhone X, which is superior to the iPhone 8 in functionality, and the phone does not hit stores until November. We are encouraged that customers are passing over the 8 for the X because the X commands a higher price tag, and the increased price means stronger revenues for Apple. Ultimately, we viewed this week's selling as an excuse for traders to get out of their Apple positions and sell the stock. Since we always view Apple not as a trade, but as an investment, we decided to upgrade the stock to a ONE on Friday as we have optimism with the super-cycle. We reiterate our $165 price target because we think Apple's earnings will be strong following this new product launch and they continue to create products that are characterized with incredible brand loyalty that create consumer needs.

Abbott Laboratories (ABT) ; $52.51; 500; 0.95%; Sector: Healthcare -- Shares of Abbott Laboratories moved higher this week. The company remains on track to complete its acquisition of Alere (ALR) on September 30th. Heading into the deal, Alere announced this week a few pending sales of its assets that will complete once they are acquired by ABT, and these deals are being made to support the regulatory approvals necessary for the deal. Also this week, on Friday ABT announced that they have received U.S FDA approval for MRI compatibility on one of their more popular implantable cardioverter defibrillators (ICD). Due to previous uncertainties, this approval for the Ellipse ICD came in slightly ahead of schedule compared to investor timelines, and this product is expected to improve ABT's lagging U.S. ICD business. We continue to like shares based off the company's strong international presence (a tax holiday could benefit ABT), past and future integrations (St. Jude's Medical and Alere), and its history of growing dividends. We reiterate our $53 price target.

Activision Blizzard (ATVI) ; $63.9; 1400; 3.25%; Sector: Technology -- Shares pulled back this week despite bullish commentary from analysts. On Wednesday, shares were initiated by analysts at Buckingham Research Group with an Outperform rating. In line with our view, the analysts noted that shares have upside from current levels as an industry shift to digital distribution can lead to a more predictable revenue stream with higher margins. While the move to all digital will take time (some estimate roughly three years or so) we see multiple nearer-term catalysts that can aid in driving further upside. The recently released, Destiny 2, has seen strong initial sales; Call of Duty: WW2 (released later this year) has received very positive feedback with many pre-orders being placed following its beta release over Labor Day weekend and most notable the upcoming launch of the Overwatch League. On that note, this week, ATVI confirmed three more teams for the league, bringing the total number to 12 (although there are rumors that two more may join) and announced preseason and official season launch dates. The new teams include one based in Philadelphia and owned by Comcast Spector (owner of the NHL's Philadelphia Flyers), and two based out of Texas, one in Houston and the other in Dallas. The company also announced that the preseason will kick off on Wednesday, December 6th with the inaugural season launching on Wednesday, January 10th and ending in June with the playoffs and championship to be held in July, which is right on schedule to the original timeline laid out by ATVI. With the final pieces falling in place and official dates set, we believe shares will continue to climb higher as we approach the end of the year and into next as the eSports league will represent an incremental boost to the company's earnings. We reiterate our $68 target.

Allergan (AGN) ; $204.65; 625; 4.65%; Sector: Healthcare -- Shares of Allergan declined sharply this week, dropping about 8% before Friday's session which pared losses. Growing concerns over the upcoming Restasis IPR decision, pending issues stemming from its sales and marketing practices of opioid drugs (which Allergan holds very little stake in), and concerns over the timing of its CVC NASH data all hurt the stock this week. Let's review each one by one. Although the IPR decision could be significant, in our view the stock's selloff has essentially removed all further downside risk as the market is now expecting the courts to rule against AGN. This makes current prices very attractive as there is only room for upside in this decision, which is why we said on Friday we would be buyers had we not been restricted. Regarding the opioid subpoena, Allergan stated that they represent only 0.08% of the opioid industry, and they have not promoted those legacy products in many years. We do not think this claim against Allergan has legs. Lastly, on Friday, AGN reported their CVC NASH results. While the results were relatively mixed, the bears can no longer point to delayed data as a cause to sell the stock. We continue to see upside in this name, especially at this level, as we are encouraged with the growth potential of the company's Medical Aesthetics portfolio, as well as pipeline progress in their six" star" portfolio. We reiterate our $270 price target

Broadcom (AVGO) ; $239.24; 250; 2.17%; Sector: Electronics -- Shares were heavily pressured this week, resulting from data that iPhone 8 pre-orders appear light compared to previous models. Recall, the new iPhone models are expected to house 8 chips developed by Broadcom and as a result, demand for the new phone is key to the near-term story for AVGO shares. While iPhone 8 pre-orders may be relatively low (according to early reports), we note that it is highly likely buyers are simply holding out to purchase the X model, which will not start taking pre-orders until October 27th. While we will be certainly keeping an eye on iPhone news as an indicator of what to expect for Broadcom shares in the near-term, we reiterate that the company has more going for it than just the new iPhone and believe the recent sell-off has provided for an attractive entry point for those with little exposure. Longer-term we see upside as the company is strongly positioned to take advantage of the growing demand for data and the coming transition to 5G wireless networks that is expected to occur over the next few years. We reiterate our $290 target and will continue to monitor the situation regarding the next batch of iPhones.

Cimarex Energy (XEC) ; $110.85; 900; 3.62%; Sector: Energy -- Shares pushed higher this week, receiving praise on Tuesday from analysts at Imperial Capital, who initiated coverage on the name with an Outperform rating. In line with our previous guidance that Cimarex would be closely tied to trading in the oil markets, shares have been on a nice run in recent weeks as crude prices have managed to move up and currently hover around the $50 level. While both upstream names in the portfolio (XEC and (APA) ) have seen a lift on the back of higher crude prices, we believe the strong move in XEC shares over the last few weeks speaks to the company's best-in-class management and their intense focus on investment returns (rather than increasing production for the sake of growth). We are far from being out of the woods in the energy sector, as we've noted previously, this is the best operator in the Permian and so long as crude can hold current levels, we believe shares can continue to grind higher. We reiterate our $150 target.

Comcast (CMCSA) ; $38.1; 2000; 2.77%; Sector: Consumer Discretionary -- Shares bounced back this week after finding support at around the $37 as the selloff appears to be overdone. Last weekend, Hulu topped competitors Amazon and Netflix at the Emmy Awards as the company's hit "The Handmaid's Tale' pulled in a number of awards including: best drama, best lead actress, best supporting actress and best writing for a drama series. Recall, Hulu is a streaming service created via joint venture between Disney, 21st Century Fox and Comcast. The win is an important one as it helps to solidify the platform as real contender in the over-the-top (OTT) space, a sector that is becoming increasingly important to content providers (and cable operators) as more and more consumers seek to cut the cord on tradition pay TV. Recall, shares recently sold off following announcement by management that the company was expecting to lose approximately 100k-150k subscribers in the next quarter. Despite the cable subscriber losses, we remain bullish as the company's X1 platform can benefit from the move to OTT as management looks to position it as a content aggregator and that the shear diversity of CMCSA's revenue stream (including broadband, Universal, theme parks, and the new Xfinity wireless segment) will aid as a buffer against weakness in any one sector. Speaking to this point, we remind members that at the time of the cable subscriber loss announcement, management reiterated financial targets for the upcoming quarter. We believe at these levels, shares fully reflect the recent updates and provide for an attractive entry point for those with little to know exposure. We reiterate our $45 target.

Danaher (DHR) ; $86.78; 1150; 3.63%; Sector: Life Sciences -- Although shares of Danaher ended lower this week, we must acknowledge that a decline was coming due to the stock recently hitting a year-to-date high without significant news driving trading. The stock has moved higher in recent weeks as analysts and investors have been focusing on the strong core growth of DHR's Life Sciences and Environmental/Applied segment, and less on the lagging Dental segment. Members can recall that last quarter, DHR's Dental Segment was the one area that caused weakness in shares due to its declining growth. However, it is widely expected that the weakness here will be transitory, and we are encouraged that DHR's management team will improve the struggling area. Modest improvement to this business should greatly support DHR's stock, and we feel confident DHR's management will fix this segment based on their excellent track record. We continue to like this name going forward and we reiterate our $94 price target

DXC Technology (DXC) ; $85.51; 1000; 3.11%; Sector: Tech Services -- Shares edged higher this week on little news. This continues to be a story of synergy realization, a shifting of revenue mix from the company's legacy business to the new, higher margin digital services business and to a lesser extent, tuck-in acquisitions. As we noted last week, the company is on track to meet management's year-one target of $1 billion in cost savings. We believe this target to not only be attainable but given management's reputation of exceeding synergies, may ultimately prove to be conservative. As the management advances toward their year-one savings goal progresses toward target run-rate savings of $1.5 billion (by the end of the first year), we believe shares will continue to push higher. We reiterate our $89 target.

iShares MSCI EMU Index ETF (EZU) ; $43.22; 1000; 1.57%; Sector: Europe -- Shares pushed higher this week, outperforming the S&P 500. EZU continues to be our vehicle of choice for gaining direct access to the European market (we do have indirect access as several holdings generate revenues in Europe) and the euro currency. We selected the EZU over other European ETFs due to tis limited exposure to the UK, which currently faces a period of uncertainty resulting from the pending break away from the rest of Europe. Additionally, as the EZU is unhedged (verse the hedged HEZU version) shares gain as the Euro strengthens against the dollar, resulting in a better exchange rate, when converted back into dollars. Given that this is an ETF encompassing over 200 companies, we will not have a price target.

Eli Lilly (LLY) ; $83.91; 1450; 4.42%; Sector: Healthcare -- Shares of Eli Lilly traded higher this week. After the recent influx of positive developments stemming from trial results, cost cutting initiatives, and FDA approval submissions, it was a very quiet week for the company. We continue to like this name based on the robust number of drugs that are making their way through the company's pipeline. Investment in these drugs is being supported by LLY's recent cost-cutting efforts, which should improve margins in the short term and provide re-investment opportunities in the long run. LLY's strong pipeline and its commitment to developing new drugs should supplant concerns over pending patent expiration in their established products. We reiterate our $93 price target

Facebook (FB) ; $170.54; 1000; 6.19%; Sector: Technology -- Shares closed lower this week, however continue to hover around all-time highs. This week, Facebook announced that it is working with the U.S. government on its investigation into Russian influence on the 2016 U.S. election. In a Facebook Newsroom release discussing the extent of help being provided, the company stated, "...after an extensive legal and policy review, we've concluded that sharing the ads we've discovered with Congress, in a manner that is consistent with our obligations to protect user information, will help government authorities complete the vitally important work of assessing what happened in the 2016 election...". While the news did not have a major impact on shares, which continue to hover at all-time highs, we believe the move and updates to the company's ad policy aid to bolster the legitimacy of the platform following news validity concerns and illustrates managements on-going commitment to continuous improvements. Also this week, the company's COO, Sheryl Sandberg responded to an ad-targeting issue that allowed Facebook advertisers to target offensive labels, calling it "totally inappropriate and a fail on our part." While these two events (foreign influence on U.S. elections and the failed ad-targeting feature) are unfortunate, we believe investors will appreciate the swift response and note that it illustrates the importance, influence and reach the Facebook platform has today. In addition to the reach of the company's main platform and ongoing success of its satellite platforms (Instagram, Whatsapp and Messenger), we see further long-term upside as the company looks to diversify its revenue (via initiatives such as artificial intelligence and virtual reality) and to increase the amount of video content, which helps provide additional ad space without causing the platforms to feel cluttered to the point of impacting the user experience. We reiterate our $175 target.

First Data (FDC) ; $18.18; 2000; 1.32%; Sector: Technology -- Shares of First Data Corporation traded higher this week, paring last week's losses that occurred because of a private equity secondary offering. On Monday, we took advantage of the early in the week weakness by purchasing shares and scaling deeper into our position. As we discussed on our trade alert as well as on last week's members-only call, we like this fin tech name for their de-leveraging and acquisition story. We believe that the company's efforts to improve their balance sheet will pay off in a big way, as we believe that the company's debt is what is holding back FDC's multiple compared to its peers. In addition, management's commitment to de-levering has improved the company's interest savings, which has allowed FDC to go out into the market and acquire CardConnect. The integration of CardConnect into FDC's Clover system should create a "powerful combination" as stated by management, and increase FDC's share in the point of sale system industry. We see this stock moving higher as the company shifts away from continually playing defense, and we expect multiple expansion to occur gradually over time. We reiterate our $21 price target

Alphabet (GOOGL) ; $943.26; 150; 5.14%; Sector: Technology -- Shares trended higher this as we learned that Alphabet agreed to pay $1.1 billion to acquire part of HTC's mobile unit in a move to strengthen its hardware business. With this, GOOGL will gain around 2,000 HTC employs, many of whom have played a key role in the design of GOOGL's Pixel smartphone as HTC was responsible for the manufacturing of the flagship smartphone. GOOGL will also acquire non-exclusive rights to intellectual property (IP) from HTC. We view the move as positive given that it will allow the company more control over the hardware side and better position the company to compete against competing iPhone devices. Notably, GOOGL has also limited downside exposure to the hardware side by not acquiring HTC's manufacturing facilities, a mistake the company made back in 2012 when it acquired Motorola Mobility, before ultimately selling the unit two years later for less than 25% of the purchase price. The news comes ahead of GOOGL's October 4th event, at which the company is expected announce its new Pixel 2 smartphone. We reiterate our $1,100 target and believe this week's news plays to our thesis that shares can move higher as the company further diversifies its revenue streams to include a higher mix of sales from sources other than online advertisements.

Illinois Tool Works (ITW) ; $147.41; 550; 2.94%; Sector: Industrials -- Shares pushed higher this week as the peak auto thesis has begun to die down, something discussed during the opening commentary of Monday's edition of Mad Money. With this, we believe the ITW story is becoming increasingly more attractive. Recall, ITW's car parts division was a one of the reasons the stock saw a pullback following its last earnings release. However, with the vehicle damage caused by Hurricane's Harvey and Irma, we believe the division could see a boost as consumers seek to replace their vehicles, explaining the rally we've seen in shares since the beginning of September. Crucial to our view that the destroyed vehicles will be replaced, many of the damaged autos were insured, increasing the likelihood of new car sales as the insurance checks begin to come in. Further backing this thesis, not only are auto manufacturers seeing a lift, the rail stocks have seen a resurgence as well as they generate revenues by transporting the new vehicles. Bottom line, as the auto industry sentiment turns from negative to positive, we see shares of ITW pushing higher as its automotive division (21% of 2016 revenue) bounces back. We reiterate our $170 target.

KeyCorp (KEY) ; $18.31; 2200; 1.46%; Sector: Financials -- Shares pushed higher, in line with the move seen in Treasury yields and positive commentary from Fed Chair Janet Yellen following the September FOMC meeting. We continue to be bullish on the story at KEY as the bank seeks to realize synergies from its First Niagara acquisition and continue the efforts to shift the bank's revenue stream to a more stable, fee based one. Additionally, we see further upside in the near- to- midterm resulting from Federal Reserve's plan to begin unwinding its massive balance sheet in October and the potential of a third-rate hike later this year. Speaking to the possibility of another hike, while we have been of the opinion that a third hike would not occur this year, we learned on Wednesday, following the completion of the September Fed meeting that 12 of the 16 FOMC members were in favor of another hike before the end of the year. We reiterate our $21 target and believe shares will climb as the balance sheet unwinds, helping to push longer-term rates higher and should the Fed choose to hike short-term rates again before the end of the year.

Magellan Midstream Partners (MMP) ; $70.26; 1500; 3.83%; Sector: Energy -- Shares traded lower this week, despite the recent rebound in crude prices. While this trading dynamic may seem counter-intuitive at first, it can be explained by looking at treasury yields. As treasury yields climb (resulting from the unwinding of the Fed's balance sheet) they close the gap with MMP's distribution yield. Although we view MMP's yield to be safe, as it is backed by strong free cash flow (roughly 1.2x the payout), we must realize that yields from debt securities are inherently safer. Given this fact, as debt yields rise, some investors may ultimately decide to trade in stocks (which are riskier than bonds) with higher yields, for (safer) debt securities with slightly lower, yet increasingly acceptable yields. That said, we still view MMP to be highly attractive given the safety of its distribution, continued premium to Treasury yields and potential for growth (unlike with debt securities) thanks to exposure to the strong production seen in the Permian as well as their recent additive capital expenditures by the company in the area. Recall, with 85% of the company's revenue being fee based, more volume transported results in higher revenues (revenue is simply a product of fee multiplied volume). We reiterate our $89 target and believe the recent deals made to expand its infrastructure and storage capacity will aid in further supporting free cash flows.

Nucor (NUE) ; $54.53; 2150; 4.26%; Sector: Industrials -- Shares of Nucor moved higher this week, greatly outperforming the S&P 500. The stock quickly recovered from last week's management's preannouncement of lower earnings. Nucor management offered similar guidance last quarter which caused the stock to fall, only to rebound later, and the same exact occurrence happened again. We think this is part of Nucor's overall under-promise, over-deliver type strategy. The big catalyst in the name revolves around the Trump Administration clamping down on the Chinese steel imports that have been pressuring the U.S. steel industry. On Friday, Commerce Secretary Wilbur Ross said an update into the investigation would occur after the tax bill passes. While certainly a knock to the immediate near-term probability of a steel announcement, as a silver lining, the investigation has not yet been ruled out. This would benefit Nucor as the demand for domestic steel will increase, positively affecting Nucor's top and bottom lines. Since we are still optimistic that an update on Section 232 will occur, we believe it is best to persevere through this difficult steel environment until the verdict is reached. This ruling would greatly benefit domestic steel producers like Nucor, and its potential has us patient. We reiterate our $75 price target.

NVIDIA (NVDA) ; $179; 200; 1.30%; Sector: Technology -- Shares were volatile this week with large swings in both directions. Ultimately they ended slightly down for the week, underperforming the overall market. Following a big run at the end of last week and this Monday on the back of price target upgrade from analysts at multiple firms, shares took a hit late on Wednesday. The sudden selloff was a result of reports that Tesla TSLA may be working with NVDA competitor Advance Micro Devices AMD on a custom chip for TSLA's autonomous driving system. While the reports have yet to be confirmed, we note that after such a large move, "weak hands" and shorter-term traders will look for any reason to book profits. If true, this is not the first time TSLA has had to switch chip makers, just last year, the company lost supplier Mobileye after the latter claimed there were safety concerns regarding TSLA's autopilot system. We will continue to monitor for updates, however, in our view, the news (if confirmed) does not change our long-term view of the company and note that NVDA is still a key chip supplier for numerous other vehicle OEMs working on autonomous systems, and TSLA's business only represents about 1% of NVDA's revenues. If anything, we believe the pullback has provided an opportunity for those who have yet to initiate a position, reminding members that one should never buy a full position in one fell swoop, especially on a stock as volatile as NVDA. Earlier this week, we spoke to this view, and our desire to see a pullback following the quick runup before members initiated a position in response to a Forum question here. Bottom line, the recent pullback (which has only managed to bring shares to roughly flat on the week) has in no way altered our view on the company or the stock. We reiterate our $200 target.

Schlumberger (SLB) ; $68.8; 1400; 3.50%; Sector: Energy -- Schlumberger shares continued its move higher this week, gaining more than 2%. The stock is now up over 8% since the beginning of the month as sentiment in the U.S. oil industry as well as operations in the North Sea have improved. With oil drifting back above $50 a barrel, the stock has swiftly rebounded from the year-to-date lows it hit in August. Overall, we are still long-term positive on the name due to their best-in class oil services technologies and also management's forward-thinking style. In addition, we think that the sustained high level of U.S. rig counts as well as the company's integrations and equity stakes should support their top and bottom lines. We reiterate our $93 price target.

Southwest Airlines (LUV) ; $54.93; 1200; 2.39%; Sector: Transportation -- Shares of Southwest Airlines finished the week higher. In the news this week, the stock received an analyst upgrade from Raymond James on Wednesday. In their report, the analyst said that the industry "fare war" would not have an impact on Southwest because they are less exposed to destinations compared to its competitors. This outlook is what we told members back in the end of August when airline stocks were being pressured, and since we did not believe Southwest would be affected, we took advantage of the weakness and bought more shares. In addition, the analyst believes that cost pressures should subside in 2018 due to improved fuel hedges and manageable labor costs. Members can recall that last quarter the stock sold off due to concerns of rising costs, but as we pointed out later on, we believed a large portion of the cost increases were due to transitory items like its poor fuel hedge. Compared to previous quarters that were in gains, Southwest's hedges sat in a loss during Q2 which compressed its margins. Improvement in this space combined with subsiding headwinds from the company's new reservation system (which is expected to incrementally boost revenue) should lift the stock higher in future quarters. We reiterate our $70 price target.

Starbucks (SBUX) ; $55.09; 1800; 3.60%; Sector: Consumer Discretionary -- Shares continued to grind higher this week on little news. With concerns of a toughening microenvironment mostly priced in, we continue to like SBUX as the company has resolved its in-store congestion issues, caused by the implementation its new mobile order and pay system. In addition to the mobile system implementation, we believe improvements in the company's rewards program will aid in enhancing customer loyalty as more and more individual shops pop-up and as McDonalds looks to revamp its coffee business. Lastly, we note that in addition to the recent release of the company's highly popular pumpkin spice lattes, SBUX also recently introduced new cold-pressed espresso shots, with plans for the new offering to be the base of several new menu options. We reiterate our $62 target.

TJX Companies (TJX) ; $72.48; 2000; 5.27%; Sector: Consumer Discretionary -- Shares declined this week on little company specific news, but rather industry trends. With the continued dominance of Amazon, we believe it is important to look for companies that can still compete despite the fierce price competition brought on by the online giant. It is for this reason we continue to recommend TJX. The company's off-price business model positions it perfectly in a world where consumers a becoming used to getting more bang for their buck. As we've noted previously, one of the draws of TJX stores is that while consumers, may not know exactly what they will find, they know it will be of high-quality and priced at a steep discount. It's exactly this "treasure hunt" feel that keeps buyers coming back to the brick-and-mortar locations. While we believe the low-price strategy will keep the company the company thriving in both the near- and long-term, we believe the near-term catalyst for secular growth is the newly established HomeSense brand, which was designed a compliment to the highly successful HomeGoods brand. It is important to note the fact that this is a compliment, as it indicates management's efforts to differentiate enough from HomeGoods so as not to cause cannibalization of the HomeGoods brand. We continue to view TJX attractive at current levels and reiterate our $85 target.


Apache (APA) ; $43.55; 2,250 shares; 3.56%; Sector: Energy -- Shares pushed higher as crude has managed to hold at around $50 a barrel. We recently upgraded the name from Three to Two as we believe the stock has found a base of support slightly below current levels. We chose not to upgrade the name to One as it remains a volatile holding in a vacillating sector. Our focus continues to be on the company's Alpine High location, an asset we believe is not being accounted for at current levels but that soon may begin to command attention. Speaking to the importance of this find, management has taken multiple steps to streamline the business to focus on the Permian Basin location. Recall that APA recently divested its Canadian assets and completed the first section of its 30-inch natural gas pipeline in the Permian, a large diameter that indicates the company plans to transport a significant amount of gas. We will continue to monitor for Alpine High updates and reiterate our $60 target, which we updated last week to better reflect macroeconomic volatility in the oil market.

Arconic (ARNC) ; $26.21; 2,200 shares; 2.09%; Sector: Industrials -- Shares moved more than 3% higher this week despite succumbing to a selloff on Friday. There was not any company-specific news released by Arconic this week outside of the company partly manufacturing the first 3-D printed titanium bracket for an Airbus SE commercial aircraft. News headlines in the aero industry continue to be the main influence on Arconic share price, and they will likely continue to do so as we wait for more announcements into the CEO search. Although we think interim CEO David Hess is doing a tremendous job, the lack of developments in the CEO search, plus the news that United Technologies is buying Rockwell Collins, has us suspicious of further consolidation in this industry, potentially leading to an outside ARNC bid. We first discussed this scenario during last week's members-only call as a possible cause for the silence. Either way, we are still optimistic in the name with or without this occurrence as the company performed well last quarter despite the interim leadership, and we reiterate our $31 price target.

Citigroup (C) ; $71.40; 1,250 shares; 3.24%; Sector: Financials -- Shares pushed higher on positive Fed commentary and rising Treasury yields. We continue to see upside long term as management progresses toward achieving their 2020 financial targets of $9 EPS and 11% return on tangible common equity, all while returning over $20 billion to shareholders in 2018 and 2019. Nearer term, we see upside as the company beings to realize investments in both branded cards and the acquisition of the Costco portfolio begin to payoff, something management has noted would begin to come through in the second half of 2017. With the Fed indicating plans to begin unwinding its massive balance sheet in October and maintaining the position that there is still the possibility of an additional rate hike in December, we believe the near-term story has become increasingly more attractive. That said, we are maintaining our Two rating, but we note that upside occurs any time the stock reaches the company's tangible book value. We reiterate our $74 target and believe that as Treasury yields push higher (resulting largely from the Fed's unwinding of its $4 trillion-plus balance sheet) shares will continue to push higher.

DowDuPont (DWDP) ; $69.90; 1,375 shares; 3.49%; Sector: Chemicals -- Shares ended the week roughly flat. This is a stock that continues to receive favorable analyst commentary since its merger as the stock received a Buy rating from Argus on Tuesday. The business-operations news cycle was light this week, but on Thursday the company said it had started up its Texas ethylene production facility, which will be part of the upcoming materials science business. Dow CEO Andrew Liveris called it "a monumental moment for Dow as we advance our global growth strategy by fully deploying our unmatched molecular and physical integration." With lofty synergy goals set for the company, we believe the strong combination of DWDP management including Liveris and breakup artist Ed Breen, and activist investors, such as Trian, Glenview, Jana Partners and Third Point, will help unlock the greatest amount of shareholder value possible. The collaboration is already off to a fantastic start, as supported by DWDP's asset allocation announcement from a few weeks back, and we think DWDP will reach its targets in unlocking shareholder value. We reiterate our $85 price target. 

General Electric (GE) ; $24.87; 2,450; 2.21%; Sector: Industrials -- Shares recovered some losses this week, moving about 4% higher. In the news, on Wednesday Charles Gasparino of Fox Business News tweeted that GE is near its decision on awarding a board seat to Nelson Peltz's Trian Partners. If GE does so, the seat would likely be filled by Trian CIO Ed Garden, according to Gasparino. We think this move would benefit GE shareholders as the activist influence will ensure that GE's new management regime makes enough appropriate steps to put the company back on the right track. Speaking of the management team, as part of new CEO John Flannery's efforts to cut unnecessary costs, GE announced it is shutting down its corporate jet fleet. We view this move as very appropriate (and perhaps overdue), and this is just one of many incremental steps Flannery is taking to lower expenses. What has made GE shares attractive during their downturn has been a high-yielding dividend, and its safety is of utmost importance to shareholders. Maintaining the dividend is a firm priority for the company, and it appears safe unless otherwise indicated. Looking ahead, we anticipate we will learn more about Flannery's plans for the company when he holds a "state of the union"-type address later this year. Until then, we will use the upcoming quarter as a gauge of what measures the company is undergoing to fix their trajectory. While we understand that this plan may take some time, we point out that as long as the dividend is safe, the steady income plus gradual appreciation will represent a significant return. We reiterate our $31 price target.

NXP Semiconductors (NXPI) ; $112.64; 550 shares; 2.25%; Sector: Technology -- Shares continue to hover above $110, reflecting investor sentiment that the current Qualcomm tender offer ($110 a share) undervalues the company. On Friday, QCOM announced it had again extended the deadline for the tender offer, as the number of tendered shares is nowhere near the 80% needed to complete the deal. As we have continually told members, we will not be tendering our shares in this deal, noting that it makes more sense (in our view) for QCOM to raise its offer rather than walk away and lose out on both synergies and increased exposure to the increasingly high-tech auto market. Also, given that shares trade at a premium to the offer, tendering does not make sense financially as it would be more beneficial to simply sell in the open market. That said, we continue to reiterate our $110 target as shares will not be able to significantly break out until we receive an update from either QCOM or NXPI.

PepsiCo (PEP) ; $111.85; 600 shares; 2.44%; Sector: Consumer Staples -- Shares continued their move lower this week despite a report late last Friday from analysts at Macquarie who initiated the name with an Outperform rating. Attributing to this week's down move, Nielsen Media Research released data early in the week indicating a continued decline in beverage purchases. Although this is something to be monitored, the decline is not unexpected. We also remind members that a key part of our PEP thesis revolves around the company's efforts to diversify its portfolio not only to include healthier drink options, but also to include a higher mix of snack-related offerings via the company's growing Frito-Lay division. Despite the decreasing beverage demand, we remain confident that management can achieve its 3% organic sales growth target as they are known for being conservative when giving guidance. Given our decent weighting in the name and low basis, we are remaining patient before rebuilding our position; however, we believe shares are becoming increasingly more attractive for those with no exposure looking to add a consistent and stable consumer-staple brand to their portfolio as the stock has pulled back roughly 6% off all-time highs reached in the middle of August. We reiterate our $120 target.


Newell Brands (NWL) ; $41.38; 600 shares; 0.90%; Sector: Consumer Discretionary -- Shares continued their decline this week as pressures in the retail space sent the stock lower. Wednesday's announcement that Toys R Us filed for Chapter 11 bankruptcy protection has the potential to weaken upcoming earnings by the company. In a report by JPMorgan, the firm said Toys R Us represents one of NWL's top 10 clients, and they expect this announcement to weigh on NWL's earnings. Members can recall that NWL has already guided down earnings for this quarter due to Hurricane Harvey shutting down its resin supplier's operations and thus compressing margins, and this new announcement has JPMorgan believing NWL will miss on the 2.5% to 4% cores sales growth target the company recently reiterated. Although we maintain our Three rating, we have not seen the strength we need yet to sell out of the stock. In addition, with the stock now this cheap compared to others in the industry, its current value creates a compelling case to add more shares despite the potential misstep caused by Toys R Us. Until we see either the strength we need to sell or the weakness we need to buy, we will remain holders in our position. Because of this, we cannot reiterate a specific sell price just yet, but again, we may be inclined to purchase shares should they dip further to our earnings multiple target.

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At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long ABT, ATVI, AAPL, AGN, APA, AVGO, XEC, CMCSA, DHR, DXC, FB, FDC, GE, GOOGL, LUV, KEY, MMP, NUE, NWL, NVDA, ARNC, C, DWDP, PEP, NXPI, SBUX, TJX, EZU, ITW, and LLY.

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Chart of I:DJI
DOW 22,349.59 -9.64 -0.04%
S&P 500 2,502.22 +1.62 0.06%
NASDAQ 6,426.9220 +4.2290 0.07%

Action Alerts PLUS Holdings

Holdings 1

Stocks we would buy right now

Symbol % Portfolio
AAPL 0.038583546523912146 Consumer Durables
ABT 0.009527675234759305 Health Services
ATVI 0.032464133555572934 Computer Software & Services
AVGO 0.02170444699260918 Electronics
CMCSA 0.027652213021849517 Media
DHR 0.03621532681025612 Health Services
DXC 0.03103071831362667 Computer Software & Services
EZU 0.01567503072806811
FB 0.061887249458611765 Internet
GOOGL 0.05134493396651531 Internet
LLY 0.044152636906324406 Drugs
MMP 0.03825041356388515 Energy
NVDA 0.012991459661183893 Electronics
SLB 0.03495355850740873 Energy
XEC 0.03620371433234668 Energy
Holdings 2

Stocks we would buy on a pullback

Symbol % Portfolio
APA 0.035575007520531006 Energy
ARNC 0.020924959412938145 Industrial
C 0.03238792666929225 Banking
DWDP 0.03490819726557499 Chemicals
GE 0.02211142805434152 Industrial
NXPI 0.022481757232672196 Electronics
PEP 0.024353543515699752 Food & Beverage
Holdings 3

Stocks we would sell on strength

Symbol % Portfolio
NWL 0.009012008637593319 Consumer Durables