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Jim Cramer's Action Alerts PLUS

Weekly Roundup

By Jim Cramer and Jack Mohr | 08/26/16 - 06:29 PM EDT

The major indices hovered around even for the majority of the week as investors awaited Fed Chair Janet Yellen's speech at Jackson Hole on Friday. Although many expected a relatively quiet late-August trading week, a controversy in the biotech sector following Mylan's (MYL) decision to hike the price of its EpiPen allergy treatment generated renewed drug-pricing concerns and sent stocks tumbling across the health care sector, contributing to declines in the Nasdaq. A drop in oil at the beginning of the week also contributed to declines, while some better-than-expected earnings results and a strong new-home sales report helped offset any pressure downward. In the end, the S&P 500 ended slightly lower than where it started the week as the market reversed an initial pop on Friday in tandem with a streaking dollar. Moving forward, it seems clear that investors remain concentrated on the Federal Reserve’s upcoming policy meeting at the end of September, when we could see the next rate hike.

For the week, Treasury yields moved lower despite an initial jump on Friday following Yellen's relatively hawkish remarks. The dollar was volatile and ended roughly even vs. the euro after exhibiting strength on Friday. Gold traded evenly at the beginning of the week before a decline on Wednesday and Thursday that was ultimately offset by Friday's strength. Lastly, crude oil trended lower for most of the week, but recovered slightly as we headed into the weekend.

Second-quarter equivalent earnings have been relatively mixed, but somewhat positive compared with expectations, as 72.3% of companies have surprised to the upside vs. estimates. We didn't have any companies within the portfolio report earnings.

Moving onto the economic information from the week, the Commerce Department reported on Tuesday that purchases of new homes surged 12.4% in July to a seasonally adjusted rate of 654,000, marking the highest levels since October 2007. Importantly, it was the fifth straight month of new-home sales strength, contradicting expectations for a slowdown to a pace of 580,000 units. Although new single-family home sales only comprise roughly 10% of the housing market, the report is still a solid indicator of momentum in the space. Year to date, the figure is also up 12.4% compared to the same period last year. Compared with July 2015, new-home sales were up an even stronger 31.3%. Sales were strongest in the Northeast (+40%) and the South (+18.1%), which accounts for more than half the overall figure.

The key worry in the housing market continues to be the issue of supply and demand, where inventory (in general across the country; there are some pockets of oversupply) cannot seem to keep up with the pace of buyers, causing prices to skyrocket. Tuesday's report showed there was a 4.3-month supply of newly built homes available at the end of July. That was the smallest supply in three years. On the flip side, however, housing market strength has boosted household wealth and has helped to ignite consumer spending, partially offsetting downturns in business spending.

On that point, the National Association of Realtors reported on Wednesday that existing-home sales stumbled lower by 3.2% in July, notching the first decrease since February, to a pace of 5.39 million, lower than expectations for a rate of 5.52 million. Over the past year, sales were down a total of 1.6%. The main culprit of the decline? Rising prices.

The report showed it would take 4.7 months to exhaust the supply of existing homes. Total housing inventory at the end of July decreased 5.8% from a year earlier to 2.13 million. Supply has now fallen on a yearly basis for 14 straight months, all leading toward a 5.3% increase in median home prices above July of last year.

Overall, while the tightening of inventory and subsequent price movements are important to follow, the housing market is still considered strong, as it rises to pre-recession levels, given the backdrop of a healthy labor market and historically low mortgage rate environment. Month to month, the figures can be volatile, but the general trend remains positive.

On Thursday, the Department of Labor reported that initial jobless claims for the week ending Aug. 20 were 261,000, which was 1,000 claims lower than last week's figure and 4,000 claims lower than expectations. Importantly, this marked the third straight decline of weekly claims, providing an optimistic indicator for the August jobs report. Claims have remained below 300,000 -- the threshold typically used to categorize a healthy jobs market -- for an astounding 77 straight weeks, which remains the longest streak since the early 1970s. The four-week moving average for claims (used as a gauge to offset volatility in the weekly numbers) fell 1,250 claims to 264,000.

Strong labor numbers like these are why many Fed members are pushing for a rate hike sooner rather than later, but we have learned that the ultimate decision goes through Yellen. After two straight months of robust hiring (June and July), investors eagerly await the August report (next week) for another indicator that could sway the ultimate rate hike decision. Speculators are abundant, but we must remember that the Fed takes every data point into consideration and has recently begun to vocally recognize international/global factors. We will continue to follow the important inputs and Fed commentary.

On that point, on Friday Yellen spoke in Jackson Hole, Wyo., at the annual meeting for world central bankers. From a high level, Yellen signaled growing conviction in the case for a rate hike in the short term, possibly the weeks or months ahead. Underpinning her optimism is the strength in the labor market, so next week's jobs report, as we mentioned, will be of utmost importance. The comments helped fuel the market for a rebound on the open on Friday after some volatility in the biotech sector had pressured markets in the middle of the week. As has been customary in Yellen's recent remarks, however, she also left the ability to pull back her conviction should economic data disappoint in upcoming weeks. The Fed is continuing to be data dependent.

Over the longer term, Yellen noted, "the [Fed] expects moderate growth in real gross domestic product, additional strengthening in the labor market, and inflation rising to 2% over the next few years. … Based on this economic outlook, the [Fed] continues to anticipate gradual increases in the federal funds rate will be appropriate over time." Not unexpected for the Fed's comments to be somewhat vague in terms of a specific outlook given the recent volatility in economic data and global economic strength. As opposed to providing specific rate hike estimates, Yellen instead highlighted the range of possibilities for rates in the years ahead: 70% probability that benchmark rates could be between zero and 3.25% at the end of 2017 and between zero and 4.25% at the end of 2018. All in, the still-vague commentary indicates the uncertain rate environment we are likely to be in over the coming months, although recent economic strength has raised the case for another incremental hike by year- end.

On the commodity front, following a couple of weeks of rumor-infused rallies in crude oil, the commodity pulled back the majority of this week as chatter regarding the meeting in Algeria next month (read our two prior weekly roundups for more details) began to dissipate. While hope still lingers for a product agreement, many of the shorts have been washed out at this point (over fear of the potential agreement), freeing the path for a move lower in the absence of any full-fledged optimism.

To kick off the week, oil prices slipped on Monday as investors focused on the continuous increases in domestic rig counts over the last couple of weeks and became wary of the quick spike out of bear territory. Adding to the downward pressure, analysts at Goldman Sachs, who have become revered as the authority on oil during the recent downturn, issued a report on Tuesday noting that, production freeze or not, oil is still in for a rocky road. Importantly, they warned that many troubled oil- producing nations prepare to ramp up production and pave the way for hundreds of thousands of barrels to be released into an already oversupplied market. These countries include Libya, Iraq and Nigeria, which have all experienced recent supply disruptions but are beginning to bring production back online. These are in addition to Iran, who has accelerated its efforts ever since its economic sanctions were removed. Goldman doesn't believe a significant slump in the dollar would be sufficient to support continued moves higher in crude oil prices, either.

The news only got more bearish for oil on Wednesday, as the Energy Information Agency's (EIA) weekly inventory report showed a crude stockpile jump of 2.5 million barrels, reversing the prior week's decline, and exceeding expectations that called for a slight decline. Inventories of crude oil and petroleum products are at record highs. Although gasoline inventories were roughly flat, expectations had called for a 1.7 million barrel draw for the week, so the miss added pressure to the trade. Also contributing to the skeptical outlook are the floods in Louisiana, which could impact refinery utilization in the short term.

Even so, oil showed some signs of strength as we moved toward the end of the week when supply figures out of Iran indicated that the country has yet to reach the 4 million barrel per day target level of production that would bring it past pre- sanction levels. The International Energy Agency says Iran's crude production actually fell in July, to 3.6 million barrels a day. Traders took this as an optimistic sign given that Iran's crude oil exports had virtually doubled between January and May. Iran also appears willing to cooperate at next month's meeting in Algeria.

All in, the trade continues to seem range-bound between $45 and $50 a barrel as investors await the gathering in Algeria. Intermittent inventory reports have not been bullish, but the potential for a production freeze has been enough to support prices somewhat for now. The extent of the chatter will likely be the driving force in the near term, with inventory reports acting as a reminder of the state of the supply/demand dynamic.

Within the portfolio this week, we initiated a position in Bristol-Myers, added to our TJ Maxx and Alcoa positions, and exited our Kraft Heinz position.

On Bristol-Myers (BMY:NYSE), we took advantage of the recent selloff in the name following its disappointing Opdivo trial results for non-single small cell cancer in order to buy in at discounted levels. While we recognize that Opdivo will not be ready as early as previously expected or in its original form, we also believe the market for the drug will likely present BMY the opportunity to create combination therapies, allowing it to capture incremental upside from recent sell-side estimates, opening the door for unrecognized upside.

As for TJ Maxx (TJX:NYSE), a decline in the name on Tuesday afforded us the opportunity to add to our position right around our cost basis. While the name could be range-bound until its next quarterly report, we believe the recent selloff in the name was unwarranted and its recent quarterly report was misunderstood by investors. Regardless, we view TJX as a long-term play given its ability to compete via its high-quality, low-price offerings in a retail world being overrun by Amazon.

In similar fashion to our other purchases this week, we also added to Alcoa (AA:NYSE) following a +4% move to the downside on Wednesday. We lowered our cost basis in the name as we look to build up the position ahead of the eventual separation into one upstream business and one value-add business, which we believe is being undervalued by the market.

Lastly, we exited our Kraft Heinz (KHC:Nasdaq) position as shared crossed the $90 threshold. We believe in the company and its transformation, but also recognize that management will likely have to continue its streak of overachieving on synergy targets (which we view as a tall task) in order to maintain these levels. We wanted to be sure to lock in the tangible profits. That being said, we could be interested in buying back in on any meaningful pullback.

Moving onto the broader market, second-quarter earnings have been disappointing but better than expected, proving to be largely positive thus far compared to estimates. Total second-quarter earnings growth is down 2.6%; of the 391 non-financials that reported, earnings growth is down 1.5% vs. expectations for an overall 2.2% decrease throughout the season. Revenues have decreased 0.2% vs. expectations throughout the season for a 0.04% increase; 72.3% of companies have beaten EPS expectations, 17.1% have missed the mark and 10.6% have been in line with consensus. On a year-over-year comparison basis, 62.3% have beaten the prior year's EPS results, 34% have come up short and 3.7% have come in virtually in line. Health care, information tech and consumer staples have had the strongest performance thus far vs. estimates, whereas materials and utilities have posted the worst results in the S&P 500.

Next week, five companies in the S&P 500 are set to report earnings. The portfolio will not have any companies reporting earnings. Key reports for the broader market include: Abercrombie & Fitch (ANF), DSW (DSW), G-III Apparel (GIII), H&R Block (HRB), Palo Alto Networks (PANW), Brown Forman (BF.B), Box (BOX), Five Below (FIVE), Infoblox (BLOX), Ollie's Bargain Outlet (OLLI), Salesforce (CRM), Campbell Soup (CPB), Ciena (CIEN), Joy Global (JOY), Lululemon (LULU), Vera Bradley (VRA), Broadcom (AVGO), Ambarella (AMBA), Smith & Wesson (SWHC) and VeriFone (PAY).

Economic Data (*all times ET)


Monday (8/29)

Personal Income (8:30): 0.4% expected

Personal Spending (8:30): 0.3% expected

Dallas Fed Manufacturing Activity (10:30): -3.0 expected

Tuesday (8/30)

Consumer Confidence Index (10:00): 96.3 expected

Wednesday (8/31)

MBA Mortgage Applications (7:00):

ADP Employment Change (8:15): 168k expected

Chicago Purchasing Manager (9:45): 54.3 expected

Pending Home Sales MoM (10:00): 0.8% expected

Thursday (9/1)

Initial Jobless Claims (8:30):

Continuing Claims (8:30):

Bloomberg Consumer Comfort (9:45):

Markit US Manufacturing PMI (9:45):

Construction Spending MoM (10:00): 0.5% expected

ISM Manufacturing (10:00): 52.1 expected

ISM Prices Paid (10:00): 54.5 expected

Friday (9/2)

Trade Balance (8:30): -$43.0b expected

Change in Nonfarm Payrolls (8:30): 175k expected

Change in Manufacturing Payrolls (8:30): -5k expected

Unemployment Rate (8:30): 4.8% expected

Factory Orders (10:00): 1.6% expected

Durable Goods Orders (10:00):

Durables Ex Transportation (10:00):


Monday (8/29)

Japan Jobless Rate (19:30):

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

Japan Retail Trade YoY (19:50):

Japan Retail Sales MoM (19:50):

Tuesday (8/30)

UK Mortgage Approvals (4:30):

Eurozone 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 Industrial Production MoM (19:50):

Japan Industrial Production YoY (19:50):

Wednesday (8/31)

Japan Housing Starts YoY (1:00):

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

Germany Unemployment Rate SA (3:55):

Eurozone Unemployment Rate (5:00):

Eurozone CPI Estimate YoY (5:00):

Eurozone CPI Core YoY (5:00):

Japan Capital Spending YoY (19:50):

China Manufacturing PMI (21:00): 50.0 expected

China Non-manufacturing PMI (21:00):

China Caixin PMI Manufacturing (21:45): 50.3 expected

Japan Nikkei PMI Manufacturing (22:00):

Thursday (9/1)

Japan Vehicle Sales YoY (1:00):

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

Eurozone Markit Manufacturing PMI (4:00):

UK Markit PMI Manufacturing SA (4:30):

Japan Monetary Base YoY (19:50):

Friday (9/2)

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

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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.


Alcoa (AA:NYSE; $10.00; 1,500 shares; 0.59%; Sector: Metals & Mining): Shares traded lower this week and aluminum prices remained volatile. That being said, we took advantage of a steep decline on Wednesday to add to our position below our cost basis. Moving forward, we believe the near-term direction of aluminum prices is becoming increasingly less relevant to the valuation, in light of the company's announced split into core Alcoa (commodity play) and Arconic, which sells to diversified end markets and customers. Arconic is made up of higher-margin materials and precision aluminum parts used by everyone from aerospace to beverage makers. Importantly, we like Alcoa's management, believe this value-add play has been discounted by the market as it is lumped in with the commodity-based Alcoa, and we expect a higher valuation for Arconic as a stand-alone entity. We remind members that Alcoa is a true value name, and only suitable for investors with a higher risk tolerance and longer time horizon (i.e., we expect volatility in the near term, given the frequent movements in aluminum prices and arbitrageurs and traders attempting to play the separation). We reiterate our $12 target.

Apple (AAPL:Nasdaq; $106.94; 820 shares; 3.47%; Sector: Technology): Shares underperformed the market as the stock pulls back in advance of the iPhone 7 launch following its roughly 12% move over the last month. Earlier in the week, Fast Company reported that Apple made an intriguing acquisition in the health care space earlier in the year. Glimpse is a Silicon Valley-based personal health data startup that concentrates its technological expertise and capabilities on allowing American consumers to collect, personalize and share health information. The company was born out of a simple idea: Health care consumers need access to the myriad health records housed at one's various hospitals, doctor's offices, labs, etc., but are unable to easily obtain this information due to incompatible file formats and inconsistent records across thousands of different reporting and record-keeping systems. Glimpse worked to provide an all-in-one solution to this issue. While it is uncertain exactly how Glimpse will fit into Apple's service offerings, or even how the final product will look once it is integrated, it is clear that Apple is making a play, no matter how slow and calculated it may be, to capture a massive unmet need in the health care space. In an interview with Fast Company released earlier this month, Apple CEO Tim Cook noted, "When you look at most of the [health care] solutions, whether it's devices or things coming up out of Big Pharma, first and foremost, they are done to get the reimbursement [fees from an insurance provider], not thinking about what helps the patient." That last part is the money-maker. Apple has always focused on the consumer first, aiming to perfect the user experience, from its constantly evolving operating system to its wide product offerings, and has excelled at doing so. The company has thrived over the years by developing an unparalleled ability to integrate the most important of any up-and- coming technologies into products that meet the needs of the widest array of consumers. All in, health care is only a part, albeit an exciting one, of the bigger opportunity for Apple that is the growing Services business. While investors continue to focus on the iPhone as Apple's supposed "one-trick pony," we believe the company has much more up its sleeve over the long term than others truly understand. That being said, we would not be surprised to see Apple shares be pressured in the near term given a potential tax dispute with the European Commission ( read our detailed Alert). We reiterate our view to own and not trade Apple, but for those who have not yet initiated a position, the next couple of weeks could provide an enticing opportunity to buy into the company. We reiterate our long-term $130 price target.

Allergan (AGN:NYSE; $237.93; 500 shares; 4.71%; Sector: Health Care): Shares traded lower this week as a convergence of factors impacted the stock. First off, backlash from Washington regarding Mylan's price hike on the EpiPen sent renewed concerns regarding drug pricing across the health care space that drove biotechs lower for the week. As we have mentioned, however, Allergan is not in the business of egregious price increases and CEO Brent Saunders has been publicly adamant about this and against those who lump Allergan in with the potential offenders. Any notable price increases of Allergan drugs are tied directly to demand and R&D investments in areas of unmet need. That being said, each company within the biotech sector is very much intertwined with one another due to the ETFs that track a basket of the stocks. Secondly, relating back to our discussion on the European Commission's effort to recoup taxes from Apple, Allergan could be one of the additional companies Treasury Secretary Jack Lew referred to that could be potentially impacted by any precedent- setting European Commission ruling against Apple. This is because of Allergan's Irish domicile and well-publicized low tax rate (which has been criticized by Lew himself). We remain confident in Allergan's long-term potential as the company offers a best- in-class branded growth profile (boasting nearly 10% and 15% annualized EPS growth), with significant upside potential to earnings over time, as operational leverage, capital deployment and upward re-rating become commensurate with the top-tier growth profile it possesses, which is among the best in major pharma. We view Allergan as a buy, at current levels, for anyone with a minimum eight- to- 12-month investment horizon, given the understanding that there will be volatility in the name due to issues across the sector and as a new investor base enters the name. Ultimately, it will take time for the company to grow into its full and fair valuation: $270 a share in the medium term (or 16x next year's conservative earnings estimate of $17.10 a share) and $325 a share over a 12- to 16-month horizon (based on 15x our 2018 EPS estimate of $21 a share). Regardless, you can be assured that Allergan will be buying back shares alongside you with its recent influx of cash following its generics divestiture to Teva (TEVA).

Bristol-Meyers (BMY:NYSE; $58.77; 250 shares; 0.58%; Sector: Healthcare): We initiated a position in BMY this week after further analysis on the company. We believe the selloff following the disappointing Opdivo trial results have provided a unique opportunity to enter this name at a depressed valuation. Ultimately, we believe the investment has created a compelling risk/reward setup at current levels (below $60). This is ultimately a contrarian investment. With the company expected to grow sales, EBITDA and EPS at a 10%/18%/20% annualized clip through 2020 (even after accounting for estimate cuts), we view its 19x forward EPS multiple as compelling. Our $70 long-term price target reflects 23x next year's earnings estimates and 20x blended 2018-19 EPS. The stock's 2.6% dividend yield is a sweetener and could provide some level of downside support. The yield is supported by a rock-solid, cash-heavy balance sheet that it can reinvest into research and development. As we mentioned last week when initiating a position in TJ Maxx (TJX:NYSE), we have been carefully investigating opportunities for where we can deploy our large cash balance, evaluating potential leads behind the scenes as we attempt to reconcile discipline with selective value opportunities. While it may take some time for investors to "forgive" Bristol-Myers, we do see relative opportunity for those willing to take a 12- to 18-month minimum investment horizon.

Cisco Systems (CSCO:Nasdaq; $31.35; 3,900 shares; 4.84%; Sector: Technology): Shares traded higher this week. We view Cisco as one of the most compelling long-term large-cap value investments as the company has been extremely disciplined in its investments and capital distribution, cutting investments in lower-margin, low-growth legacy hardware businesses and reinvesting those savings toward the higher-margin, higher-growth and highly predictable software-based businesses such as cloud, collaboration and most importantly security. Cisco's proactive approach toward shifting its legacy business model away from what defined the company for much of its existence -- serving as the juggernaut in enterprise networking -- is hardly easy, yet strategically crucial. The shift took place two years ago and has been accelerating since, as more customers (Cisco's customer base contributes $180 billion in sales) adopt the transition and Cisco grows its enterprise leadership. We expect to see more enhancements, advancements and innovation on top of Cisco's existing cloud foundation as it serves as a major growth lever going forward. We reiterate our $35 price target.

Citigroup (C:NYSE; $47.11; 2,250 shares; 4.20%; Sector: Financials): Shares rose this week on little company-specific news, getting a lift on Friday after Fed Chair Janet Yellen put a September rate hike on the table (Citi benefits from higher rates, which help lift its profitability by widening the spread between the amount it charges for issuing loans and the amount it pays in the form of savings rates). That being said, Citi is not a play on rates -- in fact, it's interest rate sensitivity, while meaningful, is relatively lower compared to its banking peers. Given the unpredictable nature of interest rates, we do appreciate that value can be created through high return on capital, tactical capital distribution, lack of regulatory overhang and continued operational excellence. We view shares as patently overvalued and reiterate our $55 long-term price target.

Dow Chemical (DOW:NYSE; $53.63; 1,475 shares; 3.13%; Sector: Chemicals): Shares traded slightly higher on little news. We look ahead to a decision on the merger with DuPont (DD) and believe the company deserves to be trading higher than current levels given its improving fundamentals. Following the deal with DD, we expect the combined company to achieve substantial synergies and drive further shareholder value upon the subsequent split into three separate companies with distinctive, focused end markets. We reiterate our $60 target.

General Electric (GE:NYSE; $31.23; 2,350; 2.91%; Sector: Industrials): Shares traded flat this week on little news. We believe it will take time for traditional multi-industrial investors to appreciate the power of the company's strategic transformation. This involves a laser focus on ushering in a new era of industrial productivity driven not by traditional supply-chain optimization processes but through building a cloud-based ecosystem of data analytics, software and device control apps that connect industrial equipment to cutting-edge Internet of Things technology. GE can draw upon its massive, diversified end-market base, extracting valuable insights that can make the businesses it serves more efficient. While it is clear GE's strategic shift has the potential to be radically transformative, the initiative remains in the early innings, set to significantly accelerate in 2017 and beyond. Since software and data analytics are not in the wheelhouse of most traditional industrial investors' expertise, limited ability to analyze and quantify GE Digital's potential has a notable impact on GE's shareholder base: The fading interest from stalwart institutional industrial portfolio managers (which prefer to adopt a "wait and see stance") has carved out room for long-term investors such as ourselves who are essentially investing in the company's future, which involves more than a "hope trade" around GE Digital. An outsized buyback, continued cost-out and potential balance sheet usage/M&A in 2016 are among the major drivers for further re- rating, while the combination of GE Capital asset sales, an improving margin structure, accretion from the acquisition of French turbine maker Alstom, potential M&A and a higher-than-peer dividend yield continue to make GE one of the most compelling industrial stories long term. We reiterate our $35 long-term price target.

Facebook (FB:Nasdaq; $124.96; 1,000 shares; 4.95%; Sector: Technology): Shares outperformed the broader market this week on little news. We took a look back at the Olympics this week to further cement our confidence in Facebook moving forward. Facebook achieved a new record of views and clicks for its own coverage of the Rio Olympics 2016. The platform saw more than 1.5 billion interactions -- including "likes," posts, comments and shares -- related to the Olympics throughout the Games. In a 2½-week period, 277 million people globally were using Facebook to discuss the Games. That means those users, on average, interacted with Olympics-related stories at least five times throughout that time period. Let's not forget Instagram, which reported that 131 million people had 916 million interactions related to the Olympics. These incredible numbers exemplify the explosive growth that Facebook has experienced even since the last Olympics in 2012, growing to more than 1.7 billion users on its core platform, along with 500 million for Instagram and more than 1 billion for Messenger. Perhaps more important is the evolution of the user experience on the platform over the years that has encouraged more people to join and interact on Facebook. Changes have included live video, expanded reactions, a more nimble news feed and the buildout of stand-alone Messenger. But during the Olympics, video shined brightest. Facebook, not any television network, owned the exclusive rights to swimmer Michael Phelps' retirement announcement, which he filmed live for his Facebook followers on his page. Phelps' video has generated more than 3.97 million views. Although this is all very qualitative, we wanted to provide subscribers with a view of how we make sense of an important event such as the Olympics, and how we learn with an investment perspective in mind. We think the Games truly gave a peek into the captivating capabilities of Facebook, and to a broader extent, the ongoing evolution of the media landscape, with Facebook emerging as a dominant force. We can be assured that Facebook's ability to engage users does not go unnoticed by its true customers, the advertisers. We reiterate our $160 long-term target.

Alphabet (GOOGL:Nasdaq; $793.22; 150 shares; 4.71%; Sector: Technology): Shares traded sideways this week. Although potential European overseas tax rulings have weighed on all global conglomerates holding substantial cash overseas, we think it is important to take a step back and remind investors about the company's outstanding quarter last month. It all comes down to, for better or for worse, cash. Within the quarter, core cash flow rose to nearly $7 billion, up from $4.5 billion in the second quarter of 2015, highlighting the company's incredible optionality and operating leverage embedded within its business model, not to mention the cost discipline CFO Ruth Porat has instilled since joining the company. On that note, capital expenditures of $2.12 billion came in well below expectations and were down from last year's $2.52 billion in 2Q. The top line is well positioned, too: Google's core revenues of $21.32 billion grew 21% year over year. Google website gross revenue of $15.4 billion accelerated to 24% growth year over year, exceeding consensus of $14.8 billion. Total Google gross advertising revenue of $19.14 billion (up 19% year over year) was also impressive, accelerating sequentially from up 16% year over year in 1Q 2016. Core Google's other segment rose 33% to $2.2 billion, potentially indicating meaningful growth in the cloud. Google ad revenue rose 19% to $19.1 billion, better than 1Q's 16%. While the Other Bets segment, which includes Google's moonshot investments like Google Fiber, incurred a loss in the quarter, this was widely expected and further highlights the savvy move by management to break apart its segments to emphasize core Google's profitability. Other Bets revenues did grow 150% year over year. We continue to appreciate Google's drive for innovation and we reiterate our $900 long-term price target.

NXP Semiconductors (NXPI:Nasdaq; $88.49; 1,000 shares; 3.50%; Sector: Information Technology): Shares traded higher this week on little news. Although many are quick to speculate whether or not the company's dominance across the auto chip market is legitimate -- making Infineon and Nvidia out to be true competitors -- the reality is that when it comes to increased chip content in cars, and more importantly the secular tailwinds driving the shift toward autonomous vehicles (not driverless), the competition is not a zero-sum game but one in which multiple players can compete in different areas. Nvidia, for instance, provides an advanced learning capability that could be an essential component for the future but would be layered on top of NXP's existing embedded leadership within the top manufacturers (by means of OEMs), a position it has secured, pun intended. NXP picks its spots -- focusing only on areas where it is not only the leader but can grow its relative market share at a 50% faster rate than the next-largest competitor at historical margins (the highest across the industry), and retreating from areas where price competition emerges. Its bets on mobile connectivity and security contributed to its tremendous growth trajectory as its chip dominated the payments market. We reiterate our $110 target.

Panera Bread (PNRA:Nasdaq; $217.44; 500 shares; 4.31%; Sector: Consumer Discretionary): Shares outperformed the market this week as investors continue to appreciate the company's unique value proposition in a crowded, fragmented space. In terms of the overall industry, it is not as if the consumer isn't strong -- lower energy costs, resilient employment and pent-up demand have led to increased consumer confidence and better-than-expected consumer spending -- but we are simply choosing the offerings that jibe most with our interests. Panera is a clear winner here. Panera has ushered in the digital age with its 2.0 initiative, which, as we have mentioned, involves a broad-based store revamp that implements high-tech into the customer experience and ordering process (including the integration of mobile and tablet ordering systems). The effort has in turn proven capable of driving increased traffic, higher average price (or spend per transaction) and enhanced operational efficiencies. Panera's growth trajectory defies the deceleration seen across many restaurant chains, which in recent months have struggled to elicit consumer demand. Recent checks indicate that PNRA has significant appeal and over-indexes with millennials, providing a long tail for the stock's push higher. In addition, PNRA's core customer appears to have a generally higher income compared to its competitors' base, helping to instill confidence in the consistency of the business even in times of economic uncertainty. Separately, while Panera 2.0 is certainly the near-term driver for same-store sales, we see several other catalysts -- including delivery, catering, menu innovation and continued technology enhancements -- that will help sustain momentum over the longer term. Panera has made a calculated push into clean and healthy food, revamping its menu and marketing campaigns and contributing to the chain's popularity with millennials. It is clear that competitors are lagging. Catering also seems to have reached an inflection point, with 2Q showing the strongest quarterly growth in the last three years. Overall, in a fragmented restaurant space, we are confident Panera will continue to be a winner. Management has gotten ahead of the important consumer trends and are now executing on their well-calculated plans. We are excited for what's to come. We reiterate our $235 target.

Starbucks (SBUX:Nasdaq; $57.29; 1,500 shares; 3.40%; Sector: Consumer Discretionary): Shares finally showed some signs of breaking out this week as the stock significantly outperformed the market. The jump was largely due to some bullish analyst commentary following meetings with management. Importantly, management seems confident that the company is getting back on track toward 5% same-store-sales growth within its Americas segment. Management admitted mistakes after running a Frappuccino happy hour concurrent with the shift in the My Starbucks Rewards structure in 3Q, but believes the company has made the right moves to offset these issues moving forward. Importantly, Starbucks remains confident in digital, food attachment and beverage innovation strategies that drove 25 consecutive quarters of 5%+ Americas comps prior to June. Breaking down the expected 5% comps in America moving forward, management noted it will include 1% from beverage innovation, 1%-2% food contribution and 1% from Teavana. Ultimately, this implies 1%-2% traffic, which is boosted as more members join the new rewards program and begin mobile ordering, all of which contribute to 3x spend and traffic vs non-members. We reiterate our $65 target.

Schlumberger (SLB:NYSE; $80.90; 1,000 shares; 3.20%; Sector: Energy): Shares pulled back this week after a recent rally higher along with oil prices. SLB remains the leader in the oilfield services space and, most importantly, has the technology infrastructure built to maintain its position moving forward. As a result, management has the ability to command premium pricing for its services from customers. On this point, although management has downplayed a pricing recovery in the near term, recent meetings with analysts have illustrated that they are signaling to customers that pricing is coming down the pipe as they are no longer solely focused on market share gains. Internationally, the company doesn't expect any material improvement until further into next year. Moving forward, we continue to expect the company to benefit from synergies with Cameron (CAM) and from the merger-related turmoil at Halliburton (HAL) and Baker Hughes (BHI). That being said, trading in the name will likely remain range-bound until oil prices reach a state of more consistent stability. We reiterate our $85 price target.

TJ Maxx (TJX:NYSE; $78.69; 800 shares; 2.49%; Sector: Consumer Discretionary): Shares traded slightly lower this week on little news. We took the opportunity to add to our position at these discounted levels and believe that investors continue to misunderstand the company's ability to win in retail. We believe the market is discounting management's ability to beat their historically conservative guidance, creating uncertainty in the near term. As we have said, however, TJX has a history of under-promising and over-delivering, which is also favorable compared to the opposite, and we are willing to wait out the choppiness in the short term for the longer-term upside opportunity, which is driven by TJX's unique ability to drive traffic through its stores despite the current "Amazon-ian" marketplace that is retail. TJX's off-price brand offerings create a compelling value proposition for consumers and we think the trend should continue moving forward. We recognize that shares could be range-bound until the company proves itself again with stronger results, but we believe strong traffic trends and unparalleled value for customers will help drive share gains in the long term. We reiterate our $85 price target.

Visa (V:NYSE; $80.57; 1,075 shares; 3.43%; Sector: Information Technology): Shares outperformed this week and it appears investors are beginning to value Visa Europe's integration into the overall company. Importantly, 2017 appears to be a smoother year for the company, with fewer moving parts, and investors are better able to realize the upside potential as a result. While a difficult global macro could constrain growth in the near term, Visa is clearly a winner in the space and has made the right moves to propel itself above competitors in the long term. We reiterate our $84 target.

Walgreens Boots Alliance (WBA:Nasdaq; $79.39; 1,150 shares; 3.62%; Sector: Health Care): Shares were pressured this week as some speculation spread around the market that the FTC settlement on the merger with Rite Aid (RAD) could potentially take longer than initially expected. As we have always said, regardless of the outcome, a decision is the most important thing for WBA shares to be able to break out to remove the uncertain overhang. That being said, analysts from Cowen hosted an antitrust law specialist this week, who believes there is roughly 75% certainty that the deal will be approved, especially given recent news that the two companies have found buyers for some additional stores. We recognize the acquisition would likely be accretive (helping boost earnings power), but we generally believe Walgreens would be in better shape as a stand-alone than as a combined entity with Rite Aid. WBA's fundamental story is extremely compelling, driven by margin expansion efforts and recent successes in boosting front-end product sales. We believe the low valuation discounts WBA's ability to drive earnings expansion, so if the deal fell through we would expect shares of WBA to rally and RAD to collapse. Again, certainty on either side (deal completion or deal falling through) should help add visibility and reduce the uncertainty-related overhang. We reiterate our $90 price target but understand that it will take some time for shares to attain those levels given the market's increasing skepticism regarding the timing of a decision for the merger.

Wells Fargo (WFC:NYSE; $48.51, 2,300 shares; 4.42%; Sector: Financials): We appreciate Wells' consistency, strong dividend and lack of exposure to volatility across trading and investment banking. We believe shares offer upside but remind members that the company continues to rely on stabilization in energy prices (at least $40-$45 per barrel of oil) in order to avoid further losses/provisions. That said, the market appears to be pricing this uncertainty in. We ultimately prefer Citi over Wells as an investment but for entirely different reasons (Citi is deep value, Wells is stability). We reiterate our $54 price target.


American Electric Power (AEP:NYSE; $64.69; 500 shares; 1.28%; Sector: Utilities): Shares traded lower this week as the market continues to pull away from dividend names that had experienced explosive growth over the last couple of months. That being said, we still view AEP as a premier name in the utilities space, with a consistent management team that delivers on its estimates and provides a consistent dividend, currently yielding 3.4%+. Analysts from BMO met with AEP management this week and walked away with similar confidence in the fundamentals moving forward. Importantly, the analysts expect AEP's valuation to expand further as the company transitions to a fully regulated utility. As we have spoken about, a definitive decision on its purchase power agreement (PPA) assets (likely in the middle of next year), will be the next catalyst on this front as the company moves out of the competitive generation business. We reiterate our $70 price target.

Comcast (CMCSA:Nasdaq; $65.51; 600 shares; 1.56%; Sector: Consumer Discretionary): Shares continued to trade lower this week as investors worry about the weaker-than-expected ratings throughout Olympics coverage. First off, yes, the ratings in terms of pure, traditional television viewing did dip compared to the 2012 London Summer Olympics. Lack of millennial viewership -- via traditional channels, that is -- was considered the main culprit, but there's more to that story. According to NBCUniversal, nearly 50 million viewers streamed 3.4 billion minutes across the web and on mobile and connected devices, with more than half of streamers under the age of 35. To put this in perspective, almost 200 million viewers watched the Games throughout the two weeks or so of coverage. That means roughly a quarter of the viewership (give or take considering that some users may be double-counted in both groups) moved over to more nimble, on-demand viewing options. Contributing to this movement, NBC offered live streaming of all the competitions, a welcome addition given than many of the most attention-grabbing activities took place during the day but were aired at night (e.g., gymnastics). Building upon the inroads NBC made in developing innovative ways to garner viewership, the network generated more than 600 million video views of NBC Olympics Facebook video and created 160 Facebook Live videos. NBC Sports' YouTube subscribers also increased sevenfold during the Games. As we mentioned last week, digital ads throughout the Games are powerful for NBCU considering that the company doesn't have to share the revenue with other operators. In addition, the long-term benefit of retaining even a portion of these additional subscribers/viewers way beyond the Olympics on growing platforms has been overlooked. Taking a step back, in the near term we expect advertising sales for Comcast to be buoyed by the presidential election as we approach the final three months of the campaign. Between the presidential race and Republicans' desperate to keep the Senate, we expect both local and national advertising to see a solid lift, all of which will be a boon for Comcast. We reiterate our $70 price target.

Costco Wholesale (COST:Nasdaq; $163.93; 400 shares; 2.60%; Sector: Consumer Staples): Shares traded lower this week as the stock pulled back after a recent rally into the high $160s. COST continues to offer a compelling opportunity given its impressive traffic trends and recent transition to a new membership card offering additional benefits. The stock traded lower this week as investors became concerned with the strength of the consumer following disappointing earnings results from dollar stores. That being said, we remind that Costco's average consumer is at a much higher income than the dollar stores', and we believe the company's new membership benefits offer great value opportunities that will continue to drive traffic through stores. Pent-up demand from months of low gasoline prices and strong employment should help bolster results. We will get a better idea when the company reports its August sales results. We reiterate our $175 target.

Occidental Petroleum (OXY:NYSE): $77.17; 675 shares; 2.06%; Sector: Energy): Shares traded higher this week on no news. We've said it before and we'll say it again: OXY remains tethered to the oil trade. Its recent strong earnings report, among the best in the industry, wasn't even enough for the stock to show any signs of breaking out. Shares have remained range-bound between $73 and $76 for some time, and we don't necessarily see that changing unless oil quickly shifts one way or another. We still believe OXY boasts the strongest balance sheet among its peers and view its 4%-plus dividend as attractive (and importantly, safe) in this environment. Over time, we believe its growth assets in the Permian and Middle East will begin to play a larger role in pushing the business forward. We remain neutral for now and reiterate our $75 price target.

PayPal Holdings (PYPL:Nasdaq; $37.65; 1,200 shares; 1.79%; Sector: Technology): Shares underperformed this week as investors continue to speculate on the deal with Visa and its potential impact. We remain on the sidelines for now, although we do believe PayPal is a unique and disrupting platform in the digital payments space that has become the leader with the most loyal customer base. With too many uncertainties surrounding the stock, we find it difficult to believe that shares could have any sustained move much higher than our $40 target. We will continue to monitor any developments and would be intrigued should shares drop back into the low $30s.

PepsiCo (PEP:NYSE; $107.45; 900 shares; 3.83%; Sector: Consumer Staples): Shares of PEP traded virtually in line with the market this week on little news. The stock has yet to reach its all-time highs again after reaching its top levels a couple of weeks back. While we believe the company has made great strides in streamlining the business and putting the right management in place to drive growth, we also recognize that dividend stocks are beginning to become less attractive given the new expectation for a rise in interest rates. We remain on the sidelines for now and would trim should shares again near the $110 level. We reiterate our $110 target.

Thermo Fisher Scientific (TMO:NYSE; $152.36; 350 shares; 2.11%; Sector: Health Care): Shares retreated slightly this week on little news. Industry end-market commentary was consistent with prior quarters, with strength in health care and specifically biopharma channels offset by modest weakness in its industrial end markets. We took a look back on the 2Q 2016 conference call, using it as a heat check. Management reported growth of low-single digits in the Academic & Government segment, a rate that it expects to remain consistent through the back half of the year. Industrial and Applied segments were bifurcated, with broad-based Industrial weakness offset by strong demand in Applied Markets, particularly from China. Biopharma end market continues to be its strongest growth segment with high-single- digit organic growth driven by the company's leadership in bioproduction and biosciences as well as positive secular signs from channel data. Finally, health care and clinical diagnostics grew in mid-single digits, with Chinese demand driving the bulk of the growth. Bottom line: TMO remains a great company but not a compelling investment at current levels (for those looking to open a position, we would recommend awaiting a pullback). For those who own it and have enjoyed the $20+ run above our cost basis, it may be worth taking some profits off the table in order to lock in some gains (of course, an investment's virtual returns are not physical gains until shares are actually sold). For those who own it for its long-term dominance across multiple channels and global diversification, as well as for management's proven track record of shareholder value creation, we would recommend staying put and holding it as we expect TMO to continue creating value over time. We reiterate our $170 long-term target and will stay on top of any developments.


Procter & Gamble (PG:NYSE; $87.58; 1,000 shares; 3.47%; Sector: Consumer Staples): Shares nudged higher this week on little news. We are actively considering trimming the name into strength with shares trading more than 7% above our cost basis and above our $85 price target. The stock has been a safe-haven asset -- hence our original thesis that it is equivalent to an "equity bond" given its strong cash flow profile, cash-heavy balance sheet, and compelling dividend yield -- and while we stand behind our original thesis, we believe the market has priced in much of the upside. With interest rates rising and a September hike on the table, the relative attractiveness of PG's 3% yield diminishes. We reiterate our $85 price target and will be looking to sell into any incremental strength next week.


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

DISCLOSURE: At the time of publication, Action Alerts PLUS was long AA, AAPL, AGN, BMY, CSCO, C, DOW, GE, FB, GOOGL, NXPI, PNRA, SBUX, SLB, TJX, V, WBA, WFC, AEP, CMCSA, COST, OXY, PYPL, PEP, TMO and PG.

Rating the Olympic Performances of Comcast, Facebook
Stocks in Focus: CMCSA, FB

Facebook clearly won the gold, though Comcast fared much better than some may think because of viewership beyond traditional television.

08/25/16 - 03:30 PM EDT
Adding to Alcoa on Weakness
Stocks in Focus: AA

Following the +4% selloff in Alcoa shares yesterday, we are adding below our cost basis.

08/25/16 - 08:38 AM EDT
Allergan's Drop Doesn't Shake Our Confidence
Stocks in Focus: AGN

Reversal of earlier gains reflects broader pricing-related biotech selloff and potential implications of Apple's EC issues.

08/24/16 - 03:27 PM EDT
Weekly Roundup

The market's hot topics this week included oil, EpiPen and the Fed. In the portfolio, we said goodbye to one position and hello to another.

08/26/16 - 06:29 PM EDT


Chart of I:DJI
DOW 18,395.40 -53.01 -0.29%
S&P 500 2,169.04 -3.43 -0.16%
NASDAQ 5,218.9170 +6.7130 0.13%

Action Alerts PLUS Holdings

Holdings 1

Stocks we would buy right now

Symbol % Portfolio
AA 0.59% Metals & Mining
AAPL 3.47% Consumer Durables
AGN 4.70% Drugs
BMY 0.58% Drugs
C 4.19% Banking
CSCO 4.84% Computer Hardware
DOW 3.13% Chemicals
FB 4.94% Internet
GE 2.90% Industrial
GOOGL 4.71% Internet
NXPI 3.50% Electronics
PNRA 4.30% Leisure
SBUX 3.40% Leisure
SLB 3.20% Energy
TJX 2.49% Retail
V 3.43% Financial Services
WBA 3.61% Retail
WFC 4.41% Banking
Holdings 2

Stocks we would buy on a pullback

Symbol % Portfolio
AEP 1.28% Utilities
CMCSA 1.55% Media
COST 2.59% Retail
OXY 2.06% Energy
PEP 3.82% Food & Beverage
PYPL 1.79% Financial Services
TMO 2.11% Health Services
Holdings 3

Stocks we would sell on strength

Symbol % Portfolio
PG 3.46% Consumer Non- Durables