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Jim Cramer's Action Alerts PLUS

Weekly Roundup

By Jim Cramer and the AAP Team | 2018-03-23 19:58:47.0

Markets traded lower as fears of a trade war with China increased following President Trump's signing of an executive order that imposes tariffs on up to $60 billion in imported goods from China following a 301-investigation led by U.S. Trade Representative Robert Lighthizer. The following day, China was swift to react with its own tariffs on $3 billion of US imports (into China). Also, this week, the Fed raised short-term interest rates by 0.25% to the target range of 1.50% to 1.75% in a unanimous 8-0 vote.

Treasury yields ended the week lower as investors took a more risk-off approach. Gold also moved higher as the euro firmed slightly relative to the dollar finishing at slightly over $1.23 per euro. Lastly, oil (WTI) ended the week higher as Saudi Arabia's Crown Prince Mohammed bin Salman arrived in America and Saudi Energy Minister Khalid al-Falih pointed to the possibility of extending OPEC/Russia production cuts into 2019.

Fourth-quarter earnings are nearly complete and have been relatively positive vs. expectations. No portfolio companies reported this week.


On the economic front, it was a slow start to the week with no market moving domestic data being released Monday or Tuesday. On Wednesday, the National Association of Realtors (NAR) reported that existing home sales -- completed transactions for single-family homes, townhomes, condominiums and co-ops -- bounced back 3.0% in February, following a 3.2% decline in January, to a seasonally adjusted annual rate of 5.54 million. With February's results, which exceeded expectations of a rise to 5.4 million units, existing home sales are up 1.1% annually. See here for our full analysis.

Also on Wednesday, the Federal Reserve concluded its two-day policy meeting. It announced that in a unanimous 8-0 vote, it will raise interest rates by 0.25% to the target range of 1.50% to 1.75%. The decision was widely expected by the market, though equities were volatile when Federal Reserve Chairman Jerome Powell gave his press conference that described the outlook of the Fed.

Reviewing some of the Fed's economic projections, the Fed increased its median projection for the change in 2018 December real GDP, raising the figure to 2.7% from 2.5%. The Fed also increased its median projection for the change in 2019 December GDP, increasing it to 2.4% from 2.1%. The Fed kept its median projection for change in GDP December in 2020 and longer term at 2% at 1.8%, respectively.

The Fed also adjusted in median unemployment projection for December 2018, moving the rate a tick lower to 3.8%. The Fed also decreased its median unemployment rate projection for December 2019 to 3.6%, down from last December's 3.9%. Lastly, the Fed moved its 2020 and longer run median unemployment rate projections to 3.6% and 4.5%, respectively.

For Median PCE inflation, the Fed kept its median projections for 2018 and 2019 steady at 1.9% and 2% respectively, however, increased its median December 2020 projection by 0.1% to 2.1%. In Core PCE inflation, 2018's fourth quarter projection was the same as December's projection of 1.9%. For both 2019 and 2020, the Fed increased its projection by 0.1% to 2.1%. See here for our full analysis.

On Thursday, the Department of Labor reported that initial jobless claims for the week ending March 17 were 229,000, an increase of 3,000 claims from the previous week's unrevised level of 226,000 and 4,000 claims above expectations of 225,000. Claims taking procedures in the Virgin Islands and Puerto Rico have yet to return to normal. Importantly, the four-week moving average for claims (used as a gauge to offset volatility in the weekly numbers) was 223,750, an increase of 2,250 from last week's unrevised level of 221,500. 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 159 consecutive weeks, the longest streak since 1970. For the official weekly release, please see here.

Also on Thursday, the IHS Markit Group reported that the Flash U.S. Composite Purchasing Managers Output Index (PMI) for March reached a two-month low 54.3, down from 55.8 in February, However, despite the month-over-month slowdown, it is worth noting that the index has remained above the 50.0 level for over two years. 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%-90% of expected survey data.

The Flash U.S. Services Business Activity Index also hit a two-month low at 54.1, down from 55.9 in February (a six-month high). However, this was slightly offset by an increase in the Flash U.S. Manufacturing PMI, which rose to a 36-month high at 55.7, up from 55.3 last month as a result of strong gains in employment, inventories and suppliers' delivery times. See here for our full analysis.

Finally, on Friday, the Commerce Department reported that new orders for manufactured durable goods advanced for the third time in four months rebounding 3.1% in February to $247.7 billion. This follows a 3.5% decline in January (revised up from -3.7% previously reported) and nearly doubled expectations of a 1.6% monthly increase. With this, new orders for durable goods are up 9.1% from the same time last year.

Shipments for manufactured durable goods increased last month, the ninth rise in 10 months, advancing 0.9% to $249.7 billion, following a 0.5% increase in January. Driving the move was a 1.8% increase in shipments of machinery. Unfilled orders also gained in February, ticking up 0.2%, following a 0.3% decline in January, driven by a 0.2% increase in transportation equipment. Additionally, inventories rose for the 19th time in 20 months, gaining 0.4% (the same advance seen in January) to $410.6 billion, led again by transportation equipment. On an annual basis, shipments are up 7.8%, unfilled orders increased 2.3% and total inventories have grown by 4.7%. See here for our full analysis.

Key Global Economic Readings


On the commodity front, oil prices rose this week, as tension in the Middle East continues to rise. Saudi crown prince Mohammed bin Salman arrived to discuss, amongst other things, the issue of Iran. Recall, last week we noted that tensions between the two nations (Saudi Arabia and Iran) were on the rise as Iranian Foreign Ministry Spokesman Bahram Qassemi referred to Bin Salman as a "delusional and naïve person." Furthermore, Venezuelan production concerns continue to weigh on the minds of investors following the International Energy Agency commentary last week in its monthly report that, "within the OPEC countries, the biggest risk factor is, and will likely remain, Venezuela." Further supporting prices, on Friday, Saudi Energy Minister Khalid al-Falih stated that OPEC, Russia and non-OPEC countries need to collaborate on potentially extending production cuts into 2019. This comes as Saudi Arabia seeks to bring state-owned, Saudi Aramco public potentially as early as this year.

On the domestic front, on Wednesday, the U.S. Energy Information Agency (EIA), reported that US stockpiles had unexpectedly dropped by 2.6 million barrels, whereas analysts had expected a 2.5-million-barrel build. Additionally, U.S. production increased by 26,000 barrels per day (bpd) to a record 10.407 million bpd. Lastly, net imports fell by 594,000 bpd as imports declined by 508,000 bpd and exports increased by 86,000 bpd.


In the portfolio this week, we initiated PayPal (PYPL) (here). Our admiration for PayPal relates to its role as the leading payment processor for digital transactions and e-commerce. Due to the increasing capabilities of mobile phones, digital transactions have become extremely common in the marketplace, and PayPal offers the best experiences for merchants to connect with customers. We then bulked up on our position the following day (here).

We also added to 3M (MMM) and Comcast (CMCSA) (here) Shares of 3M have yo-yoed in recent weeks, and with today's selloff bringing with it an opportunity to improve our cost basis. As for Comcast, the shares have been under pressure due to the uncertainty surrounding its bid on Sky Plc, and with the stock trading below $34, we view the selling as a buying opportunity.

We also slightly added to our Magellan Midstream (MMP) position (here). Shares of Magellan Midstream Partners have been under pressure since last Thursday after the Federal Energy Regulatory Commission (FERC) announced that it will no longer allow instate MLPs to recover an income tax allowance in cost of service rates. Despite Magellan saying that it expects this decision will not have a material impact because it does not have cost-of-service rates that would be directly impacted by the policy, MMP trades with its group and its group has brought it down. We believe the Master Limited Partnership (MLP) selloff has caused an overreaction on MMP as it is one of the better pipeline operators with solid growth and exposure to oil.

Lastly, we also took advantage of weakness to increase our take in JP Morgan (here) as we believe (JPM) can push higher towards our $120 price target, as we anticipate the rising U.S. interest-rate environment will drive improvement to the bank's net interest margin. Furthermore, industry deregulation prevents slowdowns in the company's operations. And lastly, we expect JPM's trading business to improve in 2018, as market volatility is a breeding ground for increased trading revenue.

On the other hand, we trimmed our stakes in Waste Management (WM) and DXC Technology (DXC) (here) and (here). Although we locked in a strong gain with this sale, we continue to like Waste Management as a play on industrial growth. As for DXC, we wanted to capitalize on strength that came during a day of broader weakness by selling shares, locking in a strong gain of roughly 31.5%, and raising our cash position.

We also opted to raise cash by trimming shares of Broadcom (AVGO) (here). At the end of 2017, we pledged to the club that we would no longer tolerate watching a gain turn into a loss. We adopted this discipline because we refuse to let a stock hurt the club like it has done in the past, especially one stemming from a failed merger-and-acquisition attempt. Because we put this rule in place, our discipline called for us to downgrade AVGO to a TWO and trim a portion of our position to make it more manageable.

Lastly we exited our position in the iShares MSCI Eurozone ETF (EZU) (here) and Arconic (ARNC) (here). Regarding the EZU, although this position as been a slow and steady grinder for the Charitable Trust, we are wary about the stocks in the eurozone based on the potential that the Trump Administration will not exempt European countries from trade tariffs. As for Arconic, we have been very patient with our small position in Arconic in hopes that the stock could catch a rally back toward the higher prices where we have done the majority of our selling but we believe that the trade tariffs on aluminum are working against the company right now and our sizable gain in our position is too strong to pass up in this volatile market.

Moving on to the broader market, fourth-quarter earnings are nearly complete and have so far been positive verse expectations, with 73.5% of companies reporting a positive EPS surprise. Thus far, fourth-quarter earnings growth has increased roughly 16.2% year over year vs. expectations for an overall 16.15% increase throughout the season; of the 431 non-financials that reported, earnings growth is up 16.4%. Revenues are up 7.9%, surpassing expectations throughout the season for a 7.59% increase; 73.5% of companies beat EPS expectations, 18.1% missed the mark and 8.4% were in line with consensus. On a year-over-year comparison basis, 79.92% beat the prior year's EPS results, 17.47% came up short and 2.21% were virtually in line. Materials, Information Technology and the Financials have had the strongest performance vs. estimates, whereas Real Estate, Telecom and Consumer Staples have posted the worst results in the S&P 500 for the fourth quarter so far.

Next week, 12 companies in the S&P 500 will report earnings. In the portfolio, we will hear from Constellation Brands on Thursday before the opening bell.

Other key earnings reports for the market include:

Paychex PAYX, ProPetro PUMP, Red Hat RHT, Factset FDS, Francesca's FRAN, HIS Markit INFO, McCormick MKC, lululemon LULU, Restoration Hardware RH, Shoe Carnival SCVL, Sonic SONC, BlackBerry BB, Walgreens WBA, QIWI QIWI, UniFirst UNF, GameStop GME, PVH PVH, Verint Systems VRNT, Oxford Industries OXM, Science Applications SAIC, Worthington WOR, Switch SWCH, Synnex SNX and Sigma SIGM.

Economic Data (*all times ET)


Monday (3/26)

Chicago Fed Nat Activity Index (8:30)

Dallas Fed Manf. Activity (10:30): 33.0 expected

Tuesday (3/27)

Richmond Fed Manufact. Index (10:00): 21.0 expected

Conf. Board Consumer Confidence (10:00): 131.0 expected

Wednesday (3/28)

MBA Mortgage Applications (7:00)

Wholesale Inventories MoM (8:30)

GDP Annualized QoQ (8:30): 2.7% expected

Personal Consumption (8:30)

GDP Price Index (8:30): 2.3% expected

Core PCE QoQ (8:30)

Pending Home Sales MoM (10:00): 2.0% expected

Thursday (3/29)

Personal Income (8:30): 0.4% expected

Personal Spending (8:30): 0.20% expected

Initial Jobless Claims (8:30)

Continuing Claims (8:30)

Chicago Purchasing Manager (9:45): 61.5 expected

Bloomberg Consumer Comfort (9:45)

U of Mich. Sentiment (10:00): 102 expected

Friday (3/30)

***Market Closed for Good Friday***


Monday (3/26)

Tuesday (3/27)

Eurozone Agg M3 Money Supply YoY (4:00)

Eurozone Agg Consumer Confidence (5:00)

Wednesday (3/28)

Germany GfK Consumer Confidence (2:00)

Japan Retail Sales MoM (19:50): 0.6% expected

Japan Retail Trade YoY (19:50): 1.8% expected

Thursday (3/29)

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

Germany Unemployment Claims Rate SA (3:55)

UK Mortgage Approvals (4:30): 67.5k expected

UK GDP QoQ (4:30): 0.4% expected

UK GDP YoY (4:30): 1.4% expected

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 Job-To-Applicant Ratio (19:30): 1.6 expected

Japan Jobless Rate (19:30): 2.6% expected

Japan Tokyo CPI YoY (19:30): 1.3% expected

Japan Tokyo CPI Ex-Fresh Food YoY (19:30): 0.9% expected

Japan Industrial Production MoM (19:50): 4.7% expected

Japan Industrial Production YoY (19:50): 1.9% expected

Friday (3/30)

Japan Housing Starts YoY (1:00): -4.7% expected

China Manufacturing PMI (21:00)

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To learn more about how we construct and trade the portfolio, click on Getting Started in the dropdown menu of the Help link above.

We also want to be sure you're not confused about the terminology that Jim uses on his Mad Money television show: When you hear Jim refer to the charitable trust, he is talking about the trust that holds the Action Alerts PLUS portfolio. The gains from Action Alerts PLUS go to charity after the close of each trading year.

Here's the quick guide to the rating system, too: Ones are stocks we would buy right now, Twos are stocks that we'd buy on a pullback, Threes are stocks we would sell on strength and Fours are stocks we want to unload as soon as our trading restrictions allow.



Abbott Laboratories (ABT) ; $59.5; 800 shares; 1.85%; Sector: Healthcare -- We continue to see upside to ABT coming from the successful launch of the company's continuous glucose monitor, Freestyle Libre which analysts at JPMorgan have previously noted could contribute 170 basis points to Abbott's 2018 topline growth. We also see the company's other recent launches, including: Alinity system (which has already proven to be successful internationally), Confirm RX Insertable Cardia Monitor, HeartMate 3 system, can all help the company achieve strong organic growth this year. Furthermore, we maintain that the previous St. Jude Medical and Alere acquisitions have been underappreciated stories by the market. Recall, in the company's last quarterly release, these acquisitions exceeded both management and analyst expectations. We reiterate our $65 price target.

Amazon (AMZN) ; $1495.56; 75 shares; 4.35%; Sector: Technology -- We continue to like Amazon due to its retail and public cloud dominance as well as its budding advertisement business. Additionally, Amazon Prime membership provides for a recurring revenue stream (something we always value highly) a factor that which will be bolstered by the move of Amazon Prime Pantry (which focuses on non-perishable household items) to a subscription-based model. Compounding these business segments, we believe the company's recent acquisition of smart doorbell company Ring, a move we believe will bolster demand for the in-home delivery service and provide an established product line with which to compete against Alphabet's (GOOGL) Nest, without needing to invest in R&D to build out the platform from the ground up. With shares pulling back to near our basis, we will be looking for any significant move lower to increase our stake and reduce our overall cost basis. We reiterate our $1,700 target.

Apple (AAPL) ; $164.94; 700 shares; 4.48%; Sector: Technology -- We continue to view Services as the most crucial factor in our longer-term investment thesis for AAPL. As we've noted previously, the segment provides for a recurring revenue stream at higher margins that then overall business, meaning that as this segment grows in share of overall revenue, it will aid in expanding company-wide margins. Backing this view, analysts at Morgan Stanley released a note this week titled "The Emerging Power of Apple Services," in which they dig into the growth of this segment and note their belief that it will offset revenue growth rate declines in the iPhone segment, which have elongated replacement cycles. Furthermore, backing our commentary following the company's most recent earnings release, where we noted that despite missing sky-high analyst expectations for iPhone sales the total device install base is at record highs. The analyst noted, "the devices are already out there," as another reason investors should increase their focus on Services, a view we agree with. We believe these factors, compounded by the recent release of the HomePod (a new outlet for services such as Apple Music) and rapid growth in wearables (which also plays to increased Services subscriptions) will continue to support our Services oriented thesis. We reiterate our $190 target.

Comcast (CMCSA) ; $33.17; 2200 shares; 2.83%; Sector: Consumer Discretionary -- Shares continue to be pressured by Comcast's pursuit of Sky plc, Europe's largest media company and pay-TV broadcaster. Recall, the $31 billion offer, which equates to £12.50 per share exceeds 21st Century Fox's £10.75 per share bid. The fear comes from concerns that the dueling bids could result in a bidding war. However, this week we got some positive news on this front when UK lawmakers that had previously criticized Fox's CEO James Murdoch's influence in Britain, urged Sky to reject Fox's offer, stating, "we would urge the panel to come to a clear finding in favor of prohibition, consistent with its powerful provisional findings." We believe that should Comcast succeed in its goal of acquiring part (as Fox currently owns 39% of Sky) or all of Sky (should they succeed in convincing Fox to sell) it would be a positive for the company. Management has guided that it would accretive to free cash flows within the first year and would not impact share buyback or dividend related initiatives. Acquisition attempt aside, we continue to like Comcast for its significant business diversity (cable, broadband, wireless, theme parks, NBCUniversal and a joint venture with Fox and Disney on OTT platform Hulu). We remind members that the company is also a primary beneficiary of tax reform as its previously ~35% tax rate is now expected to drop to around the 24%-26% range. We reiterate our $45 target.

Danaher (DHR) ; $95.94; 1000 shares; 3.72%; Sector: Life Sciences -- There was no news from Danaher this week as the stock felt the collective market pain. Despite the uncertainty that a potential trade conflict brings, we remind members that management has already preannounced a positive first quarter 2018 result as management guided that adjusted EPS will be "above the high end of previously communicated guidance range." Driving the anticipated upcoming outperformance are better than expected results in Life Sciences and Diagnostics -- "specifically at Cepheid". This news speaks to the power of the Danaher Business System operating model, which is really the engine driver behind management's ability to improve acquired businesses. Speaking on M&A, the company recently announced an acquisition of IDT, a privately held Life Sciences business that represents DHR's largest transaction since 2015. IDT will operate as a standalone operating company under the Life Sciences platform, and analysts at JP Morgan expect the deal will be accretive to 2019 earnings per share by roughly $0.05 to $0.07. We reiterate our $104 price target.

DowDuPont (DWDP) ; $63.06; 1375 shares; 3.37%; Sector: Chemicals -- We continue to view the weakness in DWDP because of the stock being in a "boring period" as the next major catalyst on investor minds is the pending break-up, which will not occur until the first half of 2019. Recall, management expects the Materials Science spinoff (which will be called DOW) to occur by March 31, 2019. Additionally, management has guided for the Agriculture business (Corteva Agriscience) and Specialty Products (DuPont) to be spun off by June 1, 2019. Outside of this, we remind members that management had previously raised synergy targets, by 10% to $3.3 billion. Given CEO Ed Breen overseeing operations and his past success with company breakups, we expect he will continue to find ways to increase synergies at the company. We reiterate our $85 price target.

Eli Lilly (LLY) ; $74.76; 1000 shares; 2.90%; Sector: Healthcare -- Despite Eli Lilly's lagging performance in 2018, we believe this is a name to be patient in. When management provides its update to the strategic review of its Elanco Animal Health business on the first-quarter earnings release, we view this announcement of a potential spin or sale as a potential catalyst opportunity. Spinning the asset is the best-case scenario for value creation as stock performance in, Zoetis (ZTS) , a similar animal health company, has been impressive, however, it is more likely that LLY sells the asset. Through an asset sale, Eli Lilly will gain a big cash windfall that increases the company's capital allocation options -- basically they could use the funds to buy back stock or earmark the cash for merger and acquisition opportunities. In the interim, we believe that worries about the competitiveness in the diabetes market have been overblown, and we note that LLY represents one of the better large cap pharmaceutical growth plays due to the many products it has either new to launch or in the late stage pipeline. We reiterate our $93 price target. 

Alphabet (GOOGL) ; $1026.55; 100 shares; 3.98%; Sector: Technology -- This week, we discussed a few new ways Alphabet is monetizing its operations. The first was a new program called Shipping Actions, which is Alphabet's new way of partnering with retailers. Instead of being a pure advertising play with retail, Alphabet will instead change the way products appear in its search that also makes the shopping experience more seamless and efficient. Alphabet will now look to use a pay-per-sale model with retailers, or essentially take a cut of the sales from the program. Eric Jhonsa, contributor for TheStreet, wrote an article on Wednesday here, and we think this new program will lead to new monetization opportunities for the company. Elsewhere, Alphabet recently announced a $5 price increase to its monthly YouTube TV subscription service. This rate hate should make the product more profitable as well as offset costs from the company's recent content additions. Lastly, it was also the reported that the company will increase the amount of advertisements on YouTube to push consumers towards its new music subscription service. With over 1.5 billion monthly logged users and 1 billion daily hours of watch time on YouTube, we like how management is taking an aggressive stance towards monetizing this asset. Bottom line, we upgraded the stock to a ONE this week because we believe management is now making the moves to grow earnings above analyst expectations. We reiterate our $1300 price target.

Goldman Sachs (GS) ; $245.26; 250 shares; 2.38%; Sector: Financials -- We continue to like Goldman Sachs due the increased volatility being seen in the market. As we've noted previously, that along with higher interest rates, increased volatility will revitalize the company's Fixed Income, Currency and Commodity (FICC) trading revenues, a subsegment that declined 50% year over year in the fourth quarter of last year because of the suppressed volatility throughout 2017. Backing this view, Wells Fargo analysts raised their target on the company this week, citing forecasts by the bank's Interest Rate Strategy Team that indicate volatility will remain elevated compared to last year. Furthermore, regarding "signaling" by management, in line with our view that CEO Lloyd Blankfein would not seek to depart from the company on a low note, the analysts expressed their belief that he would likely seek to "leave from point of relative strength." Given that his departure is expected within the next year, we believe this points to management's optimism for the year ahead. We reiterate our $285 target.

Honeywell (HON) ; $143.28; 750 shares; 4.17%; Sector: Industrials -- Shares of Honeywell were pressured this week alongside the rest of the industrials. On Wednesday, management spoke at the Bank of America Merrill Lynch Global Industrials Conference where CEO Darius Adamcyzk painted a strong picture of the company similar to their investor day conference not too long ago. In addition to the company's improving margins, strong cash flows, and exposure to a robust aero market, we believe the company has an important catalyst in its upcoming breakup. We expect that by spinning the company's Homes and Transportation Systems businesses, Honeywell will improve the organic growth profile of its core assets. Furthermore, in a market starved for the next catalyst opportunity, we think Honeywell's spins will create value for shareholders. Despite the weakness in shares year to date, we note that the company has a terrific balance sheet which gives management major optionality on how to spend its tax reform windfalls. Right now, management's preference is to use cash for bolt-on M&A, but if that does not occur, those funds will be used for buybacks. If management chooses M&A, we expect an accretive-to-earnings purchase, and if they go the route of buybacks, shares will be firmly supported in the second half of the year. We reiterate our $175 price target. 

Illinois Tool Works (ITW) ; $156.91; 550 shares; 3.35%; Sector: Industrials -- We remain bullish on ITW as the company has successfully implemented the 80/20 business model, a key factor that has allowed for the streamlining of operations and margin expansion companywide. Furthermore, we value Illinois Tool Works for its internal business diversity, which has allowed it to weather weakness in any one or two sectors, as was the case in the most recent quarter. Looking ahead, management's intense commitment to this operating model will allow the company to successfully navigate phase two of their strategic framework, growing the company organically and via bolt-on acquisitions, while ensuring they do not over extend and hamper core operations. Lastly, we remind members that the company's strong free cash flow (106% of net income as of the last quarterly release) has allowed the company to accelerate intentions of raising its dividend payout to 50% of free cash flow. We reiterate our $185 target.

JP Morgan Chase (JPM) ; $107.01; 500 shares; 2.08%; Sector: Financials -- With the Fed raising rates this week and guiding for three rate hikes total throughout the year (two more after this week) we remain bullish on the financials and JPMorgan in particular as we believe its strong balance sheet will be invaluable in the face a more difficult CCAR or "stress test." Regarding the rate hikes, we reiterate that this will allow the bank to expand its net interest margin (NIM), i.e. the difference between what they bank pays for funds (such as on deposits) and what it charges for loans (the spread being where the bank makes its money). On the international front, we reiterate that following U.S. tax reform, we place a higher importance on the overseas exposure as we believe multinational companies will increasingly look to borrow abroad, where it may now be preferable to deduct interest rate charges against taxable income (assuming a higher effective tax rate abroad). We reiterate out $120 price target.

Microsoft (MSFT) ; $87.18; 1100 shares; 3.72%; Sector: Technology -- We continue to place the majority of our investment thesis on the company's rapidly growing public cloud platform, Azure, as we believe it to be the best positioned to compete with Amazon's AWS. Furthermore, we believe Microsoft to be the best positioned to service those companies seeking a hybrid cloud environment (part public cloud, part internal servers) due to its legacy server business and on-premises capabilities. As a reminder, while Microsoft can meet the on-premises needs of companies with no outside help, Amazon and third-place provider Alphabet will likely need to partner with on-premise providers to support hybrid-cloud initiatives. Outside of the cloud, we value Microsoft for the company's business diversity, including gaming, numerous subscription-based services (think recurring revenue) and LinkedIn. On the gaming front, we also note that the move to online gaming can lead to an increase in recurring revenue from Xbox Live subscriptions (required for online play) and increased adoption of the new Game Pass, which is essentially the gaming equivalent of Netflix. We reiterate our $100 target.

3M (MMM) ; $215.36; 400 shares; 3.34%; Sector: Industrials -- Shares of 3M moved sharply lower this week, underperforming the broader market. This week, current COO/incoming CEO Mike Roman said that he expects first-quarter organic growth will come in at the lower end of the company's 3%-5% target range. Roman said that January and February were on track, however a timing issue in March will impact the quarter. We were very disappointed by this news and this contributed to the stock's decline this week. It is worth noting, however, that Roman said this was due to Easter falling on April 1st and that this will level out in the second-quarter results. We are taking a hard view of this announcement as we will not tolerate guide downs, but there is some encouragement in that management also maintained full-year guidance. Despite the current headwinds, we believe that shares can ultimately push higher thanks to the company's emphasis is fast growing emerging markets as well as the self-help story of the Business Transformation initiative that is expected to produce between $500 million and $700 million of operating income benefits with an additional $500 million of working capital coming out of the supply chain by 2020. We reiterate our $270 price target.

Magellan Midstream (MMP) ; $58.17; 1800 shares; 4.06%; Sector: Energy -- Shares of Magellan Midstream Partners, as well as the broader MLP cohort, remained under pressure this week. Driving trading was last week's surprise announcement by the Federal Energy Regulatory Commission (FERC) who revised its policy and will no longer allow Master Limited Partnerships to recover an income tax allowance in cost of service rates. As we wrote last Friday in our Alert here, management said that they do not expect a material impact from this change, and they noted that they have been under-earning on a cost of service basis, which provides a level of protection again the FERC's revision as well. On Tuesday we upgraded shares to a ONE because we believe that with no material impact expected from the changes, the company's distribution, which currently yields 6.33% and is backed by the company's 1.25 coverage ratio, represents a solid, safe return. We reiterate our $78 price target. 

Nordstrom (JWN) ; $46.36; 1500 shares; 2.70%; Sector: Retail -- The big news this week came on Tuesday after the closing bell when we learned that The Special Committee of the Board of Directors of Nordstrom had terminated discussions with the Nordstrom founding family, who sought to take the company private. Recall, the committee was swift in turning down the family's $50/share offer, believing it to undervalue the company (a view we share). Within the press release, the committee noted that the decision was largely made based on their belief that the company is, "well positioned to capitalize on future opportunities to gain market share through its customer strategy." We believe the decision to shut down the attempt before it became a drawn-out news story was the right one as it reduces the chances of an otherwise strong story being overshadowed by poor headlines of internal strife, something we saw happen with Broadcom and its takeover attempt of Qualcomm. We reiterate our $60 target.

Nucor (NUE) ; $59.44; 600 shares; 1.38%; Sector: Industrials -- Shares of Nucor were greatly pressured this week due to news that the Trump administration has relaxed its tone on steel tariffs and has considered offering more exemptions to countries. While this modification to his stance on steel hurt the stock, we believe that Chinese imports have been the true enemy against Nucor's business. This storyline also overshadowed a buy initiation by analysts at Goldman Sachs who said that Nucor, the largest US steelmaker, is "in the midst of an aggressive, opportune investment program to drive volume growth and margin expansion." Looking ahead, we were pleased with Nucor's positive preannouncement last week, where management guided that they expect first-quarter earnings to be between $1.00 and $1.05 per share, and with less cheap Chinese steel flooding the US industry, we expect improved fundamental performance by Nucor. Due to the recent selloff, we will also upgrade shares to a One because of the disconnect between the drop-in valuation and improvement to industry fundamentals. We reiterate our $75 price target.

Paypal (PYPL) ; $76.44; 800 shares; 2.37%; Sector: Technology -- On Thursday, we initiated a position in PayPal. As we wrote in our trade Alert here, we like PayPal for the secular tailwinds of digitization and e-commerce, the future monetization of Venmo, and lastly, because we believe that selling related to the eBay transition has been an overreaction. We believe that Venmo capitalizes on the digitization of cash as consumers preference is shifting towards mobile payment transactions. With e-commerce, PayPal has an expansive online merchant community that is being rapidly used as more retailers adopt towards an e-commerce business model. With Venmo, this extremely popular mobile application whose product has turned into a verb "similar to "Google", is in its early stages of monetization and management is committed to increasing its profitability. Lastly, management said when they first announced its transition from eBay that it will have no changes to the company's medium-term guidance. Furthermore, the split from eBay will no longer restrict PayPal from "partnering with the largest and fastest growing marketplaces in the world as a MOR [Merchant of Record]. We reiterate our $90 price target.

PepsiCo (PEP) ; $106.15; 500 shares; 2.06%; Sector: Consumer Staples -- With the return of volatility, we were once again reminded this week of the need for portfolio diversity. As we've noted previously, it is always good to include a reliable, relatively less volatile, consumer staple such as PEP for times of increased market volatility. We continue to like PepsiCo as the company's strong Frito-Lay division has effectively managed to offset weakness in the North American Beverage segment. Additionally, we believe as beverages begin to rebound in 2018, due to management correcting past mistakes and general stabilization industry-wide, shares will again push higher. Compounding the expected industry-wide recovery, we note that the segment stands to benefit from easier year over year growth comparisons due to the lackluster beverage performance in 2017. We reiterate our $130 target.

Raytheon (RTN) ; $214.57; 400 shares; 3.33%; Sector: Aerospace -- We continue to view Raytheon as a prime beneficiary of increased defense spending both home and abroad. Backing this view, following President Trump's recent meeting with Saudi Crown Prince Mohammed bin Salman, Business Insider provided a rundown of various finalized and pending arms deals. Included in the negotiations were roughly $645 million in Joint Standoff Weapons manufactured by Raytheon, $1.4 billion in Boeing P-8 Poseidon anti-submarine warfare/maritime patrol aircrafts, which are equipped with Raytheon APY-10 multi-mission surface search radars and $13 billion in Lockheed Martin Terminal High Altitude Area Defense (THAAD) systems. THAAD systems are equipped with 7 firing units, each of which is equipped with Raytheon AN/TPY-2 RTN radar systems. This is an addition to the Patriot Missile Defense system developed by Raytheon that is already in use by the Saudi government. Regarding the THAAD deal, Raytheon Chairman of the Board and CEO, Thomas Kennedy noted while speaking at the Cowen Aerospace/Defense and Transportation Conference on February 9th, "that's a several billion-dollar award based on the package that the Saudis are going for." He went on to state that, "one other key fact is the budget for '18 in Saudi Arabia's defense budget is one of the largest defense budgets they've ever had." We reiterate our $232 target.

Constellation Brands (STZ) ; $220.92; 375 shares; 3.22%; Sector: Consumer Staples -- Like our view on PEP, from a portfolio management perspective, we were once gain reminded this week of the need to maintain a diversified portfolio, which includes holding consumer staples that tend to hold up better in times of volatility. We continue to believe in management's "premiumization" strategy and believe it will address what we view as temporary weakness in the company's wine business (premium wine sales were less impacted). Additionally, with the economy strengthening and consumers having more money in their pockets following tax reform, it stands to reason that customers will opt for more premium brands (recall, more discretionary income, i.e. income after tax, is also a major factor in our thesis on Nordstrom, a premium retailed of clothes and accessories). We look forward to receiving updates from management next week, when the company reports earnings on Thursday, before the opening bell where will be looking for sales of $1.755 billion and earnings of $1.75 per share. We reiterate our $242 price target.

Cimarex (XEC) ; $93.21; 675 shares; 2.44%; Sector: Industrial -- Shares of Cimarex pushed higher this week as WTI crude rallied towards the spot price of $65. Helping oil (and shares of Cimarex along with it) was the report of a surprise drop in US crude inventories as well as news that many OPEC producers may cut production beyond what was previously expected. We continue to like this exploration and production company for management's return-based approach. Management only looks to increase production when it is the most profitable for shareholders, and this strategy has allowed the company to increase profitability during a challenging environment. We do note that right now the company has a bit too much natural gas in its production mix for our liking, but Cimarex is expected to become more oil-focused in the back half of 2018 and into 2019. We reiterate our $150 price target.


Activision Blizzard (ATVI) ; $68.04; 1250 shares; 3.30%; Sector: Technology -- Shares have seen pressure in recent weeks as investors speculate as to the potential impact the rise in popularity for free-to-play game, Fortnite, could have on Activision's ability to monetize existing games via in-game purchases and downloadable content (DLC). While this is a factor to be monitored, we believe it to be transient and note that because Fortnite is free-to-play there is nothing to lose by giving it a try, i.e. it does not come at the cost of another game and thus commitment levels are heard to quantify. The free-to-play aspect may also indicate that commitment levels are not that high (although this is hard to quantify), something we saw with Pokémon Go, which was incredibly popular upon release but lost roughly 75% of its audience in year 1 according to analysts at Jefferies. That said, Pokémon Go was mobile only where as Fortnite is on mobile, PC and console so it could have more staying power. However, more so than the gameplay, control mechanics or graphics, we attribute much of the popularity to the 100 player Battle Royal game mode, a factor Activision management has noted that they will begin to implement in their own games where appropriate. It is for these reasons we believe the weakness to be temporary and note that the largest portion of our thesis on ATVI is related to eSports and the company's investments in the Overwatch League. On this front, we note that league revenues are tracking strong and expected to be above initial guidance (although we still do not believe it will be material to earnings in the near-term), a factor that will no doubt increase the cost of future team purchases and raise interest amongst potential advertisers/sponsors. We reiterate our $80 target.

Broadcom (AVGO) ; $242.48; 200 shares; 1.88%; Sector: Electronics -- Shares remain under pressure following Broadcom's quarterly report, which provided little in the way of the company's next moves following its unsuccessful takeover attempt of Qualcomm. Because shares have come within a percentage point of our basis, we opted to trim shares on Friday as we refuse to allow a gain become a loss and are committed to keeping shares on a tighter leash this year compared to 2017. As we noted in our trade alert (here), "given the tariff announcements and trade conflicts that were set in motion this week, we think Broadcom's ability to pursue a merger-and-acquisition strategy in the market will be limited going forward by this label, thus halting the company's main growth driver. We do think shares can push higher once investors regain focus on the company's strong free cash flow as well as the expected rebound in demand in the Wired business, but our discipline trumps conviction today." It is for this reason that while we did downgrade the name, we elected to keep on a decent position as we believe our patience will ultimately be rewarded. We reiterate our $290 target.

Citigroup (C) ; $67.90; 1050 shares; 2.77%; Sector: Financials -- Despite the financials seeing pressure as a result of a move lower in longer-term interest rates, we continue to see upside to shares as we believe that the Fed will raise short-term rates at least two more times this year and that longer-term rates will ultimately push higher. Additionally, we believe that shares can move higher as the bank achieves milestones on its way to reaching 2020 financial targets, including earnings of $9 per share and 11% return on tangible common equity. Moreover, we believe that management's plan to return $20 billion to investors this year and next will provide a level support. Lastly, we reiterate that with this year's Fed stress test guided to be more difficult than past years, the bank's strong financial position is invaluable. We reiterate our $80 target.

DXC Technology (DXC) ; $101.4; 400 shares; 1.57%; Sector: Chemicals -- This week, we trimmed our position in DXC Technology around the $105 resistance level to lock in gains and raise cash. As we said in our Alert here, we have used the stock as a source of profits because we believe that the stock's valuation has gotten fuller as the date of the company's next big catalyst (the spinoff of its USPS business) nears. Outside this spinoff, we remind members that in the most recent quarter, management raised its fiscal year's synergy target to $1.1 billion, which is $100 million up from management's initial guidance, and increased end of year run-rate expectations to $1.6 billion. We focus on the cost synergies as the current DXC story relates to cost takeout and improved margins which more than offset top line growth from an earnings standpoint, making DXC a unique and differentiated play in the technology space. We reiterate our $110 price target. 

Facebook (FB) ; $159.39; 725 shares; 4.49%; Sector: Technology -- Facebook was the main headline driver this week as the company was at the center of a major data scandal. As we wrote in Monday in our Alert here, the company failed to properly monitor Cambridge Analytica, a UK data firm who broke Facebook policies and shared user data with third parties. On Tuesday, we discussed what Facebook must do to get its reputation back in our Alert here. In our Alert, we said they must apologize regardless if they think they should and they must hire outside counsel to investigate the company's current policies. By doing so, they will instill confidence in both users of the product as well as investors. Until then, we do not believe shares can rally, which is why we downgraded the stock to a TWO in our Alert here. We have the stock rated a TWO because we must recognize that headline risks are abundant and will not dissipate until management follows our gameplan. Our views will not waver even though we are long-term bullish in the company, mainly due its impressive 40% top line growth in 2017, which may lessen as a result of this scandal, but nonetheless will continue upwards as there is simply no other alternative to the platform in the market. We reiterate our $220 price target.

NVIDIA (NVDA) ; $232.97; 150 shares; 1.36%; Sector: Technology -- We continue to view Nvidia as being a central player in the advances around gaming, artificial intelligence and the data center as all of these applications require the processing of massive amounts of data in real time. Regarding the data center, as we've learned (painfully) from the Facebook scandal this week, companies have and continue to acquire massive amounts of information on users. The collection is the easy part; the hard part is processing that information and making it usable. This is where GPU-acceleration comes into play, which is a process by which compute intensive functions, such as sifting through all that data is passed onto the GPU, freeing up the CPU for other less intense tasks. Regarding autonomous driving, as we sadly learned this week, following a fatal accident involving a self-driving Uber, the ability for the vehicles to take in and process real-world data in real-time is literally a matter of life and depth. And while it will be a while before the software and hardware required for these systems are perfected, we reaffirm that Nvidia makes the best GPUs (required for the highly intense computations) available, which is why the majority of automakers rely on the company for self-driving car projects. Lastly, on the gaming front, today's games are becoming increasingly realistic. Rendering these graphics requires the strongest of GPUs and we believe the need for such chips will only increase as virtual reality goes mainstream. To better grasp just how far today's gaming graphics have come, we encourage members to see here and here for a few short clips from this week's Game Developers Conference showing off hyper-realistic computer generated images and keep in mind that the required processing power will only increase with time as game developers adopt virtual reality. We reiterate our $250 price target.

Schlumberger (SLB) ; $64.14; 1200 shares; 2.99%; Sector: Energy -- Shares of Schlumberger moved lower this week, but its outperformance of the broader market can be attributed to the rally in oil prices. There was no company news this week, so we refer back to recent commentary from CEO Paal Kibsgaard on the global market. Kibsgaard recently called the market "unbalanced" with investment levels "too low" to meet the requirements of medium-term energy demand. We believe this signals a forthcoming increase in SLB's premier oil services technologies. As a reminder, we view SLB management commentary as canon as this best-of-breed oil services company has the best ear to the ground in regard to the oil environment. While Kibsgaard's commentary is bullish for the demand of SLB's business, we remind members that management has also commented that the company's first-quarter results will be light. We reiterate our $93 price target as we maintain a longer-term view on the stock.

Waste Management (WM) ; $82.9; 750 shares; 2.41%; Sector: Industrial -- Shares of Waste Management moved lower this week, however outperformed the broader market. On Monday and Friday of this week, we trimmed and locked in gains because as we said in our two Alerts, which you can read here and here, we have concerns about a slowdown in new home construction. This prompted us to take profits and build up cash in this position during this volatile market. Also, due to the current trade conflicts with China, we see little hope of easing pressures on recycling commodity prices. That said, the company's free cash flows remain strong and are expected to grow due to the reduction of the corporate tax rate. Lastly, with the WM management team prioritizing its use of 100% of free cash flow to return value to shareholders, we think shares have long-term support. We reiterate our $94 price target.


Allergan (AGN) ; $159.48; 150 shares; 0.93%; Sector: Healthcare -- There was little news from Allergan this week. We believe that key for Allergan shareholders right now relates to the potential that CEO Brent Saunders breaks up the company. After many months of ruling this possibility out, last week management changed its tune at the Barclays Global Healthcare Conference where Saunders said, "We are going to look at every idea, we're going to consider every option and we're going to see if there are opportunities to create value, and we're going to do that with a sense of urgency." We have long said that if management broke up the company and allowed the Medical Aesthetics franchise, with its durable Botox business, to trade separately, value would be unlocked because the trading multiple of the business would be greater than the P/E of 9.6 times next year's earnings. We presented our case last October through our sum-of-the-parts analysis, and we will look to see how management's future comments align with how analysts believe the most value can be unlocked. We will continue to hold onto this small "spec" position in Allergan to see how and where this narrative turns, and we reiterate our $200 price target. 

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long ABT, ATVI, AMZN, AAPL, AGN, AVGO, XEC, CMCSA, DHR, DXC, FB, GOOGL, GS, HON, JPM, JWN, MMM, MMP, MSFT, NUE, NVDA, C, DWDP, PEP, SLB, ITW, LLY, WM, RTN, PYPL and STZ.

Buying More PayPal and JPMorgan Chase
Stocks in Focus: JPM, PYPL

We've got the cash, and both stocks are trading lower Friday.

03/23/18 - 03:25 PM EDT
Jim's Daily Rundown

Jim discusses the trade conflict with China, Micron's results, Nike and more.

03/23/18 - 12:13 PM EDT
The Next Members Only Call is March 26

We are soliciting questions and looking forward to our discussion.

03/23/18 - 11:58 AM EDT
Weekly Roundup

Fears of a trade war and a Fed rate hike marked a volatile week.

03/23/18 - 07:58 PM EDT


Chart of I:DJI
DOW 23,533.20 -424.69 -1.77%
S&P 500 2,588.26 -55.43 -2.10%
NASDAQ 6,992.6659 -174.0107 -2.43%

Action Alerts PLUS Holdings

Holdings 1

Stocks we would buy right now

Symbol % Portfolio
AAPL 0.04481850728820711 Telecommunications Equipment
DHR 0.03724200652384928 Medical Specialties
DWDP 0.03365813300674027 Chemicals: Major Diversified
GOOGL 0.03984863643637428 Internet Software/Services
ITW 0.03350014367324843 Industrial Machinery
JWN 0.02699404975681133 Apparel/Footwear Retail
MSFT 0.037225702956265365 Packaged Software
PEP 0.02060266308373255 Beverages: Non-Alcoholic
XEC 0.024423035375853594 Oil & Gas Production
Holdings 2

Stocks we would buy on a pullback

Symbol % Portfolio
ATVI 0.03301472435744613 Recreational Products
AVGO 0.01882518603690426 Semiconductors
C 0.027675305973711012 Financial Conglomerates
DXC 0.015744588123903763 Data Processing Services
FB 0.04485722826121893 Internet Software/Services
NUE 0.013844057959834904 Steel
NVDA 0.013565150500095633 Semiconductors
SLB 0.03485702749442954 Oilfield Services/Equipment
WM 0.024135102726916085 Environmental Services
Holdings 3

Stocks we would sell on strength

Symbol % Portfolio
AGN 0.009286046279586435 Pharmaceuticals: Generic