Jim Cramer's Action Alerts PLUS -- Weekly Roundup

Saturday, March 30, 2002 9:40 a.m.

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Dear Action Alerts PLUS Subscriber,

Shortened week for me, but let me spend some time detailing attractive levels for each stock and where I see logical entry and exit points.

Aetna (AET) : I haven't wanted to buy more of this stock because I have a large position at a much lower basis. That said, I think that this company is going to $50 either by takeover or by earnings-per-share gains, I don't know which. If it were to drop to $33 I would buy more, but if you are new to Action Alerts and you don't own any, I have to tell you that I like this stock very much and it is a keeper for 2002.

Alcoa (AA) : Cyclical stocks will remain in vogue even through the first three tightenings. That's why I think Alcoa still works. The company seems to have lost its ability to wring out big profits at the early part of a recovery, something I thought it had developed under Paul O'Neill. That said, if the auto parts makers are starting to see better-than-expected earnings, you have to believe that we aren't far from seeing better-than-expected orders from Alcoa -- and that will translate into higher earnings per share.

AmerisourceBergen (ABC) : I sold a little bit of this company, which I have been continually paring back because I am worried about drug pricing pressure from generics, and pricing does matter to ABC. Morgan Stanley downgraded the stock on valuation and on nervousness about drug pricing, and the stock seemed to take the downgrade fairly well. But ABC is not immune from the problems at the large drug manufacturers, and I don't want to dismiss these concerns. I am now down to tag-ends for the stock and I will leave it when it gets into the $70s.

AOL Time Warner (AOL) : The big writedown shouldn't be a surprise; the company said it would take one at the beginning of the year. Even when the merger was first announced, large write-offs were in the cards. What I am more concerned about is the business starting to see some pick-up. I believe advertising, while better in a post- Olympics world than it was before, is still nothing to write home about, with bookings very tentative. All that said, I am a firm believer that this company is too cheap at this point. On "America Now" we had Scott Reamer from Union Tree Capital and RealMoney Pro on the show, and he is now growing more positive about the stock after being a confirmed bear for a very long time. That's a good sign. And you know my good friend Doug Kass has been writing that the worst is over -- he also was short it forever. Reamer says he thinks that Time Warner alone is worth $19, so we are down to where AOL is only worth $4. That seems absurd, given the 34 million paid subscribers. I think you buy this stock and put it away. Should be bought aggressively right here.

Baxter (BAX) : New to the portfolio, this is an antidote to the worries about price controls and pharma. Baxter's work is with blood and I think that it has in the pipeline the ability to add several billion in new products within the next two years. That's very exciting and the kind of real growth that you don't see coming from the Lillys (LLY) , Bristol-Myerses (BMY) and Mercks (MRK) . I would still buy it here and would be willing to pay $60 for it.

Best Buy (BBY) : Still my favorite play on rebounding consumer confidence and the secular trend toward more at- home entertainment post-Sept. 11. I would wait for a pullback to buy more, but I still expect this stock could see $100 -- and will split -- by fall.

Caterpillar (CAT) : The classic capital goods play when capital goods spending is going up huge. This is the perfect time in the economic cycle to be buying this stock and I would pay up to $60 for it.

Cisco (CSCO) : I hear the quarter is going just OK and there will be no surprises either way. I know that's not what the bulls will want to hear, but it is not what the bears want either. I don't care for the stock and am keeping it as a placeholder for when business gets better. I follow a stock better with ownership and I am following this one like a hawk to be able to spot when things really pick up so I can buy more of it. I would not buy the stock here if I had my druthers, and instead would wait until it traded below $15.

Citigroup (C) : The Travelers spinoff gave the stock a bit of a pop and I believe the business at Citi is quite strong. I would pay $52 for it, but be careful; the stock was at $42 a month ago.

Clorox (CLX) : The consumer names all have been strong in the first quarter. It would not surprise me to see that strength continue. Business remains good at Clorox and I would be willing to buy the stock here.

Comcast (CMCSK) : I bought some more of this stock right here. I think the cable business is a great business, one that is somewhat levered to a return to advertising and is certainly levered to critical mass, and the AT&T (T) deal gives Comcast that critical mass. Some people have wondered aloud why I would buy this stock now -- why not wait until the deal closes next year? My reaction to that is that I think you NEVER KNOW when a stock is going to begin to reflect the synergies of both operations, but I don't want to wait until Comcast starts going up to get on it. I think you sock some away in here and just wait, something that I can do, and what you must be able to do before you buy it.

Commerce Bancorp (CBH) : This is the only bank that measures itself the way a retail stock measures itself in same-store revenue production. The man who runs Commerce Bancorp, Vernon Hill, has put together a streak of 33%-plus growth for many years now and I think he will continue to do so. This bank should do well even if the Federal Reserve tightens prematurely, because is it taking huge market share from rivals Fleet FBF, Wachovia (WB) and J.P. Morgan Chase (JPM) . I would buy it aggressively here.

Conexant (CNXT) : Soon, very soon, the Alpha AHAA deal will close and we will be in a position to be able to assess all three divisions of Conexant. In the meantime, I continue to believe that the wireless portion of Conexant, the part that makes parts for Nokia (NOK:NYSE ADR), is much cheaper than any of the other companies (TriQuint (TQNT) , RF Micro (RFMD) , PMC-Sierra (PMCS) , Applied Micro Circuits (AMCC) ) and therefore can be bought and bought aggressively. Conexant is merging with Alpha Industries, which on Thursday lowered guidance for earnings. The pressure from Alpha could hurt Conexant. Remember, I like Conexant because it is splitting into three companies, which I think are worth much more than the stock is currently trading for.

Dell (DELL) : I don't need to own Dell and Microsoft. Neither do you. One personal computer play is enough in anyone's portfolio given the slow growth of that business. Yes, Dell is taking share, but Gateway GTW doesn't seem to be going away and now that Hewlett-Packard HWP and Compaq CPQ are merging, we are in a spot of trouble with Dell. I know conventional wisdom says Compaq will be less formidable. I don't care; I worry that a massive amount of personal computer inventory is about to be dumped on the market and that Dell won't be able to make its quarterly numbers.

General Electric (GE) : Trust is hard to value. If we are going to start shooting any company that has consistently "made" its numbers, well then, GE is going to be a free-fire zone. I know this: GE has giant cash flow, an improving balance sheet and terrific management. When that's a sin, you better head for the mattress bank. I think you buy GE and put it away.

Guidant GDT: The approval this week of a new product by Guidant highlighted that this medical device play is more than just a coated-stent wannabe. It is also a miraculously inexpensive stock given the consistency of its earnings. I would pay up to $44 for it.

HCA (HCA) : I feel this stock has just been marking time the whole time I have been in it, but that could be said about the market. HCA needs to put on a couple more good quarters before it can get to $50, where I think it is headed in 2002. I would buy it right here and really be aggressive about it below $40.

Microsoft (MSFT) : I scaled back some of this stock as I now think that personal computer sales have decelerated. I regard Microsoft as the best name in a really terrible group, and I regard it as that because it has a great balance sheet and good products. But it is unexciting and won't be cheap until it gets to $54.

PepsiCo (PEP) : Here's a company that's doing better than Coke (KO) and is selling cheaper than Coke. Pepsi's got a great business in snacks, a new and exciting business in Gatorade and nice growth in soft drinks, plus it's inexpensive. A perfect stock for most portfolios.

Pfizer (PFE) : My lone drug stock in what was once my favorite group. Actually, not once; for years this was my favorite group. Now generics and state regulation have made this group a tough place to be. Pfizer's the best of a bad lot and has lots of exciting stuff in its pipeline. I can stay the course, but I wouldn't get aggressive in buying any until it trades to $38.

Philip Morris (MO) : Seems to shrug off these court verdicts, as it should, because they won't hold up. Still very cheap with that great yield. I would wait until it pulls back to $50 to buy more, though.

Prudential (PRU) : I like the balance sheet, the cash it throws off, the upside surprises that it has and will generate and its philosophy of doing no investment banking. This is a cheap stock and I would buy it aggressively up to $33.

S&P Small Cap 600 ETF iShares (IJS) : This is my small- cap proxy, an electronic exchange-traded fund that represents a call on the stocks that make up the S&P 600 small-cap index. I would be careful how I buy it; anything more than 500 shares at once and you move the darned thing. I would buy it up to $95.

Target (TGT) : Digesting a monster move. I think it makes sense to buy some more if it trades under $40. I know I will be making sales in the $48 region; nothing urgent, just taking money off the table.

Tyco (TYC) : I think the worst is over. Remember, this stock is down 40% since the year began. That seems like a wild overexaggeration given that it has been able to raise capital and has some good cyclical businesses. I have enough here and won't buy any more until it trades below $30 again, although I don't think it will.

UnitedHealth Group (UNH) : The best health care name and the one that I would own if I could only pick one. I keep hoping it will drop to the $60s so I can rebuy the stock I sold in the $70s; no such luck, though.

United Technologies (UTX) : Good defense and capital goods play. Ideal stock coming out of a recession. I still think it will work its way up to $80. I was going to buy it back if it traded below $68 but it hasn't yet. (I sold some in the low $70s.)

Verizon (VZ) : Here's a big disappointment. I think that it is the cheapest stock in the portfolio. I think it is doing everything right, but it can't get out of its own way because it is the only telecom stock that many funds can sell and still get something back in return for. This company is completely in the driver's seat and I am confident that it will trade back to the $50s once the vast liquidation of the ne'er-do-well telcos is over. I would buy even more of it down here if I didn't own 4,000 shares already. If it trades to $42, I will buy another 1,000 shares. I know the ratings agencies have been playing hardball with Verizon, but it has gigantic cash flow and I really think that all comparisons to the WorldComs WCOM and Qwests Q are odious.

Viacom (VIA.B:NYSE): Got hit with a number cut recently, and I just shrugged it off because this company is the best way to play the comeback in advertising that we all know is out there. My biggest worry is the incessant talk that Mel Karmazin is out and I sure don't want that. If I hear that the talk turns into something more than that, I will let some go myself.

Wells Fargo (WFC) : Here's a stock that has made a very nice move and I think can continue to climb, but I will be honest: At $52, I want to sell 1,000 shares and buy more Commerce Bancorp with it as I think that stock will do better from here.

While I am writing, I want to wish you a happy holiday. I'm looking forward to seeing what I might be able to buy or sell next week. I think the beginning of the quarter will be a rocky one, with more backing and filling before we resume the climb. With the exception of the Dell and Microsoft holdings, I like how I am positioned very much.

Regards,

James J. Cramer

DISCLOSURE: At the time of publication, Cramer was long Aetna, Alcoa, AmerisourceBergen, AOL Time Warner, Baxter, Best Buy, Caterpillar, Cisco, Citigroup, Clorox, Comcast, Commerce Bancorp, Conexant, Dell, General Electric, Guidant, HCA, Microsoft, PepsiCo, Pfizer, Philip Morris, Prudential, S&P Small Cap 600 ETF, Target, Tyco, UnitedHealth Group, United Technologies, Verizon, Viacom, Wells Fargo.

These Action Alerts are intended to provide opinions about and analysis of stocks and markets. They are not intended to provide personalized investment advice. DO NOT EMAIL CRAMER SEEKING PERSONALIZED INVESTMENT ADVICE, WHICH HE CANNOT PROVIDE. Cramer welcomes your editorial comments at jjcletters@thestreet.com.

James J. Cramer is a Markets Commentator for TheStreet.com and CNBC, and a director and co-founder of TheStreet.com. TheStreet.com is a publisher, and neither we nor Mr. Cramer is registered as a securities broker-dealer or an investment adviser either with the U.S. Securities and Exchange Commission or with any state securities regulatory authority. From time to time, Mr. Cramer may write about stocks in which he has a position. In such cases, appropriate disclosure is made. Mr. Cramer must hold all securities in his Action Alerts PLUS portfolio for at least one month. In addition, he is not permitted to buy or sell any security he has spoken about on CNBC for five days following the broadcast. Mr. Cramer's Action Alerts represent his own opinions and should not be relied upon for purposes of transacting securities or other investments, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. He cannot and does not assess, verify or guarantee the suitability or profitability of any particular investment. You bear responsibility for your own investment research and decisions and should seek the advice of a qualified securities professional before making any investment. Please note: Effective Feb. 12, 2002, the holding period for securities in Jim's Action Alerts PLUS portfolio changed from four months to one month.