Weekly Roundup
First-quarter earnings season kicked off this week and the "big four" -- Alcoa (AA) , JPMorgan (JPM) , Google (GOOGL) and Bank of America (BAC) -- didn't exactly "light" it up. Oil prices remained volatile and economic activity was mixed (better consumer sentiment and in-line CPI readings were offset by higher core PPI prices and weaker initial claims). Meantime, uncertainty remained high with respect to the U.S. federal deficit and concerns about what happens after the Fed's quantitative easing program (QE 2) ends. All of this came together and took the markets lower for the week.
It's no surprise that the defensive groups -- health care, staples and utilities -- were the outperformers. It's these kinds of weeks that are the reason I run a diversified portfolio: a combination of economically sensitive stocks (industrials, materials, energy and tech) and defensive ones (health care and staples).
I believe it's too early to call earnings season a "disappointment" as the majority of companies have yet to report and most of the economic data has been positive (supportive of a recovery). The government is at the very least beginning the conversation about deficit reduction, which is important, but the debate will continue in earnest until the June deadline. Overall, it's prudent to be balanced with stock representation in multiple industries. It's equally as important to take profits where you can. That's what I did this week and will continue to do.
On the buy side, I added four new positions to the fund: Ensco ESV, Emerson (EMR) , Sanofi-Aventis (SNY) and Starwood (HOT) . This group represents a good combination of beta and defense, and each name is a high-quality leader in its respective industry. Moreover, their valuations are attractive.
Ensco is most tied to the recovery in deepwater drilling in the Gulf of Mexico. Emerson, which will benefit from many of its late-cycle businesses, is very cheap right now, especially given its historical range. Sanofi-Aventis is a very cheap, high-quality drug company that continues to diversify away from its patent exposure (especially with the Genezyme acquisition). And Starwood is one of the most levered ways to play the hotel/lodging recovery, which I expect to happen in 2012.
Other buys this week included Accenture (ACN) , EMC (EMC) and Juniper (JNPR) . I'm slowly closing the big underweight position I have in tech. I sold out of Johnson Controls (JCI) and Southwestern Energy (SWN) , and I used the gains from both positions as a source of funds. I trimmed Coca-Cola (KO) as it hit a new high and I also sold some Cummins (CMI) for a 67% gain.
Since I added many new names to the fund, I made several ranking changes. Those moved from Ones to Twos include Coca- Cola (KO) , given the historic rally it's had (not seen since 1999); PNC (PNC) , because it's at a full position and, at the current prices, I prefer Prudential (PRU) and American Express (AXP) ; Weatherford (WFT) , because I favor for Ensco ESV; and Vale (VALE) , an already-big position that I just want to add to at a better price.
I was tempted to downgrade Express Scripts (ESRX) as well (from One to Two), but it's such a volatile stock and I remain bullish on its long-term prospects, so it will remain a One. I also left EMC (EMC) as a Two, despite the fact that I bought it and am very bullish on it. This is because I want to remain very careful on the price I buy it at -- especially ahead of the "seasonally slow" quarter next week.
My weightings didn't change too much. I'm a little lighter in industrials and a little heavier in health care. Overweight bets include industrials and materials. Underweight bets are health care, tech and staples. I am market weight in energy and financials.
A quick programming note: next week will be a brief Weekly Roundup due to the holiday-shortened week. We will be back with a full report the following week.
New folks, welcome aboard! You will see many of the same disciplines at work, in real time, that are in "Jim Cramer's Mad Money: Watch TV, Get Rich," "Jim Cramer's Real Money: Sane Investing in an Insane World," "Jim Cramer's Stay Mad for Life: Get Rich, Stay Rich" and my newest book "Jim Cramer's Getting Back to Even."
I also want to be sure you're not confused about the terminology I use on my "Mad Money" television show: When you hear me refer to my "charitable trust" on "Mad Money," I am talking about the trust that holds my Action Alerts PLUS portfolio. My winnings from Action Alerts PLUS go to charity after the close of each trading year.
Here's the quick guide to my rating system, too: Ones are stocks I would buy right now, Twos are stocks that I would buy on a pullback, Threes are stocks I would sell on strength and Fours are stocks I want to unload as soon as my trading restrictions allow.
ONES:
Accenture (ACN:NYSE, $54.67, 1,600 shares, 2.80%) INDUSTRY SECTOR -- TECHNOLOGY: Accenture posted a great quarter two weeks ago, beating expectations on earnings, revenue and bookings. Within the bookings numbers, consulting outperformed outsourcing, which is indicative of more discretionary type deals. Also, larger sized projects are on the rise, and that will lead to both higher revenue and margins. The analyst meeting this week was a good one, but the stock ran up into it, so there was some "sell the news" action that I bought in to. Management reiterated double- digit earnings growth for both 2011 and 2012 (as I expected and wrote a about last week) with organic revenue growth at 7% to 10%. Management also remains optimistic about the recent strong growth trends in cloud initiatives, analytics, ERP, mobility and geographic expansion (driven by its global distribution network). The bottom line is that Accenture is benefitting from strong enterprise demand that will drive steady double-digit earnings growth over the next few years. At 15x forward estimates, the stock trades at a discount to its 19x average and is a buy.
Alcoa (AA:NYSE, $16.52, 5,300 shares, 2.80%): INDUSTRY SECTOR -- BASIC MATERIALS: The company beat consensus by a penny, posting first-quarter earnings per share of $0.28, up 20% year-over-year, with revenue up 22% at $5.96 billion. Although the results were solid, the report was basically in-line with overall expectations (better earnings, lower revenue), and that disappointed those who were expecting a beat. The fundamentals remain strong and, given the share price decline, I'll leave this ranked as a One. End market demand was encouraging: auto rose 30% on a quarter-over-quarter basis, aerospace demand grew by 7%, packaging increased 14%, industrial gas turbines rose 13% and trucks /transportation increased 12%. With strong end market demand and 12% forecasted global demand growth for aluminum in 2011, this stock is a buy. My target is $22.
American Express (AXP:NYSE, $46.25, 2,700 shares, 4.00%) INDUSTRY SECTOR -- FINANCIALS: The company formed a strategic alliance with Payfone to create a mobile checkout service, allowing consumers to use their mobile phone numbers to pay for purchases. Charges will be linked to either a mobile operator account or American Express' Serve account. This is positive and could add to growth for American Express given the rising popularity of smartphones. This stock remains attractive at current levels given this company's strong franchise, strong balance sheet and above-peer-group growth. Trading at 13x estimates, shares are cheap compared to the stock's long- term average multiple of 17x. My target is $50.
Apple (AAPL:Nasdaq, $327.46, 150 shares, 1.57%) INDUSTRY SECTOR -- TECHNOLOGY: An interesting report out this week confirmed that the iPad is gaining traction in the enterprise segment, with 12% of respondents indicating they'd use the iPad in their everyday business, and another 13% saying they expect to deploy/test incorporating the iPad into their businesses over the next year. Separately, at an electronics trade show in China, a research firm gathered information suggesting that a Smart TV launch by Apple could occur before the end of this year. There is also renewed speculation that Apple would enter the $100 billion LCD TV market, and the company appears to be moving down this path faster than the market expected. Headlines about iPhone5 delays have pressured the stock, and if I weren't restricted, I'd be buying aggressively because the situation creates an opportunity to buy one of the best consumer products stories at an attractive price. My target remains $400.
Deere (DE:NYSE, $93.76, 1,400 shares, 4.20%) INDUSTRY SECTOR -- INDUSTRIALS: The fundamentals remain strong and I remain confident that this name can realize earnings power of $8 to $10 per share over the next several years. The Association of Equipment Manufacturers (AEM) reported North America agriculture equipment sales for March, noting that combine sales grew 31% year over year (72% growth in Canada and 22% in the U.S.). Small tractor sales rose 8% year over year and large tractor sales declined 5%. Retail sales in Canada jumped 25% year over year and U.S. retail sales grew 6%. The positive numbers indicate that the environment remains strong in North America, and Deere stands to benefit the most due to its leading market share. Deere will remain a core position given its leverage to the global economic recovery, strength in China and Brazil, momentum in its construction and forestry division and the turnaround in North America. My target is $110.
Emerson Electric (EMR:NYSE, $57.55, 700 shares, 1.29%): INDUSTRY SECTOR - - TECHNOLOGY: I used the proceeds from the Johnson Controls sale to initiate a position in a more diversified industrial company. Emerson is one of leading industrial companies with a variety of businesses: process management, network power, climate technologies (HVAC), industrial automation, appliance solutions, storage solutions and professional tools. I see plenty of upside potential in Emerson given its late-cycle businesses, attractive valuation (lagged the group 9% year to date), 34% exposure to emerging markets, leverage to oil prices, exposure to IP traffic growth, and recovering HVAC markets. The company should benefit as comps ease in the second half of 2011 in Network Power, the China tightening cycle ends and backlog growth in Network Power rolls into 2011. At Emerson's analyst day in February, the company revised its long-term guidance to 7% to 8% core growth from 2010 to 2015, and 16% to 18% operating margins (up from 15% to 17%). These revisions mean Emerson's 2015 earnings could potentially $5 to $5.20 per share. Shares are attractively priced, trading at a 5% premium to the group compared to its long-term average of trading at premium of 10% to 15%. My target is $66.
Ensco (ESV:NYSE, $55.77, 600 shares, 1.07%): INDUSTRY SECTOR - - ENERGY: With the gains from the Southwestern Energy sale, I decided to purchase an energy play with more near-term catalysts. Ensco is the largest offshore jack-up oil- and gas-well- drilling company. Its management team is considered to be the best in the industry, and it has topped or matched consensus in 38 out of the last 40 quarters. The company has 50 offshore jack-ups and five semi-submersible drilling rigs on its own, and it just bought five deep-water rigs and five midwater rigs from the Pride deal -- a near-term dilutive acquisition that is very accretive to its business over the long term. Ensco has operations scattered around the globe in regions such as the North Sea, Africa, Middle East, Asia-Pacific, South America and Gulf of Mexico. It is the most levered to the recovery in the Gulf of Mexico and improving demand will likely lead to stronger day rates, which will help drive earnings higher. After lagging the group 17% year to date, I believe that, as the deal closes in June, investors will bid shares higher on the additional $6.5 billion backlog, synergies and excellent growth prospects as deep-water drilling recovers. My target is $65.
Express Scripts (ESRX:Nasdaq, $55.44, 1,400 shares, 2.48%) INDUSTRY SECTOR -- HEALTH CARE: After two years of integrating NextRx into Express Scripts, I believe the company can now go after business wins (without sacrificing price) given its integrated offering and strong services. Express Scripts is the best-positioned pharmacy benefit manager, and it could see significant contract wins and market-share gains in light of Medco Health's (MHS) difficulties in keeping the Calpers account and integration issues at CVS Caremark (CVS) . Express Scripts is clearly the winner in the industry, and I like its focus on generating strong cash flow, increasing its buyback in order to return cash to shareholders and improving its mix of mail and retail distribution. My target is $70.
General Motors (GM:NYSE, $30.24, 2,600 shares, 2.52%) INDUSTRY SECTOR -- INDUSTRIALS: The company's new CFO, Dan Amman, held an analyst meeting and highlighted the company's strategy, which includes renewed discipline on pricing, growth in credit and limiting the impacts of production cuts. I believe the turnaround at GM is underway because the company has improved its pricing/incentives strategy, and its balance sheet is much healthier to finance growth with its slate of new products. I look forward to new products, increased market share and better profitability per vehicle as we head deeper into 2011 and 2012. Shares, which are trading 20% off the highs, are a buy here. My target is $38.
Juniper Networks (JNPR:NYSE, $38.38, 2,900 shares, 3.56%) INDUSTRY SECTOR -- TECHNOLOGY: Shares have underperformed recently due to Japan exposure, weak U.S. federal demand and a slow start to capital spending. I am not expecting upside when the company reports on April 20, though we could see a relief rally. In addition, I expect guidance to be in-line to better than the most pessimist outcome. I'm looking to buy on a pullback, especially since the first quarter is historically Juniper's slowest. The company has a slew of new products (routers, switches and security) that will enable it to take share, grow earnings and increase revenue. Right now the company is benefiting from the need for more bandwidth associated with tablets, smartphones and video apps, along with the massive growth in global IP network traffic. These factors position the company for revenue growth, market-share gains and upside to its long-term forecasts of 20% earnings growth and 25% margin growth. My target is $50.
Kellogg (K:NYSE, $55.37, 1,800 shares, 3.19%): INDUSTRY SECTOR -- STAPLES: Shares held up nicely during the recent market turbulence as investors flock to safety, but I believe there are more reasons to own this name. After years of neglect and mismanagement, Kellogg is in turnaround mode and I expect it to regain momentum as it focuses on driving revenue growth through innovation, brand- building and price mix, while also controlling costs and driving solid execution. I believe management's strategy will be rewarded with sales growth and market share gains, and it helps that Kellogg currently has the best product lineup it's had in five years. My target is $58.
Kohl's (KSS:NYSE, $53.27, 1,900 shares, 3.24%): INDUSTRY SECTOR -- RETAIL: The company and JPMorgan (JPM) announced a marketing partnership that allows Chase card members with Ultimate Rewards to gain access to a wide range of increased rewards benefits for shopping at Kohl's. Last week, the company beat same-store sales expectations, which fell 6.5% vs. the expectation of a 10% decline. Free cash flow generation will continue to be strong in 2011 ($1.2 billion), and the company has total cash on its balance sheet of $2.3 billion. This will support further buybacks and dividends. This is one of the only large-cap retailers that offers substantial store growth and I expect continued market-share gains combined with upside to margins. After years of heavy internal investment and lagging the industry in terms of stock returns, Kohl's is positioned to outperform and play catch-up in 2011. My target is $60.
Lowe's (LOW:NYSE, $27.05, 2,000 shares, 1.73%): INDUSTRY SECTOR -- CONSUMER DISCRETIONARY: U.S. Census Bureau retail sales data for home improvement stores show March sales increased 5% year over year. This is a deceleration from February's 9% year-over-year growth and January's 11% year- over-year growth. I expect the company's first-quarter earnings per share to come in at $0.37. It's important to note that, over the past five years, the company's comp data has had a correlation of 0.80 to the Census Bureau data. The lack of new building, cheap valuations, better affordability and low interest rates are reasons to have some exposure to the housing group, and I like the home- improvement group, particularly Lowe's. Lowe's has lost share to its largest rival over the years and is now taking steps to address its expense structure and product positioning, and that should lead to higher margins. Shares are cheap at current levels, trading at a 10% discount to Home Depot. My target is $34.
Oracle (ORCL:Nasdaq, $34.18, 3,400 shares, 3.72%) INDUSTRY SECTOR -- TECHNOLOGY: The company received strong analyst support this week, with one firm noting that Oracle's differentiated solutions, featuring software plus hardware components, reinforce the company's wide moat and create long-term value for shareholders. Near term, I expect the company's growing position in the high-end server market will become a major driver of growth. Oracle's integrated systems hardware is specifically configured to work with the client's software, and that unique connection creates a self-reinforcing effect that increases the stickiness of the overall solution. Management indicated that the database business remains solid and said that new products such as Exadata and Exalogic should accelerate in growth and that margins would continue to expand. I'm a buyer at current levels given that shares trade at 13x forward estimates, well below the long-term average. My target is $42.
Prudential (PRU:NYSE, $61.00, 2,100 shares, 4.10%) INDUSTRY SECTOR -- FINANCIALS: I like this company for its pristine balance sheet with its $4 billion in excess capital on its books, which opens the door for additional stock buybacks, increased dividends and further tuck-in deals. The company has ambitious goals of doubling its Asian business and IFRS profits by 2013. This will remain of core holding given its exceptional international assets, dominant market share and low capital intensive U.S. businesses (asset management and annuities). Prudential remains a great way to play the higher equity markets and it's positioned well for above- average earnings and book value growth. At 8x earnings, the stock is very cheap here. I'll buy in the low $60s. My target is $75.
Sanofi-Aventis (SNY:NYSE, 37.52, 1,400 shares, 1.68%): INDUSTRY SECTOR - - HEALTH CARE: There is a lot to like here -- the completion of the Genzyme acquisition, cheap valuation (trading at 8x 2011 earnings vs. the group at 10x) and the fact that it is poised to experience above- average growth after its trough earnings year in 2012. Sanofi-Aventis is the fourth-largest pharmaceutical company in the world and covers seven major therapeutic areas: cardiovascular, central nervous system, diabetes, internal medicine, oncology, thrombosis and vaccines (it is the world's largest vaccine company). In the last two years, Sanofi-Aventis has focused on building and expanding its product pipeline in diabetes, vaccines, OTC, generics and animal health. These new businesses grew at 18% in 2010 and now contribute 50% to sales vs. 41.8% in 2009. I expect to hear more about the company's plans to grow these products at its September analyst day, which I believe will be an important catalyst for the stock. Longer term, the expected compound annual growth rate for earnings between 2013 and 2017 is 7.4%. Emerging markets will eventually make up 35% of total sales (higher margins, higher growth), with vaccines at 11% and consumer at 14.4% of total sales.
Starwood Hotels (HOT:NYSE, 57.48, 500 shares, 0.92%): INDUSTRY SECTOR - - SERVICES: I've been eyeing this company for a while and, given the tight supply, improving demand and attractive valuation, decided to buy it here. Starwood, one of the world's largest hotel companies, is one of the best in the business. It owns, leases, manages or franchises hotels in 100 countries around the world. Throughout the downturn, management sold noncore assets, reduced expenses, lowered debt by $700 million and increased leverage to buy nearly a quarter of its shares outstanding. Its brands include St. Regis, The Luxury Collection, Westin, W, Sheraton and Four Points. With 60% of its assets outside of the U.S., its broad-based global portfolio and brands make it the most levered to the global travel/lodging recovery. As business and consumer occupancy trends improve, its mix of owned and franchised assets will lead to strong operating leverage and strong margins. Management expects 2011 revenue per available room (RevPAR) to grow 7% to 9%, with EBITDA of $975 million to $1 billion and earnings per share of $1.55 to $1.65. Although the hotel industry will not likely recover until 2012, I believe Starwood will outperform the group given its strong international exposure, large metropolitan market penetration and high-end position.
Wabco Holdings (WBC:NYSE, $60.66, 1,500 shares, 2.91%) INDUSTRY SECTOR -- INDUSTRIALS: The company's orders continue to exceed the industry's ability to produce, and this is leading to significant backlog growth. Recall that last week the ACT Research preliminary March net orders for North American heavy (Class 8) and medium (Class 5-7) trucks were better than expected. Preliminary net orders of 29,200 for Class 8 trucks was up 20.3% sequentially and 158% higher than last year. The numbers support the idea of a continued recovery, backed by demand coming from improved truck profitability, the replacement cycle (trucks are old, at 20-year highs) and the switch to engines with higher emission standards. Production levels are increasing, margins are expanding, volumes are improving and shares trade at a 10% discount to the group. Wabco is the best way to play the truck cycle, and I'll continue buy below $58. My target is $68.
TWOS:
Apache (APA:NYSE, $122.40, 900 shares, 3.53%): INDUSTRY SECTOR -- ENERGY: This is one of the most sensitive companies to the price of oil, and I expect it to benefit greatly from the higher commodity price, which will lead to very strong cash generation. Capex plans are for $7.5 billion this year, which could be revised higher throughout the year in areas such as the Permian Basin, Egypt and the Gulf of Mexico. The combination of Apache's top-notch management team, strong balance sheet and global exposure leads me to believe that that this is one of the best exploration-and-production (E&P) plays in the industry. My target is $150.
Boeing (BA:NYSE, $72.60, 1,400 shares, 3.25%) INDUSTRY SECTOR -- INDUSTRIALS: Boeing's first-quarter deliveries started out slow but production estimates for the remainder of the year call for a steady increase in volume. I expect deliveries to jump to 500 in 2011 and 600 in 2012, given the late-cycle demand. When Boeing presents at the Paris Air Show in June, I expect shares to react positively. At the air show, Boeing will highlight its existing aircraft and its progress on orders, and it will likely give an update on the 787 Dreamliner launch. The increased production rates in the 777 and 737 suggest that demand continues to improve. I continue to like this story for the long run, especially since the aerospace recovery is in its early innings. My target is $77.
Caterpillar (CAT:NYSE, $107.21, 1,000 shares, 3.43%) INDUSTRY SECTOR -- INDUSTRIALS: Based on channel checks of 20 U.S.-based construction equipment distributors, demand and pricing remains strong, according to one research firm. One of Caterpillar's dealers made a bullish comment, saying that Caterpillar can "sell anything it produces." The demand stems from external markets, rental channel replacement, continued dealer inventory stocking ahead of the transition to lower-emissions equipment and the emergence of non-stimulus related pockets of demand strength. This will remain a core position given its growing presence in emerging markets, the revenue and cost synergies from the Bucyrus deal, the strong replacement demand and the company's solid balance sheet. Trading at 13x mid-cycle earnings, shares are a bargain and should be bought at current levels. My target is $120.
Coca-Cola (KO:NYSE, $68.01, 1,800 shares, 3.92%) INDUSTRY SECTOR -- CONSUMER DISCRETIONARY: The stock hit fresh multiyear highs this week, so I trimmed shares and locked in gains. I also moved it down to a Two from One. This remains one of my favorite consumer plays given its positive momentum and strong products and synergies from the CCE bottling deal. With double-digit earnings growth and upper-single-digit revenue growth, Coca-Cola continues to execute better than its peers. But I'm up nicely and locked in profits. My target is $70.
Cummins (CMI:NYSE, $105.13, 1,000 shares, 3.37%) INDUSTRY SECTOR -- INDUSTRIALS: Alcoa's results weren't exactly stellar, but its auto segment was up 5% to 10% and trucking was revised higher. This confirms my positive thoughts on Cummins' upcoming quarter. I remain a huge believer in the truck story, but I'm up 65% in this position, so I decided to sell shares this week and add to my Sanofi-Aventis position. The market sold off the economically sensitive stocks this week due to the deterioration of global growth that's being brought on by higher commodity prices. This was especially the case for stocks that have moved big (like Cummins). Demand continues to come from improved truck profitability, the replacement cycle (trucks are old, at 20-year highs) and the switch to engines with higher emission standards. CMI remains my favorite way to play this trend. As global economies recover, its power- generation business (20% of revenue) will see demand pickup as well. My target is $120.
EMC (EMC:NYSE, $26.91, 4,000 shares, 3.45%) INDUSTRY SECTOR -- TECHNOLOGY: As shares corrected back into the mid $20s this week, I took advantage of the situation and added to the position (ahead of its earnings report next week). EMC is scheduled to report its first-quarter results next Wednesday, and consensus calls for revenue of $4.5 billion and earnings per share of $0.31. There's been a lot of noise around the quarter given the seasonality and availability of EMC's new products as the company transitions to the VNX line from CLARiiON and Celerra. VNX is a far superior product and much better positioned in the midrange market, and that will translate into earnings upside for the rest of the year. More importantly, strength in EMC's other products, such as VMware, will more than make up for any VNX shortfall driven by the data center refresh cycle. The storage giant expects to see earnings growth of 20%, revenue growth of 13% and expanding margins. Trading at 15.6x 2012 estimates and 10x cash, shares remain attractive. My target is $32.
Fluor (FLR:NYSE, $68.73, 1,400 shares, 3.08%) INDUSTRY SECTOR -- INDUSTRIALS: The company announced that it will team up with Azima DLI to provide clients a dynamic and comprehensive solution for their industrial predictive maintenance needs. In other news, Fluor announced that it was awarded the Best Biofuels EPC Innovation Award at the World Biofuels Markets conference in Rotterdam, Netherlands. The award is testament to Fluor's commitment and innovation within the biofuel industry. I like this stock for the long term because Fluor's backlog will continue to expand rapidly heading into 2012, though it will be lumpy. I'll buy it back if it falls below $70. My target is $80.
Hess (HES:NYSE, $78.88, 900 shares, 2.27%) INDUSTRY SECTOR - - ENERGY: Two wildcat projects in Ghana and Egypt in April and May, followed by a natural-gas announcement in Indonesia, could be near-term catalysts for shares. Beyond these, the company has multiple assets in the U.S., France and the Middle East that offer many potential catalysts for the stock. This will remain a core position given that it is the cheapest of the oil majors, it's positioned for industry-leading growth and it is the most levered to higher oil prices. My target is $80.
NovaGold Resources (NG:NYSE, $13.27, 4,200 shares, 1.78%) INDUSTRY SECTOR -- PRECIOUS METALS: The company held its quarterly conference call and provided updates on the Donlin Creek and Galore Creek projects. With production timelines of six to eight years, these are the growth drivers to the story. In the second quarter, NovaGold will spend $12.7 million on Donlin, $5.3 million on Galore, $3.1 million on Ambler and $2.6 million on Rock Creek -- all roughly in line with prior guidance and well within the cash available ($129.3 million). Stock drivers will be study results -- prefeasibility for Galore, feasibility and permitting for Donlin and non core asset sales for Ambler. Since this is one of the most levered ways to play gold, I'll continue to hold this position and possibly look to add on any material pullback close to $11 or $12. My target remains $20 for the long term.
PNC Financial (PNC:NYSE, $61.90, 2,100 shares, 4.16%) INDUSTRY SECTOR -- FINANCIALS: Banks are tough investments right now -- as witnessed by the mixed results from both JPMorgan and Bank of America -- but PNC remains a high- quality regional bank with an experienced and proven leadership team, above-average profitability, moderating credit risks and improving capital flexibility. It is also in an excellent position with its balance sheet, market share and revenue growth as it integrates National City. PNC continues to be one of the largest positions in the fund, but I am not likely to buy more unless it falls below $60. For that reason, I moved it down a peg to a Two from One. My target remains $70.
Stanley Black & Decker (SWK:NYSE, $77.04, 1,300 shares, 3.21%) INDUSTRY SECTOR -- CONSUMER DISCRETIONARY/INDUSTRIAL: I expect new products, emerging markets and acquisition synergies to drive long-term organic sales growth of 4% to 6%. Revenue synergies from the Black & Decker deal are expected to reach $400 million, as the company has plans to cross-sell, expand geographically and extend its brand with new products. The company maintains its focus on emerging market penetration, which accounts for 11% of total sales and is expected to grow at 20%. With revenue and cost synergies, margin expansion and cash flow generation, this remains a core holding in the fund and a great way to capture the housing theme. My target is $85.
Vale (VALE:Nasdaq, $32.78, 2,600 shares, 2.73%) INDUSTRY SECTOR -- MATERIALS: The company announced it entered into a contract for a five-year, $3 billion revolving credit facility supplied by a bank syndicate. It also announced the $1.3 billion purchase of Metorex, a producer of copper and cobalt in the African Copper belt with two operating mines, which could be 10% earnings accretive in the coming years. These are all signs that it's business as usual under the new management team -- although that won't be made official until the end of May. Vale is a great long- term mining play with diverse mineral exposure, strong customers and a solid balance sheet that will support buybacks and dividend increases. Trading at an enterprise- value-to-EBITDA multiple of 4.8x and a 30% discount to the group, shares are very compelling. That said, I moved this down a notch from a One to a Two as I am more likely to buy it closer to $30 given that it is already a fairly large bet in the fund. My target is $40.
Weatherford International (WFT:NYSE, $21.02, 4,700 shares, 3.16%) INDUSTRY SECTOR -- ENERGY: I moved this down to a Two from One. Of the late-cycle energy plays, I prefer Ensco and Fluor to Weatherford. As demand improves and the market gets tighter, pricing will increase for services, and that will provide upside to revenue, margins and earnings. Geographically speaking, Weatherford is in the right areas of the world to capture the leverage as demand improves. It's also the cheapest in the group. I'll buy more below $20, but I'm a likely seller at $25 to $27 in favor for the others.
THREES:
Bank of America (BAC:NYSE, $12.82, 8,500 shares, 3.49%) INDUSTRY SECTOR -- FINANCIALS: Bank of America (BAC) reported quarterly results Friday that had many moving parts and that showed improvement in several business segments, including asset management, wealth management and trading. However, these results were overshadowed by continued problems in Bank of America's mortgage units -- where it reserved another $1 billion. Earnings of $0.17 per share missed expectations by a dime, but revenues were 2% ahead of consensus at $26.88 billion (vs. the expected $26.69 billion). The earnings miss was due to higher mortgage expense, legal expense and lower sales/trading (the first quarter of 2010 was a company record and a very difficult comparison). This weakness was offset by lower credit costs, gains from equity investments, higher asset management fees (long-term AUM flows of client assets into wealth management was $14 billion) and investment banking fees. Provisions for credit losses declined 61% year over year as net charge offs fell for the fourth consecutive quarter. The bank also saw a 12% sequential improvement in delinquencies -- a clear signal of improving credit quality in both its consumer and commercial book. Loan loss reserves remain strong, covering 1.6x losses, and global excess liquidity grew to $386 billion. The company also reduced its long-term debt by $14 billion. Core commercial loans increased slightly and deposit balances grew to $1.02 trillion. All of its capital ratios improved: Tier 1 common is now 8.64% vs. 8.60% sequentially and 7.60% in the year- ago period, and tangible common equity rose to 6.10% from 5.99% sequentially and 5.22% a year ago. Importantly, tangible book value rose to $13.21 from $12.98. Shares are cheap but, given the continued headwinds in the mortgage segment, I prefer non-bank financials (American Express and Prudential) at this point because they are cleaner stories. So I am leaving Bank of America as a Three and will be selling into strength when I am clear of my restrictions.
WellPoint (WLP:NYSE, $69.41, 1,200 shares, 2.67%) INDUSTRY SECTOR -- HEALTH CARE: The company plans to announce its first-quarter results on April 27. Consensus calls for earnings per share of $1.86. During the call I'll be listening for comments on rate regulation and the MLR minimums. Management will have to convince investors that the company is a beneficiary of health care reform and not a target, and that may be difficult. WellPoint is one of the cheapest in the group, and it has a very powerful buyback program in place that will keep a floor under the shares. That said, I'm up 17% in the name and may take gains in the low $70s. I'll consider buying shares back if they fall into the mid-$60s.
Regards,
Jim Cramer, Stephanie Link, and TheStreet.com Research Team
DISCLOSURE: At the time of publication, Cramer was long Alcoa, Apple, Accenture, Apache, American Express, Boeing, Bank of America, Caterpillar, Coca-Cola, Deere, EMC, Emerson Electric, Express Scripts, Ensco, Fluor, General Motors, Hess, Juniper Networks, Kellogg, Kohl's, Lowe's, NovaGold Resources, Oracle, PNC, Prudential, Sanofi-Aventis, Stanley Black & Decker, Starwood Hotels & Resorts Worldwide, Vale, Wabco, Weatherford and WellPoint.
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James J. Cramer is a Markets Commentator for TheStreet.com and CNBC, as well as Chairman of the Board and co-founder of TheStreet.com. TheStreet.com is a publisher. Cramer graduated magna cum laude from Harvard College, where he was president of The Harvard Crimson. After receiving his J.D. in 1984 from Harvard Law School, he joined Goldman Sachs, where he worked in sales and trading. In 1987, he left Goldman to start his own hedge fund. While he worked at his fund, Cramer helped start Smart Money for Dow Jones and then, in 1996, he founded TheStreet.com.
Stephanie Link is the director of research & vice president of strategy for TheStreet.com. She is the co-portfolio manager for Action Alerts PLUS and works daily on the strategy and stock picks chosen for the portfolio. Stephanie is also responsible for recruiting talent for the paid sites including options, technicians and fundamental contributors. Prior to joining TheStreet.com, Link worked on Wall Street for 16 years. She spent nine years at the Prudential Equity Group as a managing director in U.S. institutional sales and as the New York sales manager covering top national accounts. She was the managing director of equity research in her final year at the firm. Prior to that position, she worked at Dean Witter as an institutional sales person for six years. Link's investment specialties include large-cap core stocks as well as value ideas.