Weekly Roundup
Earnings season was in full-swing this week and the deluge of reports did not disappoint. Led by the industrial sector, many quarterly reports handily beat expectations as the markets continued to work higher. Federal Reserve Chairman Ben Bernanke's press conference was really a non-event, but the message was loud and clear: rates will stay low for a while. And with a disappointing GDP figure and weekly jobless report, that decision is understandable.
Earnings will continue to take center stage, and the guidance from many companies (across a broad array of industry groups) has been very encouraging. We've heard positive outlooks from the likes of 3M (MMM) , UTX (UTX) , Honeywell (HON) , Boeing (BA) , Apple (AAPL) , EMC (EMC) , Hess (HES) , Baker Hughes (BHI) , Bristol Myers (BMY) , Merck (MRK) and others. Against this backdrop, I remain positive on the market, but I continue to be disciplined as well. I will buy on the dips and trim where I have profits.
It was an active trading week for me, and I deployed some of the cash I built up in the past few weeks. I also took advantage of not being heavily restricted in names to build out positions. I added to Apple (AAPL) in the tech sector, Ensco ESV in the energy sector, Emerson (EMR) and Stanley Black & Decker (SWK) in industrial, Express Scripts (ESRX) and Sanofi-Aventis (SNY) in health care and Coca-Cola (KO) in consumer. I also added a new position -- Viacom (VIA.B:NYSE) -- ahead of its quarterly report. I trimmed Deere (DE) to take gains.
I downgraded Deere (DE) to a Two from One based on the profit-taking (shares are close to an all-time high). I downgraded NovaGold (NG) to a Three from Two because I am inclined to take gains and buy a more liquid position in a gold ETF. I downgraded Kellogg (K) to a Three from a One given the move it's had and the fact that it's very close to my target price. And I upgraded WellPoint to a Two from Three after the stellar quarter it posted. I'll let that position ride for a bit longer and have increased my target.
I remain overweight in industrials, discretionary and mining (although quite a bit less after last week's trim of Vale (VALE) . I am still underweight in technology, financials, health care and staples. Of these sectors, I am chipping away at the underweight positions in tech and health care because the stocks are very cheap.
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.
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, $57.13, 1,600 shares, 2.81%) INDUSTRY SECTOR -- TECHNOLOGY: Accenture and Nokia (NOK) announced plans for a strategic collaboration in which Nokia will outsource its Symbian software activities and transition about 3,000 employees to Accenture. The partnership also includes plans for Accenture to provide Nokia with mobility software, business and operating services around the Windows Phone. Initially, this deal could add $200 million to annual revenue (not a needle-mover for Accenture). That said, it is part of an important growth initiative for the company to expand in cloud computing, analytics, ERP and mobility. This will also help Accenture expand geographically. I remain very bullish on this position and am looking for a "red" day to continue to build. Trading at 15x forward estimates, shares are cheap relative to the 19x average. My target is $70.
Alcoa (AA:NYSE, $17.00, 5,300 shares, 2.77%): INDUSTRY SECTOR -- BASIC MATERIALS: Shares have stabilized since the company reported earnings two weeks ago, and the news flow has been quiet. That said, strong quarters from Boeing (BA) , Ford (F) and Cummins (CMI) all bode well for Alcoa as these are strong end markets for the company. Positive news from those companies is also consistent with Alcoa's estimate for 12% global demand growth. Recall that, in the first quarter, Alcoa's revenue rose 20%, with the auto segment up 30%. Aerospace demand grew 7% while trucks/transportation demand increased 12%. Aluminum orders for North America rose 3.6% from February. Excluding can sheet, orders jumped 9.2%. The fundamentals remain strong and shares are cheap. My target is $22.
American Express (AXP:NYSE, $49.08, 2,700 shares, 4.08%) INDUSTRY SECTOR -- FINANCIALS: The company posted a very solid quarter last week, but shares were sold on the news. Shares played catch-up this week as investors realized this is a very cheap stock and the quality of earnings was very strong. Recall that first-quarter earnings rose 33% to $0.97 and revenue rose 7% to $7 billion -- the healthiest pace since before the recession. Also, quality continued to improve, with loss provisions down to $97 million from $943 million in the year-ago period. And most importantly, card-member spending jumped 17%. Shares remain cheap and continue to be a buy. My target is $60.
Apple (AAPL:Nasdaq, $350.13, 200 shares, 2.15%) INDUSTRY SECTOR -- TECHNOLOGY: The company announced the arrival of the iPad2 in Japan, Hong Kong, Korea, Singapore and eight other countries this week. The new tablet will be available in China on Friday, May 6. Also, the company finally delivered the white iPad2, which, according to sources in Hong Kong, sold out in an hour. Demand remains hot for all of Apple's products, and that is abundantly clear after its strong quarter. Its competition, Research In Motion (RIMM) lowered guidance Thursday and Nokia (NOK) cut 7,000 employees this week and outsourced its Symbian software to Accenture to better "focus" on the smartphone business. This makes Apple a compelling buy, and that is why I added to the position this week (after being restricted for more than two months). My target is $400.
Emerson Electric (EMR:NYSE, $60.77, 900 shares, 1.68%): INDUSTRY SECTOR -- TECHNOLOGY: This cheap, late-cycle industrial company received strong analyst support and an upgrade this week. I bought more. The company boasts best-in-class exposure to developing markets, above-average 2011 earnings growth and significant economies of scale to promote long-term growth. I am particularly optimistic about potential growth in the process management, climate technologies and network power segments. It's very rare for this high-quality company to be trading at just a 5% premium to the group (it typically trades at a 10% to 15% premium), so I took advantage of the situation and added shares. I will continue to build this position given its late-cycle businesses, easing comps in the second half of 2011 in network power, the end of the Chinese rate-tightening cycle and its exposure to IP traffic growth and recovering HVAC markets. It reports its quarterly results next Tuesday, and I'll buy on any weakness. My target is $66.
Ensco (ESV:NYSE, $59.57, 1,600 shares, 2.93%): INDUSTRY SECTOR -- ENERGY: I added shares to this quality, late-cycle energy play given its exposure to the deepwater jack-up and floater markets, which are in the early stages of recovery. Deepwater drilling/services has been a lagging part to the energy story, and Ensco has lagged its peers as well (due to the Pride acquisition). I want to be ahead of the improving fundamentals in this play, which has already started to turn with year-over-year utilization rates improving and higher sequential contract prices. It's most recent quarter, which saw earnings-per-share of $0.45 on $362 million in revenue, was in-line but uneventful as most are waiting for the upcoming analyst meeting for further guidance on synergies with Pride -- which has potential of $200 million (several estimates only show $50 million). The Pride deal increases Ensco's global exposure, particularly in Brazil and the Gulf of Mexico, and improves the company's fleet as well. It's lagged the group by 17% because of the Pride deal and now trades at a 10% discount to its peers. This is too cheap considering its excellent growth prospects in deepwater drilling. My target is $65.
Express Scripts (ESRX:Nasdaq, $56.74, 1,500 shares, 2.62%) INDUSTRY SECTOR -- HEALTH CARE: The company posted a $0.03 per share earnings miss for the first quarter of 2011 and the stock initially fell 7% on the news (I bought on weakness) but actually ended up for the week! The miss had more to do with seasonally slower volumes as opposed to profit pressure. On the positive side, pricing was strong as gross margins rose 53 basis points year over year to 6.7%, gross profit increased 8.5% to $4.01 and EBITDA per claim was up 13% from the year-ago period. The company reaffirmed guidance of 750 million to 780 million adjusted claims for the year, which I believe will be at the low end. I remain bullish on this name given its strong cash flow, increasing buyback program and improving mix of mail and retail distribution. Plus, the huge generic wave of drugs will be a meaningful tailwind for the group beginning in the second half of 2011 -- so start buying now. My target is $70.
General Motors (GM:NYSE, $32.09, 2,700 shares, 2.67%) INDUSTRY SECTOR -- INDUSTRIALS: Ford reported a stronger-than-expected report this week and that bodes well for General Motors. Sales have been improving at the company on less incentives and actual price increases. The Chevrolet brand alone announced its best first quarter ever, with sales jumping 15% year over year to 1.1 million vehicles. I believe the turnaround at GM is underway because the balance sheet is much healthier, it has improved its pricing and incentives strategy and a slew of top-notch products are scheduled to come out soon. Shares are 20% off the highs, so I'll continue to build this position. My target is $38.
Juniper Networks (JNPR:NYSE, $38.33, 2,900 shares, 3.42%) INDUSTRY SECTOR -- TECHNOLOGY: The stock gave back its gains from last week on no new news. I continue to like it and its product profile in the networking industry as well as its ability to take market share from its peers. But I believe the stock will remain in a trading range until Cisco (CSCO) reports earnings. This is because investors are waiting to see the pricing environment in the industry (Cisco took aggressive pricing action to win back share). I believe the market is large enough for both companies and that Juniper's routers, switches and security platforms are positioned well for the future. Data traffic demand remains in its infancy and Juniper is one of the beneficiaries. And with 25% long-term growth and 20% margins, shares remain a buy for the long term at 21x. My target is $50.
Kohl's (KSS:NYSE, $52.71, 1,900 shares, 3.08%): INDUSTRY SECTOR -- RETAIL: Free cash flow generation will continue to be strong in 2011 ($1.2 billion), fueling additional buybacks and dividend increases. Competitor Costco (COST) announced additional buybacks and an increase to its dividend this week and shares rallied. I'll expect similar action when Kohl's does the same. The balance sheet remains very healthy with $2.3 billion in cash on the books. Due to initiatives such as focusing on exclusive-to-Kohl's brands, the company has entered 2011 with strong momentum. I expect that momentum to continue, leading to further market share gains, margin upside and additional store openings. After lagging the market, Kohl's is primed to play catch-up. My target is $60.
Lowe's (LOW:NYSE, $26.25, 2,100 shares, 1.70%): INDUSTRY SECTOR -- CONSUMER DISCRETIONARY: 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, trading at a 10% discount to its largest rival, Home Depot (HD) . My target is $34.
Oracle (ORCL:Nasdaq, $35.96, 3,400 shares, 3.76%) INDUSTRY SECTOR -- TECHNOLOGY: The company announced that CFO Jeff Epstein will be leaving and that current co-President Safra Catz will take over as CFO (her previous position). I don't believe there is anything behind this news other than Epstein was crowded out under two co-presidents. I'm confident in Catz's abilities as CFO given that she is very well-regarded by the investment community and has held the position in the past from 2005 to 2008. Catz was CFO during an aggressive period of M&A at the company (kicked off by the $10 billion PeopleSoft deal, which was followed by $40 billion worth of acquisitions) and delivered strong execution with significant synergies, margin expansion and more than $1 billion in cost cuts, which led to 27% earnings CAGR from 2004 to 2009. The company's differentiated solutions, particularly the high-end server market, will fuel revenue growth. Exadata and Exalogic have provided solid momentum in the database business and should accelerate in growth. Shares are attractive given that they trade at 13x forward estimates, well below the long-term average. My target is $42.
Prudential (PRU:NYSE, $63.42, 2,100 shares, 4.10%) INDUSTRY SECTOR -- FINANCIALS: Standard & Poor's said its rating on Prudential was unaffected by the revision of its outlook on Japan to negative. This is not surprising, but it is great news for the company. Prudential's ratings reflect strong cash flows from its U.S. insurance and asset management subsidiaries as well as ample holding-company liquidity. There are also rumors of capital changes under the Durbin Bill that would exempt the industry from swap regulation which would free up additional capital. Prudential has nearly $4 billion in excess capital and will likely use it for buy backs, dividends and/or acquisitions -- all ROE-enhancing events. So if it passes, a huge win. We'll wait to see. This remains a core holding given its exceptional international assets, dominant market share and low capital intensive U.S. businesses (asset management and annuities). Valuation is compelling with shares trading at 8x earnings. My target is $75.
Sanofi-Aventis (SNY:NYSE, $39.52, 1,900 shares, 2.31%) INDUSTRY SECTOR -- HEALTH CARE: The drug maker reported earnings this week that were essentially in-line with the strong underlying momentum in its new growth platform, which will be the major revenue driver for the company after the 2012 patent cliff. Core earnings of 1.66 euros per share were in line with consensus (down 6% on constant exchange rate, excluding A/H1N1 swine flu-related sales), and revenue was slightly ahead at 7.8 billion euros, excluding A/H1N1 sales. While the company said it won't update full-year guidance until its midyear results, it did indicate that Genzyme will be 3% to 4% accretive to 2011 estimates. The key positive callout is the 15.5% gain in its growth platforms, which now account for 60% of total sales vs. last year's 51.4%. Emerging markets sales rose 15% to 2.3 billion euros (excluding A/H1N1) and accounted for 30% of group sales. Sanofi-Aventis will host its September analyst meeting after it releases midyear numbers, and I believe that will be a catalysts for shares. Sanofi-Aventis remains a buy at current levels given the expected synergies from Genzyme, its strong pipeline of pharmaceutical drugs and the development momentum from its new growth platform. Shares are cheap, trading at 8x forward estimates, and do not fully value the company's growth initiatives beyond the 2012 patent-cliff year. I'll continue to add on weakness. My target is $45.
Starwood Hotels (HOT:NYSE, $59.57, 800 shares, 1.47%) INDUSTRY SECTOR -- SERVICES: The hotel giant reported quarterly results that beat expectations on global revenue per available room (RevPAR), timeshares and owned property assets. The company earned $0.30 per share, beating estimates by $0.05 , and EBITDA was in-line at $208 million, slightly above the $195 million to $200 million guidance. The 2011 EPS outlook was raised to $1.60 to $1.70 (from $1.55 to $1.65), signaling that the company's brands are performing well. This is impressive considering the issues facing the Middle East and Japan, high oil prices and general consumer uncertainty. Company-wide, RevPAR rose 10.4% (11.9% for owned hotels), led by a 17.7% RevPAR growth figure out of the Asia-Pacific region, 16% in Latin America and 11% in North America. After these bullish results, I believe the company is well position to benefit from the global lodging recovery, especially given the lack of supply coming online over the next few years. My target is $65.
Viacom (VIA.B: NYSE, $51.16, 500 shares, 0.79%) INDUSTRY SECTOR -- CONSUMER SERVICES: The company posted better-than-expected second-quarter results, with earnings of $0.72 per share easily beating the $0.62-per-share consensus. Revenue jumped 20% year over year to $3.2 billion vs. the $3 billion expectation, and adjusted operating income rose 37% year over year vs. expected growth of 25%. The better-than-expected numbers were driven by strong results in the cable segment, which saw revenue rise 11% to $2.1 billion on 9% affiliate growth and 12% advertising growth. Domestic advertising grew 11% while international ads rose 23% (double the expectation), fueled by special music events. The other highlight of the quarter was the film segment, where revenue grew 38% to $1.2 billion, ahead of the expected growth rate of 28%. Theatrical revenue increased 50% to $400 million on successful releases such as "Rango," "Justin Bieber: Never Say Never" and "No Strings Attached" as well as from spillover from "The Fighter," "True Grit" and "Little Fockers." Free cash flow came in at $706 million vs. $382 million last year, and the company bought back $500 million, or 11.4 million shares (higher than my expectation of $250 million). I believe strong momentum and execution, aided by dividend hikes and additional buybacks, will lift shares higher. My target is $60.
Wabco Holdings (WBC:NYSE, $73.85, 1,500 shares, 3.41%) INDUSTRY SECTOR -- INDUSTRIALS: The company posted a blowout report this week and raised guidance for the second time in two weeks. Sales and operating margins were ahead of plan as the company continued to win new contracts, gain market share and execute nicely on its productivity program, which more than offset the higher inflation costs. Western Europe led sales growth with 72% growth, and North America's 38% production growth was much stronger than expected. This remains one of the most compelling secular growth stories in safety technology within the truck industry. Earnings, revenues and margins continue to move higher and remain conservative in my view. My target is $85.
TWOS:
Apache (APA:NYSE, $133.37, 1,000 shares, 4.10%): INDUSTRY SECTOR -- ENERGY: Earnings came in at $2.90 per share, well ahead of expectations of $2.59 per share on much higher average production volumes of 732 million barrels oil equivalent per day (MBOED) -- 1% better than the fourth quarter and 25% higher than the year-ago period. Production was skewed towards the higher-valued international assets (U.K., North Sea, Egypt) and the company lowered its operating costs, which helped contribute to the earnings beat. Two of the highlights were Egypt and the Permian Basin. The political turmoil in Egypt turned out to be a nonevent for Apache as production in the country rose 13% year over year and 1% sequentially to 171 MBOED. Apache operated 22 rigs in the area and spent $222 million on exploration, development and technology. The Permian Basin remains a strong growth opportunity for the company. Apache now has 24 rigs across the region, drilled 110 wells and, with the additional BP (BP) assets in the area, has an enormous growth opportunity going forward. (Apache indicated that these assets were neglected when owned by BP, so it will likely realize material upside over time.) Capital spending came in at $1.7 billion, in-line and on track for full-year deployment of $7.5 billion, though I believe that figure will likely be beaten given the amount of work/opportunities it has, stronger demand and flexibility in its balance sheet (free cash flow is expected to be $1.5 billion this year). Apache might even make an acquisition or two -- likely tuck-in type deals -- for as much as $1 billion in total. I also expect Apache's production growth guidance of 13% to 17% to be revised higher throughout 2011 given its portfolio mix. As such, I'll remain a buyer of this stock on dips. I bought last week at $122 and, if gets back there again, I'd add more. My target is $150.
Boeing (BA:NYSE, $79.78, 1,500 shares, 3.68%) INDUSTRY SECTOR -- INDUSTRIALS: The company reported first-quarter results with stronger-than-expected earnings and in-line revenue. Full-year guidance was reiterated. Earnings of $0.78 per share came in ahead of the $0.70 per share forecast, and full-year guidance earnings per share guidance the same at $3.80 to $4. Total revenue came in at $14.9 billion, and net new orders of 106 beat last year's mark of 83 new orders, a sign of increased demand. Backlog remains healthy, with more than 3,400 airplanes valued at $263 billion. Commercial airplane revenue was in line at $7.1 billion with 7.1% operating margins. Lower deliveries and higher R&D forced margins lower, but this trend will reverse as the 787 and 747-8 start being shipped. Defense revenue was surprisingly better than expected, with flat revenue at $7.6 billion and 8.8% margins led by better military aircraft (due to stronger mix in Global Strike programs and lower R&D). Earnings were solid, and strong aerospace fundamentals confirm that the sector is in recovery mode. This will remain a core position given that I expect the 787 Dreamliner launch to be a major driver for shares. My target is $87.
Caterpillar (CAT:NYSE, $115.41, 1,000 shares, 3.55%) INDUSTRY SECTOR -- INDUSTRIALS: After the very strong earnings report this week, I continue to have confidence in the $8- to $10-per-share earnings outlook for 2012. Based on those numbers, the stock trades at 13.7x earnings and remains attractive. First-quarter earnings per share of $1.84 handedly beat the Street estimate of $1.31 on stronger-than-expected revenue growth and 28% year-over-year incremental margins. This was led by a 64% increase in machinery revenue and an 820-basis-point improvement in operating margins. Earnings-per-share guidance was raised a range of $6.25 to $6.75 from $6 (the mid-range is higher than both the Street's estimate of $6.20 and the prior peak of $5.66 that was seen in 2008). Importantly, this upward revision doesn't include the Bucyrus and MWM deals, and it removes roughly $300 million (or $0.10 per share) due to disruptions in Japan. With a few catalysts ahead -- management is speaking at an industry conference on May 11 and the company will close the two aforementioned deals -- I believe there is more upside. My target is $130.
Coca-Cola (KO:NYSE, $67.46, 1,900 shares, 3.94%) INDUSTRY SECTOR -- CONSUMER DISCRETIONARY: The beverage giant reported first-quarter earnings per share of $0.86, a penny short of expectations. Excluding lost revenue in Japan and a $0.02 hit from the timing of marketing expenses, earnings would have been a penny ahead of expectations, and that's why I added shares following the report. Revenue rose 40% and was in-line with expectations at $10.5 billion, aided by the CCE North America deal. Gross margins fell year over year but improved sequentially to 62.4% from 61.5%. Importantly, the company indicated that business is strong enough that, excluding the issues in Japan, earnings remain on track with prior guidance. Volumes were very strong, highlighted by 14% organic growth in Mexico. Cash from operations was $458 million, and the company reiterated its intention to buy back $2 billion to $2.5 billion worth of shares for the full year. Looking past the negative headline, the report was very solid, and this remains a winning story. Coca-Cola will remain a core position given that I expect volume growth, further cost-cutting, manageable conditions out of Japan, additional buybacks and synergies from the CCE integration. My target is $72.
Cummins (CMI:NYSE, $120.18, 1,000 shares, 3.70%) INDUSTRY SECTOR -- INDUSTRIALS: The company reported strong first-quarter results with earnings of $1.75 per share on revenue of $3.9 billion. The robust quarter was driven by higher medium shipments (up 118%), light duty shipments (up 43%) and industrial shipments (up 48%). Power generation and component sales grew 54% and 47%, respectively. Efficient productivity initiatives implemented in the third quarter of 2008 and the first quarter of 2009 helped the EBIT margin expand to 13.8% (above the company's 2014 target). Cummins raised its 2011 earnings guidance to an implied $8.20 a share, with revenue of $17 billion and EBIT margins of 14%. The bullish report leads me to believe that production rates in North America will accelerate into the second half of 2011. During the call, management discussed a potential dividend hike but said they would provide more color (along with their long-term targets) at the company's analyst day in September. Strong bus and truck manufacturing momentum in Brazil, India and China will provide sustained cyclical growth. 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. I raised the target to $150.
Deere (DE:NYSE, $95.50, 1,200 shares, 3.60%) INDUSTRY SECTOR -- INDUSTRIALS: I moved this to a Two from One after taking gains this week. It was simply right sizing and taking profits. I remain very positive on the story and the ag cycle. Overall, poor weather put pressure on agricultural prices and stocks after the USDA's Crop Progress Report. (Only 9% of corn plantings were seeded by last week vs. the 46% that were seeded at the same time in 2010. The five-year average for this point in the year is 23%.) But the plantings should improve and, more importantly, prices will stay firm. Last week, the U.S. Architecture Billings Index (ABI) revealed that the New Projects Inquiry Index was up 2.3 points to 58.7, suggesting that Deere's business environment remains healthy. I remain bullish on Deere given the momentum in its construction and forestry division, its strength in China and Brazil, the turnaround in North America and its leverage to the global economic recovery. My target is $110.
EMC (EMC:NYSE, $28.34, 4,000 shares, 3.49%) INDUSTRY SECTOR -- TECHNOLOGY: It was a quiet week for the company, but I still believe last week's quarterly report was strong enough to continue its momentum. I also believe EMC is in the right part of tech sector -- data center storage. Earnings were in-line but revenue soared 18% to $4.61 billion, well ahead of expectations. Gross margins and operating margins both beat estimates, coming in at 60.1% and 21.7%, respectively. Softer security and information intelligence segments were offset by 18% growth in storage sales and 33% growth at VMware (VMW) . Revenue from mid-tier products such as the VNX line was up 19% and midrange product growth was pegged at 23%. Free cash flow generation of $859 million beat expectations, and the company announced a $1.5 billion share repurchase program. For the full year 2011, management expects revenue of $19.6 billion and earnings per share of $1.46. The stock remains cheap given that it trades at 15.6x 2012 estimates and 10x cash. My target is $32.
Hess (HES:NYSE, $85.96, 900 shares, 2.38%) INDUSTRY SECTOR - - ENERGY: The company reported first-quarter earnings that were in-line with expectations at $1.82 per share (driven by slightly higher production of 399,000 barrels of oil equivalent per day (BOEPD)). But the big news -- which led to several upgrades -- was that the company found a potentially major discovery in Ghana with its 100%-operated well in the deepwater Tano Cape Three Points block. This area has significant potential and is just to the north of where Anadarko (APC) discovered a 4 billion BOEPD field. Assuming this is a 500-million-BOEPD discovery that's on-stream within five years and 100% owned by Hess, it could be worth $6 or $7 per share. 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 $90.
Kellogg (K:NYSE, $57.27, 1,800 shares, 3.17%): INDUSTRY SECTOR -- STAPLES: I moved this to a Two from One this week given the run it's had off the lows and because expectations are high headed into the print. I continue to believe the company's pricing initiatives, new products and operational investments will act as catalysts in the turnaround effort, but, in the short run, it could pause due to higher commodity prices. The company reports earnings next Wednesday and I'll be a buyer on weakness. But I'll digest the earnings and buy closer to my cost basis in the lower $50s. During the call, I'll be listening for the revenue outlook in the company's core cereal business, as that segment is crucial to management's turnaround strategy. My target is $58.
PNC Financial (PNC:NYSE, $62.34, 2,100 shares, 4.03%) INDUSTRY SECTOR -- FINANCIALS: I remain impressed with the earnings from PNC as more and more banks report in. Last week, the company announced that it earned $1.50 per share on stronger net interest income, mortgage fees and efficient cost controls. Loans in the Commercial & Industrial (C&I) segment grew by $1.5 billion but were offset by further commercial real estate and distressed portfolio runoffs. But the fact that C&I loans grew by 3% is important, and it's a leading indicator of improving loan demand and activity going forward. PNC continues to be one of the largest positions in the fund given its experienced and proven leadership team, above-average profitability, moderating credit risks and improving capital flexibility. I'll add share below $60. My target is $70.
Stanley Black & Decker (SWK:NYSE, $72.65, 1,400 shares, 3.13%) INDUSTRY SECTOR -- CONSUMER DISCRETIONARY/INDUSTRIAL: I added to this position this week as shares tumbled 4% after rallying into the print. Admittedly, it was a complicated report, but I like this for the long run and will build it back up after taking profits recently. Management reiterated its 5% to 6% organic growth and 150-basis-point operating-margin expansion, even though it expects a 100-basis-point headwind from raw cost pressures and a challenging housing/retail business. It will drive market share gains through its Black & Decker cost and revenue synergies, and its new product offerings (DeWalt brand and power tools). The company maintains its focus on emerging market penetration, which accounts for 11% of total sales and is expected to grow at 20%. Stanley Black & Decker remains a great way to play the construction recovery story. Its cost and revenue synergies give it the flexibility for earnings growth (54% year-over-year growth was just reported), especially internationally and in emerging markets. My target is $85.
Vale (VALE:Nasdaq, $33.40, 1,000 shares, 1.03%) INDUSTRY SECTOR -- MATERIALS: Shares remain cheap and I like this company's exposure to iron ore and China growth over the long term. The stock has been weak recently on concerns over management changes and government involvement, but, at the current valuation, shares remain attractive. 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. Shares are cheap, trading at an enterprise-value-to-EBITDA multiple of 4.8x and a 30% discount to the group. My target is $40.
Weatherford International (WFT:NYSE, $21.58, 4,700 shares, 3.12%) INDUSTRY SECTOR -- ENERGY: Shares stabilized this week after last week's disappointing quarterly announcement. It's clear that there are management execution issues, but the cycle is about to turn and Weatherford is not only positioned well with is global exposure but is also as take-out candidate. The company missed on first-quarter earnings but beat revenue expectations. Weatherford's North America segment had stronger-than-expected revenue of $1.4 billion, up 9% sequentially, and margins rose by 73 basis points to 20.9%. These positives were offset by weak international activity. This is another step back for the company operationally, but the reason to own it is for its massive international exposure. 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.
WellPoint (WLP:NYSE, $76.79, 1,200 shares, 2.83%) INDUSTRY SECTOR -- HEALTH CARE: I moved this back up to a Two from Three. I probably won't buy it until I see some weakness, but the trends are too favorable here to sell. The company reported a strong quarter this week, with first-quarter earnings rising 12% to $2.35 per share, easily beating the $1.87 estimate. Revenue came in at $14.7 billion, surpassing the $14.5 billion expectation on lower-than-expected medical costs and a 5% year-over-year drop in operating costs. Medical enrollment surged by 363,000 to a total of 34.2 million members, easily beating the 33.8 million mark set last year. The benefit expense ratio rose 30 basis points year over year to 82.1% from 81.8%, but was ahead of the 83% expected rate. Cash flow was strong at $1.1 billion, and the company repurchased 11.4 million shares of its stock for $742 million, with $882 million left in its current buyback program. Full-year 2011 earnings guidance was raised to "at least" $6.70 a share, and the company is projecting medical cost trends at 7.5%, 33.9 million members and $2.7 billion in operating cash flow. Trading at 10x earnings, WellPoint is one of the cheapest in the group and its previously mentioned buyback program will support shares. My target is $80.
THREES:
Bank of America (BAC:NYSE, $12.28, 6,000 shares, 2.27%) INDUSTRY SECTOR -- FINANCIALS: I recently reduced this position, which has few near-term catalysts. I believe the stock will trade in a range until there is more clarity on the mortgage business and its dividend strategy. Shares are now extremely cheap, trading below tangible book value. However, given the headwinds in the mortgage segment, I prefer non-bank financials such as American Express and Prudential. I'll be selling into strength when my restrictions are cleared.
NovaGold Resources (NG:NYSE, $12.85, 4,200 shares, 1.66%) INDUSTRY SECTOR -- PRECIOUS METALS: I moved this to a Three from a Two and will trim on strength. I continue to like the long-term story but, with production timelines of six to eight years (Donlin Creek and Galore Creek are the growth drivers to this story), the stock probably trades in-line with the overall gold price vs. fundamental drivers. I began buying this stock at $11 and am up nicely so far. So, if the stock strengthens, I'll look to trim it in favor for a larger-cap gold position or the SPDR Gold Trust (GLD) .
Regards,
Jim Cramer, Stephanie Link, and the Research Team
DISCLOSURE: At the time of publication, Cramer was longAlcoa, Apple, Accenture, Apache, American Express, Boeing,Bank of America, Caterpillar, Coca-Cola, Deere, EMC, EmersonElectric, Express Scripts, Ensco, General Motors, Hess,Juniper Networks, Kellogg, Kohl's, Lowe's, NovaGoldResources, Oracle, PNC, Prudential, Sanofi-Aventis, StanleyBlack & Decker, Starwood Hotels & Resorts Worldwide, Vale,Viacom, 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.