Weekly Roundup

Markets pushed higher this week as investors dove in head first on Monday, with the S&P, Dow Jones and Nasdaq all surging over 1% after Hurricane Irma made continental U.S. landfall over the weekend. While the hurricane was devastating, the damage turned out to be less than initially feared.

Also this week, we hosted our monthly members-only conference call (which can be viewed here), where we discussed our view of the economy, our newest initiations, the recent rally in oil and answered some questions.

Ending the week, we learned that North Korea had launched another missile over Japan late Thursday night. The event was met with the launching of two ballistic missiles from South Korea minutes later (both of which, like the North Korean missile, landed in the sea). As has been the case of late, the market took the news in stride during Friday's session.

Treasury yields trended higher as investors unwound safety-oriented trades that had been made in anticipation of Irma. Gold also moved lower as investors took a more risk-on approach, trading out of the safe-haven asset and into equities. The euro declined slightly relative to the dollar after reaching a 2½-year high last week; however, the uptrend that started in April remains intact. Lastly, oil pushed higher, again bumping up against the $50 resistance level, as refineries in the Corpus Christi region of Texas begin to come back on line.

Second-quarter earnings are officially in the books and have been largely positive vs. expectations. No portfolio companies reported this week.

Economy

Turning to the economic front, there were few economic releases early in the week. Much of the trading action on Monday was driven by the less-than-anticipated damage from Hurricane Irma. That said, we are still awaiting updates as to the full extent of the impact from Hurricanes Harvey and Irma.

Jumping to Wednesday, the Bureau of Labor Statistics reported that the producer price index (PPI) increased 0.2% in August vs. expectations for a 0.3% increase. The lower-than-expected reading comes after a 0.1% decline in July. About three-fourths of the month-over-month increase can be attributed to the final demand goods index, which increased 0.5% (following a 0.1% decline in June and marking the largest increase since April's 0.5% gain). Final demand for services also crept up slightly, rising 0.1% in August (following a 0.2% decline in June). Year-over-year PPI is up 2.4%, higher than July's yearly reading of 1.9%. Core PPI (which excludes food, energy and trade services for their volatility, and is often considered the more relevant metric) also increased 0.2%, following a flat reading in July and was largely in line with expectations. On a yearly basis, core PPI is up 1.9%, unchanged from July's annual increase.

Digging deeper, the rise in final demand goods was mostly driven by a 3.3% increase in final demand energy. The rise in energy was partially offset by a 1.3% decline in final demand foods.

The rise in final demand services was mostly the result of a 0.1% increase in final demand services less trade, transportation and warehousing, with prices for consumer loans increasing 1.7% last month. That said, prices for final demand transportation and warehousing services rose 0.3% in August.

Recall that PPI measures prices from the perspective of the seller. Many investors use the PPI figure as a means to predict the consumer price index (CPI) under the assumption that many producers and retailers can pass on cost increases to the consumer. Although we note that this is not always the case, it is generally a good way to try to predict inflation, which the CPI later can validate or disprove. Inflation is one of the key measures tracked by the Fed for determining rate-hike decisions.

On that note, the Bureau of Labor Statistics reported on Thursday that the CPI rose 0.4% in August (the largest monthly increase since the index rose 0.6% last January) following a 0.1% increase in July and exceeding expectations for a 0.3% rise. On an annual basis, the index also exceeded expectations, rising 1.9% vs. consensus of 1.8%. This follows a 1.7% increase in the 12 months ending in July. Core CPI, which excludes food and energy costs for their volatility, rose 0.2% month over month, following four consecutive months of 0.1% increases. On an annual basis, core CPI rose 1.7% for the fourth consecutive month.

Digging deeper, the rise in monthly CPI was a result, almost entirely, of monthly increases in the indices for gasoline and shelter, which jumped 6.3% and 0.5%, respectively. Resulting from the large jump in gasoline prices, the energy index saw a 2.8% month-over-month rise. The rise in gasoline prices comes as little surprise as Harvey caused the shutdown of major oil refineries in the Corpus Christi region of Texas at the end of August. Recall that nearly one-third of U.S. refining capacity and over 15% of U.S. oil production capabilities.

Moving to Friday, the Commerce Department released advance estimates for retail and food services sales, reporting a 0.2% decline in August, short of expectations for a 0.2% increase. On a year-over-year basis, sales are up 3.2%. July's reading was revised down from up 0.6% to up 0.3%.

Core retail sales (i.e., retail sales excluding autos, gas, building materials and food services) also fell 0.2%, following a (unrevised) 0.6% increase in July.

Digging deeper, motor vehicle and parts dealers saw a 1.6% monthly decline following a flat reading in July. Building material and garden equipment/supplies dealers also fell, declining 0.5% in August, following a 0.9% increase in July. Additionally, non-store retailers (i.e., e-commerce retailers) saw a 1.1% decrease last month following a 1.8% monthly rise in July. Slightly offsetting the negative results was a 2.5% increase in sales at gasoline stations, not surprising given the refinery shutdowns resulting from Harvey. Miscellaneous store retailers also rose 1.4% last month, while food and beverage store sales rose 0.3%.

All in, the report was unsatisfactory as retail sales (especially core retail sales) closely track a major component of GDP -- consumer spending. Recall that the Fed ideally targets GDP inflation of roughly 2%, and looks to readings such as this when weighing its decision on whether to hike rates, something investors are increasingly skeptical will happen again before the end of the year.

On Thursday, the Department of Labor reported that initial jobless claims for the week ending Sept. 9 were 284,000, a decrease of 14,000 claims from the prior week's unrevised level and 16,000 claims above expectations of 300,000 initial claims. Partially impacting results were the effects of Harvey and Irma. It is also worth noting that, due to office closures resulting from Hurricane Irma, results were estimated for Florida, Georgia, South Carolina and the Virgin Islands. Importantly, the four-week moving average for claims (used as a gauge to offset volatility in the weekly numbers) was 263,250, an increase of 13,000 from last week's unrevised average. 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 132 consecutive weeks, the longest streak since 1970.

Oil

On the commodity front, oil pushed higher this week, getting a strong boost on Wednesday when the International Energy Agency (IEA) reported that global oil supplies dropped in August for the first time in four months. In the report, the IEA stated that oil supplies decreased by 720,000 barrels a day from July to August, with Hurricane Harvey responsible for disrupting roughly 200,000 barrels of crude production per day. Contributing to the global decline was a decrease in crude production by OPEC, which fell by roughly 79,000 barrels a day in August (the first decline in five months) because of increased compliance among member nations and civil unrest in Libya. In addition to Libya, OPEC production declines were also seen in Gabon, Venezuela and Iraq; however, this was slightly offset by a rise in production in Nigeria.

Aiding the move in oil on Wednesday, the U.S. Energy Information Administration (EIA) reported that gasoline inventories fell by 8.4 million barrels, the largest one-week decline on record for the EIA (going all the way back to 1990). Distillate inventories also fell more than expected, decreasing by 3.2 million barrels. Lastly, although crude inventories increased by 5.9 million barrels last week, the rise was less than forecasts for a 6.2-million-barrel increase. The greater-than-expected decline can likely be partially attributed to the halting of refinery operations following Harvey, which impacted over 20% of the nation's refining capacity.

While we were pleased with this week's moves in oil and the releases from the various reporting bodies, we note that crude has tested these levels (around $50 a barrel) before and failed to break through. We will continue to monitor for news both domestically and internationally and, as always, update members as we learn more.

Stocks

In the portfolio this week, we added to our position in Nucor (NUE) (read here), taking advantage of a down day that resulted from an analyst downgrade. As we noted in our Alert, we disagree with the analyst's opinion that scrap-metal prices will rise (a key input for the company), believing that supplies could instead increase (thus lowering prices) because of all the wrecked vehicles from Harvey. With nearly half a million vehicles damaged by the hurricane, we believe those damaged beyond repair will be sent to the junkyards for crushing and then converted into scrap. Our decision to increase exposure was also based on the belief that infrastructure spending needed as part of the hurricane relief efforts will benefit Nucor, since steel is a must in any rebuilding effort.

We also updated ratings for two names in the portfolio this week on our members-only call (see here). First, we upgraded Apache (APA) from Three to Two as we believe shares are finally beginning to bottom and a pullback could represent an attractive entry point again. While we have faith that Apache's management team will improve on last quarter's results and we trust they will properly develop the Alpine High formation, our long-term catalyst, we recognize that the stock could go lower based on volatility in the oil markets, which is why we decided not to make this holding a One just yet.

Along with our Apache upgrade, we downgraded General Electric (GE) from One to Two as we await updates from new CEO John Flannery. We also decided it would be prudent to downgrade the name as, although previous commentary has been that the dividend is safe, it appears the narrative may be shifting in that it is no longer inviolate, it is just a firm priority.

Moving on to the broader market, second-quarter earnings have come to an end and were largely positive vs. expectations, with 72% of companies reporting a positive EPS surprise. Total second-quarter earnings growth increased roughly 11% year over year vs. expectations for an overall 10.74% increase throughout the season; of the 434 non-financials that reported, earnings growth is up 11.6%. Revenues are up 4.9% vs. expectations throughout the season for a 5.08% increase; 72% of companies beat EPS expectations, 18.4% missed the mark and 9.6% were in line with consensus. On a year-over-year comparison basis, 75.2% beat the prior year's EPS results, 22.6% came up short and 2.2% were virtually in line. Information tech and healthcare have had the strongest performance vs. estimates, whereas energy, consumer staples and telecom have posted the worst results in the S&P 500 for the second quarter.

Next week, seven companies in the S&P 500 will report earnings. No portfolio companies will report. Other key earnings reports for the market include: Hill International (HILL), Steelcase (SCS), Apogee Enterprise (APOG), AutoZone (AZO), Yingli Green Energy (YGE), Bed Bath & Beyond (BBBY), FedEx (FDX), AAR Corp. (AIR), Copart (CPRT), General Mills (GIS), Herman Miller (MLHR), Manchester United (MANU), Student Transportation (STB), Presidio (PSDO), CarMax (KMX) and Finish Line (FINL).

Economic Data (*all times ET)

U.S.

Monday (9/18)

Total Net TIC Flows (16:00)

Net Long-term TIC Flows (16:00)

Tuesday (9/19)

Housing Starts (8:30): 1185k expected

Building Permits (8:30): 1215k expected

Current Account Balance (8:30): -108.5b expected

Import Price Index MoM (8:30): 0.3% expected

Wednesday (9/20)

MBA Mortgage Applications (7:00)

Existing Home Sales (8:30): 5.48m expected

FOMC Rate Decision (Upper Bound): 1.25% expected

Thursday (9/21)

Initial Jobless Claims (8:30)

Continuing Claims (8:30)

Philadelphia Fed Business Outlook (8:30): 16.2 expected

FHFA House Price Index MoM (9:00)

Bloomberg Consumer Comfort (9:45)

Leading Index (10:00): 0.2% expected

Friday (9/22)

Markit US Manufacturing PMI (9:45)

Markit US Services PMI (9:45)

Markit US Composite PMI (9:45)

International

Monday (9/18)

Eurozone Agg CPI MoM (5:00)

Eurozone Agg CPI YoY (5:00)

Eurozone Agg CPI Core YoY (5:00)

Tuesday (9/19)

Germany ZEW Survey Current Situation (5:00)

Germany ZEW Survey Expectations (5:00)

Eurozone Agg ZEW Survey Expectations (5:00)

Japan Trade Balance (19:50): ¥104.4b expected

Wednesday (9/20)

UK Retail Sales Ex Auto Fuel MoM (4:30): 0.1% expected

UK Retail Sales Ex Auto Fuel YoY (4:30): 1.4% expected

UK Retail Sales Inc Auto Fuel MoM (4:30): 0.2% expected

UK Retail Sales Inc Auto Fuel YoY (4:30): 1.2% expected

Thursday (9/21)

Japan All Industry Activity Index MoM (00:30): -0.1% expected

UK PSNB ex Banking Groups (4:30)

Eurozone Agg Consumer Confidence (10:00)

Friday (9/22)

Germany Markit/BME Germany Manufacturing PMI (3:30)

Germany Markit Germany Services PMI (3:30)

Germany Markit/BME Germany Composite PMI (3:30)

Eurozone Agg Markit Eurozone Manufacturing PMI (4:00)

Eurozone Agg Markit Eurozone Services PMI (4:00)

Eurozone Agg Markit Eurozone Composite PMI (4:00) 

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

ONES

Abbott Laboratories (ABT) ; $51.76; 500 shares; 0.94%; Sector: Healthcare -- Shares moved lower this week. It was a light news cycle for the company as the only major story this week came Wednesday when ABT announced its FreeStyle Libre system had become available for reimbursement in the U.K. This news follows last week's announcement that the company received the same approval in Japan. This product has been very successful in international markets, and we expect it to thrive in the U.S. once it receives FDA approval. We like this company's growth story as the business has continually hit the lofty double-digit goals that management sets annually, and with over half the company's revenues coming from overseas, we think ABT could be a big beneficiary of tax reform. A one-time tax holiday could bring in many of the company's cash from overseas, opening the company up for more acquisition like what they did with St. Jude's Medical and also the pending Alere deal. The St. Jude's integration has already been very successful for the company, and we expect the Alere deal to be accretive as well. We reiterate our $53 price target. 

Activision (ATVI) ; $65.00; 1,400 shares; 3.30%; Sector: Technology -- Shares ended the week slightly higher, driven by the positive reception of the company's new Destiny 2 game, which launched this week. We continue to believe Activision to be the best positioned of all video-game developers to benefit from the growing popularity of e-sports, the biggest trend in gaming. As we noted in our Alert this week (read here), the upcoming launch of the company's Overwatch League is the next big catalyst we see pushing shares higher. According to analysts at KeyBanc, the league is expected to start with 12 teams (according to reports from ESPN citing "sources close to the buyers and the game developer," it may start with 14) and grow by four teams per year through 2020. To date, nine teams have officially been announced (with ESPN reporting there may be 13 teams already signed). Importantly, many early investors already have strong histories of owning sports franchises, including Robert Kraft (New England Patriots), Jeff Wilpon (New York Mets) and Josh and Stan Kroenke (Los Angeles Rams, Denver Nuggets). The analysts also said they expect Activision to generate roughly $170 million in revenue from team sales in 2018, $140 million in revenue in 2019 and $190 million in 2020. We will continue to monitor for updates as we approach the launch of the league and update members as we learn more. We reiterate our $68 target; however, we may be inclined to raise this figure, especially should ATVI confirm the reports from ESPN.

Allergan (AGN) ; $220.29; 600 shares; 4.80% Sector: Healthcare -- Shares traded lower this week, following a price-target revision from analysts at Deutsche Bank, citing lower sales estimates for several of the company's offerings. As we noted on this month's members-only call, we continue to believe that at current levels, the stock is trading at a price that does not reflect the company's rate of growth (something even the Deutsche analysts noted that remains attractive as they did not adjust their rating). We believe investors are not properly accounting for what management considers to be the company's six "star" pipeline drugs, five of which are already in Phase 3 trials. We also believe AGN's dominance in the medical aesthetics space, thanks largely to its Botox product and the recent addition of CoolSculpt, is a key factor that helps AGN differentiate itself from other drugmakers and allows it to attract customers that would not otherwise look to purchase pharmaceutical products. On that note, this week the company announced an updated version of its "Brilliant Distinctions" patient loyalty program (originally launched in 2009). The new offer has, among other things, expanded to include CoolSculpt treatments and allows regular users of the company's aesthetics products to earn points that can then be used for discounts on products such as Botox, Juvederm, Kybella and more. We reiterate our $270 target and, despite our large position, would consider adding more should the stock break below $220.

Broadcom (AVGO) ; $250.55; 250 shares; 2.27%; Sector: Electronics -- Shares pushed higher this week, in line with the overall market. We continue to like AVGO as it is a highly diversified semiconductor company spread across differentiated business segments with strong management in a mature industry. An experienced management is always important; however, it is even more critical in mature industries as avenues for growth are often limited and rely on the company's ability to acquire other companies and execute integrations effectively to realize synergies. As we reiterated in this month's members call, we believe near-term upside will result from the release of Apple's new iPhone, which is expected to house eight AVGO chips, three more than previous models. One of those new chips supports Apple's new "Qi" wireless charging technology. Longer term, we believe the company is well positioned to benefit from the growing demand from data (expected to increase roughly 40% per year for the next 10 years) thanks to both its wireless and wired networking solutions. Lastly, we expect the company's wireless division to benefit from the inevitable transition of mobile networks to the 5G standard, which is expected to occur over the next three years. We reiterate our $290 target and believe the recent pullback has made AVGO one of the cheapest (and most attractive) companies in the portfolio.

Cimarex (XEC) ; $106.72; 900 shares; 3.49%; Sector: Energy -- Shares surged this week on the back of a rise in crude prices. Recall that, as an exploration and production (E&P) company, XEC's inventory value is directly tied to the price of oil. While trading will remain tied to the moves in oil, we believe that from a firm-specific level, XEC is the best E&P in the Permian Basin. We agree with management's view that production should only be increased when justified by rate-of-return analysis (i.e., production should not increase simply for the sake of growth) and believe this approach will ensure consistent returns. We reiterate our $150 target and maintain that the most important factor affecting XEC is the macroeconomic environment and the status of worldwide supply levels.

Comcast (CMCSA) ; $36.93; 2,000 shares; 2.68%; Sector: Consumer Discretionary -- Shares continued to trend lower this week following last week's selloff resulting from news that management was expecting to lose roughly 100,000 to 150,000 subscribers in the next quarter. We believe the move to be overblown and note that shares appear to have found a solid base of support at roughly the $37 level. Despite the negative update, management reiterated its financial targets for the current quarter as they expect an increase in customer relationships to drive a higher level of average revenue per user. From a higher level, we reiterate that the company is very well diversified, allowing it to weather a slight downturn in any one segment and, as we noted on this month's call, generate a high and consistent level of cash flow (roughly twice the company's EPS and over six times its dividend payout). Regarding diversification, management announced this week that they are "pleased" with results thus far from Xfinity mobile (a segment that will no doubt benefit from the addition of Apple's upcoming iPhone, which will become available on the network later this month), and is looking at ways to increase X1 (which this week integrated YouTube onto the platform) adoption. They also believe broadband growth will continue while being accretive to margins. We reiterate our $45 target and view shares as attractive at current levels for those with little or no exposure to this media powerhouse.

Danaher (DHR) ; $88.21; 1,150 shares; 3.68%; Sector: Life Sciences -- Shares traded higher this week, on par with the broader markets. There was little company news affecting trading this week as it appears this stock is still in a buyer's market. We view this to be the case because JPMorgan put out a report last Friday signaling they were adding the stock to their analyst focus list. In the report, their analyst stated that organic growth will rebound during the upcoming quarter, with further acceleration in the fourth quarter. The analyst believes strong growth in the Life Sciences and Environmental/Applied segments will more than offset flat results in Dental. Last quarter, Dental's revenue declined 1.5% and we have continually viewed this lagging business as the main driver holding back Danaher shares. Even the slightest improvement to this business should greatly support DHR's stock, and we feel confident DHR's management will fix this segment based on their excellent track record. We continue to like this name going forward as we believe past pressures to be transitory, and we reiterate our $94 price target.

DXC Technology (DXC) ; $85.07; 1,000 shares; 3.09%; Sector: Tech Services -- Shares pushed higher this week but underperformed the overall market. The company received a price-target upgrade from analysts at BMO on Friday. In line with our view, the analysts cited increased confidence that the company can reach its $1 billion year-one cost-saving target. With management previously stating the company is on track to realize this goal, we believe shares will continue to push higher as progress is made. We also see upside as the sales mix shifts to include more revenue from digital services, offsetting a decline in revenues from legacy assets and services. We reiterate our $89 target and will continue to be on the lookout for updates regarding the management's progress in both synergy realization and improving the company's revenue mix.

iShares MSCI Eurozone ETF (EZU) ; $42.97; 1,000 shares; 1.56%; Sector: Europe -- Shares pushed higher this week but underperformed the S&P 500. We continue to hold the EZU and recommend it to members as we believe it to be the best way to gain diversified exposure to the European market -- less the U.K. due to Brexit-related uncertainties, a factor that led us to ultimately select this over the Vanguard European Stock Index Fund (VGK) -- and the euro currency, as this is an unhedged ETF. As we've noted in past roundups, we decided an ETF would allow us to achieve these dual goals (market and currency exposure) without potentially being tied to a specific company or sector that may be lagging the overall economic reacceleration in Europe. Evidence of the reacceleration can also be seen in the euro, which has recently pushed to its highest levels in over two years, which has caused European Central Bank (ECB) Chair Mario Draghi to refrain (for the time being) from reducing the ECB's stimulus package. Given that this is an ETF encompassing over 200 companies, we will not have a price target.

Eli Lilly (LLY) ; $82.44; 1,450 shares; 4.34%; Sector: Healthcare -- Shares slightly dipped this week despite some positive developments. On Tuesday, the company announced its trial results on Jardiance, yet this caused little reaction in the markets. An analyst at SunTrust viewed the data as positive as the efficacy of the drug reduced risk of cardiovascular deaths in patients who had Type 2 diabetes independent to previous glucose levels. On Thursday, the company announced new safety and efficacy data on its Phase 2 study of baricitinib for people suffering from moderate to severe atopic dermatitis. The data showed that this drug in combination with topical corticosteroid improved symptoms in those with atopic dermatitis. Based on the report, Eli Lilly announced it would be moving the study into Phase 3 later this year. In addition, on Friday, one analyst from Morgan Stanley suggested this drug's efficacy could be improved further with a better trial design in Phase 3. We continue to like this name based on the healthy number of drugs making their way through the company's pipeline. In addition, LLY's recent cost-cutting efforts should improve margins in the short term and allow for further drug investment in the long run. LLY's robust pipeline and its commitment to developing new drugs should supplant concerns over pending patent expiration in their established products. We reiterate our $93 price target. 

Facebook FB ; $171.64; 1,000 shares; 6.23%; Sector: Technology -- Shares were slightly positive this week, underperforming the overall market. While we received several minor updates this week, none was enough to move the needle significantly in any one direction. One report noted that the company may be looking to add a feature known as "Delete for everyone" to its WhatsApp platform that would allow users to delete messages sent by accident on both their own device as well as the receiving one. The feature is interesting and may aid in bringing users over to the platform from other messaging services as it provides an option for those messages that were sent by mistake. We also learned this week that the social-network giant is looking to open an artificial intelligence (AI) research center in Montreal, according to reports from The Wall Street Journal. Earlier this year, the Canadian government agreed to dedicate 125 million Canadian dollars ($94 million U.S.) to develop AI research across the country. We continue to view the company as a leader in the digital advertisement field and believe that, longer term, the company will continue to thrive thanks to its consistent efforts to redefine itself and seek out new avenues of growth, the most notable of which are recent investments to increase video content on its main platform and invest in original content. We reiterate our $175 target.

First Data Corp. (FDC) ; $17.96; 1,000 shares; 0.65%; Sector: Technology -- Shares moved sharply lower this week due to the private equity firm KKR's issuance of a secondary offering. The offering opened on Thursday at $17.75, which caused the stock to drift lower to this level. However, as we explained Thursday morning in a post (read here) as well as during our members-only call, this move by KKR has zero impact on FDC's business or operations. Our take is that this was simply a move by the private equity firm to return value to shareholders. That being said, we believe the stock's movement provided a nice discount for shareholders, which is why we indicated we would have been buyers had we not been restricted. We continue to believe this stock is too cheap with respect to its peers, and that management's commitment to paying down debt should allow for multiple expansion and higher valuations. For a more in-depth look into First Data, please refer to our members-only call here. We reiterate our $21 price target.

Alphabet GOOGL ; $935.29; 150 shares; 5.09%; Sector: Technology -- Shares moved slightly lower this week. On Monday, an analyst at RBC Capital said regulatory action by the European Union could force traffic acquisition cost (TAC) increases. Rising TAC was a focal point for the sellers after GOOGL's last quarter, since this trend compresses margins and lowers earnings. Also, on Monday GOOGL filed an appeal to the EU's $2.9 billion antitrust fine over its search platform favoring GOOGL's shopping services. On Tuesday, GOOGL announced it had named John Krafcik as the leader for the company's self-driving car unit, Waymo. We have high expectations that Waymo will be the leader and disrupter in the self-driving cars industry, and Krafcik's automotive-industry experience is a natural fit. Later on Tuesday, the company announced in partnership with Comcast that YouTube is finally integrated into CMCSA's X1 cable box. We viewed this as a long time coming for both companies and the partnership should be mutually beneficial. On Thursday, GOOGL announced it was launching a digital payment product on its Android Pay platform in India. We continue to like the moves GOOGL is making outside of its search platform that further diversify its business. Although search is GOOGL's biggest business and rising TAC will certainly affect the bottom line, we do not believe the GOOGL story is limited to the search engine that has made it a household verb. We like the potential Waymo has in the auto industry as it is far and away the leader in the field. We think this business is incredibly undervalued, especially if driverless cars gain in popularity with additional proof of safety. We are also impressed with the company's AI and machine learning technologies sold off the Google Home family of devices. Lastly, the cloud services business offers additional diversification away from search and provides further growth opportunities. We reiterate our $1,100 price target. 

Illinois Tool Works (ITW) ; $145.64; 550 shares; 2.91%; Sector: Industrials -- Shares traded higher this week as investors speculate that the company's lagging auto division may get a bump from vehicle damage caused by Hurricane Harvey. While speaking at the Morgan Stanley Industrials Conference on Thursday, in addition to reaffirming organic growth targets of 2%-4%, management reiterated their goals for exiting 2018, including 25%+ operating margins, 20%+ after-tax return on invested capital (ROIC), 200+ bps organic revenue growth above the market and importantly and 100% free cash flow generation compared to net income. Recall that net income (think EPS) is considered higher quality when based on cash flow (as opposed to accrual accounting). Regarding the business model, we maintain that ITW's operational strategy of focusing on the 20% of customers/products that generate 80% of revenues/profits allows the company to improve both operating margins and cash flows while remaining highly diversified. We reiterate our $170 target.

KeyCorp (KEY) ; $17.92; 2,200 shares; 1.43%; Sector: Financials -- Shares surged this week as Treasury yields pushed higher. Also this week, we heard from CEO Beth Mooney at the Barclays Global Financial Services Conference. During her prepared remarks, Mooney noted the bank has gone through a major transformation in recent years. Management has focused on execution and investing for growth while at the same time shifting to a more balanced revenue stream with an increasing mix of "more stable fee categories." Mooney also noted that thanks to continued investment in people, products and capabilities, the bank recently saw its fourth consecutive year of positive operating leverage and a return on tangible common equity of 13% (as of the second quarter of this year). Speaking to recent acquisitions, Mooney underscored the increased tech expertise KEY can offer clients resulting from its Pacific Crest acquisition and the strengthening of the bank's healthcare platform via the integration of Cain Brothers. On the topic of operating efficiency, Mooney noted that over the past five years (excluding the Fist Niagara integration), physical branch count is down 17% while substantial investments have been made to enhance digital offerings such as mobile banking. Regarding First Niagara, Mooney reiterated her view that the company will realize $450 million in cost savings by early next year (46% of the cost to acquire First Niagara) and another $300 million in synergy savings over the next two to three years. All in, the conference bolstered our view that KEY is a bank that has undergone a highly successful turnaround spearheaded by a management team that shows no signs of letting up. We reiterate our $21 price target.

Magellan Midstream Partners (MMP) ; $71.13; 1,500 shares; 3.87%; Sector: Energy -- Shares moved higher this week, aided by the move in crude prices. On Thursday, the company announced, in conjunction with Valero Energy, that it would expand and jointly develop its marine storage facility, which is under construction in Pasadena, Texas, near Houston. Magellan will serve as manager of the project while under construction and will operate the facility upon completion. Phase one is expected to be operational by early 2019 and phase two to be complete early 2020. The new location will serve to store petroleum products such as gasoline, diesel fuel, jet fuel and renewable fuels. Following completion, the facility will connect (via pipeline) to Valero refineries in Houston and Texas City as well as Magellan's Galena Park facility. We are pleased to see MMP investing in anticipation of growing demand for refined products and believe the move will aid in supporting future cash flows, which are in turn crucial in supporting the company's distribution payments, which stand at roughly 5%. We reiterate our $89 target.

Nucor (NUE) ; $53.50; 2,150 shares; 4.18%; Sector: Industrials -- Shares fell during the week after receiving a mixed bag of news. On Tuesday, Morgan Stanley downgraded the stock citing margin pressure due to steel dynamics. We felt this downgrade failed to include the potential benefits Nucor will receive from providing steel in the relief efforts of Hurricanes Harvey and Irma and also the expected influx of scrap metal due to the destroyed cars from Harvey lowering the company's input costs. In response, we purchased shares Tuesday. On Thursday, the stock received an upgrade from Citi as they cited its 10% year-to-date correction as a disconnect from the underlying fundamentals of the company. Then on Friday, Nucor management announced they were cutting EPS guidance for the third quarter to between $0.75 and $0.80. This range is below the consensus of $1.02 and marks the second consecutive quarter of a pre-announced revision. The company cited compressed margins due to increasing raw materials as a cause for the depressed earnings, as well as extended outages at its Louisiana facility. However, since we are still optimistic that an update on Section 232 (which would impose tariffs on Chinese steel imports) will occur, we believe it is best to persevere through this difficult steel environment until the verdict is reached. This ruling would greatly benefit domestic steel producers like Nucor, and its potential has us patient. We reiterate our $75 price target. 

Nvidia (NVDA) ; $180.11; 200 shares; 1.31%; Sector: Technology -- Shares surged this week, thanks partly to a Friday price-target hike from analysts at Evercore ISI, who raised their target significantly (from $180 to $250). We maintain that NVDA is one of the best ways to invest in the growing artificial intelligence and deep-learning phenomenon as the company's chips are required to process and analyze the massive amount of data being collected by companies today. As we've noted, collecting the data is the easy part, analyzing it in an effective way is where the difficulties arise. By utilizing NVDA graphics processing unit (GPU), systems can partition out the compute-intensive functions to the GPU (known as GPU-acceleration), while allowing the traditional CPU to complete the less-intense functions. Our position not only provides us with exposure to data-center application but to video games (including those popular in e-sports), cryptocurrencies and autonomous driving as well. Regarding gaming, NVDA chips are required to process graphics for today's high-end video games. On the autonomous driving front, the GPUs are required to process the massive amount of data collected by self-driving cars in real time and use that data to make snap decisions to operate safely and effectively. Lastly, although there have been concerns lately regarding the legitimacy of cryptocurrencies, the trend does not appear to be going anywhere any time soon. Cryptocurrencies (such as Bitcoin) are created via a compute-intensive process known as "mining." Given the need for substantial amounts of computing power, NVDA chips are a crucial piece of the puzzle for those looking to create coins. We reiterate our $180 target for the time being and will re-evaluate should shares hold at their new high.

Schlumberger (SLB) ; $67.24; 1,400 shares; 3.42%; Sector: Energy -- Shares climbed over 3% this week despite Friday's selling in the name. The stock has performed well over the last two weeks as energy names have been making a strong comeback. With oil drifting back toward $50 a barrel, the stock has swiftly rebounded from the year-to-date lows it hit in August. We continue to like this name based on the management team's forward-thinking approach to the oil industry. Their insightful and well-considered outlook has us optimistic in the partnerships they have been investing in with exploration and producer companies. We feel they would not be investing billions in stakes in their customers' oil and gas projects that they service without having a positive long-term outlook in the industry. That being said, we expect this name to continue to grow through the profitable deals the company is making, and we reiterate our $93 price target. 

Southwest Airlines (LUV) ; $54.72; 1,200 shares; 2.38%; Sector: Transportation -- Shares continued to rise this week, outperforming the overall market. In the news this week, the stock received an upgrade from an analyst at JPMorgan who cited that the stock's recent pullback has created a positive risk/reward profile. In the analyst's outlook on the airline industry, they cited that investors' inclination toward "relative safety and best in class" could benefit the company. This view is consistent with what we have be preaching about LUV, which is why we continually bought shares during its last decline. We see upside from this current level as investor concerns over Hurricanes Harvey and Irma have subsided, and focus on the company's new reservation system should pick up. We viewed this technology enhancement as the biggest the industry has ever seen, and we are encouraged that management reiterated last week that they estimate $200 million in incremental EBIT benefits from the implementation. This new service should further promote the business of this premiere domestic airline, and we reiterate our $70 price target.

Starbucks (SBUX) ; $54.67; 1,800 shares; 3.57%; Sector: Consumer Discretionary -- Shares pushed higher this week, outperforming the overall market. This week, the company announced it was developing a new extraction process for cold-pressed espresso shots, with plans for the shots to become the foundation of new group product offerings. The new offerings began selling this week at the company's Reserve Roastery in Seattle, which has long been the hub of innovation for the company and the original location for SBUX's highly successful Nitro Cold Brew drink, which is now served at over 1,000 stores domestically and in 16 markets worldwide. The new offering is timely as, just last week, McDonald's announced a new espresso-based offering to revamp its coffee business, news that pressured SBUX shares in the middle of last week. With the company's mobile pay issues largely behind it, the recent release of its popular pumpkin spice latte and now the introduction of its new cold-pressed espresso shots -- which will lead to several new menu options -- we believe shares can continue pushing higher. For more on the company's new cold-pressed offering, members can read the company's press release here. We reiterate our $62 target.

T.J. Maxx (TJX) ; $73.74; 2,000 shares; 5.35%; Sector: Consumer Discretionary -- Shares trended higher but slightly underperformed the overall market as retail remains a battleground sector. It appears the tides are starting to turn for this best-in-class off-price retailer as it received praise from analysts at both UBS and Bernstein this week. On Monday, analysts at UBS reiterated their Buy rating following a tour of the company's new HomeSense location. The analysts stated their belief that the new concept could be disruptive and allow the company to extend its reach in the home furnishings market, providing a new avenue of growth for the retailer. As we've noted, the new concept was designed to complement the company's highly successful HomeGoods segment. The next day, analysts at Bernstein initiated the name with an Outperform rating (equivalent to Buy). In line with our view, the analysts expressed their belief that TJX is one of two clear winners in the apparel market. Recall that a major part of our thesis has been that the company's off-price model allows it to benefit from the closing of full-price competitors as management can scoop up liquidated inventory at steep discounts and pass the savings along to customers. Despite the recent up move, we continue to view shares as attractive and reiterate our $85 target.

TWOS

Apple (AAPL) ; $159.88; 700 shares; 4.06%; Sector: Technology -- Shares managed to push higher this week despite selling following the company's iPhone 8/iPhone X event on Tuesday. As expected, the company announced three new versions of the iPhone: the iPhone 8, iPhone 8 Plus and the new iPhone X. Most notably, the new phones will be increasingly more capable of running augmented-reality applications, with the "X" model allowing emojis to emulate the movements of the operator's face thanks to the new "TrueDepth" camera. Prices for the iPhone 8 start at $699 with the iPhone X starting at a whopping $999 (thanks largely to the addition of its 5.8-inch OLED screen). Despite the hefty price tags, the analyst community appears confident that pent-up demand will result in many upgrades. It is also expected that the addition of the "X" model will aid in increasing the average selling price, good news for investors, but something to consider for those looking to upgrade. Along with the new phones, the company announced new versions of Apple TV, which will be 4K capable, and the Apple Watch, which will come with the ability to connect directly to wireless networks. While the event was largely in line, it was met with a "sell the news" attitude as shares traded lower in the hours and days following the event. The one negative piece of news in the eyes of some analysts was the release date of the iPhone X, which won't be available for purchase until Nov. 3. For more information regarding the event and our take, members can read our earlier analysis here. We reiterate our $165 target and will review it as we learn more about the demand and availability of the new models.

Apache (APA) ; $42.52; 2,250 shares; 3.47%; Sector: Energy -- Shares saw a nice bounce this week on the back of strong oil inventory reports and the reopening of refineries in Corpus Christi, Texas, following a shutdown due to Hurricane Harvey. As we noted on our call this week, we have decided to upgrade the name from Three to Two as we believe shares are undervalued and that investors are not accounting for the company's Alpine High asset, a find that was originally believed to be one of the biggest in recent history. We have been encouraged by management's efforts to streamline operations to focus on Alpine High and believe that as the company makes progress on this Permian location, shares will begin trending higher. With our upgrade, we lowered our price target to $60 to better reflect the discount baked into shares that has occurred from the uncertain macro. Members can learn more about our decision by watching this month's members call here, and reading our upgrade Alert here.

Arconic (ARNC) ; $25.34; 2,200 shares; 2.02%; Sector: Industrials -- Shares greatly rebounded this week and gained over 3.5%. While the aerospace manufacturers took a hit last week, Arconic greatly pared losses. We believe aero is the key business segment for the company as it makes the turbine disks for the LEAP engines that are in high demand. We are also impressed with how the company has performed despite operating without a confirmed CEO. It was previously thought the negative publicity following the investigation of the fatal Grenfell Tower fire in London would hurt Arconic's CEO search; however, with it looking less and less likely that Arconic will be held responsible for any wrongdoing in this tragedy, we suspect something else could be in play. Although we think interim CEO David Hess is doing a tremendous job, the lack of developments in the CEO search, plus the news that United Technologies was buying Rockwell Collins, has us suspicious about other possible factors. While we never invest based on this type of speculation, we think this could be the cause of the lack of visibility in their search. Either way, we think the company's aero business is strong enough to support the stock as we wait for the CEO news. We reiterate our $31 price target. 

Citigroup (C) ; $69.04; 1,250 shares; 3.13%; Sector: Financials -- Shares pushed higher this week, aided by a bump in interest rates. Our long-term thesis in Citigroup continues to revolve around the company's turnaround efforts and its progression toward achieving management's 2020 goals. Recall that management plans to return over $20 billion to shareholders in each of the next two years (thanks to successful stress-test results earlier this year) and increase both EPS and return on tangible common equity (ROTCE). EPS is expected to increase to $9 (up from $5 over the past 12 months) while ROTCE is expected to rise to 11% (up from 7.8% over the past 12 months). While these factors drive our desire to hold the name long term, nearer term we believe Citigroup to be unique to other large-cap banks due to its lower reliance on trading revenues. Trading revenue requires an elevated level of market volatility, something that has been relatively absent in past months as evidenced by the low levels seen in the VIX recently (except for a few brief spikes resulting largely from news relating to North Korean missile launches). Lastly, with economies improving around the globe, we believe Citigroup is in a great position to benefit from the recovery as it generates over 55% of total revenues outside of the United States. We reiterate our $74 target.

DowDuPont (DWDP) ; $69.86; 1,375 shares; 3.49%; Sector: Chemicals -- Shares greatly outperformed the overall markets, climbing almost 8% for the week. On Tuesday we learned that after much speculation, DWDP management (alongside the work of activist investors) was shifting some of their asset allocation plans for the proposed spinoff companies. As we detailed in our analysis, DWDP announced it would be moving assets that total about $8 billion in revenue from the materials business into the specialty-chemical company. This move was widely anticipated as it was first publicly proposed by Glenview Capital Management in June. We believe the strong combination of DWDP management (which features breakup artist Ed Breen as CEO) and activist investors (such as Trian, Glenview, Jana Partners and Third Point) will help unlock the greatest amount of shareholder value possible. We believe the $3 billion in run-rate synergies and the additional $1 billion in growth synergies management is targeting will be achievable, and the potential for more positive revisions to the spinoff plans will create further value, which is why we increased our price target from $70 to $85 on Friday. We reiterate our $85 price target.

General Electric (GE) ; $2.93; 2,450; 2.13%; Sector: Industrials -- Trading of shares ended slightly higher for the week. On Thursday, the company gave a presentation at the Morgan Stanley Investor Conference where they detailed information about the Aviation segment. Some highlights from the presentation are that management expects commercial aviation to remain strong across the business, which as a whole represents approximately 34% of the company's earnings. In addition, the company remains bullish on military engines as it expects to benefit from an increase in spending on defense and aviation. In addition, GE management has a quality task ahead as they expect to have challenges maintaining inventory during the ramp-up for their LEAP engine, as they expect sales will go from 500 engines this year to 1,200 the following year, then to 1,900 with the potential to hit 2,200 engines by 2020. Despite the positive aviation outlook, we do not feel confident in the short-term direction of the stock as we believe shares will continue to be pressured until more visibility into new CEO John Flannery's plans are known. It appears the narrative that the dividend is safe could be shifting toward the dividend is a firm priority, which could lead to further downtrends until more information is there. Because of this, we downgraded the stock to a Two on Thursday during our members-only call, which you can watch here. In addition, we lowered our price target to $31, which we reiterate today as we believe this better reflects the potential earnings revision by management. 

NXP Semiconductors (NXPI) ; $112.84; 550 shares; 2.25%; Sector: Technology -- Shares remain range-bound as we have yet to receive an official update on the state of Qualcomm's willingness to increase its tender offer for NXPI. As we've noted, QCOM needs at least 80% of shareholders to tender their shares for the sale to proceed. However, with shares trading above $110 and activists continuing to push for a higher price, we believe the only option QCOM has is to increase its offer or walk away. Of these two options, we believe it does not make sense for QCOM to walk; even at a higher price the company can still realize synergies while gaining increased exposure to the rapidly growing automobile semiconductor market. That in mind, we will not be tendering shares in the portfolio, as this would mean exchanging shares at a price below current market value (it would be more financially beneficial to simply sell the shares in the open market). Despite our view that shares are worth more than the $110 offer, we are maintaining our $110 target to illustrate that shares will gravitate toward this level until we receive an official update from NXPI and QCOM.

PepsiCo (PEP) ; $114.85; 600 shares; 2.50%; Sector: Consumer Staples -- Shares were flat to negative this week even with analysts at Macquarie initiating the name on Thursday with an Outperform rating. Despite oscillating between $114 and $120 in recent weeks, we continue to believe PEP to be an important holding that aids in bringing stability and diversification to the overall portfolio. As we've noted, we like the secular growth story and believe management's efforts to increase its snack offerings, while offering healthier options (for both snacks and beverages), will aid in insulating the company from headwinds such as the increasingly popular soda tax. We believe the combination of healthier options and the increased mix of snacks into the company's sales numbers will allow management to achieve their 3% organic growth target. Lastly, at roughly 2.8%, we believe the company's dividend (which is supported by both EPS and cash flow) to be attractive for those investors looking to generate income while adding a strong consumer staples name to their portfolio. We reiterate our $120 target.

THREES

Newell Brands (NWL) ; $43.20; 600 shares; 0.94%; Sector: Consumer Discretionary -- Shares continued their decline this week. On Monday, the stock received a downgrade from Jeffries, who also removed it from their Franchise Picks List due to management's cautionary commentary for the second half of the year. Regarding our outlook, the stock never exhibited the strength we were looking for when we first downgraded the name to a Three. Since then, the stock has declined nearly 14% due to analyst downgrades, and most importantly, management's revised 2017 EPS guidance, which was lowered as a result of the impacts from Hurricane Harvey. The storm forced the shutdown of NWL's main resin suppliers, and the company elected to compress its margins at the expense of maintaining its sales targets (which we side with). During our members-only call on Thursday, we told members we would not be looking to sell at this level. In fact, we said if the stock continues to drop to about 14 times earnings (a cheap valuation in the industry), we would be inclined to buy shares again. Until we see either the strength we need to sell or the weakness we need to buy, we will remain holders in our position. Because of this, we cannot reiterate a specific sell price just yet, but again, we may be inclined to purchase shares should they dip further to our earnings multiple target. 

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Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long ABT, ATVI, AAPL, AGN, APA, AVGO, XEC, CMCSA, DHR, DXC, FB, FDC, GE, GOOGL, LUV, KEY, MMP, NUE, NWL, NVDA, ARNC, C, DOW, PEP, NXPI, SLB, SBUX, TJX, EZU, ITW and LLY.

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