James J. Cramer - Action Alerts PLUS
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James J. Cramer - Action Alerts PLUS
Saturday, September 27, 2003 10:50 a.m. EDT
Dear Action Alerts PLUS Subscriber:
Just as I predicted in this space last weekend, the mutual fund managers slashed and burned this week, locking in gains for their annual reports.
Now for the bad news: The selling isn't over. What's even worse? We may not be able to recognize the bottom when it happens. So my strategy is to start buying more shares of my one- and two-rated stocks into weakness, 500 to 1,000 shares at a time. It doesn't pay to stick your neck out in this kind of market, where profits can quickly disappear.
The third quarter just can't end fast enough, as far as I'm concerned. This is a week where I really started to feel the pain from my trading restrictions. The good news for you readers is that you don't have my restrictions. You can quickly raise cash when it looks like we're heading for a selling period, and when we see a large, swift gain in a new position, you can flip the shares for a profit.
I've received dozens of emails from subscribers in recent weeks telling me they've been able to double my 22% return this year by following my advice. That's why I try to give you as much information as possible in these alerts, even when I'm restricted from making a particular trade myself.
If you are new to the Weekly Roundup you should know I rate my stocks on a scale of One to Four. This technique helps order my priorities into selloffs and rallies and is something I used quite successfully as a hedge fund manager for many years. The Ones are stocks that I would buy right now, whereas the Fours are stocks I want to unload.
ONES
AT&T Wireless (AWE:NYSE, $8.25, 15,000 shares, 4.04%): It was another strong quarter for wireless providers, and I'm tempted to add another 5,000 shares if the stock continues its drop below $8.
Autobytel (ABTL:Nasdaq, $9.25, 1,500 shares, 0.45%): Started a new position on Friday in this Internet auto portal. The company has a near-monopoly in its space, and is seeing a ramp in advertising rates and gross margins. Autobytel isn't widely followed by Wall Street; if it were, I don't even think we'd have the chance to buy it in the single-digits.
Automatic Data Processing (ADP:NYSE, $36.42, 3,000 shares, 3.57%): Added 500 shares Thursday as the stock dropped a full dollar below my basis. Paychex (PAYX:Nasdaq) reported a surprisingly strong quarter this week, suggesting that ADP's core payroll business could recover sooner than expected.
Charter Communications (CHTR:Nasdaq, $4.16, 22,500 shares, 3.06%): Added 2,500 shares Thursday. The stock is off 15% from last Friday's high and 10% below my basis, making it an attractive purchase. The chart suggests Charter could see more near-term downside, but lower interest rates are very positive for the company's refinancing thesis.
Limited Brands (LTD:NYSE, $14.90, 4,500 shares, 2.19%): Market playbook says you can't throw new money at retail stocks right now. That said, the 2.7% yield is very attractive here, and I'll continue accumulating Limited if it stays below $15 much longer. If the retailer strings together a few months of positive sales, it could easily be trading in the high teens again.
Newell Rubbermaid (NWL:NYSE, $21.33, 15,500 shares, 10.79%): Still feeling the pain here but I believe our patience will pay off in the long run. Tupperware (TUP:NYSE) announced that it had a bad quarter, but the market sells Newell, ignoring the fact that Newell's gaining market share hand-over-fist.
Why do I stay in this name? The stock is just too cheap here, considering that the 4% yield is safe. The mutual funds are dumping Newell because they don't want to be holding it at the end of the quarter. I'll look to add to my stake next week when this selling is over.
Raytheon (RTN:NYSE, $28.16, 10,000 shares, 9.19%): Tough week for the defense stocks. I bought a total of 1,000 Raytheon shares on Thursday, into the mouth of two analyst downgrades. I don't think a majority of Americans want dramatically lower defense spending, no matter who wins the White House in 2004. Defense stocks have been the first to go down here, but that usually means it'll be the first sector to recover. As a reminder, Wednesday is the cutoff date to own Raytheon for the company's next 20-cent quarterly dividend.
ValueClick (VCLK:Nasdaq, $8.30, 10,500 shares, 2.84%): Down $2 this week, with a lot of uncertainty surrounding the national Do-Not-Call list and the possibility of some anti- spam legislation. Bought 500 shares on Friday, because I think the recent selloff has been overdone. ValueClick has about $3 a share in cash on the balance sheet, and I feel we must start buying when we see value in a stock, no matter what the market thinks.
Zoran (ZRAN:Nasdaq, $20.07, 4,500 shares, 2.95%): Company sold off on news that competitor ESS Technology (ESST:Nasdaq) may be taking away market share. I used the weakness to add a total of 1,500 shares this week, because there's plenty of business to go around in the DVD component market.
TWOS
AOL Time Warner (AOL:NYSE, $15.20, 10,000 shares, 4.96%): EMI's ability to raise capital might delay an official offer for Warner Music, which could hamper AOL's ability to whittle down its debt. Cheap stock, but I own it at a much lower price, and there are a few potential near-term catalysts that I believe will bring more value to the stock.
Cendant Corporation (CD:NYSE, $18.35, 4,000 shares, 2.40%): I want to own 5,000 shares of this stock, but I'm aware that my cost basis is around $17, and I don't want to violate my discipline.
Comcast (CMCSA:Nasdaq, $29.86, 4,500 shares, 4.39%): It looks like the cable company's increased size is finally giving it bargaining power, as evidenced by the new contract negotiated with Starz/Encore. Comcast also completed the sale of $3 billion of Liberty Media (L:NYSE) notes, which management said will be used to cut back on its own debt.
The cable business isn't as bad as the market is currently discounting, and I think it's only a matter of time before investors reward Comcast with a market-leader valuation. I have nothing but patience for this stock, and would consider adding to my stake closer to $29.
FleetBoston Financial (FBF:NYSE, $29.98, 4,500 shares, 4.40%): Set to report earnings on Oct. 15 before the opening bell. I think the market will start to reward the bank when investors realize that Fleet's earnings quality is improving.
Honeywell Int'l. (HON:NYSE, $26.22, 5,000 shares, 4.28%): Comments coming out of the company's analyst meeting this week suggest that a turnaround isn't imminent. I'm not holding my breath, but a resolution to the asbestos issue is still worth a couple of quick points for Honeywell.
JDS Uniphase (JDSU:Nasdaq, $3.64, 25,000 shares, 2.97%): I personally missed the opportunity to lock in some profits above $4, but you readers were able to take action. The company's solid balance sheet should lend some support to the stock until more consolidation takes place in the optics industry. Competitor New Focus (NUFO:Nasdaq) was bought out this week but more capacity might have to come offline before a company like JDS sees a turn in fundamentals.
J P Morgan (JPM:NYSE, $34.19, 3,000 shares, 3.35%): Latest round of broker earnings suggests that Morgan will once again exceed consensus estimates when the company reports next month. The stock's worth accumulating any time the yield goes over 4%. As a reminder, investors at the close of trading on Wednesday will qualify for J.P. Morgan's next 34-cent quarterly dividend.
Nextel Communications (NXTL:Nasdaq, $19.32, 4,000 shares, 2.52%): Third-quarter estimates are likely to move higher, as I'm hearing the company is signing up a lot of national Direct-Connect accounts. My discipline requires me to wait for a pullback before buying more Nextel ahead of earnings.
Pfizer (PFE:NYSE, $30.56, 1,500 shares, 1.50%): Drugs had a tough week, with Congress pushing for lower drug prices for Medicare. A look back at prescription trends throughout the third quarter shows that there were few surprises, and Pfizer should have another solid profit report.
Schering-Plough (SGP:NYSE, $15.39, 10,000 shares, 5.02%): Starting a new trial pitting its hepatitis C drug, Peg- Intron, against a competing product from Roche in an attempt to regain some market share. I've already bought a lot of shares at $15, so there's no reason to commit new capital here.
UnitedHealth Group (UNH:NYSE, $48.33, 3,500 shares, 5.52%): Solid grower in almost any environment, and I'm interested in adding to my stake on a decline below my $48 basis.
Watson Pharmaceutical (WPI:NYSE, $41.81, 2,000 shares, 2.73%): Found a marketing partner for Oxytrol in Europe ahead of expected mid-2004 approval. Company is ramping its U.S. launch for Memantine, and every 5 percentage points of market share in Europe could add 2 cents a share to Watson's annual earnings.
THREES
Conexant Systems (CNXT:Nasdaq, $5.52, 14,000 shares, 2.52%): Stock nearly touched $7, before coming down to current levels. For those like myself who own Conexant at such low prices, it doesn't make sense to buy more shares over $5.
E*Trade Group (ET:NYSE, $9.40, 17,500 shares, 5.37%): Mortgage business won't drop off as much as most folks expected this quarter, so E*Trade could top consensus estimates. That said, I'm neutral on adding new money to this stock at these levels.
Intel (INTC:Nasdaq, $27.27, 1,000 shares, 0.89%): Announced it was investing $450 million in Micron Technology (MU:NYSE). Along with an equity stake, the chip company is also motivating the memory company to have its new high- performance components ready for Intel's new product line to be rolled out in 2004.
Friday's upgrade from the JP Morgan analyst sent the stock out on a high note. No action to take right here, but I may get the opportunity to trade around some shares before the Oct. 14 earnings report.
FOURS
Wells Fargo (WFC:NYSE, $51.40, 1,000 shares, 1.68%): Sold a total of 2,500 shares on Friday. I like the fact the company has achieved triple-A lending status, but don't find the current valuation compelling compared with the bank's peers.
Regards,
James J. Cramer
DISCLOSURE: At the time of publication, Cramer was long AOL Time Warner, AT&T Wireless, Autobytel, Automatic Data Processing, Cendant, Charter Communications, Comcast, Conexant Systems, E*Trade, FleetBoston Financial, Honeywell, Intel, JDS Uniphase, J.P. Morgan, Limited Brands, Newell Rubbermaid, Nextel, Pfizer, Raytheon, Schering-Plough, UnitedHealth Group, ValueClick, Watson Pharmaceuticals, Wells Fargo and Zoran.
Dear Action Alerts PLUS Subscriber:
Just as I predicted in this space last weekend, the mutual fund managers slashed and burned this week, locking in gains for their annual reports.
Now for the bad news: The selling isn't over. What's even worse? We may not be able to recognize the bottom when it happens. So my strategy is to start buying more shares of my one- and two-rated stocks into weakness, 500 to 1,000 shares at a time. It doesn't pay to stick your neck out in this kind of market, where profits can quickly disappear.
The third quarter just can't end fast enough, as far as I'm concerned. This is a week where I really started to feel the pain from my trading restrictions. The good news for you readers is that you don't have my restrictions. You can quickly raise cash when it looks like we're heading for a selling period, and when we see a large, swift gain in a new position, you can flip the shares for a profit.
I've received dozens of emails from subscribers in recent weeks telling me they've been able to double my 22% return this year by following my advice. That's why I try to give you as much information as possible in these alerts, even when I'm restricted from making a particular trade myself.
If you are new to the Weekly Roundup you should know I rate my stocks on a scale of One to Four. This technique helps order my priorities into selloffs and rallies and is something I used quite successfully as a hedge fund manager for many years. The Ones are stocks that I would buy right now, whereas the Fours are stocks I want to unload.
ONES
AT&T Wireless (AWE:NYSE, $8.25, 15,000 shares, 4.04%): It was another strong quarter for wireless providers, and I'm tempted to add another 5,000 shares if the stock continues its drop below $8.
Autobytel (ABTL:Nasdaq, $9.25, 1,500 shares, 0.45%): Started a new position on Friday in this Internet auto portal. The company has a near-monopoly in its space, and is seeing a ramp in advertising rates and gross margins. Autobytel isn't widely followed by Wall Street; if it were, I don't even think we'd have the chance to buy it in the single-digits.
Automatic Data Processing (ADP:NYSE, $36.42, 3,000 shares, 3.57%): Added 500 shares Thursday as the stock dropped a full dollar below my basis. Paychex (PAYX:Nasdaq) reported a surprisingly strong quarter this week, suggesting that ADP's core payroll business could recover sooner than expected.
Charter Communications (CHTR:Nasdaq, $4.16, 22,500 shares, 3.06%): Added 2,500 shares Thursday. The stock is off 15% from last Friday's high and 10% below my basis, making it an attractive purchase. The chart suggests Charter could see more near-term downside, but lower interest rates are very positive for the company's refinancing thesis.
Limited Brands (LTD:NYSE, $14.90, 4,500 shares, 2.19%): Market playbook says you can't throw new money at retail stocks right now. That said, the 2.7% yield is very attractive here, and I'll continue accumulating Limited if it stays below $15 much longer. If the retailer strings together a few months of positive sales, it could easily be trading in the high teens again.
Newell Rubbermaid (NWL:NYSE, $21.33, 15,500 shares, 10.79%): Still feeling the pain here but I believe our patience will pay off in the long run. Tupperware (TUP:NYSE) announced that it had a bad quarter, but the market sells Newell, ignoring the fact that Newell's gaining market share hand-over-fist.
Why do I stay in this name? The stock is just too cheap here, considering that the 4% yield is safe. The mutual funds are dumping Newell because they don't want to be holding it at the end of the quarter. I'll look to add to my stake next week when this selling is over.
Raytheon (RTN:NYSE, $28.16, 10,000 shares, 9.19%): Tough week for the defense stocks. I bought a total of 1,000 Raytheon shares on Thursday, into the mouth of two analyst downgrades. I don't think a majority of Americans want dramatically lower defense spending, no matter who wins the White House in 2004. Defense stocks have been the first to go down here, but that usually means it'll be the first sector to recover. As a reminder, Wednesday is the cutoff date to own Raytheon for the company's next 20-cent quarterly dividend.
ValueClick (VCLK:Nasdaq, $8.30, 10,500 shares, 2.84%): Down $2 this week, with a lot of uncertainty surrounding the national Do-Not-Call list and the possibility of some anti- spam legislation. Bought 500 shares on Friday, because I think the recent selloff has been overdone. ValueClick has about $3 a share in cash on the balance sheet, and I feel we must start buying when we see value in a stock, no matter what the market thinks.
Zoran (ZRAN:Nasdaq, $20.07, 4,500 shares, 2.95%): Company sold off on news that competitor ESS Technology (ESST:Nasdaq) may be taking away market share. I used the weakness to add a total of 1,500 shares this week, because there's plenty of business to go around in the DVD component market.
TWOS
AOL Time Warner (AOL:NYSE, $15.20, 10,000 shares, 4.96%): EMI's ability to raise capital might delay an official offer for Warner Music, which could hamper AOL's ability to whittle down its debt. Cheap stock, but I own it at a much lower price, and there are a few potential near-term catalysts that I believe will bring more value to the stock.
Cendant Corporation (CD:NYSE, $18.35, 4,000 shares, 2.40%): I want to own 5,000 shares of this stock, but I'm aware that my cost basis is around $17, and I don't want to violate my discipline.
Comcast (CMCSA:Nasdaq, $29.86, 4,500 shares, 4.39%): It looks like the cable company's increased size is finally giving it bargaining power, as evidenced by the new contract negotiated with Starz/Encore. Comcast also completed the sale of $3 billion of Liberty Media (L:NYSE) notes, which management said will be used to cut back on its own debt.
The cable business isn't as bad as the market is currently discounting, and I think it's only a matter of time before investors reward Comcast with a market-leader valuation. I have nothing but patience for this stock, and would consider adding to my stake closer to $29.
FleetBoston Financial (FBF:NYSE, $29.98, 4,500 shares, 4.40%): Set to report earnings on Oct. 15 before the opening bell. I think the market will start to reward the bank when investors realize that Fleet's earnings quality is improving.
Honeywell Int'l. (HON:NYSE, $26.22, 5,000 shares, 4.28%): Comments coming out of the company's analyst meeting this week suggest that a turnaround isn't imminent. I'm not holding my breath, but a resolution to the asbestos issue is still worth a couple of quick points for Honeywell.
JDS Uniphase (JDSU:Nasdaq, $3.64, 25,000 shares, 2.97%): I personally missed the opportunity to lock in some profits above $4, but you readers were able to take action. The company's solid balance sheet should lend some support to the stock until more consolidation takes place in the optics industry. Competitor New Focus (NUFO:Nasdaq) was bought out this week but more capacity might have to come offline before a company like JDS sees a turn in fundamentals.
J P Morgan (JPM:NYSE, $34.19, 3,000 shares, 3.35%): Latest round of broker earnings suggests that Morgan will once again exceed consensus estimates when the company reports next month. The stock's worth accumulating any time the yield goes over 4%. As a reminder, investors at the close of trading on Wednesday will qualify for J.P. Morgan's next 34-cent quarterly dividend.
Nextel Communications (NXTL:Nasdaq, $19.32, 4,000 shares, 2.52%): Third-quarter estimates are likely to move higher, as I'm hearing the company is signing up a lot of national Direct-Connect accounts. My discipline requires me to wait for a pullback before buying more Nextel ahead of earnings.
Pfizer (PFE:NYSE, $30.56, 1,500 shares, 1.50%): Drugs had a tough week, with Congress pushing for lower drug prices for Medicare. A look back at prescription trends throughout the third quarter shows that there were few surprises, and Pfizer should have another solid profit report.
Schering-Plough (SGP:NYSE, $15.39, 10,000 shares, 5.02%): Starting a new trial pitting its hepatitis C drug, Peg- Intron, against a competing product from Roche in an attempt to regain some market share. I've already bought a lot of shares at $15, so there's no reason to commit new capital here.
UnitedHealth Group (UNH:NYSE, $48.33, 3,500 shares, 5.52%): Solid grower in almost any environment, and I'm interested in adding to my stake on a decline below my $48 basis.
Watson Pharmaceutical (WPI:NYSE, $41.81, 2,000 shares, 2.73%): Found a marketing partner for Oxytrol in Europe ahead of expected mid-2004 approval. Company is ramping its U.S. launch for Memantine, and every 5 percentage points of market share in Europe could add 2 cents a share to Watson's annual earnings.
THREES
Conexant Systems (CNXT:Nasdaq, $5.52, 14,000 shares, 2.52%): Stock nearly touched $7, before coming down to current levels. For those like myself who own Conexant at such low prices, it doesn't make sense to buy more shares over $5.
E*Trade Group (ET:NYSE, $9.40, 17,500 shares, 5.37%): Mortgage business won't drop off as much as most folks expected this quarter, so E*Trade could top consensus estimates. That said, I'm neutral on adding new money to this stock at these levels.
Intel (INTC:Nasdaq, $27.27, 1,000 shares, 0.89%): Announced it was investing $450 million in Micron Technology (MU:NYSE). Along with an equity stake, the chip company is also motivating the memory company to have its new high- performance components ready for Intel's new product line to be rolled out in 2004.
Friday's upgrade from the JP Morgan analyst sent the stock out on a high note. No action to take right here, but I may get the opportunity to trade around some shares before the Oct. 14 earnings report.
FOURS
Wells Fargo (WFC:NYSE, $51.40, 1,000 shares, 1.68%): Sold a total of 2,500 shares on Friday. I like the fact the company has achieved triple-A lending status, but don't find the current valuation compelling compared with the bank's peers.
Regards,
James J. Cramer
DISCLOSURE: At the time of publication, Cramer was long AOL Time Warner, AT&T Wireless, Autobytel, Automatic Data Processing, Cendant, Charter Communications, Comcast, Conexant Systems, E*Trade, FleetBoston Financial, Honeywell, Intel, JDS Uniphase, J.P. Morgan, Limited Brands, Newell Rubbermaid, Nextel, Pfizer, Raytheon, Schering-Plough, UnitedHealth Group, ValueClick, Watson Pharmaceuticals, Wells Fargo and Zoran.
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