Jim Cramer's Action Alerts PLUS Weekly Roundup
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Jim Cramer's Action Alerts PLUS Weekly Roundup
Saturday, Oct 18, 2003 12:35 p.m.
Dear Action Alerts PLUS Subscriber:
The ugly end to the week is just what the doctor ordered. I know this may sound odd, but the WORST thing that could happen to this market is if the Dow goes straight up to 10,000 in the next couple of weeks. Why? Because a move like that wouldn't be sustainable.
This is a data-point-oriented market, and I think things are going to be choppy for the rest of the month. We likely will see more selling in the near term. Nothing drastic, but we could lose a couple of hundred points on the Dow when the bulk of earnings season is over two weeks from now.
How do we prepare for this? Take profits in some overextended winners and make limited purchases. For example, if I buy something next week, I'll likely be picking away at 500 shares here and there, and only when it improves my cost basis.
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, $8.19, 21,000 shares, 5.31% of the portfolio): Reports third-quarter earnings on Thursday after the close. I think the stock is just too cheap ahead of this number, and I'd like to buy more AT&T Wireless at these levels.
Automatic Data Processing (ADP:NYSE, $38.16, 4,000 shares, 4.71%): Departure of the company's top employer-services manager obviously wasn't a sign that business was slow because ADP reported September quarter profits that were a full 10% higher than expected.
The company said it's seeing the early signs of a turn in its core business, and I think Automatic Data will raise its dividend in November. This stock should outperform the broader markets in the near term, which is why I bought 500 shares Friday afternoon.
Charter Communications (CHTR:Nasdaq, $4.34, 25,000 shares, 3.35%): I think the company's refinancing strategy is still valid despite the recent spike in bond rates.
EchoStar Communications (DISH:Nasdaq, $39.66, 3,500 shares, 4.28%): Refined its bid for Loral's (LRLSQ:OTC BB) satellites, which will lead to an auction this week for the assets. Company is now looking to buy six satellites for just over $1 billion.
Added 500 shares on Wednesday because I didn't want this position to become another Cendant (CD:NYSE). I waited for a pullback in Cendant that never came, and I'm left wishing I had bought more when I could have.
Remains a buy under $40 because I think there are multiple outcomes where EchoStar is a winner.
Intel (INTC:Nasdaq, $31.66, 1,000 shares, 0.98%): Knocked the ball out of the park in the third quarter. Even though I started buying the stock in the high teens, Wall Street continues to underestimate Intel's earnings power, and I believe the stock has another 10 points of upside within the next year. I'm restricted from buying the stock myself, but would be adding to my stake at these levels.
J.P. Morgan (JPM:NYSE, $36.34, 3,000 shares, 3.37%): My tell for the brokerage stocks is the hiring cycle. The Merrill Lynchs (MER:NYSE) and the J.P. Morgans of the world can still leverage earnings growth by cutting jobs, and this will fuel the next leg up in these stocks.
Morgan should easily exceed analyst expectations, as its peers have, and I think the stock has another 7 to 10 points of upside over the coming quarters.
Pfizer (PFE:NYSE, $30.56, 1,500 shares, 1.41%): My favorite drug stock, and I expect a solid earnings report on Wednesday. I'd buy more shares at or below $30.
Raytheon (RTN:NYSE, $28, 10,500 shares, 9.07%): Couldn't sustain any momentum this week, but I see very little downside from here.
Time Warner (TWX:NYSE, $15.58, 10,000 shares, 4.81%): A solid earnings report on Wednesday along with the new name could usher in a next leg up for this stock. America Online's new strategy for a discount dial-up service should help the company add subscribers, which it hasn't been able to do for some time.
Time Warner could be the cheapest stock in my portfolio. I'd buy more shares at these levels if my restrictions allowed.
TWOS
Autobytel (ABTL:Nasdaq, $11.35, 2,000 shares, 0.70%): Hits the wires with third-quarter earnings on Friday afternoon. I wouldn't be surprised to see upside to the consensus profit estimate of 4 cents a share.
That said, Autobytel has run up ahead of its earnings report. And a lot of stocks that ran ahead of earnings this week promptly sold off after releasing numbers. If we see such a move with Autobytel, I'd be interested in doubling my position.
Cendant Corporation (CD:NYSE, $19.33, 4,000 shares, 2.39%): Set to report earnings on Monday after the closing bell. Cendant is $2 above my basis, but I think the estimates out there are too conservative.
Don't forget the company is also going to start paying a dividend in the first quarter! I'd look to round my position up to 5,000 shares closer to $18.
Comcast (CMCSA:Nasdaq, $32.23, 4,500 shares, 4.48%): Planning a 6% rate increase in the Bay Area, on top of a similar boost back in January. I think this stock looks inexpensive, especially if it pulled back a point or two.
Conexant Systems (CNXT:Nasdaq, $5.95, 10,000 shares, 1.84%): Will likely report the best quarter of any company in the portfolio. I don't plan on making any more sales because the stock could see $7 or $8 before the end of the year.
E*Trade Group (ET:NYSE, $10.59, 22,500 shares, 7.25%): Sold off Thursday, despite reporting a solid quarter the night before. I have a decent profit on my stake, but there's no way I'd be selling E*Trade here.
My homework tells me the company can earn at least $1 a share next year, and in a consolidating industry I think the market will value E*Trade at $15.
Limited Brands (LTD:NYSE, $17.39, 4,500 shares, 2.42%): Added slightly to last week's gains. One of the cheapest retailers out there, and I think Limited could ultimately see $20 before the end of the year.
Newell Rubbermaid (NWL:NYSE, $22.93, 14,000 shares, 9.91%): Sold 1,500 shares on Friday, trading around some stock we had bought 10% lower. This is my tried-and-true method of trying to game distressed stocks.
As much as I like Newell, the prudent move is to take some profits and create room to buy the stock again should it fall back to $21.
Nextel Communications (NXTL:Nasdaq, $21.81, 4,500 shares, 3.03%): The more time that elapses since Verizon's (VZ:NYSE) launch of push-to-talk, the more I'm convinced that Nextel has an impenetrable hold on this market.
This is another stock that saw some profit-taking after reporting earnings, despite management raising its guidance once again. On the one hand, we're up $5 a share on Nextel, but on the other, one of the best growth stories in the market is trading for less than 20-times earnings.
Nextel CEO Tim Donahue definitely deserves the CEO of the Year award. As long as he's in charge here, I think the company's operating momentum will continue to drive the stock higher. I'd wait to start taking profits until we see $24.
Schering-Plough (SGP:NYSE, $16.10, 10,000 shares, 4.97%): Zetia gained 5% of new market share in September, but the company's Hepatitis C products remain under pressure. Don't expect any miracles on Wednesday's conference call -- this is definitely a value play that will take time to pay off.
UnitedHealth Group (UNH:NYSE, $53.99, 1,500 shares, 2.50%): Definitely finished with selling this position. I think the breakout following UnitedHealth's earnings report and guidance boost is only the beginning of better times to come for the stock.
The company is growing earnings at a 30%-plus clip, and looks like a bargain at less than 20-times earnings. I think UNH reaches $60 over the coming months.
Watson Pharmaceuticals (WPI:NYSE, $41, 2,000 shares, 2.53%): The most inexpensive way to play the secular growth of generic drugs. The company reports earnings the first week of November, and I'd buy some Watson between now and then if it dropped below $40.
Zoran (ZRAN:Nasdaq, $18.86, 6,500 shares, 3.78%): Action of this stock continues to amaze me, but I haven't lost faith in the fundamental outlook here. Management has a lot of questions to answer on its conference call, and I'm prepared to buy more Zoran at $17 if need be.
THREES
FleetBoston Financial (FBF:NYSE, $32.61, 3,000 shares, 3.02%): Sold 500 shares on Monday. While I think the financials will lead the way to Dow 10,000, I prefer my holdings that have more direct exposure to the brokerage business.
Fleet reported a decent quarter and management has laid the groundwork for a recovery. That said, I believe the bank is still a quarter or two away from convincing investors that things are truly better.
Honeywell Int'l. (HON:NYSE, $29.01, 5,500 shares, 4.92%): Reported an in-line quarter on Thursday, and I believe the aerospace business will recover faster than many folks expect.
The latest round of asbestos settlement talks hit an impasse on Friday, when Senate Democratic leader Tom Daschle said the bill will not hold up in its current form. Stock looks cheap on its own, but this news could cap Honeywell's recent rally.
JDS Uniphase (JDSU:Nasdaq, $3.89, 20,000 shares, 2.40%): Reports earnings on Thursday after the market close. Company has been successful cutting costs, but I don't think the top-line strength is there just yet for JDS Uniphase to return to profitability. The stock would be attractive if it pulled back 10% from here.
ValueClick (VCLK:Nasdaq, $9.42, 9,500 shares, 2.76%): Sold 1,000 shares on Wednesday, as the stock rallied into the double digits.
ValueClick was hit hard on Friday following DoubleClick's (DCLK:Nasdaq) poor earnings report. This is why we take profits off the table, because gains can quickly evaporate when you're piggish with a stock.
Already made my sales, and I think ValueClick did OK for itself this quarter. Would consider buying back the stock 10% lower.
Regards,
James J. Cramer
Dear Action Alerts PLUS Subscriber:
The ugly end to the week is just what the doctor ordered. I know this may sound odd, but the WORST thing that could happen to this market is if the Dow goes straight up to 10,000 in the next couple of weeks. Why? Because a move like that wouldn't be sustainable.
This is a data-point-oriented market, and I think things are going to be choppy for the rest of the month. We likely will see more selling in the near term. Nothing drastic, but we could lose a couple of hundred points on the Dow when the bulk of earnings season is over two weeks from now.
How do we prepare for this? Take profits in some overextended winners and make limited purchases. For example, if I buy something next week, I'll likely be picking away at 500 shares here and there, and only when it improves my cost basis.
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, $8.19, 21,000 shares, 5.31% of the portfolio): Reports third-quarter earnings on Thursday after the close. I think the stock is just too cheap ahead of this number, and I'd like to buy more AT&T Wireless at these levels.
Automatic Data Processing (ADP:NYSE, $38.16, 4,000 shares, 4.71%): Departure of the company's top employer-services manager obviously wasn't a sign that business was slow because ADP reported September quarter profits that were a full 10% higher than expected.
The company said it's seeing the early signs of a turn in its core business, and I think Automatic Data will raise its dividend in November. This stock should outperform the broader markets in the near term, which is why I bought 500 shares Friday afternoon.
Charter Communications (CHTR:Nasdaq, $4.34, 25,000 shares, 3.35%): I think the company's refinancing strategy is still valid despite the recent spike in bond rates.
EchoStar Communications (DISH:Nasdaq, $39.66, 3,500 shares, 4.28%): Refined its bid for Loral's (LRLSQ:OTC BB) satellites, which will lead to an auction this week for the assets. Company is now looking to buy six satellites for just over $1 billion.
Added 500 shares on Wednesday because I didn't want this position to become another Cendant (CD:NYSE). I waited for a pullback in Cendant that never came, and I'm left wishing I had bought more when I could have.
Remains a buy under $40 because I think there are multiple outcomes where EchoStar is a winner.
Intel (INTC:Nasdaq, $31.66, 1,000 shares, 0.98%): Knocked the ball out of the park in the third quarter. Even though I started buying the stock in the high teens, Wall Street continues to underestimate Intel's earnings power, and I believe the stock has another 10 points of upside within the next year. I'm restricted from buying the stock myself, but would be adding to my stake at these levels.
J.P. Morgan (JPM:NYSE, $36.34, 3,000 shares, 3.37%): My tell for the brokerage stocks is the hiring cycle. The Merrill Lynchs (MER:NYSE) and the J.P. Morgans of the world can still leverage earnings growth by cutting jobs, and this will fuel the next leg up in these stocks.
Morgan should easily exceed analyst expectations, as its peers have, and I think the stock has another 7 to 10 points of upside over the coming quarters.
Pfizer (PFE:NYSE, $30.56, 1,500 shares, 1.41%): My favorite drug stock, and I expect a solid earnings report on Wednesday. I'd buy more shares at or below $30.
Raytheon (RTN:NYSE, $28, 10,500 shares, 9.07%): Couldn't sustain any momentum this week, but I see very little downside from here.
Time Warner (TWX:NYSE, $15.58, 10,000 shares, 4.81%): A solid earnings report on Wednesday along with the new name could usher in a next leg up for this stock. America Online's new strategy for a discount dial-up service should help the company add subscribers, which it hasn't been able to do for some time.
Time Warner could be the cheapest stock in my portfolio. I'd buy more shares at these levels if my restrictions allowed.
TWOS
Autobytel (ABTL:Nasdaq, $11.35, 2,000 shares, 0.70%): Hits the wires with third-quarter earnings on Friday afternoon. I wouldn't be surprised to see upside to the consensus profit estimate of 4 cents a share.
That said, Autobytel has run up ahead of its earnings report. And a lot of stocks that ran ahead of earnings this week promptly sold off after releasing numbers. If we see such a move with Autobytel, I'd be interested in doubling my position.
Cendant Corporation (CD:NYSE, $19.33, 4,000 shares, 2.39%): Set to report earnings on Monday after the closing bell. Cendant is $2 above my basis, but I think the estimates out there are too conservative.
Don't forget the company is also going to start paying a dividend in the first quarter! I'd look to round my position up to 5,000 shares closer to $18.
Comcast (CMCSA:Nasdaq, $32.23, 4,500 shares, 4.48%): Planning a 6% rate increase in the Bay Area, on top of a similar boost back in January. I think this stock looks inexpensive, especially if it pulled back a point or two.
Conexant Systems (CNXT:Nasdaq, $5.95, 10,000 shares, 1.84%): Will likely report the best quarter of any company in the portfolio. I don't plan on making any more sales because the stock could see $7 or $8 before the end of the year.
E*Trade Group (ET:NYSE, $10.59, 22,500 shares, 7.25%): Sold off Thursday, despite reporting a solid quarter the night before. I have a decent profit on my stake, but there's no way I'd be selling E*Trade here.
My homework tells me the company can earn at least $1 a share next year, and in a consolidating industry I think the market will value E*Trade at $15.
Limited Brands (LTD:NYSE, $17.39, 4,500 shares, 2.42%): Added slightly to last week's gains. One of the cheapest retailers out there, and I think Limited could ultimately see $20 before the end of the year.
Newell Rubbermaid (NWL:NYSE, $22.93, 14,000 shares, 9.91%): Sold 1,500 shares on Friday, trading around some stock we had bought 10% lower. This is my tried-and-true method of trying to game distressed stocks.
As much as I like Newell, the prudent move is to take some profits and create room to buy the stock again should it fall back to $21.
Nextel Communications (NXTL:Nasdaq, $21.81, 4,500 shares, 3.03%): The more time that elapses since Verizon's (VZ:NYSE) launch of push-to-talk, the more I'm convinced that Nextel has an impenetrable hold on this market.
This is another stock that saw some profit-taking after reporting earnings, despite management raising its guidance once again. On the one hand, we're up $5 a share on Nextel, but on the other, one of the best growth stories in the market is trading for less than 20-times earnings.
Nextel CEO Tim Donahue definitely deserves the CEO of the Year award. As long as he's in charge here, I think the company's operating momentum will continue to drive the stock higher. I'd wait to start taking profits until we see $24.
Schering-Plough (SGP:NYSE, $16.10, 10,000 shares, 4.97%): Zetia gained 5% of new market share in September, but the company's Hepatitis C products remain under pressure. Don't expect any miracles on Wednesday's conference call -- this is definitely a value play that will take time to pay off.
UnitedHealth Group (UNH:NYSE, $53.99, 1,500 shares, 2.50%): Definitely finished with selling this position. I think the breakout following UnitedHealth's earnings report and guidance boost is only the beginning of better times to come for the stock.
The company is growing earnings at a 30%-plus clip, and looks like a bargain at less than 20-times earnings. I think UNH reaches $60 over the coming months.
Watson Pharmaceuticals (WPI:NYSE, $41, 2,000 shares, 2.53%): The most inexpensive way to play the secular growth of generic drugs. The company reports earnings the first week of November, and I'd buy some Watson between now and then if it dropped below $40.
Zoran (ZRAN:Nasdaq, $18.86, 6,500 shares, 3.78%): Action of this stock continues to amaze me, but I haven't lost faith in the fundamental outlook here. Management has a lot of questions to answer on its conference call, and I'm prepared to buy more Zoran at $17 if need be.
THREES
FleetBoston Financial (FBF:NYSE, $32.61, 3,000 shares, 3.02%): Sold 500 shares on Monday. While I think the financials will lead the way to Dow 10,000, I prefer my holdings that have more direct exposure to the brokerage business.
Fleet reported a decent quarter and management has laid the groundwork for a recovery. That said, I believe the bank is still a quarter or two away from convincing investors that things are truly better.
Honeywell Int'l. (HON:NYSE, $29.01, 5,500 shares, 4.92%): Reported an in-line quarter on Thursday, and I believe the aerospace business will recover faster than many folks expect.
The latest round of asbestos settlement talks hit an impasse on Friday, when Senate Democratic leader Tom Daschle said the bill will not hold up in its current form. Stock looks cheap on its own, but this news could cap Honeywell's recent rally.
JDS Uniphase (JDSU:Nasdaq, $3.89, 20,000 shares, 2.40%): Reports earnings on Thursday after the market close. Company has been successful cutting costs, but I don't think the top-line strength is there just yet for JDS Uniphase to return to profitability. The stock would be attractive if it pulled back 10% from here.
ValueClick (VCLK:Nasdaq, $9.42, 9,500 shares, 2.76%): Sold 1,000 shares on Wednesday, as the stock rallied into the double digits.
ValueClick was hit hard on Friday following DoubleClick's (DCLK:Nasdaq) poor earnings report. This is why we take profits off the table, because gains can quickly evaporate when you're piggish with a stock.
Already made my sales, and I think ValueClick did OK for itself this quarter. Would consider buying back the stock 10% lower.
Regards,
James J. Cramer
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