Analysis: XIV VXX UVXY TVIX ARNC AGN NXPI DXC ATVI NVDA RTN JWN FDC PEP XEC STZ ABT HON WM AAPL AVGO CMCSA DHR DWDP EZU FB GOOGL ITW JPM MSFT SLB APA C LLY GE MMP NUE KO AMZN

­Markets remained volatile this week as we find ourselves in a bitter adjustment period following a very calm 2017. With macroeconomic readings being in short supply this week, we want to take a moment to rehash some of the week's themes and discuss a few of the readings we are watching.

Starting with the Friday/Monday selloff, while we can't know exactly what it was that sparked the market-wide pullback, there are a few culprits that investors and market analysts have pointed to. The first metric was the 10-year Treasury note yield, which broke above 2.8% for the first time since January 2014. The thinking here was that it was indicative of higher expectations of rising inflation (diminishing the real rate of return on investments) and that at a +2.8% yield, the bond market would be strong enough competition for the stock market that investors would elect to move out of riskier equities in exchange for safe, guaranteed yields. Additionally, with expectations of higher inflation, come expectations of increased Fed rate hikes, meaning an increased cost of capital for those borrowing funds. The irony is that as the selloff played out and investors pushed into bonds, yield pushed back under the 2.8% level that many had claimed was the cause of the selloff in the first place.

Another factor analysts pointed to was the simple fact that markets had gotten overheated (i.e. we moved too far too fast). Given that 2017's +20% gain was quickly followed up with a +5% gain in January, we don't disagree, which is why we opted to raise cash last Tuesday, trimming some of our favorite names ahead of their earnings releases (see here and here).

Finally, the kicker that exacerbated the selloff were volatility related instruments such as the (XIV) . The first thing to know is that the XIV is essentially used to "short" the VIX volatility index (i.e. the XIV goes inverse of the VIX, makes sense).

While investors can't buy the VIX directly, they can buy ETFs such as the (VXX) , (UVXY) , and (TVIX) which are exchange traded products that essentially derive their value from VIX futures contracts. However, because of the way these positively correlated VIX instruments work, they are essentially designed to go to zero in a low volatility environment. Without getting too deep into the underlying workings, the thing to know is that, in general, the further out a futures contract expiration is, the more expensive it will be (i.e. you pay more for more time to expiration). These VIX futures instruments get their value by buying longer-dated contracts (say two months out) and selling shorter-dated contracts (say one month out), i.e. they are buying high and selling low, constantly. It is for this reason that if you've ever held instrument such as the VXX, UVXY or VIX in a period where volatility was flat (as it was for most of 2017) that you likely saw a consistent deterioration in share price. It is also for this reason that, up until last week, so many elected to hold inverse VIX instruments such as the XIV, because if positively correlated VIX instruments perpetually go lower in a low volatility environment, as was the case last year, inversely correlated VIX instruments (the XIV) perpetually go higher in low volatility environments.

However, this works until it doesn't. With last week's selloff causing a massive spike in the VIX index, holders of the XIV were burned, bad, as the exchange traded instrument lost over 80% of its value almost instantly (remember the XIV is inversely correlated to the VIX, so if the VIX spikes, the XIV tanks). The pain didn't stop there though as many of the traders using the instrument were doing so on margin (i.e. with borrowed money). When playing with margin, if a bet moves against you enough, you get what's know as a "margin call," where the broker you borrowed from essentially tells you that you've hit your loss limit and must liquidate your position. These margins calls further aggravated the selling dynamic as many who were holding the XIV, were also long the S&P 500 index (the thinking being the S&P is going up so volatility will stay flat, i.e. short the VIX and go long the market). So as the margin calls came in and traders were forced to liquidate their XIV positions they were also forced to sell their market positions to raise capital, which is why on Tuesday of this week, we elected to do some buying before the opening bell as we believed the margin calls and resulting forced selling of the S&P index would cause an "artificially" low open for the market.

We hope this has helped to shed some light on the market dynamics currently at play and brings some clarity to many of the conversations being held on TV as it relates to these unstable VIX related instruments. We will leave it at this, we are currently in a volatile and dynamic adjustment, where market dynamics can override individual company fundamentals and while the volatility may subside over time, for now, we are looking at this as "the new norm." As a result, we are staying patient, keeping our focus on the longer-term view of our holdings and will look to take advantage of the volatility, buying up stocks and building up existing positions when the volatility causes stocks to become heavily discounted.

Lastly, to gain a better understanding of the current market dynamic and the levels we are watching, we encourage members to go back and review key alerts from earlier in the week Broadcom selloff, We Are Buyers, Shopping For Values, How We Navigated, Rules of Engagement and Today's Framework.

Treasury yields, which have been a point of contention as many believe it to be pressuring stocks, were a roller-coasters this week, alternating up and down before leveling flat from Friday's close of ~2.85%, when the market correction began. Gold moved lower as the dollar strengthened relative to the euro. Lastly, oil moved lower, caught up in the market wide selling and taking an additional hit on Wednesday as the U.S. Energy Information Administration reported that crude inventories increased by 1.9 million barrels. While this was below analyst expectations (a positive), it was well above Tuesday's report from the American Petroleum Institute, which showed a 1.1-million-barrel drawdown, setting high expectations for the Wednesday report.

Fourth-quarter earnings are underway and are so far relatively positive vs. expectations. Within the portfolio we heard from Arconic (ARNC) , Allergan (AGN) , NXP Semiconductors (NXPI) , DXC Technology (DXC) , Activision Blizzard (ATVI) and Nvidia (NVDA) .

Arconic

Arconic reported a top and bottom line beat with its fiscal fourth-quarter earnings results. On the top line, revenue of $3.3 billion (+10% year over year, or 6% organically) exceeded consensus expectations of $3.08 billion. On the bottom line, adjusted earnings of $0.31 per share (+158% YoY) surpassed expectations of $0.25 per share as management delivered net cost savings of $68 million (2.1% of revenue) in the quarter. Furthermore, as a result of operating improvements, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) in the quarter increased 24% year on year to $446 million, edging out estimates of $442 million. However, despite the headline beat, shares traded lower as the company's largest segment, engineered products and solutions (EP&S), missed the mark on adjusted EBITDA (more below), free cash flow in the quarter of $376 million missed expectations of $443 million while full-year earnings guidance came up slightly short of expectations.

With this, full-year 2017 revenue was $13 billion (+5% YoY organically) and adjusted earnings were $1.22 per share (+24.5% YoY). Both quarterly and full-year revenue results were driven by increased volume and higher aluminum prices (an input cost for Arconic that compressed margins, with some prices likely being passed onto end customers). Additionally, on the cost-saving front, Arconic reduced full-year net costs by $232 million (1.8% of revenue), with $111 million being taken out of selling, general and administrative expenses (SG&A), not including special one-time items.

Allergan

Allergan reported a top- and bottom-line beat with its fourth-quarter results. Revenue of $4.32 billion edged the consensus of $4.28 billion, and non-GAAP adjusted earnings per share of $4.86 topped expectations of $4.74.

U.S. Specialized Therapeutics revenue increased about 20% year over year. This result was driven by the additions of Regenerative Medicine and CoolScultping, and 14.1% year over year increase in Botox cosmetic revenue. U.S. General Medicine was flat year over year, but revenue for the Central Nervous system portfolio increased about 3% year over year. Internationally, revenue increased 21% year and management continues to see global growth as a big opportunity. Lastly, management updated its full year 2018 guidance. Management now expects adjusted earnings per share will be between $15.25 and $16.

NXP Semiconductors

NXP Semiconductors reported a top- and bottom-line beat for its fourth-quarter earnings, with revenue of $2.46 billion beating out Street expectations of $2.34 billion, and adjusted earnings per share of $2.17 topping the $1.80 expectations.

Automotive fourth-quarter revenue increased by 12% year over year to $970 million. This result is $50 million more than consensus. Secure Identifications Solutions revenue declined 7% year over year to $136 million. Secure Connected Devices revenue increased 31% year over year to $745 million, and Secure Interface and Infrastructure revenue increased 3% year over year to $497 million, beating expectations of $459 million.

DXC Technology

DXC Technology reported a top- and bottom-line beats for its fiscal third-quarter 2018 results. Revenue of $6.19 billion edged above the consensus of $6.18 billion, and non-GAAP earnings per share came in at $2.15 topping the consensus by $0.17.

The company's push to take out costs was successful this quarter as DXC achieved margin improvement across its three main segments: Global Business Services (GBS), Global Infrastructure Services (GIS), and United States Public Sector (USPS). Digital revenue also increased 13% year over year Lastly, management now expects that the spinoff of the USPS business will be completed by May. This is a slight delay to the prior target date of the end of March, and we note this event represents a catalyst opportunity.

Activision Blizzard

Activision Blizzard reported a top and bottom line beat with its fiscal fourth quarter results. On the top line, adjusted revenue of $2.64 billion (+7.67% YoY) exceeded expectations of $2.55 billion. On the bottom line, adjusted of $0.94 per share (+2.17% YoY) edged out consensus of $0.93 per share. With this, Activision finished off 2017 with $7.16 billion in adjusted revenue (an annual record) and $2.28 in adjusted EPS.

Looking ahead, management guided for 1Q18 revenue of $1.82 billion (versus consensus of $1.42 billion) with earnings of $0.65 per share on a non-GAAP basis (versus expectations of $0.43 per share). As for the full year 2018, management sees revenue coming in at $7.35 billion (versus estimates of $7.4 billion) with non-GAAP earnings of $2.45 per shares (versus consensus of $2.57 per share). Additionally, we note that while full-year estimates appear to have come up short, management has a history of guiding conservatively and note that for the current quarter, revenue guidance was for $2.34 billion and earnings guidance was for $0.82 per share, both well short of the actual results. As for capital allocation, Activision's Board of Directors has declared a $0.34 per share cash dividend, representing an increase of 13% YoY and authorized over $1 billion to be used for debt paydown in 2018.

Nvidia

Nvidia reported a top and bottom line beat with its fourth-quarter earnings report. Revenue of $2.91 billion (up 34% year over year) beat the consensus of $2.68 billion, and non-GAAP earnings per share of $1.72 (up 52% year over year) smashed the consensus of $1.16. In addition to the monstrous top line growth, Nvidia improved its non-GAAP gross margins by 190 basis points year over year and 240 basis points sequentially.

The company achieved tremendous revenue growth in Gaming and the Datacenter as strong demand for Nvidia's gaming chips and the rapid adoption of the Tesla V100 GPU drove the quarter. Although Auto revenue slightly declined year over year, the company is at the forefront of enabling autonomous driving capabilities through its industry leading technology. Lastly, the company issued revenue guidance for next quarter and it expects to achieve about $2.9 billion, plus or minus two percent.

Economy

On the economic front, it was a very slow week in terms of macroeconomic readings, however, on Monday the Institute of Supply Management's (ISM) reported that in January, the non-manufacturing index (NMI), which tracks the service sector of the economy advanced 3.9% from December's 56% reading to 59.9%, exceeding expectations of a rise to 56.5% and notching the strongest pace of overall services sector growth since the index reached 61.3% back in August of 2005. This follows last week's report on the manufacturing sector which beat expectations, coming in at 59.1% vs. expectations of 58.5%.

For perspective, over the past 12 months, the NMI has averaged 57.2% with a high of 59.9% and a low of 54.3%. Importantly, according to Chair of the Institute for Supply Management, Anthony Nieves, "the past relationship between the NMI and the overall economy indicates that the NMI for January (59.9%) corresponds to a 4.0% increase in real gross domestic product (GDP) on an annualized basis." See out full analysis here.

On Thursday, the Bank of England (BoE), opted to leave rates unchanged at 0.5%, however, BoE Governor Mark Carney did note that given their updated outlook on the economy, they may be in favor of raising rates "earlier" and to a "somewhat greater extent" than they had thought would be in the case. This guidance of an accelerated pace and greater magnitude of rate hikes speaks to our view that a global economic expansion remains intact. The committee last raised rates in November for the first time in 10 years and according to economists may now look to raise rates again in May.

Also, on Thursday, the Department of Labor reported that initial jobless claims for the week ending February 3 were 221,000, a decrease of 9,000 claims from the previous week's unrevised level of 230,000, and 11,000 claims below expectations of 232,000 initial claims. Claims taking procedures in the Virgin Islands and Puerto Rico have yet to return to normal. Importantly, the four-week moving average for claims (used as a gauge to offset volatility in the weekly numbers) was 224,500, a decrease of 10,000 from last week's unrevised level of 234,500. 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 153 consecutive weeks, the longest streak since 1970. For the official weekly release, please see here.

Key Global Economic Readings

Oil

On the commodity front, it was a relatively quiet week as much of the focus was on the market correction and return of volatility. That said, oil was dragged down with the broader market and because U.S. producers continue to pump at record levels. As we noted above, prices were hit on Wednesday as the U.S. Energy Information Administration (EIA) reported a 1.9-million-barrel inventory buildup. While this was below the 3-million-barrel addition expected by analysts, it was seen as a negative due to the American Petroleum Institute (API) reporting a 1.1-million-barrel drawdown the day earlier. Compounding the inventory buildup, U.S. production rose to 10.25 million barrels per day (bpd). For reference, last November was the first time US production had exceeded 10 million bpd since 1970. Furthermore, looking forward, the EIA sees U.S. output rising to 10.59 million bpd in 2018 and 11.18 million bps in 2019. Depending on Russian output at that time, these levels of output could result in the U.S. becoming the largest producer in the world. These expectations of production growth are also a cause for oil's pullback as it raises concerns that US production may undermine OPEC's/Russia's efforts to reduce global supplies to a level more in line with demand. That said, while we do not believe this to be the case currently and will continue to monitor the dynamic and update members should our view change. Other factors impacting prices this week include a strengthening dollar and seasonality as we are entering a maintenance period for U.S. refineries, pressuring demand for crude and a factor that will likely result in additional U.S. crude inventory in coming months.

Stocks

In the portfolio this week, we initiated Raytheon (RTN) and Nordstrom (JWN) . Regarding Raytheon, as we noted in our deep dive here, our central thesis in Raytheon relates to increased defense spending in both the U.S. and abroad. Raytheon also fits the profile of a company that greatly benefits from tax reform, and the recent market swoon effectively washed out all the company's year to date gains.

As for Nordstrom, as we noted in our initiation alert here, our thesis in the company relates to increased consumer spending thanks to the benefits of tax reform. This should help raise same-store sales, as consumer confidence is at a high. Also, the company is opening a new flagship store in New York City in the fall of 2019, and we have high expectations that this store could become a go-to destination for local shoppers and tourists, similar to Macy's Herald Square location.

We also increased our stake in Constellation Brands (STZ) ; Abbott (ABT) here and here; Honeywell (HON) ; and Waste Management (WM) , taking advantage of the market weakness to build up our positions as we believe these to be high quality names that were simply collateral damage and in no way linked to the cause of the market correction. In the cases of Constellation Brands and Honeywell, we were able to lower our overall basis. As for Abbott and Waste Management, while we were torn, as adding shares would negatively impact our basis, we have wanted to be bigger in these names and felt the significant move down due to market-wide volatility was simply too good to pass up.

Moving on to the broader market, fourth-quarter earnings are underway and are so far positive verse expectations, with 77.3% of companies reporting a positive EPS surprise. Thus far, fourth-quarter earnings growth has increased roughly 15.4% year over year vs. expectations for an overall 15.4% increase throughout the season; of the 265 non-financials that reported, earnings growth is up 17.2%. Revenues are up 8.6%, surpassing expectations throughout the season for a 7.3% increase; 77.3% of companies beat EPS expectations, 14.3% missed the mark and 8.4% were in line with consensus. On a year-over-year comparison basis, 82.92% beat the prior year's EPS results, 14.91% came up short and 1.86% were virtually in line. Materials, Financials and Information Technology have had the strongest performance vs. estimates, whereas Telecom, Utilities and Real Estate posted the worst results in the S&P 500 for the fourth quarter so far.

Next week, 73 companies in the S&P 500 will report earnings. Within the portfolio, First Data Corp (FDC) will report Monday before the bell, Pepsico (PEP) will report Tuesday before the bell, Cimarex (XEC) will report Wednesday after the bell, and Waste Management WM will report Thursday before the bell

Other key earnings reports for the market include: Loews Corp (L), CAN Financial (CNA), Restaurant Brands Int'l (QSR), Vipshop (VIPS), Molina Healthcare (MOH), Arch Capital (ACGL), Vornado (VNO), Dana Inc (DAN), Under Armour (UAA), Martin Marietta (MLM), MetLife (MET), Baidu (BIDU), Fossil (FOSL), Western Union (WU), Twilio (TWLO), Bunge (BG), Shire plc (SHPG), Dr. Pepper Snapple (DPS), Groupon (GRPN), Hilton (HLT), Cisco (CSCO), Sun Like (SLF), CenturyLink (CTL), Marriot (MAR), Applied Materials (AMAT), Arris (ARRS), Chemours (CC), Yandex (YNDX), US Foods (USFD), Zoetis (ZTS), Andeavor (ANDV), CBS (CBS), Con Edison (ED), Shake Shack (SHAK), Impinj (PI), Enbridge (ENB), Coca-Cola (KO), Kraft Heinz (KHC), Deere (DE) and Newell (NWL)

Economic Data (*all times ET)

U.S.

Monday (2/12)

Monthly Budget Statement (14:00): $49.5 expected

Tuesday (2/13)

NFIB Small Business Optimism (6:00): 106.0 expected

Wednesday (2/14)

MBA Mortgage Applications (7:00)

CPI MoM (8:30): 0.4% expected

CPI Ex Food and Energy MoM (8:30)0.2% expected

CPI YoY (8:30):1.9% expected

Retail Sales Advance MoM (8:30): 0.3% expected

Retail Sales Ex Auto MoM (8:30): 0.5% expected

Retail Sales Ex Auto and Gas (8:30): 0.4% expected

Thursday (2/15)

Empire Manufacturing (8:30): 18.0 expected

Initial Jobless Claims (8:30)

Continuing Claims (8:30)

PPI Final Demand MoM (8:30): 0.4% expected

PPI Ex Food and Energy MoM (8:30): 0.2% expected

PPI Final Demand YoY (8:30): 2.4% expected

PPI Ex Food and Energy YoY (8:30): 2.1% expected

Philadelphia Fed Business Outlook (8:30): 22.1 expected

Industrial Production MoM (9:15): 0.2% excpected

Capacity Utilization (9:15): 78.0% expected

Bloomberg Consumer Comfort (9:45)

Total Net TIC Flows (16:00)

Net Long-term TIC Flows (16:00)

Friday (2/16)

Import Price Index MoM (8:30): 0.6% expected

Housing Starts (8:30): 1225k expected

Building Permits (8:30): 1300k expected

  1. of Mich. Sentiment (10:00): 95.5 expected

International

Monday (2/12)

Japan PPI YoY (18:50): 2.8% expected

Tuesday (2/13)

Japan Machine Tool Orders YoY (1:00)

UK CPI MoM (4:30): -0.6% expected

UK CPI YoY (4:30): 2.9% expected

UK CPI Core YoY (4:30): 2.6% expected

UK Retail Price Index (4:30): 276.2 expected

UK RPI MoM (4:30): -0.7% expected

UK RPI YoY (4:30): 4.1% expected

UK PPI Output NSA MoM (4:30): 0.2% expected

UK PPI Output NSA YoY (4:30): 3.0% expected

Japan GDP SA QoQ (18:50): 0.2% expected

Japan GDP Annualized SA QoQ (18:50): 0.9% expected

Japan GDP Deflator YoY (18:50): 0.0% expected

Wednesday (2/14)

Germany GDP SA QoQ (2:00)

Germany GDP WDA YoY (2:00)

Germany GDP NSA YoY (2:00)

Germany CPI MoM (2:00)

Germany CPI YoY (2:00)

Germany CPI EU Harmonized MoM (2:00)

Germany CPI EU Harmonized YoY (2:00)

Eurozone Agg Industrial Production SA MoM (5:00)

Eurozone Agg Industrial Production WDA YoY (5:00)

Eurozone Agg GDP SA QoQ (5:00)

Eurozone Agg GDP SA YoY (5:00)

Japan Core Machine Orders MoM (18:50): -2.7% expected

Japan Core Machine Orders YoY (18:50): 0.5% expected

Japan Industrial Production MoM (23:30)

Japan Industrial Production YoY (23:30)

Japan Capacity Utilization MoM (23:30)

Thursday (2/15)

Friday (2/16)

UK Retail Sales Ex Auto Fuel MoM (4:30): 0.5% expected

UK Retail Sales Ex Auto Fuel YoY (4:30): 2.3% expected

UK Retail Sales Inc Auto Fuel MoM (4:30): 0.5% expected

UK Retail Sales Inc Auto Fuel YoY (4:30): 2.3% expected

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Tickers: ABT ARNC ATVI AAPL AGN APA AVGO XEC CMCSA DHR DXC FB FDC GE GOOGL HON JPM JWN MMP MSFT NUE NVDA C DWDP PEP NXPI SLB EZU ITW LLY WM RTN STZ

ONES

Abbott Laboratories (ABT) ; $57.17; 800 shares; 1.63%; Sector: Healthcare -- Shares of Abbott Laboratories fell this week alongside the broader market. After pulling back over 11% from its recent highs, we decided to finally break basis in this winner Tuesday morning and Friday afternoon because the company has too many positive trends going for it that we must view this selloff as a buying opportunity. When the company reported a few weeks ago, we learned that CEO Miles White and Abbott have outperformed on their acquisitions of St. Judes Medical and Alere. Also, the new product launches of FreeStyle Libre, Alinty system, the Confirm RX Insertable Cardiac Monitor, and the HeartMate 3 system should drive results in the coming year. We believe that 2018 is set to be another year of double digit earnings growth for the company, and this attribute will appreciate again once market volatility settles down. We reiterate our $65 price target.

Apple (AAPL) ; $156.41; 700 shares; 3.90%; Sector: Technology -- After reporting a top and bottom line beat with last week's earnings release, shares pushed higher in afterhours trading despite a slight miss on earnings and gross margin guidance. However, the move quickly reversed the next day as the market sold off. As we've noted previously, we believe Apple to be a victim of its own success. While the quarter was the best in the company's history, it simply could not live up to analyst expectations of a "super cycle." That said, we continue to believe that Apple is a name to be owned, not traded; with its last earnings release management noted that the company had reached a record level of installed base across all products while seeing 18% Services growth from the same time last year. The two takeaways are, first, there are more outlets for the companies Services, worldwide, than there have ever been, and second, Services continues to show momentum. Recall, the Services segment is a major factor in our longer-term thesis as it provides greater margins than the overall business (leaving the potential for company-wide margin expansion as it grows into a larger portion of revenue) and brings with it a transparent and reoccurring revenue stream, something that could lead to a higher valuation multiple on the stock in the future. We reiterate our $190 target.

Broadcom (AVGO) ; $235.5; 200 shares; 1.68%; Sector: Electronics -- With Broadcom meeting Qualcomm management on Tuesday of next week, we continue to like shares as we believe the takeover overhang will soon be removed, allowing shares trade on Broadcom's own merit, without the added uncertainty. On that note, we believe the situation is a win/win for Broadcom so long as a conclusion is reached. Should Broadcom succeed, we believe they will push higher due to the increased exposure to 5g wireless and because it will move up to become the third largest semiconductor manufacturer behind Intel and Samsung (not to mention the increased exposure to Apple, a major Qualcomm customer). Should they fail to acquire Qualcomm, we believe shares will push higher as investors will refocus on Broadcom's exposure to the shift to 5g wireless networks (even without Qualcomm, the company has exposure to this trend) as well as its wired offerings, which address last-mile bottlenecks in the delivery of highspeed internet to end customers. With video streaming and online gaming on the rise, we believe these last-mile solutions will continue to benefit as data demands are expected to rise long-term. We reiterate our $290 target.

Comcast (CMCSA) ; $38.57; 2000 shares; 2.75%; Sector: Consumer Discretionary -- We continue to like Comcast as the company stands to be one of the biggest beneficiaries of tax reform and its significant business diversity helps to shield it from weakness in any one sector. Regarding diversity and what it means to overall performance, we remind members that while video subscribers continue to be on the decline, industry wide, Comcast has been able to offset these losses thanks to its strong broadband offering which is seeing increased demand as "cord cutters" switch to online streaming video services or other forms of entertainment such as video games, which require high speed connections to play online or download additional content (which continue to grow in size and thus requires faster speeds). Regarding the decline in video subscribers, we note that while this trend has indeed hit Comcast, the company has managed to remain more resilient than others thanks to the X1 platform, which seamlessly blends streaming services such as Netflix with traditional pay TV and in the last quarter aided Comcast in exceeding analyst expectations as it relates to the loss of video subscribers (Comcast also exceeded expectations of broadband subscriber additions). We reiterate our $45 target and remind members that in addition to hosting the Super Bowl on NBC last week, it will host the Winter Olympics in the week to come. We reiterate our $45 target.

Danaher (DHR) ; $94.46; 1000 shares; 3.37%; Sector: Life Sciences -- There was little corporate news from Danaher because the company reported earnings last week. On their last print, Danaher reported a strong top and bottom line beat with excellent core revenue growth acceleration to 5.5%. Driving this number that was the best of the year was the strong growth in Danaher's Life Sciences, Diagnostics, and Environmental and Applied Solutions segments. Dental remains a challenge however as the business continues to face industry headwinds. Going forward, we believe that Danaher should hit on their 3.5% to 4% core sales growth target for 2018 because the company has a few high performing acquisitions that are almost fully integrated and should outperform thanks to the implementation of the Danaher Business System. We reiterate our $104 price target.

DowDuPont (DWDP) ; $69.48; 1375 shares; 3.41%; Sector: Chemicals -- We continue to see upside to DowDuPont as it is highly diversified, and management is actively working to increase shareholder value as they implement synergy plans (which management raised to $3.3 billion from $3 billion when the company reported earnings last week) before then working to break the company up into three separate entities. Additionally, in our view, recent weakness following the quarter (and resulting from the market correction) has provided for a buying opportunity as we believe muted sales guidance to be the result of a seasonality shift in crop protection. This will ultimately result in one week of revenue that was expected to be in the first quarter print, transferring into the second quarter and essentially, providing for a second-quarter tailwind. Regarding spinoff plans, we also remind members that when the company reported earnings, management also announced accelerated break up plans; as of now management sees the Material Science segment being spun off by the first quarter of 2019 and the Agriculture and Specialty Products segments being spun out by June 1, 2019. We will continue to monitor for updates on this front and reiterate our $85 target.

iShares MSCI EMU Index ETF (EZU) ; $42.84; 1000 shares; 1.53%; Sector: Europe -- We continue to like the EZU as a means of passively playing both the economic recovery in Europe and the euro currency, as we believe Europe to be behind the U.S. in its economic expansion and that the euro still has room to run in comparison to the dollar. We decided an ETF to be the best means of achieving these dual goals (region and currency exposure) as it prevents us from potentially being tied to a company, sector or EU member country that may be lagging the overall recovery. As a reminder, we selected the EZU over other European based ETFs as it has minimal exposure to the UK, an area we decided was best to avoid given remaining uncertainty surrounding Brexit. As this is an ETF encompassing over 200 companies, we will not have a price target.

Facebook (FB) ; $176.11; 800 shares; 5.02%; Sector: Technology -- We continue to like Facebook as the company is actively working to increase the quality of its platform. While these changes have resulted in a reduced amount of time spent on the core platform, during their last conference call, management noted that the quality of the content was increasing and as a result allowing Facebook to charge advertisers more due to higher levels of return on investment (ROI). Furthermore, with Twitter and Snapchat both reporting better than expected quarters week, we believe the readthrough is positive for Facebook, which, along with Alphabet, remains the top online platform for advertisers. Outside of Facebook's core platform, Instagram continues to show momentum and now has over 2 million active advertisers and over 25 million businesses with their own Instagram profiles. Additionally, longer-term, we believe Facebook is making all the right moves to keep the platform relevant thanks to investments in virtual reality, video (i.e. the "Watch" tab) and security, which will aid in preserving the company's "goodwill." We reiterate our $220 target.

Alphabet (GOOGL) ; $1046.27; 125 shares; 4.66%; Sector: Technology -- Shares of Alphabet fell and underperformed against the broader market this week. On Wednesday, it was reported that Google is developing a subscription-based game streaming service. Though not confirmed by the company, this could be a lucrative opportunity for Alphabet to break into the video game market that is growing incredible well. On Friday, Alphabet's autonomous driving technology company, Waymo, and Uber agreed on a settlement that should be in Waymo's favor. Waymo dropped its lawsuit against the company and Uber agreed not to use Waymo's trade secrets for self-driving vehicles. Uber will also give Waymo a 0.34% stake of Uber's equity (equal to an estimated $245 million). Going forward with our position, we want to make a key point here. Although we believe that Alphabet's stock could go higher, we are disappointed with management's complacency about missing the numbers last quarter. Complacency is something we do not stand for, especially when the stock is the second biggest position in the portfolio, and we are currently scrutinizing our position. We reiterate our $1300 price target.

Honeywell (HON) ; $147.9; 600 shares; 3.16%; Sector: Industrials -- Shares of Honeywell fell this week as the market downturn pressured the stock. We viewed this as an opportunity to add to our position though, as we scooped up shares on Tuesday. Even with volatility placing that trade in an unrealized loss, we reiterate that these purchases may prove to be prudent months from now and we keep our long-term look on Honeywell, especially because the company will look completely different by the end of the year. We believe that the two upcoming spinoffs will unlock value for shareholders because it will allow the core of the company (the businesses exposed to the most attractive end markets) to shine and command a higher multiple. In the interim, as we learned when management reported a few weeks ago, the company is expanding margins, generating a huge amount of cash, a delivering core sales growth. We also expect management to be active on the M&A front this year as they have plenty of capital available to deploy, and perhaps the recent market volatility will spark conversations as market-wide valuations are much more attractive than what they were a few weeks ago. We reiterate our $175 price target.

Illinois Tool Works (ITW) ; $160.13; 550 shares; 3.14%; Sector: Industrials -- Illinois Tool Works remains one our favorite names in the industrial sector as the company has proven time and again that its 80/20 business model, a model in which the company focuses on the 20% of customers/products that generate 80% of revenues/profits, works. This was illustrated in the company's most recent earnings release where it produced expanded margins in every operating segment, free cash flow of 106% of net income (i.e. higher quality earnings than those based on accruals) and organic revenue growth acceleration (4% in 4Q vs. 2% in 3Q) while announcing intentions to move up its plan of raising dividend payout to 50% of free cash flow. Furthermore, we note that the quality of this name is not lost on market participants as it quickly bounced back following the market selloff as investors sought out high quality names that had been pushed lower because of the market correction. With management moving into phase two of their strategic framework, characterized by a focus on bolt-on acquisitions and M&A activity, we continue to like ITW as a core holding and reiterate our $185 target.

JP Morgan Chase (JPM) ; $110.04; 200 shares; 0.78%; Sector: Financials -- We continue like JPMorgan as the bank stands to benefit from both rising interest rates domestically (which will aid in expanding net interest margins) and the global economic expansion thanks to its international presence. As we've noted previously the bank's global presence was a key factor in our investment thesis as, following U.S. tax reform, large industrials may look to borrow cash abroad (rather than in the US) where it has become more attractive to deduct the interest charges against gains in those countries. Furthermore, despite the recent action in the market, we note that the financial sector, and JPMorgan specifically, stands to benefit from the strengthening of the U.S. economy, making this a key name that we are eyeing should it pull back below our cost basis. Lastly, we like JPM for its "fortress" like balance sheet which has become increasingly important following news that the Fed will be toughening its stress test this year. We reiterate our $120 target.

Nordstrom (JWN) ; $47.89; 1500 shares; 2.56%; Sector: Retail -- Shares of Nordstrom's finished the week slightly higher despite pressures from the broader market. On Tuesday, we initiated a position in this department store chain off the market pullback because we believe that there are many positive forces signaling the return to of luxury good sellers. Many luxury brands posted positive earnings with their most recent reports, and this is a good indication that customers are returning to department stores like Nordstrom's to buy these goods. Looking down the road, Nordstrom's will be opening a new flagship store in New York City and this is expected to be a palace and become the premier destination for tourists and local shoppers alike. Also, to appeal to shoppers who are always on the hunt for a good deal, we like how Nordstrom's has a discount retail chain in Nordstrom Rack. Lastly, the founding Nordstrom family has a history of deliberating about taking the company private, and this recent pullback combined with the company's new store openings could potentially renew this speculation. We reiterate our $54 price target.

Microsoft (MSFT) ; $88.18; 1100 shares; 3.46%; Sector: Technology -- We continue to view Microsoft as the number one threat to Amazon's (AMZN) AWS public cloud dominance. This view was bolstered last week, when the company reported a top and bottom line earnings beat and saw incredible 98% YoY growth in its Azure business, its public cloud. Outside of the public cloud (the biggest factor in our overall investment thesis), we believe the company's transition from one-time software license sales to a subscription model has paid off thanks to the associated recurring revenue stream and higher margins. We also believe that gaming is a segment that has largely been overlooked by investors but is slowly beginning to gain attention. First, gaming is becoming more mainstream and the shift to digital will improve profitability. Second, thanks to the need for an Xbox Live subscription to play online (basically a requirement for today's games) and the company's Xbox Game Pass (a gaming subscription service similar to Netflix), Microsoft will be able to further expand subscription revenues as gaming popularity increases thanks to factors such as virtual reality and eSports. We reiterate our $100 target and believe the market correction has only served to make shares more attractive.

Raytheon (RTN) ; $204.52; 300 shares; 2.19%; Sector: Aerospace -- As we noted in our initiation post here, we have been eyeing Raytheon for a while, not wanting to chase its strong post-earnings moves. Our patience paid off when the market pulled back earlier this week and we had no choice but to jump in as the stock essentially gave up all its post earnings gains. Our interest in Raytheon has largely been based on our belief that the defense sector stands to benefit from an increase in government spending both domestically and abroad (roughly 32% of the company's sales come from abroad). This belief was validated on Thursday, when Congressional leaders agreed on a two-year budget deal that includes an $80 billion increase in military spending through the rest of this fiscal year and an $85 billion increase in fiscal year 2019. Regarding international demand, Raytheon specifically, is in an advantageous position to take advantage of the international trend thanks to its highly popular Patriot Air and Missile Defense system, which is now utilized in 16 countries across the globe. Lastly, regarding tax reform, we note that Raytheon will benefit as management expects the company's effective rate to fall to about 19.0%, from just under 36% prior to reform, a factor that we believe will lead to increased capital return to shareholders as the company has 13-year history of dividend growth. We reiterate our $232 target.

Schlumberger (SLB) ; $65.19; 1500 shares; 3.49%; Sector: Energy -- Schlumberger remains one of our favorite ways to play the energy sector as it is a services company that stands to benefit from years of under investment by global E&Ps, upstream companies that will soon be forced to turn to Schlumberger as they increase investments into production capabilities. Furthermore, because of the focus on services, Schlumberger is less levered to commodity price swings than others in the sector, especially upstream producers such as APA and Cimarex, both of which have seen far stronger reactions to the recent pullback in oil prices. We believe the recent weakness in shares has provided an opportunity for those seeking to increase energy sector exposure and remind members that, while speaking on the company's recent earnings call, management guided that, despite softness in the first quarter, 2018 would be the first year of growth in each part of its operations since 2014. We reiterate our $93 target.

Constellation Brands (STZ) ; $210.26; 375 shares; 2.81%; Sector: Consumer Staples -- This week, we took advantage of Monday's market weakness and bulked up on our position in STZ, adding 25 shares and lowering our overall basis. As we noted in our trade alert here, "we remain confident in management's premiumization strategy." We believe this strategy will address what we view as temporary weakness in the company's wine business (premium wine sales were less impacted) and note that with the economy strengthening and consumers having more money in their pockets following tax reform, it stands to reason that customers will opt for more premium brands (recall, more discretionary income, i.e. income after tax, is also a major factor in our thesis on Nordstrom, a premium retailed of clothes and accessories). We reiterate our $242 price target.

Waste Management (WM) ; $80.1; 1100 shares; 3.14%; Sector: Industrial -- Friday morning, we took advantage of the market's big move lower this week to build up our position in this core holding that fits the bill of what this market favors, once the market returns to favor. Our trade Alert can be found here. There was no news from the company this week as Waste Management will report their fourth quarter earnings result next Thursday. Current consensus is sales of $3.57 billion with earnings per share $0.83. We will also be closely listening to management for an update on when they expect to realize the additional revenue from the Hurricane cleanups in Florida and Texas. Also, we are interested in learning how management plans to allocate the huge amount of cash they will generate now that their effective tax rate will be greatly reduced Given management's commitment to increasing dividends and buybacks, we expect some amount will be returned back to shareholders. We reiterate our $91 price target.

TWOS

Activision Blizzard (ATVI) ; $67.08; 1250 shares; 2.99%; Sector: Technology -- This week Activision reported a top and bottom line beat with its fiscal fourth quarter results, see here. Adding to the strong headline results, engagement numbers remained strong with the company seeing 385 million Monthly Active Users (MAUs) across all segments and an average engagement time of over 50 minutes per day, per player. Also, on the call, management addressed our Destiny 2 engagement concerns and noted that sentiment has already begun to inflect positively due to past updates and plans for future updates. All in, it was a strong report and helped to bolster our conviction that industry trends, including a shift to digital downloads and growing in-game purchases remain intact. We also believe the Overwatch League, a crucial factor as eSports is central to our thesis, has thus far proven to meet or exceed expectations and will continue to grow in popularity as video games push mainstream. Furthermore, speaking to our belief that Activision can increase growth by porting Activision/Blizzard content to mobile, President & COO, Collister Johnson noted on the conference call that there is an opportunity, thanks to the power of modern mobile devices to, "take our very successful PC and console franchises and extend them into mobile." This will also aid in expanding further into Asia where Activision has highly successful non-mobile franchises. reiterate our $80 target.

Allergan (AGN) ; $162.77; 700 shares; 4.06%; Sector: Healthcare -- Shares of Allergan retreated this week alongside the broader market. On Tuesday, the company reported a top and bottom line beat with its fourth quarter earnings. It was an important quarter for the company, and the print featured little surprises as management is hard at work on rebuilding trust with the analyst community. The quarter was led by strong growth in the Medical Aesthetics portfolio, and International sales greatly increased as well. The company also provided a Phase 3 readout for Ubrogepant, which is an important migraine drug in Allergan's pipeline. The results were positive, and the second Phase 3 trial will be reported in the first half of 2018, and management expects to file a New Drug Application to the FDA in 2019. Allergan's migraine pipeline is of focus to us and positive results will help change some of the narrative of 2018 being a trough year. To read our analysis of the quarter, please see here. We reiterate our $242 price target.

Apache (APA) ; $37.23; 1500 shares; 1.99%; Sector: Energy -- Shares of Apache dropped double digits this week as the decline in crude and natural gas prices combined with the market pullback greatly hurt the stock. The stock's move over the past few weeks validated our need to be aggressive sellers at the end of 2017-beginning of 2018 because we had to make this position more manageable. Apache's current price has become interesting here as the stock typically finds support around this level, however we are holding off from upgrading back to a ONE because of our desire to not be bigger in fossil fuels. Apache does have a vastly underappreciated asset on its books in the Alpine High, which is a find that has plenty of available resources to drive production. However, the issue remains getting the necessary infrastructure in place to transport crude and gas out of the region, so we are being patient with a small position in this name. We reiterate our $60 price target.

Arconic (ARNC) ; $24.66; 1800 shares; 1.58%; Sector: Industrials -- On Monday, Arconic reported a top and bottom line beat with its fiscal fourth quarter earnings release (analysis here). However, despite the better than expected headline numbers, shares were pressured this week as free cash flow, full year earnings guidance and the engineered products and solutions (EP&S) segment EBITDA margin, all came up short of expectations. That said, we believe shares will recover as new CEO, Chip Blankenship has just recently taken over (effective 1/15/18) and implemented a strategic portfolio review (expected to be complete by the end of the year) that we believe will aid in addressing inefficiencies as Blankenship brings with him over 20 years of aerospace experience and, prior to his role at Arconic, led GE's Aviation's Commercial Engines Operation. Additionally, as it relates to the EP&S segment EBITDA margin, we believe Blankenship's aero engine experience will come in handy as the company works to address costs at its Firth Rixson facility, which impacted the segment's overall margin and are expected to rise as Arconic ramps up engine production (expected to continue to 2020). All in, while the quarter was mixed, and shares were pressured as a result, we believe Blankenship will work to address execution issues and reiterate our $31 target.

Cimarex (XEC) ; $100.19; 600 shares; 2.14%; Sector: Energy -- While shares have been pressured by the market correction and downturn in commodity prices, we continue to view Cimarex as the best upstream operator in the Permian, America's number one oil field. While the pullback in oil certainly impacts profitability, we note that management has made significant investments in reducing all-in costs via initiatives such as field-wide automation, allowing for positive free cash flows even should we pull back further. On that note, we remind members of management's commentary the last time the company reported when they stated that, "at Cimarex, in a $50 flat oil and $3 flat gas future, we have the assets and organizational capability to generate double-digit growth and generate free cash flow as far as the eye can see." Additionally, we value the company for management's strict investment discipline, engaging in projects based on a return analysis and not investing simply for the sake of production growth. We believe this approach has and will continue to benefit the company as investor appetites have transitioned from a desire for production growth to a desire for companies that operate within the confines of cash flow. We reiterate our $150 target.

Citigroup (C) ; $73.68; 1050 shares; 2.76%; Sector: Financials -- Along with JPMorgan, Citigroup remains one of our favorite ways to play the financial sector. Like JPMorgan, Citigroup has a significant global presence that will allow it to benefit from the global economic expansion. Additionally, we note that the financial sector remains in favor as the banks will be able to expand net interest margins due to the rising interest rate environment. Macroeconomic factors aside, we like Citigroup as the bank is actively working to improve operations and is targeting EPS of $9 by 2020 and an 11% return on tangible common equity. Lastly, in addition to plans of returning $20 billion to investors this year and next, we believe Citigroup to be in a strong financial position that will allow it to successfully pass this year's Fed stress test, which as we learned last week, will be significantly harder than last year and include scenarios such as 10% unemployment (we are currently at 4.1%), pressure in corporate lending markets and difficult economic conditions in developing Asian countries. We reiterate our $80 target.

DXC Technology (DXC) ; $96.99; 700 shares; 2.42%; Sector: Tech Services -- DXC Technology pared losses on Friday because the stock received a jolt after the company reported its fiscal third quarter 2018 results Thursday night. The company's top line was relatively in-line; however, the company beat on earnings by $0.17 a share. Driving the beat were increases to profit margins across DXC's three main segments: Global Business Services, Global Infrastructure Services, and United States Public Sector. Margin expansion is the key to DXC Technology right now as the focus is on the company's cost-takeout ability, and management increased its synergy targets this quarter. Lastly, the catalyst of the upcoming spinoff of the USPS business was pushed out to May from March. Management believes that by spinning off this business, they will be able to simplify the structure of DXC even further. To read our analysis of the quarter, please see here. We reiterate our $100 price target.

Eli Lilly (LLY) ; $76.23; 900 shares; 2.45%; Sector: Healthcare -- Shares of Eli Lilly fell this week and underperformed the broader market. There was no news from the company this week as management is fresh off reporting its top and bottom line beat last Wednesday. Despite the headline numbers, investors were concerned about the long-standing competitiveness in the diabetes franchise and the lack of growth in the Elanco Animal Health business. Management will provide an update to its portfolio review of Elanco during the company's next earnings call, and it is now looking likely that they will try to sell the business as opposed to spinning it off because the current results may not be strong enough for it to stand on its own. Spinning is more lucrative than a pure sale, but we do think that separating that business from the rest of the company will improve results. To re-read our analysis of the quarter, please see here. We reiterate our $93 price target.

First Data Corp (FDC) ; $15.83; 3500 shares; 1.98%; Sector: Technology -- Shares of First Data Corp fell sharply this week and underperformed the broader market. In addition to the market selloff, the stock was pressured because the company's GBS segment has some exposure to Wells Fargo WFC, and the restrictions placed on the bank by the Fed this week will be a very small hit to FDC's numbers going forward. We have held off from adding shares to improve our cost basis because we want to buyers of stocks with good balance sheets during this period of volatility, and FDC does not fit the bill. Accordingly, even though the stock's valuation has been hit, we are downgrading shares to a TWO because of the disappointing themes mentioned above. On Monday, we will get a chance to hear from management when they report fourth quarter earnings. Current expectations are that the company will report $3.11 billion of revenue with $0.44 on the bottom line. Specifically, we will be interested in hearing management discuss when they expect the JV channel revenue will improve as well as any changes to the de-leveraging targets. We reiterate our $21 price target.

General Electric (GE) ; $14.94; 2450 shares; 1.31%; Sector: Industrials -- Shares of General Electric traded lower, and slightly outperformed the broader market. Our decision to hold onto our shares during this disappointing time period is our belief that CEO John Flannery will turn around the company. We reiterate that he was dealt a very difficult hand from the previous management team, and we think that he will do everything in his power (including break up the company) to increase value for shareholders and make the company more sustainable. One business we speculated that could be sold is in Life Sciences, see here, but we do not think GE will limit themselves to one deal. As for the pending SEC investigation into the accounting practices of the reinsurance business, we recognize that it represents an overhang on the stock and we will continue to sit on the sidelines until that is resolved. As for why we are still hanging onto our small position, we believe that through Flannery's actions, he will improve the stock price by the end of the year, and we just need to be patient and allow time for his motions to fall into place. We reiterate our $21 price target.

Magellan Midstream (MMP) ; $66.28; 1700 shares; 4.02%; Sector: Energy -- We continue to like Magellan Midstream for both its cash backed yield, which always comes in handy in times of volatility when investors are forced to consider a longer-term view, as well as its exposure to several oil industry dynamics including rising U.S. production and exports as well as a continued strain on capacity. As noted previously, Magellan benefits from the rising production because it will result in higher volumes being transported, a reason the company is also considering numerous pipeline expansion projects. As for growing exports and capacity strains, Magellan is prepared to take advantage of the growing trends thanks to its investment into an Aframax capable dock in Houston (Aframax ships can carry 500,000 to 700,000 barrels of crude) and a marine storage facility in Pasadena, Texas. Compounding these factors, we also note that thanks to the company's focus on fee-based transport revenues (fee x volume), roughly 85% of revenue comes from this area, Magellan's revenue stream is relatively insulated from the volatility in commodity prices. We reiterate our $89 target.

Nucor (NUE) ; $61.77; 800 shares; 1.76%; Sector: Industrials -- Shares of Nucor fell this week but outperformed the broader market. We have been patient with this name because we expect at some point the Trump Administration will clamp down on foreign steel that has pressured the U.S. industry. By imposing tariffs on steel imports, the demand for domestic steel will greatly increase and improve the health of the domestic industry. In short, higher demand will lead increase prices and boost Nucor's earnings. Pressure aside, we also learned last week when the company reported earnings that there is significant optimism in steel end-use markets, and 2017's results were the highest since the cyclical peak year of 2008. We expect Nucor to build off this momentum in 2018, and we reiterate our $75 price target. 

NVIDIA (NVDA) ; $232.08; 150 shares; 1.24%; Sector: Technology -- Shares of Nvidia roared on Friday and ended the week a shade below positive territory. Driving the gain this week was a blowout fourth-quarter result that was reported Thursday after the bell. The company smashed expectations on both the top and bottom lines, and also improved gross margins year over year and sequentially. Gaming revenue increased 29% year over year as trends in video games and eSports continue to point upwards. Also, cryptocurrency miners have contributed to lower than historical channel inventory levels. Datacenter revenue increased 105% year over year as strong adoption of the Tesla V100 GPU drove sales. Lastly, though revenue in Nvidia's auto segment declined year over year, this was because the company has transitioned away from infotainment to further develop its autonomous driving systems. With exposure to positive trends in Gaming, AI/the cloud, and autonomous driving, Nvidia remains one of the best growth stories in the market, and this quarter was perhaps the best of any company this earnings season. To read our analysis of the quarter, please see here. We reiterate our $250 price target.

NXP Semiconductors (NXPI) ; $115.78; 550 shares; 2.27%; Sector: Technology -- With NXPI reporting a better-than-expected quarter this week, see here, including 12% YoY in Automotive and 31% YoY in Connected Devices we reiterate that Qualcomm's $110/share offer undervalues the company and we will not be tendering our shares. Further bolstering our conviction in this decision, following the release, both Bernstein and JPMorgan released notes expressing their view that fair value is somewhere around $125/share, a value we largely agree with as it brings NXPI's value in line with its peers. Additionally, we maintain that given the strength in the company's automotive business, it makes more sense for Qualcomm to raise its offer rather walk away and note that a higher bid could also work to deter any further attempts by Broadcom to takeover Qualcomm. Despite our view that the current Qualcomm offer undervalues the company and the offer should be raised to at least $125/share, we reiterate our $110 target pending any updates from either Qualcomm or NXPI.

PepsiCo (PEP) ; $111.18; 500 shares; 1.98%; Sector: Consumer Staples -- We continue to like PepsiCo as beverage industry trends, while not great, are improving. Additionally, because of the competitive nature of this industry, we value PepsiCo over competitors such as Coca-Cola (KO) because the company has made significant investments into diversifying its offerings to include healthier drink options and snacks via its Frito-Lay division. Furthermore, we value PEP as it is a consumer staples brand that aids in increasing overall portfolio diversity and, while it was hit along with the rest of the market, tends to remain more resilient in times of volatility, as has been the case over the last week. However, despite our optimism, we will maintain our Two rating until we receive confirmation that the beverage segment is rebounding, and the company has returned to 2% organic revenue growth. On that note, we look forward to receiving an update next week when the company releases earnings on Tuesday before the opening bell where we will be looking for revenue of $19.4 billion and earnings of $1.30 per share. We reiterate our $125 target and will reassess our rating and price target following next week's release.

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long ARNC, AAPL, ABT, AGN, APA, ATVI, AVGO, C, CMCSA, DHR, DWDP, DXC, EZU, FB, FDC, GE, GOOGL, HON, ITW, JPM, LLY, MMP, MSFT, NXP, NUE, NVDA, PEP, SLB, STZ, WM. RTN, JWN and XEC.