Markets had a strong week thanks to commentary from Federal Reserve Chair Jerome Powell on Wednesday, while speaking at the New York Economic Club, where he portrayed a more dovish stance regarding the need for additional rate hikes. And while there was no direct commentary as to how many interest rate hikes to expect in 2019, Powell did note some weakness resulting from trade policy as it relates to China and the need for more caution as the Fed considers additional hikes. That said, we still fully expect a December hike and believe the economy is currently strong enough to handle it, so long as commentary at the December meeting is in line with Wednesday's remarks, indicating that future moves will be data dependent with a heavy focus on how the trade dispute between the US and China, and the lapping of tax reform are impacting macroeconomic trends. 

Looking ahead, with the Fed issue now under control for the time being, our attention turns to this weekend's G-20 summit in Argentina. And while the Fed was a major overhang for the market in recent months, trade still represents the largest overhang on the stock market. For additional thoughts on the scenarios we believe could play out and how we think the market may reacts, please see out alert, here.

Treasury yields ended the week lower as investors sought shelter from the uncertainty ahead of the G-20 meeting. Gold ended the week relatively flat, as the dollar held fairly steady versus the euro. Lastly, oil ended the week flat, finding support at roughly the $50 level.

Third-quarter earnings are wrapping up. Within the portfolio, we heard from Salesforce (CRM) and Palo Alto Networks (PANW) .

Salesforce reported a top and bottom line beat with its fiscal third quarter 2019 result. Revenue of $3.39 billion (up 15% year over year) edged the consensus of $3.365 billion, and adjusted earnings per share of $0.61 (up 45% year over year) exceeded the consensus by $0.11.

Importantly, billings, which represents the portion of revenue generated from new business within the quarter - the remainder of recognized revenues coming from revenue that was previously unrecognized but has now been recognized due to a fulfillment of service obligations - came in at $2.885 billion (+27.4% YoY), outpacing expectations of $2.684 billion. Remaining performance obligations (RPO), which represents the difference between bookings and billings, was unchanged sequentially as bookings equaled billings in the quarter, however, it still increased about 34% year over year. Lastly, management's initiation of its fiscal year 2020 revenue guidance did not disappoint. The $15.9 billion to $16.0 billion revenue range exceeded the consensus view of $15.831 billion and removed doubt of slowing digital transformation investment in the future. 

Palo Alto Networks

Palo Alto Networks reported a top and bottom line beat with its fiscal first quarter 2019 results. Revenues of $656 million (up 31% year over year) topped the consensus of $631.89 million, and adjusted earnings per share of $1.17 (up 58% year over year) exceeded the consensus of $1.05.

Deferred revenue grew 34% year over year to $2.4 billion, and billings of $758.5 million (up 27% year over year) was roughly in-line with the $755.8 million consensus. Adjusted free cash flow of $275.4 million represented an increase of 27% year over year at a great margin of42%. On the call, management announced a new super scale next-gen firewall (available in early 2019) that will help service cloud providers undergo their mobile infrastructure transition to 5G from 4G.  Additionally, management was upbeat about its cloud security business, noting how new President Amit Singh was off to a fast start. All in, the earnings support our view that Palo Alto Networks is the best in show provider of cyber-security which is an industry with secular needs as more information and application move to the cloud. 


On Wednesday morning, the Bureau of Economic Analysis reported, in its "second" reading (based on a more complete set of data than the preliminary reading released last month on Oct. 26), that real Gross Domestic Product -- GDP adjusted for inflation, our best gauge for economic growth -- increased at a seasonally adjusted annual rate of 3.5% in the third quarter of 2018, matching expectations and unchanged from the advance reading. This follows an unrevised 4.2% annual rate in the second quarter of the year. We believe the reading points to a strong U.S. economy that continues to grow. Additionally, we view the negative revision to PCE and the core PCE price index to be a positives as it serves to back our view that the Fed should do a "one and wait" when it comes to the anticipated December rate hike as while the economy is currently strong, there are cracks beginning to form and acting too aggressively could derail the growth we are currently witnessing. We looked forward to learning more when Fed Chair Jerome Powell spoke at the Economic Club of New York. See here for our full analysis.

Also on Wednesday, the U.S. Census Bureau reported that new home sales in October dropped 8.9% to a seasonally adjusted annual rate of 544,000. In our view, the housing market is telling us that as strong as the consumer may be based on smaller purchases, like those made on Black Friday and Cyber Monday, they are not strong enough (or optimistic enough about their economic outlook) to take on a ~5% mortgage! We looked forward to hearing from the Fed's Powell on Wednesday and reiterated before his speech that in order for the market to take the next meaningful leg higher, he must walk back his hawkish commentary and revert back to a data-driven path. Right now, the data is telling us that three hikes in 2019 (after an expected hike in December) is simply too aggressive at the moment, especially should we see no resolution on the China trade front. See here for our full analysis.

Thursday morning, before the bell, the Bureau of Economic Analysis (BEA) reported that month-over-month personal income rose 0.5% (or $84.9 billion) in October, outpacing expectations of a 0.4% advance and coming on the heels of 0.2% increase in September. Personal disposable income -- the income available for spending or saving after taxes -- also increased 0.5% in October (or $81.7 billion), following a 0.2% advance in September. Personal consumption expenditures (PCE) -- i.e., personal spending, which accounts for over two-thirds of U.S. economic activity -- increased 0.6% (or $86.9 billion) month over month, also outpacing expectations of a 0.4% advance following a 0.4% gain in September. When adjusted for inflation, real PCE rose 0.4% (or $56.5 billion) monthly, doubling expectations of a 0.2% increase after seeing a 0.1% rise in September. All in all, we are encouraged by both the headline beat and core PCE price index miss as the headline reading serves to support the view that the economy continues to expand and the consumer remains strong, while the core PCE price index mix (and negative revisions to prior months' readings) backs our view that inflation has not been as problematic as thought and that the Fed was right to walk back its previously hawkish commentary. See here for our full analysis.

Also on Thursday, the National Association of Realtors reported Thursday that its Pending Home Sales Index declined 2.6% in October to 102.1, missing expectations for a 0.5% monthly advance and coming off the heels of a 0.7% advance in September (revised up from +0.5% previously reported). Recall that pending home sales represent contracts signed for existing home sales set to close in the next one to two months. With October's pullback, pending home sales are now down 6.7% year over year, marking the 10th straight month of year over year declines. We believe the report serves to support our view that while the consumer may be strong when it comes to smaller purchases, debt inducing purchases are seeing pressure as rising rates are making the cost of money (borrowing) more expensive and causing some potential buyers to be priced out of the market, a factor supporting our view that the Fed would be right to do a "one and wait" rate hike in December. See here for our full analysis.

Additionally, on Thursday, the Department of Labor reported that initial jobless claims for the week ending November 24 were 234,000, an increase of 10,000 from the previous week's unrevised level of 224,000. The reading came in 14,000 claims above expectations of 220,000. Importantly, the four-week moving average for claims (used as a gauge to offset volatility in the weekly numbers) was 223,250, an increase of 4,750 from the previous week's unrevised average of 218,500. 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 195 consecutive weeks, the longest streak for weekly records dating back to 1967. The previous longest stretch ended in April 1970 and lasted for 161 weeks. For the official weekly release, please see here

(Note: T is the most recent period, T-1 is the prior period's reading and T-2 is two periods back, the intent being to illustrate any trends)


On the commodity front, oil remains under pressure as concerns of slowing global demand are compounded by a supply glut resulting from a ramp up of production by Saudi Arabia ahead of Iranian sanctions that seem to have overshot the number of barrels removed from the market, due in part to several waivers being granted to buyers of Iranian crude. Compounding the Saudi output, we remind members that Russia is also pumping at levels not seen since the fall of the Soviet Union while the US remains at record highs (more below). 

However, there could be some relief on the horizon as OPEC meets in Vienna next week, on December 6, where it is expected that the organization could cut production by as much as 1.4 million bpd to try and reduce global supply levels. Further backing this view that we could see a reduction in output out of OPEC and Russia, the Russian oil minister met with the heads of Russian oil producers on Tuesday to discuss the need for a reduction. Moreover, Russian President Vladimir Putin noted on Wednesday that he would be happy with $60 oil and was ready to cooperate with a production cut should it be determined to be needed. 

That said, potentially working against expectations of a reduction, we remind members that President Trump has come out fairly easy on Saudi Arabia following the killing of journalist, Jamal Khashoggi, and while it is of course unofficial, the Saudi's could look to cut by a smaller amount than what is expected in order to appease President Trump and his calls for lower prices, while cutting by enough to stem the recent price decline.

One last point we want members to consider is that while we may indeed come out of the OPEC summit with news of a production cut, OPEC's track record on compliance is not the best, we will therefore be eyeing the commentary from the various countries following the meeting, in order to gauge committee sentiment and see which nations are indeed in agreement that a cut is required.

On the domestic front, on Wednesday, the U.S. Energy Information Agency (EIA), reported that in the week ending November 23, U.S. stockpiles (excluding those in the Strategic Petroleum Reserve) increased by 3.6 million barrels to 450.5 million barrels, a bearish reading as it came in above analyst expectations. Compounding the significant inventory build US production held steady at the record weekly high of 11.7 million bpd. Lastly, on top of the bearish (for crude prices - which is bullish for those filling up at the pump) inventory and production numbers, net imports increased by 135,000 bpd as imports increased by 608.000 bpd, and exports increased by 473,000 bpd. See here for the full report.

Lastly, we note that the spread between WTI and Brent sits at roughly $8 to $9 per barrel. Recall, this is a key metric as the wider the spread, the more attractive US based crude (WTI) becomes to foreign buyers, though we note that strength in the dollar can offset this effect as foreign buyers convert their home currencies to the dollar. 


In the portfolio this week, we were net sellers, pulling out roughly the same out that we put to work in the prior week as the market sold off as we sought to build up our cash levels ahead of the highly anticipated G-20 meeting between President Trump and Chinese President Xi. Furthermore, while we did trim so strong holdings into strength, such as Microsoft (MSFT) (here), PayPal (PYPL) (here) and Danaher  (DHR) (here), as we always want to trim on the way up so that we can provide ourselves with the option to buyback shares on any subsequent pullback, we also used the strength to lighten up on some losers and reduce exposures to those names in which the thesis has not panned out as expected. To this point, we also sold shares of Textron (TXT) (here and here) as, despite positive results coming from our key areas of focus (Aviation and Bell), the execution shortcomings in Industrial were more than enough to derail the stock. We believe management has the optionality to turn around the lagging Industrial segment, but we cannot let ourselves miss out on the opportunity this week's rally has created to scale back our position. We also trimmed shares of WestRock  (WRK) (here and here) as while we like this name for the self-help story related to its KapStone acquisition, we cannot let ourselves forget that the industry it operates in remains victim to oversupply concerns. We want companies with pricing power in their industries, and oversupply means WestRock will not benefit from the tighter market it previously was in.

Moving on to the broader market, third-quarter earnings have so far been relatively in line versus expectations, with 76.8% of companies reporting a positive EPS surprise. For the third-quarter, earnings growth has increased roughly 25.4% year over year vs. expectations for an overall 25.78% increase throughout the season; of the 420 non-financials that reported, earnings growth is up 24.3%. Revenues are up 8.0% vs. expectations throughout the season for an 8.07% increase; 76.8% of companies beat EPS expectations, 15.6% missed the mark and 7.6% were in line with consensus. On a year-over-year comparison basis, 87.27% beat the prior year's EPS results, 11.29% came up short and 1.44% were virtually in line. The best performing sectors so far have been Information Tech, Healthcare and Communication Services, while the worst performing have been the Industrials, Materials and Energy.

Next week, 31 companies in the S&P 500 will report earnings. No portfolio companies will be reporting.

Other key earnings reports for the market include: Finisar FNSR, Mesa Air MESA, Coupa Software COUP, Smartsheet SMAR, Dollar General DG, Bank of Montreal BMO, AutoZone AZO, HD Supply HDS, Hewlett Packard Enterprise HPE, Toll Brothers TOL, Marvell MRVL, RH RH, G-III GIII, American Eagle AEO, Brown-Forman BF, Lands' End LE, United Natural Foods UNFI, Greif GEF, Synopsys SNPS, lululemon athletica LULU, Five Below FIVE, Cloudera CLDR, Duluth Trading DLTH, Genesco GCO, Kroger KR, Thor Industries THO, American Outdoor Brands AOBC, Broadcom AVGO, Cooper COO, DocuSign DOCU, Ulta Beauty ULTA and Vail Resorts MTN

Economic Data (*all times ET)


Monday (12/3)

Markit US Manufacturing PMI (9:45)

Construction Spending MoM (10:00): 0.40% expected

ISM Manufacturing (10:00): 58 expected

ISM Prices Paid (10:00): 70 expected

Tuesday (12/4)

Wednesday (12/5)

MBA Mortgage Applications (7:00)

ADP Employment Change (8:15): 200k expected

Markit US Services PMI (9:45)

Markit US Composite PMI (9:45)

ISM Non-Manufacturing Index (10:00): 59.5 expected

Thursday (12/6)

Trade Balance (8:30): -$54.9b expected

Initial Jobless Claims (8:30)

Continuing Claims (8:30)

Bloomberg Consumer Comfort (9:45)

Factory Orders (10:00): -2.0% expected

Durable Goods Orders (10:00)

Durables Ex Transportation (10:00)

Cap Goods Orders Nondef Ex Air (10:00)

Friday (12/7)

Change in Nonfarm Payrolls (8:30): 205k expected

Change in Manufact. Payrolls (8:30): 20k expected

Unemployment Rate (8:30): 3.7% expected

Wholesale Inventories MoM (10:00)

U. of Mich. Sentiment (10:00): 97 expected

U. of Mich. Current Conditions (10:00)


Monday (12/3)

Japan Vehicle Sales YoY (00:00)

Germany Markit/BME Germany Manufacturing PMI (3:55): 51.6 expected

EU Agg Markit Eurozone Manufacturing PMI (4:00): 51.5 expected

UK Markit UK PMI Manufacturing SA (4:30): 52 expected

Japan Monetary Base YoY (18:50)

Tuesday (12/4)

UK Markit/CIPS UK Construction PMI (4:30): 52.6 expected

EU Agg PPI YoY (5:00): 4.6% expected

Japan Nikkei Japan PMI Services (19:30)

Japan Nikkei Japan PMI Composite (19:30)

China Caixin China PMI Composite (20:45)

China Caixin China PMI Services (20:45): 50.9 expected

Wednesday (12/5)

Germany Markit Germany Services PMI (3:55): 53.3 expected

Germany Markit/BME Germany Composite PMI (3:55): 52.2 expected

EU Agg Markit Eurozone Services PMI (4:00): 53.1 expected

EU Agg Markit Eurozone Composite PMI (4:00): 52.4 expected

UK Markit/CIPS UK Services PMI (4:30): 52.7 expected

UK Markit/CIPS UK Composite PMI (4:30)

Thursday (12/6)

Germany Factory Orders MoM (2:00): -0.50% expected

Germany Factory Orders WDA YoY (2:00): -3.5% expected

Friday (12/7)

Germany Industrial Production SA MoM (2:00): 0.30% expected

Germany Industrial Production WDA YoY (2:00): 1.9% expected

UK Halifax House Prices MoM (3:30)

UK Halifax House Price 3Mths/Year (3:30)

EU Agg GDP SA QoQ (5:00): 0.20% expected

EU Agg GDP SA YoY (5:00): 1.7% expected

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Apple  (AAPL) ; $178.58; 450 shares; 3.02%; Sector: Technology - 

We reiterate that AAPL is a stock to be held for the long-term, not traded, as we continue to believe that the company is going through a significant and highly underappreciated transformation as Services becomes an increasingly large portion of overall sales. And while we have felt all alone on this front as analyst after analyst has come out against the stock, pointing to a maturing smartphone market and the current reliance on hardware sales (iPhones), we maintain that focusing on the iPhone is nearsighted. Moreover, we believe it to be illogical to penalize the company for not disclosing unit sales numbers since the metric has not been correlated to business performance in over three years. To this point, and in line with our Services oriented investment thesis, we reiterate that we are much more focused on the companies installed base, as this represents the Services opportunity due to every device, be it an iPhone, iPad, Mac or Apple Watch being a potential outlet through which to sell services! As for those pointing to supplier guidance cuts, we would note that this is not a new phenomenon and remind members that shares have sold off on similar calls in the past, only to be proven wrong come the earnings release. We reiterate our $230 target.

Abbott Laboratories   (ABT) ; $74.05; 1,000 shares; 2.78%; Sector: Healthcare - 

We remain bullish on shares of ABT, which analysts at JPM reiterated this week as being their "top large-cap pick," as we believe the medical device industry remains in growth mode. To this point we would also point out that according to the analysts, during their meeting with executives, management noted a "high degree in confidence in achieving ~7% organic top-line growth in 2019." Additionally, while we believe that the industry growth will continue to push shares higher, we also believe the nature of the business, providing lifesaving technologies, makes it more resilient to an economic slowdown should we see one in 2019, providing for an attractive risk-reward profile. Driving our positive view continues to be strong Freestyle Libre adoption, the recently expanded application of the MitraClip, and confirm RX, factors compounded by the upcoming US launch of Alinity, the company's unified diagnostics platform, which has already seen positive reviews in Europe and according to the analysts at JPM, has a number of advantages compares to competitors, including a smaller form factor, entirely self-contained design, ease of use, and "AlinIQ" software, which is designed to more improve lab management. We reiterate our $74 target.

Amazon  (AMZN) ; $1,690.17; 90 shares; 5.72%; Sector: Information Technology - 

Amazon hosted its annual re:Invent conference this week, and as TheStreet's Eric Jhonsa wrote on Thursday in his article here, there are plenty of reasons why AWS is one of a kind. What all of its advantages boils down to and what we believe is the most striking aspect about the business itself is how popular the service is, evidenced by the research firm Gartner's estimate that AWS had 51.8% of the public cloud infrastructure services market last year. And while AWS is incredibly important to Amazon's overall story, we cannot discount the company's rapid growth rate in advertising, which is gaining share against the likes of Facebook and Google. The success here is derived from Amazon's industry leading e-commerce platform, which offers advertisers something that very few others can: targeted ads at the point of sale. All in, Amazon remains a key beneficiary of several secular growth trends (e-commerce, cloud, digital advertising) and at the same time, benefits from its mastery of the subscription-based model. We reiterate our $2050 price target. 

Amgen (AMGN) ; $208.25; 525 shares; 4.11%; Sector: Healthcare - 

We remain bullish on shares of AMGN as we  continue to believe that the Aimovig opportunity is still not being properly appreciated, reminding members that while sales were largely immaterial in the most recent release due to the drug being given away in the first months of the release, the results did outpace expectations with management noting, "Aimovig is off to a very strong start, and in fact, is shaping up to be one of the industry's most successful recent launches, reflecting the pent-up demand that exists in this area." Additionally, there is Repatha, a life-saving cholesterol drug whose price was recently, and strategically, slashed by 60%, a move we believe was correct as it will help to increase volumes, offsetting the price decrease, while potentially providing a buffer for the company as the calls for lower drug prices get louder. Lastly, there is the fact that Amgen generates a significant amount of free cash flow and has about $3.7 billion left in its buyback (as of the most recent release), two factors serving to help support shares.  We reiterate our $220 price target. 

Anadarko Petroleum (APC) ; $52.90; 1,400 shares; 2.78%; Sector: Energy - 

Although the price of WTI crude has fallen at a precipitous pace, we echo the label analysts at Cowen equity Research gave to Anadarko Petroleum on Thursday, when they called the company "King of Cash." In a $50 per barrel oil environment, the company generates a significant amount of free cash flow that allows management to be flexible with its capital allocation plan. But its not just the ability of spending dollars, its how they use it, and management's number one preference has been to pursue a strategy that features dividend raises, debt reduction, and share repurchases. This capital efficient, shareholder-centric focus is what makes this stock stand above its peers in our perspective, especially in the aftermath of Proposition 112 which discounted the stock well below the group. We think the quality of this name makes it one of the best houses in a bad neighborhood and we reiterate our $77 price target. 

BP PLC  (BP) ; $40.35; 2,700 shares; 4.09%; Sector: Energy - 

BP remains our favorite way to play the energy sector as we believe it is seeing strong support, despite the decline in crude prices thanks to its robust dividend yield, which now hovers over 6%. Additionally, we view the payout as safe given the strong free cash flows and positive signaling from management which came in the form of the first dividend increase in years. Furthermore, despite the recent dip in oil we remind members that BP's break even for organic free cash flow is $50 per barrel (where prices are currently catching support), a figure that is expected to trend toward the $35 to $40 range by 2021. Compounding the downward trending breakeven price, we remind members that while this is occurring, the liability related to BP's Macondo payments, which has been an overhang on cash flows recent years, is rolling off. Lastly, we are also encouraged by the long-term visibility into production growth over the next few years as this serves to reduce our concerns that management will unexpectedly have to increase its capital expenditure budget to meet the targets. We reiterate our $54 target.

Citigroup  (C) ; $64.79; 1,400 shares; 3.41%; Sector: Financials - 

Anytime shares creep closer to its tangible book value, our view that Citigroup represents value increases. It is a signal that shares have become cheap because tangible book is essentially what the balance sheet assets are worth, and a bank should be valued above that figure unless there are serious risks. But we know that is not in Citigroup's case and it deserves a higher market multiple because they are on a multi-year stretch of passing the Fed's annual stress tests, which measures how well the firm will hold to an economic shock, and management has plans to improve the ROE performance of the firm. Finally, thanks to the bank's over-capitalized nature, management has been allowed pursue an aggressive capital return policy which features a roughly $17.6 billion buyback. Based on the size of the buyback relative to the size of the firm, selling shares just means you are selling right into management's hands, an outcome that will likely favor them in the long-run. We reiterate our $80 price target. 

Comcast  (CMCSA) ; $39.01; 2,400 shares; 3.52%; Sector: Communication Services -

Despite the solid run shares have had over the past few weeks, we continue to see further upside ahead as, at current levels, shares are still down nearly 3% on the year, despite the removal of the Sky acquisition overhang and being a major beneficiary of US tax reform. Additionally, while it could be argued that debt remains an overhand following the acquisition, Comcast's management has an excellent track record in executing M&A and we have full faith that the company's terrific free cash flow generation will provide management the ammo it needs successfully to de-lever over time. Lastly, thanks to the company's robust broadband offering, Comcast has been able to more than offset cable declines as consumers seek out other forms of entertainment such as online gaming and streaming platforms that inherently require a high-speed internet connection. We reiterate our $45 target.

CVS Health (CVS) ; $80.20; 1,000 shares; 3.01%; Sector: Healthcare -

This week, CVS shares pushed higher after it closed its acquisition of Aetna, a deal we think was one of the most exciting ones in the market. The combination of the two companies is expected to create a community-based wellness hub that should fill an unmet need in the healthcare system. The new CVS Health will transform into a diversified pharmacy/healthcare retailer that is integrated with a managed care operation, creating a more personalized and analytic-based experience that all patients will want. If that type of value proposition doesn't send shares higher, then most simply, we think CVS deserves to trade at a higher multiple due to the power of arithmetic. Since Aetna previously traded at a far higher market multiple (because health insurers have been one of the best performing groups in the market) CVS shares should naturally lift above its current 11x multiple (which has been compressed due to worries about Amazon, but that should be abated because of this deal). We reiterate our $95 price target. 

Salesforce CRM; $142.76; 775 shares; 4.16%; Sector: Information Technology - 

Shares in surged after the company reported its fiscal third quarter 2019 result. The headline results were clean, with revenue of $3.39 billion (up 15% year over year) edging the consensus of $3.365 billion, and adjusted earnings per of $0.61 (up 45% year over year) exceeding the consensus by $0.11. Importantly, billings, which represents the portion of revenue generated from new business within the quarter - the remainder of recognized revenues coming from revenue that was previously unrecognized but has now been recognized due to a fulfillment of service obligations - came in at $2.885 billion (+27.4% YoY) and outpaced expectations of $2.684 billion, and the remaining performance obligations indicated a strong backlog too. Lastly, management's better than consensus fiscal year 2020 guidance confirmed our view that companies will continue to invest in the cloud and digitization, no matter the macroeconomic condition, as these initiatives help increase efficiencies and reduce costs. Understanding the customer is far too important in this environment, and Salesforce's best in show customer relationship management tools provides that data. To read more from the quarter, please see our Alert here.  We reiterate our $170 price target. 

Cisco Systems (CSCO) ; $48.87; 900 shares; 1.62%; Sector: Information Technology - 

We continue to like shares of CSCO as we believe that IT spending remains robust as companies seek to upgrade systems in order to both defend against the ever-growing cyber threat and increase efficiencies, a factor we believe will allow spending on this front to remain resilient despite any slowdowns in the global economy. Regarding cyber security, we remind members that an intensified focus by the company on this front is a key factor in our investment thesis as the transition toward software and security reduces the company's reliance on hardware sales while enhancing margins and the recurring revenue profile. To this point, we also value Cisco for its Encrypted Traffic Analytics (ETA) platform, which thanks to Cisco's Digital Network Architecture (DNA) can detect and remove malicious software, even if it is being hidden by encryption software on computer networks and is first of its kind in the industry. As for IT spending, we remind members that earlier this month, analysts at JPMorgan noted their belief that "companies with a greater portion of software and recurring revenues are better positioned (Cisco in particular) given the resilience of software spend in a potential macro slowdown." Lastly, there is the DRAM tailwind, which thanks to reduced pricing power by suppliers is likely to result in higher margins for Cisco as DRAM represents a significant input cost for the company. We reiterate our $52 target.

Disney (DIS) ; $115.49; 900 shares; 3.91%; Sector: Communication Services - 

While shares so some pressure into the weekend following an AT&T investor day, indicating the company's desire to invest heavily in original content, we remain bullish on shares of DIS thanks to the company's phenomenal IP portfolio, a factor we believe provides a strong buffer versus competitor and the successful acquisition of 21st Century Fox. Regarding the already robust IP portfolio, we continue to believe that, while it will require significant investment up front, the upcoming OTT streaming platform will be transformational for the company as it will enhance the direct to consumer strategy, which is already showing traction via ESPN+, and come at a time when competitor Netflix will be losing its rights to Disney content. As for the Fox acquisition, we remind members that it brings with it programming that spans six continents, reaching over 1.8 billion consumers that speak roughly 50 different languages, not to mention the rights to Start India, India being one of the fastest growing countries in the world and all of the domestic content, plus an additional 30% ownership of Hulu, bringing their total Hulu ownership to 60%. We reiterate our $135 price target.  

DowDuPont  (DWDP) ; $57.85; 1,375 shares; 2.99%; Sector: Chemicals - 

We are remaining patient with shares of DWDP as we continue to view the future breakup of the company in to three separate components as the next meaningful catalyst of shareholder wealth creation. As a reminder, the Materials division will spin off by April 1, 2019 with the remainder expected to be broken up by June 1, 2019. And while this is still a while off, what feels like an eternity given the current market volatility, we reiterate our view that shares will be supported by the company's recently announced $3 billion share buyback program, which is expected to occur over the next five months as management has stated their intent to complete the buybacks before the first spinoff date (April 1, 2019). We reiterate our $85 price target. 

Facebook  (FB) ; $140.61; 425 shares; 2.25%; Sector: Communication Services -

Shares rebound strongly this week, seeming to have finally found a bottom, despite management's continued struggle on the PR front. As we noted last week, while this has been a problem position in recent month's we continue to believe that the sustained move down is more a result of sentiment than any material change in the business model as millennials are still flocking to the company's Instagram platform and they can still provide best-in-class ROI to advertisers. Speaking to the need to advertise on Instagram and core Facebook, we remind members that with cord cutting on the rise, there is little choice but to target ads on Instagram if advertisers want to capture millennial dollars. Given this dynamic, we continue to believe that at roughly 18x forward earnings, shares represent a strong value at current levels given long-term growth estimates of roughly 17.5%. Moreover, we believe monetization of Instagram will increase as advertisers learn to more effectively use the platform. We reiterate our $200 price target.

Alphabet  (GOOGL) ; $1,109.65; 70 shares; 2.92%; Sector: Communication Services - 

We remain bullish on shares of GOOGL as the company is a leader in digital advertising, search, artificial intelligence and video (YouTube), has a best-in-class autonomous driving program (Waymo), a growing hardware segment that plays to mobile adoption, at-home assistants and the internet of things, and a rapidly growing cloud business. Moreover, we continue to view the company's leadership status in the field of artificial intelligence as a key driver, opening up significant opportunities in various other industries, as is the case with healthcare subsidiary Verily or Moonshot division graduate, which is partnered with Dexcom to improve continuous glucose monitors, or Alcon to develop smart contact lenses. Given the Alphabet's AI filled moats, free cash flow generation, solid balance sheet and various other opportunities open to them thanks to their AI dominance, we reiterate our $1400 target. Lastly, for those interested in a technical take on the name, on Wednesday, RealMoney's Bruce Kamich provided a bullish analysis, indicating a potential breakout on the horizon, here.

Goldman Sachs (GS) ; $190.69; 525 shares; 3.76%; Sector: Financials -

Even though the company is currently embroiled in headline risk related to the involvement of a few former executives in the 1MDB scandal, and the Fed has now stepped up its probe into the firm's involvement, we believe these risks are more than offset by the stocks dirt-cheap valuation. Indeed, we have been terribly wrong about the stock up to this point, but we still feel that its price, which trades through book value, means that the stock is simply too cheap to sell. In the end, we don't think the firm will be held criminally liable for the actions of a few rogue employees, we just have to be patient here and let the process take its course. Meanwhile, our expectation is that management is diligently working on improving the bank's exposure to more durable, recurring revenue streams, ultimately lead ingto a higher market multiple on the stock. We reiterate our $270 price target

Honeywell  (HON) ; $146.75; 900 shares; 4.96%; Sector: Industrials - 

We are bullish on the future of the new Honeywell now that the spins of the more cyclical businesses have been completed. Central to our view was the company's transition to a more secular, focused company with an improved organic revenue growth profile. Driving the company are its two high-performing, double-digit organic sales growth growing divisions, Aerospace and Safety and Productivity Solutions. In the former, this division continues to gain on strength in the commercial aerospace market, while the latter represents a sneaky play on e-commerce through its Intelligrated business which specializes in warehouse automation. We also applaud Honeywell for its pristine balance sheet that has remained "fortress-like" thanks to management's disciplined approach and improved free cash flow conversion. Lastly, while the bear case on the stock has been centered on the company's ability to grow earnings in 2019 (due to the dilution effect of the spins), we think Honeywell will defy the current consensus off its business momentum and share repurchase potential. We reiterate our $175 price

Johnson and Johnson  (JNJ) ; $146.90; 575 shares; 3.17%; Sector: Healthcare - 

Although the recent JNJ rally briefly paused due to an unfavorable Zytinga patent ruling, we view Johnson and Johnson as a consistent performer in a reliable industry. The company boasts a terrific pharmaceutical franchise which is expected to achieve a growth rate that exceeds the market rate through 2021. In addition to its already high performing portfolio, the robust pipeline features several potential blockbusters including a potentially lifesaving depression drug called eskatamine. We also place value in the company's defense-like qualities that should hold during a difficult economic environment, such as its strong cash flow generation, clean balance sheet, and consumer product business. We also see optionality in the Medical Devices, a high-market multiple business that management has pledged to improve. We reiterate our $155 price target.

JPMorgan Chase & Co. (JPM) ; $111.19; 850 shares; 3.55%; Sector: Financials - 

Outside of Citigroup, which we continue to like from a valuation perspective, JPM remains our favorite way to play the financial sector. With the Fed appearing ready to slow down the pace of rate hikes in 2019, we believe JPM stands to benefit from an ongoing economic expansion that could see increased activity from companies requiring investment banking services. Additionally, while the pace of hikes may slow, we still expect rates to rise over time, playing to the advantage of the big banks. On that note, we remind members that CEO Jamie Dimon has stated several times in the past how the bank is levered to the short end of the curve, giving us increased confidence that shares can grind higher in 2019 as the Fed will act cautiously, so as to keep the US economic expansion intact, while continuing to raise rates over time, allowing for both factors to work to the advantage of JPMorgan. Lastly, we remind members of how the bank is buying back a significant number of shares through the $20.7 billion program they announced at the end of June, an additional factor serving to improve the risk/reward profile. We reiterate our $130 price target. 

Kohl's (KSS) ; $67.17; 900 shares; 2.27%; Sector: Consumer Discretionary - 

Despite the recent weakness following the most recent earnings release, weakness we believe to be overdone, we continue to like Kohl's for the company's entirely US revenue exposure, especially ahead of this weekend's G-20 meeting as this provides insulation from any escalation of trade rhetoric between the US and China while allowing us to benefit from the still robust US economy. Furthermore, we believe the strong Black Friday to Cyber Monday weekend bodes well for the rest of the holiday season as at it indicates to us that the consumer is ready willing and able to do some shopping thanks to the strong job market, which is resulting higher levels of disposable income in buyers' pockets. Moreover, we reaffirm that a disciplined approach to inventory management and tailwind resulting from the Bon-Ton liquidation (a factor confirmed on the most recent earnings calls) will help to offset any margin compression resulting from rising wages. On that note, we reiterate that rising wages are not all bad as, higher wages elsewhere are a key factor leading to the strong consumer and solid top line performance. Lastly, we reaffirm our positive view on the company's partnership with Amazon and maintain the view that any expansion on this front will likely prove a positive catalyst for same store sales as we have already seen an increase in foot traffic at those stores featuring Amazon smart home products and lockers. We reiterate our $90 target.

Palo Alto Networks PANW; $172.95; 400 shares; 2.60%; Sector: Information Technology - 

On Thursday night, Palo Alto Networks reported a top and bottom line beat with its fiscal first quarter 2019 results. Revenues of $656 million (up 31% year over year) topped the consensus of $631.89 million, and adjusted earnings per share of $1.17 (up 58% year over year) exceeded the consensus of $1.05. Furthermore, deferred revenue grew 34 percent year over year to $2.4 billion, and billings of $758.5 million (up 27% year over year) was roughly in-line with the $755.8 million consensus. We walked away encouraged with the company's accelerating product revenue growth as well as the uplifting cadence management gave on cloud security. Furthermore, we place a great amount of value in CEO Nikesh Arora's willingness to be disciplined in terms of M&A, as well as his open invitation to analysts to meet so that he can further explain his vision of the company. That's been an uncertainly on the stock that Arora is committed to fix. While the results certainly point to a stock that has become too inexpensive and has plenty of growth levers to help it recapture its highs, we believe the muted response to earnings is due to the workings of short-sellers that have failed to understand CEO Nikesh Arora's vision. But once this now highly anticipated analyst day occurs, we believe they will realize that they are on the wrong side of the trade. To read more from the quarter, please see our Alert here here.  We reiterate our $265 price target. 

Raytheon (RTN) ; $175.34; 550 shares; 3.62%; Sector: Industrials - 

We continue to debate, on a daily basis, what the proper course of action is when it comes to our RTN position. On the one hand, the company (not the stock) continues to perform up to our expectations, meeting earnings targets, diversifying revenue to international markets and making new deals for the Patriot missile defense system. On the other hand, shares have obviously not performed to our expectations, currently hovering near a 52-week low, making for a difficult decision as we approach 2019, do we continue to hold onto shares or let them go and seek out better opportunities in more loves sectors/industries. On the side of letting shares go, there are concerns that 2019 will be a down year given that the defense budget beyond 2020 remains uncertain given the recent Democratic House win in the mid-term elections. However, on the other side of the equation there are international forces at work that could very well result in sustained levels of US and foreign defense spending to the benefit of the company, including an increasing Chinese defense budget and Russia's continued progress on hypersonic missiles, weapons for which there are currently no valid defenses. Then there is the fact the President Trump has seemingly no plans whatsoever to reduce sales to Saudi Arabia following the killing of Saudi journalist Jamal Khashoggi and increasingly aggressive rhetoric out of Iran. Playing to these international pressures, we remind members that Raytheon's already generates roughly 30% of sales internationally and has roughly 40% of its backlog coming from international customers. Furthermore, from a valuation perspective, at ~14.7x forward earnings, shares now trade well below their 5-year average of 17.5x forward earnings. And while we will continue to monitor this name, we are currently of the view that we can simply not let shares go when the company is performing at or above expectations and the entire industry is hated, the thinking being that at the end of the day, what we are looking at is a broken stock and not a broken company, leading us to the conclusion (for now) that the risk/reward profile is simply too attractive to let go of at current levels. We reiterate our $232 target.

Schlumberger  (SLB) ; $45.10; 1,850 shares; 3.14%; Sector: Energy -

On Wednesday, we called out Schlumberger as a stock that has not worked in our Alert here). Due to the rapid decline in the price of crude, with future production capacity concerns looking like less and less of an issue, shares have suddenly found themselves making new low after new low. What keeps us in the name, however, despite the poor performance, is the inevitability that investment will ramp because reservoir and well performance in the Permian will eventually require efficiency solutions, and international operators at some point must refocus on full-cycle investments-not just short-term actions. Although the Schlumberger cycle continues to take longer than expected, we remind members that our patience is compensated with the large dividend. We reiterate our $80 price target

United Healthcare Group (UNH) ; $281.36; 225 shares; 2.38%; Sector: Healthcare -

Shares stormed to a new 52-week high this week, driven the company's investor day event which we labeled on Monday in our Alert here as a catalyst to be aware of. Even though 2019 guidance was just-in line, management painted a bullish outlook of the future as they reiterated their long-term EPS growth target of between 13% to 16% for the next decade. This provided investors with a fantastic long-term outlook to work with and it was a testament to how durable and secular UNH's business is. With the pace of earnings growth expected to be sustained for a long period of time, we believe the stock deserves a higher multiple from our previous target. Therefore, we are increasing our price target to $305, reflecting just under 21x consensus 2019 earnings. 

Viacom  (VIAB) ; $30.86; 1,200 shares; 1.39%; Sector: Communications Services 

Even though Viacom remains a volatile stock, we remain confident that CEO Bob Bakish's turnaround strategy will improve the company's overall profitability profile, thereby leading to multiple expansion. Presently, shares trade at just 7.5x next twelve months earnings despite all the positive work Bakish has done to create a more consistent earner. The turnaround at Paramount Pictures is palpable as the recent quarter represented the third straight quarter of profitability and the seventh straight quarter where adjusted operating income has improved. When we couple this with the company's Media Networks strategy, which is centered on low-risk, inexpensive, non-scripted entertainment geared towards an attractive demographic, we find ourselves with a simplified path to growth. We reiterate our $40 price target. 


Danaher DHR; $109.54; 850 shares; 3.50%; Sector: Life Sciences - 

While we elected to trim shares and downgrade this holding a Two earlier this week, we remain bullish on the longer-term opportunity thanks to Danaher's exposure to several key end markets, including diagnostics, and environmental and applied solutions. As we noted in our sale alert, despite our favorable view on these end markets, and the company overall, thanks in large part to the incredible management team, a small sale reduces our overall portfolio exposure to China, a region has been a tremendous source of growth for the company. However, it is difficult to project how long that growth will continue if no progress is made on trade at this weekend's G-20 meeting and higher tariffs are placed on the region. Trade aside, supporting our longer-term optimism, we remind members that the company also plans to spin off the one overhang, dental, a move that we believe will allow investors refocus on the other, significantly stronger aspects of the business including Pall, Cephid and IDT. We reiterate our $118 target.

Microsoft Corp MSFT; $110.89; 700 shares; 2.92%; Sector: Technology - 

With Amazon hosting its re:Invent cloud conference this week, placing a heavy focus on the importance of a hybrid cloud offering, we are incrementally more optimistic of Microsoft's ability to gain share in the rapidly growing cloud space thanks to its head start and fully integrated cloud offering. Recall, this model allows for companies to take advantage of the scalability and agility of the public cloud, while allowing for sensitive content or programs which require the least amount of latency to be stored on on-premises servers. Moreover, while this is a space that is seeing an increasing amount of competition, we believe Microsoft's edge comes from the fact that it does not need to work with others to implement a hybrid solution, whereas Amazon, for example, is partnering with VMWare to accomplish the same thing. Outside of the cloud, we reiterate our bullish view on the company's growing gaming business believe it will become an increasingly prominent factor in the Microsoft growth story, especially given the company's ability to sell Xbox consoles via a subscription model that also includes a Live Gold pass and Game Pass. Lastly, as it relates to LinkedIn and other subscription-based services such as O365 and various Dynamics products, we continue to value them highly for their recurring revenue streams. We reiterate our $118 target.

PayPal PYPL; $85.81; 500 shares; 1.61%; Sector: Technology - 

While we maintain our Two rating given the strong run shares have seen recently, we continue to view the longer-term story for PayPal as attractive given that we maintain our view that digital is the future of payments and believe this to be a secular trend. Moreover, we believe that the number of company's indicating record online sales this past shopping weekend (Black Friday to Cyber Monday) supports our view that the shift to ecommerce remains another secular trend working to the benefit of digital payment platforms such as core PayPal and Venmo. On the Venmo front, we also remind members that we are still in the early days of monetization and believe that as the payment system becomes more widely accepted and the company works to address the needs of the underbanked, via initiatives such as the recently released Venmo card, shares should continue to push higher. Lastly, we continue to view Braintree as being a key beneficiary of the growing app economy as the platform powers app payment portals such as those seen in the Uber app and is a strong choice thanks to its ease of implementation and acceptance of various currencies - making a perfect choice for those looking to expand internationally. We reiterate our $95 target.

Textron TXT; $56.14; 950 shares; 2.00%; Sector: Industrials - 

As we noted earlier this week, this is a position we are constantly throwing back and forth in our morning meetings as we review each position and consider our portfolio as a whole. Our current thinking is that while the previous release was disappointing, we are more concerned with future performance. On the negative side, the company simply did not perform up to our expectations and is now in the penalty box with management needing regain investor confidence, making this a show me story. However, on the positive side, the two divisions that matter most, Aviation and Bell, both had solid results and sported healthy backlogs (representing the potential for strong business in the future). We believe both segments can perform positively given the ongoing rebound in business jet demand and expectations for increased Army spending, to the benefit of Bell, in 2019. Additionally, management has addressed the lagging Industrial segment by appointing Scott Ernest, who previously turned around the Aviation segment, President and CEO of the division. Given these dynamics, we are remaining patient for the time being, however, will continue to monitor for updates as we decide whether this is a position worth owning into 2019. That said, we reiterate our $72 price target as we believe that an improvement in execution can propel shares higher.

WestRock WRK; $47.11; 1,350 shares; 2.39%; Sector: Materials -

Even though we did some trimming this week, selling the amount of shares we bought lower to capitalize on the stock's recent near 20% move above its 52-week low, we still find ourselves with a few reasons to like this name. Although we cannot ignore the fact of how the company operates in a challenged industry, the integration of Kapstone, a recent acquisition that solidified WestRock's place as the number 2 player in the North American containerboard market, represents a self-help, catalyst story that sets the stock above its peers. Lastly, we view the robust cash flow, "recession-like" market multiple, and 3.87% dividend yield as protection against further downside risk. We reiterate our $60 price target.