Analysis: AAPL QCOM FB RTN BP WRK

It was a rocky opening for Apple (AAPL) stock this morning as shares dipped in reaction to the announcement of how a Chinese court restricted the import and sale of some of the company's older iPhone models. The court ruled that Apple's older iPhone models infringed on two patents held by Qualcomm (QCOM) , who is currently embroiled in a deep and lengthy legal battle with the smartphone maker.

In response, Apple filed an appeal to overturn this ruling. The company also defended the sale of its products, saying in a statement that all of its iPhone models are still available for sale in China. As we dig further, this ruling (which will likely need to be reviewed by a higher level of court) will not restrict the sale of the company's newer iPhone models like the XS, XS Max, and XR, as the patents in question are not present in the company's most recently released operating system (iOS12) which is installed on all new iPhones. Instead, the ban is only on devices that carry iOS11- so we are talking about the 6,7,8, and X models that Apple is phasing out.

While this news certainly adds a new wrinkle to the AAPL story, it does appear contained because it should not affect sales of the company's newest products. This eventual outcome could be why we saw the stock strongly reverse midday and turn positive. Furthermore, China has always been a region of contention for the company, and we certainly feel that a stock down roughly 28% from its recent 52-week high should reflect some of the risks associated with doing business there. Accordingly, we still believe it is in investors best interest to view the stock as an "own, don't trade,' especially as its recent downturn has priced the stock at roughly 12.5x consensus 2019 earnings.

Facebook (FB) shares are one of the leaders in the market today. Driving this was the late Friday announcement of an additional $9 billion to the current share buyback authorization. This announcement sent a strong signal to the markets as it suggests the company is executing far better than what they are given credit for, especially given its current ~18.5x consensus 2019 earnings estimate (per FactSet) relative to its near 20% expected growth rate. We think this was management's way of getting the market's attention of how shares had gotten so cheap.

Raytheon (RTN) shares, and other defense names are showing notable strength today. We believe this is related to the Politico article from Sunday that stated President Trump's desire of Defense Secretary Jim Mattis to submit a $750 billion budget proposal for fiscal 2020. This is significant because it was previously understood by the Administration that the defense budget would be $733 billion, or possibly even less. Fears of the latter outcome has been one of the largest overhangs against sentiment for this sector, and the possibility of a further expanding budget could be what the group needs to get it back into favor. Although the $750 billion figure is not official, this reversal in tone does come at a time where geopolitical tensions have risen, which we pointed to last Thursday when we added to our Raytheon position in our Alert here.

In energy, the price of crude is down on Monday as speculators digest last weekend's output cuts. This is putting more pain in the energy sector as the commodity can't seem to sustain a multiday rally. But on a positive note, BP plc (BP) was reiterated as a top pick by analysts at RBC Capital Markets today after a recent update from BP management supported the analyst's investment case. Their takeaways were for a visible trajectory into 2021 production (with lower-for-longer capex framework extended to 2025), steadily reduced costs which is supportive of dividend growth, and finally, a strong pipeline in the upstream business. Although we are not too sanguine about the energy markets in the near-term, we do take a positive view when it comes to BP. In addition to the great value shares offer with its current +6.2% dividend yield, we believe the company is on track to reach a new high point in terms of cash flows, compounded by the combination of steadily reduced break-even costs and the roll off in its liability related to Macando.

And finally, WestRock (WRK) was downgraded this morning by Goldman Sachs' analysts, who cited an acceleration in supply coupled with U.S. box shipment demand growth deceleration. Although we have thought that tailwinds from e-commerce would represent a stronger boost to demand that has occurred, mainly because WestRock is still heavily exposed to the consumer-packaged goods market, we have made it a point to cut this position several times over the past few weeks. This was especially true when the market was in a point of strength, pushing the stock double-digits above its 52-week low like here and here, level that was rewarding for our patience. As we inch closer to 2019, we will continue to favor sells of our weaker names as it both protects our stronger positions and limits our exposure in the new year.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long AAPL, FB, RTN, BP, WRK.