Analysis: DOW DWDP FB APC SLB XLE BP

It was a mixed day in the U.S, equity markets with the Dow Jones Industrial Average falling roughly 79 points, the S&P 500 closing flat, and the Nasdaq gaining about 0.25%. The Dow Jones Industrial Average had a new kid in town, as Dow Inc. (DOW) officially separated from DowDuPont (DWDP) and replaced its parent company in the index. It's only one day, but this catalyst event, which we long expected would help the market recognize a sum-of-the-parts valuation greater than its whole, began to show its worth. DOW shares gained more than 5% in its first day of trading. You can read more about the streamlined Dow Inc. in our Alert from Monday here.

Facebook

Facebook (FB) was a notable outperformer on the day, closing roughly 3.26% higher. This move was driven by a positive research note from Deutsche Bank, which reiterated its Buy rating on the stock and called out the social media company's opportunity to build out a significant revenue stream via e-commerce operations on Instagram.

According to the note, the analysts believe the opportunity can ultimately result in an additional $10 billion to Facebook's top line by 2021. Key to the initiative is the recently announced checkout feature (which you can see more about here), which per the company's website, "makes it quick and secure for people to buy the products they discover on Instagram."

As we've addressed multiples times in the past, we believe Instagram represents the company's newest and most reliable source of growth as the core platform matures and growth tapers off. Given the company's well-known dominance in the targeted ad space, we view the deeper push into e-commerce as an obvious move, especially as Instagram is the go-to site for social media influences and brand names seek to take advantage of influencers' ability to drive sales. Furthermore, with Amazon AMZN quickly making strides into the targeted ad market, with the ability advertise at the point of sale, we believe the added ability to checkout directly on the Instagram platform as a much-needed defense against the e-commerce leader.

Regarding monetization opportunities, allowing companies to sell directly on the platform brings with it several levers Facebook can pull on to grow its top line and reach the $10 billion increase expected by the Deutsche Bank analysts. In addition to the additional ad space provided by the associated shopping cart, Facebook stands to profit from "take-rate" monetization (the company's cut of sales for hosting and selling through their platform). Per the Deutsche Bank release, the analysts believe that take-rate monetization will account for as much as half of their $10 billion estimate.

Additionally, there is the increased visibility Facebook will have into user shopping trends, knowing not only what users are searching for but what they ultimately end up buying. The ability to better target adds could ultimately lead to better returns for ad buyers and as a result allow the company to increase the cost of advertising on the platform.

From an engagement perspective, should Instagram come to be better known as a shopping platform, versus simply an influencer/photo sharing app, we could certainly see user numbers and time spent on the platform increase, again leading to an uptick in the amount Facebook can charge ad buyers -- more eyeballs inherently meaning a larger audience for advertisers to sell to.

Bottom line: Facebook appears to be on the right track with its recent decision. Finally, management appears to be wrapping its arms around its data privacy issues while exploiting new avenues for growth. As a result, we continue to view the shares as a buy for those willing to ride out any nearer-term volatility resulting from regulatory headwinds relating to big tech and data privacy.

Energy Markets

Switching gears to the energy markets, WTI crude gained another $0.99 or 1.6%, settling in at $62.58 a barrel. It's a multi-month high for the commodity as we have not seen prices at these levels since November 2018. While the gains in WTI crude were bountiful on Tuesday, the move did not correlate to higher stock prices in two of our energy positions, Anadarko Petroleum Corp. (APC) and Schlumberger (SLB) . Still, let's take a moment and put WTI Crude's push above $60 into context for our only U.S. exploration and production company, Anadarko Petroleum.

The key to our Anadarko Petroleum investment thesis relates to the company's ability to be cash flow neutral in a $50 oil environment, and how its management is very shareholder friendly with excess cash. While the company's cash flow neutral rate is pegged at $50 oil, management also notes that for every $1 increase above $50 oil per annum, the company generates an approximately $140 million of additional free cash flow.

If WTI crude can sustain these levels for an extended period of time, we are talking about a significant amount of cash generation management can then use to further the share repurchase program, which has $1.25 billion remaining; appropriately address the dividend, which already increased by 500% in 2018; or continue to fund debt reduction initiatives . Factor in the recent $4 billion midstream asset sale, which netted roughly $2 billion in cash proceeds, and Anadarko Petroleum suddenly has plenty of cash optionality.

Has Anadarko's improving profitably and increasing cash flow generation caught up to the stock yet? The answer is simply "no," with the shares up only 3% year to date compared to a roughly 17% gain in the Energy Select Sector SPDR Fund (XLE) . Sentiment remains terribly poor here, but the positive moves in the commodity suggest that the company is doing far better than what the market suggests. Still, we will maintain our Two rating on APC due to our preference for the higher-yielding BP plc (BP) and Schlumberger.

Action Alerts PLUS, which Cramer manages as a charitable trust, is long DOW, DWDP, FB, APC, SLB and BP.