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A rare chance to buy this ‘Global Elite’ business

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From Stansberry Research:

After almost a decadelong bull market, now is a good time to be defensive.

The benchmark S&P 500 Index fell almost 20% from September through mid-December before recovering and closing the year down just 7%.

The Consumer Staples Select Sector SPDR Fund (XLP) – which holds a basket of consumer staples like Procter & Gamble (PG), Coca-Cola (KO), and Walmart (WMT) – finished the year down roughly 10%. Fears about rising input and shipping costs, rising interest rates, and the threat of store brands have all contributed to the pessimism toward the sector. Meanwhile, investors have also soured on the staples due to low growth rates.

But we think the consumer staples are poised to outperform over the next few years, just as they did during the during the 2000-2002 bear market. The stock we’re covering this week far outperformed its staples cohort back then… And we’re confident it can do it again.

In 1866, Wisconsin lawyer and banker Cadwallader Washburn built a flour mill on the Mississippi River’s St. Anthony Falls in Minnesota. It was the genesis of what would become General Mills (NYSE: GIS).

During the bear market that followed the Internet bubble, GIS shares returned an impressive 26%. And the company’s valuation today is much lower than it was back in March 2000 – when its period of outperformance began. Granted, we could be early. But as we’ll explain, you get paid a solid dividend to wait with General Mills.

Before we get to that, let’s first cover what makes General Mills a “Global Elite” business.

These companies have dominant, widely recognized brands. That’s their competitive advantage. And General Mills is a quintessential Global Elite business.

Today, the company is a global packaged-food juggernaut, with roughly $16 billion in annual sales.

Convenient meals, a category that includes meal kits, pizza, soup, and frozen entrees, accounted for 17% of sales last fiscal year. Cereals and snacks made up 22% and 17%, respectively. And yogurt contributed to 15% of sales. The U.S. brings in approximately 58% of sales. Europe accounts for almost 13%, Latin America 11%, Canada 6%, and the remaining 12% comes in from the rest of the world.

You’ll probably be surprised to find out just how many General Mills products are in your kitchen right now. Among its most notable brands are Cheerios, Pillsbury, Betty Crocker, Yoplait, Annie’s, and Häagen-Dazs.

It’s clear that General Mills has brand recognition. But until recently, it has been lacking growth…

General Mills’ sales declined from $17.9 billion in 2014 to $15.7 billion for the fiscal year ending last May.

But growth has started to resume, as the company posted positive sales growth in the latest four quarters.

One bright spot for the company has been organic foods. General Mills bought organic food-maker Annie’s in 2014. The brand’s net sales doubled in a little more than three years after the acquisition.

Now, General Mills has gotten into another high-growth food category. But this food isn’t for humans…

Over the past decade, the pet food market in the U.S. has grown about 5% a year to reach $30 billion. But the market for wholesome, natural pet food is growing faster than the overall pet food market.

General Mills wants to profit from this trend. Last year, it bought Blue Buffalo Pet Products for $8 billion. Blue Buffalo makes super-premium pet food with high-quality natural ingredients. Blue Buffalo grew revenues by 11% in 2017 to hit nearly $1.3 billion. Its Blue Life Protection Formula for dogs and cats has become a top-selling natural pet food.

The acquisition was expensive, at six times sales. But it will add much-needed growth to General Mills’ revenue mix. And with this new pet-food segment, General Mills becomes an even more diversified consumer-staples company.

Nonetheless, investor fear continued. And the market has punished the stock. General Mills’ share price has declined more than 40% since its mid-2016 peak.

However, this type of unwarranted fear in Global Elite businesses is exactly what we look for at Stansberry Research. You see, General Mills’ valuation is trading near all-time lows…

Today, GIS yields almost 5%. General Mills and its predecessor companies have paid dividends for 119 years straight. And the company has increased its annual dividend in each of the past 14 years.

With the recent pullback, shares now yield 4.9% – around the highest level since 1988 – and far higher than their 10-year average of 3.1%.

All we need is for the market to start appreciating General Mills’ low valuation and high-yielding dividend. That will put a floor under the shares, and we should see the share price start to trend higher.

Sometimes investing is simple.


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Charts show steady investor optimism, more upside for stocks

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The stock market rally that began 2019 has not yet run its course, even with Tuesday’s Washington-induced surge, CNBC’s Jim Cramer said after consulting with technician Carley Garner.

“The signs suggest that this market can have more upside before the rally exhausts itself,” Cramer recapped on “Mad Money.” “Eventually the market will become too optimistic and stocks will peak, but we’re not there yet.”

Garner, the co-founder of DeCarley Trading and author of Higher Probability Commodity Trading, has an impressive track record. In mid-December, one week before the Christmas Eve collapse and subsequent rebound, she told Cramer that pessimism was peaking and stocks were due for a bounce.

But now that the S&P 500 has gained over 15 percent since those midwinter lows, it’s worth wondering the reverse: what if optimism is approaching its peak?

Lucky for Wall Street, Garner says it’s not. She called attention to CNN’s Fear and Greed index, which uses a variety of inputs to measure what CNN sees as investors’ chief emotional drivers.

Right now, the index sits at 67 out of 100, signaling more greed than fear, but still “a far cry from the extreme levels where you need to start worrying,” Cramer explained. When the major averages peaked going into the fourth quarter of 2018, the index hit 90, and according to Garner, “we usually don’t peak until we hit 90 or above,” he said.

Add to that the fact that only half of professional traders and investors polled for the most recent Consensus Bullish index said they felt bullish; the recent downtrend in the Cboe Volatility Index, which tracks how much investors think stocks will swing in the near future; and that, historically, this is a good time of year for stocks; and Garner sees more momentum ahead.

The S&P 500’s technical charts seem to uphold Garner’s theory. Its weekly chart shows fairly neutral readings for two key indicators: a momentum tracker called the Relative Strength Index and the slow stochastic oscillator, which measures buying and selling pressure.

“Even if the S&P 500 keeps climbing to, say, … 2,800 — up 2 percent from here — Garner doesn’t anticipate either the RSI or the slow stochastic [to] hit extreme overbought levels,” Cramer said, adding that the technician could even see the S&P climbing to 3,000 if it breaks above the 2,800 level.

If Garner is wrong and the S&P heads lower, she said it could trade down to its floor of support at 2,600, and if it breaks below that, fall to 2,400. But that scenario is highly unlikely and, if it happens, would be a buying opportunity, she noted.

The S&P’s monthly chart told a similar story, Cramer said. The index is currently trading at 2,746, between its “hard ceiling” at 3,000 and its “hard floor” of 2,428, he said, which means it’s “basically in equilibrium.”

“To Garner, that means going higher is the path of least resistance for the S&P,” the “Mad Money” host said. “Once the S&P climbs to 2,800, or perhaps … to the mid-2,900s, that’s where Garner expects things will turn south and the pendulum will start swinging in the opposite direction.”

“Remember, … Carley Garner has been dead-right, and the charts, as interpreted by Carley, suggest that this market still has some more upside here,” Cramer continued. “But if we get a few more days like this wild one, she thinks we’ll need to start worrying about irrational exuberance. For now, though, she thinks we are headed higher, and I agree.”



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What Jeff Bezos’ private life means for investors

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Daniel Ek, chief executive officer and co-founder of Spotify AB.

Akio Kon | Bloomberg | Getty Images

Daniel Ek, chief executive officer and co-founder of Spotify AB.

Cramer said Wall Street has misread Spotify‘s latest earnings report and guidance, and that misunderstood stocks like these give investors an opportunity to make some money.

he called out stock analysts like Everscore ISI’s Anthony DiClemente who have downgraded the equity over concerns about subscriber growth.

“I think this is lunacy,” said Cramer, who has been bullish on the music streaming platform since it went public last April. “It’s like the market just doesn’t know how to read this company or its quarterly guidance. In my view, Spotify is very much on the right track.”

The stock was rocked after a seemingly mixed quarterly earnings released Wednesday, Cramer said. After Spotify reported lower-than-expected sales, tight cash flow and conservative guidance across the board including subscriber growth, shares sold below $129 at one point in Thursday’s session.

But Cramer noted that the company beat expectations on operating profit and gross margin, which was 120 basis points higher than was asked for.

“I think the sellers were missing a lot of context here and the context is something I like to talk about a lot and it’s called UPOD. They under promise … and then they over deliver,” he argued. “At this point, CEO Daniel Ek and his team have established a track record of giving cautious guidance—under promise—and then beating it—over delivering.”

Spotify’s guidance includes planned investment costs and the company could “become the premier platform for podcasts,” a hot market for hard-to-reach millennials, Cramer said.

Click here to read Cramer’s full take.



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Charts show investors ‘can afford to be cautiously optimistic’

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Investors can afford to be “cautiously optimistic” at this point in the stock market’s cycle, CNBC’s Jim Cramer said Tuesday after consulting with chartist Rob Moreno.

Moreno, the technician behind RightViewTrading.com and Cramer’s colleague at RealMoney.com, sees a convoluted path ahead for stocks. After calling the December bottom, Moreno noticed that the Nasdaq Composite’s late-2018 decline was about a 24 percent drop from peak to trough.

That’s important because, in a bull market, stocks tend to see “periods of consolidation — pauses in a long-term bull run,” Cramer explained. “To [Moreno], the decline here looks very similar to what we saw from the Nasdaq in 2011, 2015 [and] 2016,” three consolidation periods of recent past.

If he’s right, that could be bad news for the bulls, who may have to wait at least seven months for stocks to break out of their consolidation pattern, during which they tend to trade in a tight range, Cramer warned. But Moreno still sees some opportunity for investors.

“If you believe his thesis about the market — that we’re in a consolidation period, one that will last until September — then you can afford to be … cautiously optimistic right now,” Cramer said on “Mad Money.”

Part of Moreno’s confidence came from his analysis of the S&P 500’s daily chart, which also included the support and resistance levels from its weekly and monthly charts.

Even after a 16 percent rally from its December lows, Moreno saw more room to run for the S&P based on its Relative Strength Index, or RSI, a technical tool that measures price momentum. The RSI, he explained, hasn’t yet signaled that the S&P is overbought, and the Chaikin Money Flow, which tracks buying and selling pressure, shows big money pouring in.

“Moreno thinks that these new buyers are the kind of investors who won’t be panicked out of their positions by short-term volatility,” Cramer said, adding that the technician sees about 3.5 percent more upside for the S&P before it hits its ceiling of resistance at 2,818.

But if the S&P manages to trade above its ceiling of resistance and return to its October highs, Moreno expects a “synchronized reversal” in the stock market that could crush the major averages, the “Mad Money” host warned.

“At least until September, Moreno says you should be a seller if the averages approach their October highs — that’s around 2,930 for the S&P 500,” Cramer said. “Eventually he expects a breakout from these levels, but it won’t happen any time soon.”

So, what’s the right move for investors? According to Moreno, not all is lost. He still expects to see strong gains — a roughly 7.5 percent move — before the current rally peters out. But he doesn’t want buyers to get too trigger-happy, especially considering the months of sideways trading he’s predicting for 2019.

“Until [September], he expects the market to trade in a fairly wide range, with the S&P bouncing between 2,350 and 2,930. For now, we’re headed higher, but he says you should use these key levels as entry and exit points until the consolidation pattern finally comes to an end later this year and the averages resume their long march higher,” Cramer said. “Even if he’s right and this rally will lose its steam after another 7.5 percent gain, that’s still pretty good, but I am very wary and it makes me want to do some selling after this run.”



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