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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 reveal buying opportunities in some Chinese stocks

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The stocks of a few top-notch Chinese companies may have already bottomed as a result of the U.S.-China trade dispute and could soon be buying opportunities for investors, a top chartist tells CNBC’s Jim Cramer.

Cramer, who has been steering investors away from Chinese stocks for the better part of the dispute, said he wouldn’t blame anyone for thinking Chinese investments were too risky, especially after China announced that its economy grew at the slowest pace in nearly three decades last year.

But when he checked in with technician Dan Fitzpatrick, the founder and president of StockMarketMentor.com and Cramer’s colleague at RealMoney.com, he started to see things a little differently.

“Fitzpatrick has a really interesting thesis: He thinks the current weakness is already priced into many of the largest, highest-profile Chinese stocks,” Cramer said on Tuesday. “Looking at the charts, he believes they’ve already bottomed [and] they’re not going to take that bottom out, which means dips, like the one we had today, … should be treated as buying opportunities.”

Cramer, host of “Mad Money,” explained this phenomenon: because the stock market is “a forecasting machine,” it tries to predict what could happen six to nine months from now. So, when China released its latest economic data, it should’ve already been baked into most stock prices.

“The market will almost always peak before the economy peaks,” Cramer said. “It will almost always bottom before the economy bottoms, and that’s what Fitzpatrick’s predicting with some of the better Chinese stocks.”

First, Fitzpatrick analyzed the daily stock chart of JD.com, a Chinese e-commerce company. His take? The stock just made a “totally buyable double bottom” pattern at $20 a share, and, so far, has held above that level, Cramer said.

Fitzpatrick also noted that JD.com’s stock managed to hold above its 50-day moving average after trading above it earlier in January, which signaled to him that JD.com could be ready to rally higher.

But the most important signal is coming from the stock’s moving average convergence-divergence indicator, or MACD, which detects changes in a stock’s path before they happen. That indicator has been soaring since September, which, coupled with the stock’s relative inaction, is usually a signal that a stock has “a lot more upside,” Cramer said.

“Still, Fitzpatrick says that the stock is kind of caught in the middle of no man’s land” between its $21 floor and its $24 ceiling, where it peaked earlier this month, Cramer said. “If the stock pulls back any lower, it could stay stuck down there for a while.”

However, if the stock can break through the $24 level, and Fitzpatrick believes it can, then it could climb as high as $29, the “Mad Money” host continued. Fitzpatrick would buy in as soon as it passes the key $24 threshold.

Also on the table for Fitzpatrick was the stock of YY, a Chinese entertainment streaming platform-meets-social network. Like JD.com, its stock formed a double bottom pattern and climbed above its 50-day moving average in recent months.

“Right now, YY’s trading at $68 and change. Fitzpatrick likes it as long as it holds above the 50-day moving average” of $65, Cramer said. “Now, the stock has a ceiling at about $70, but if it can break out above that, Fitzpatrick thinks it’s smooth sailing to $85.”

All in all, while Cramer has been wary of Chinese plays, it’s always worth examining “the other side of the trade,” he told investors.

“After today’s brutal, in-part-China-driven sell-off around the world, it’s worth considering whether some of these Chinese stocks may be in better shape than you’d expect,” the “Mad Money” host said. “The charts, as interpreted by Dan Fitzpatrick, suggest that the best-of-breed China internet [stocks] like YY and JD.com may have already bottomed, although Fitz says you should wait for more of a breakout before you start buying either stock.”

“I don’t know if he’s right, and I don’t recommend buying any Chinese stocks because of the trade turmoil,” Cramer continued. “But when just about everyone’s negative on a particular group, it’s always worth giving the other side of the trade some serious consideration.”



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Charts suggest lower volatility, higher stock prices ahead

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The market’s fear gauge is signaling that stocks will see less volatility and higher prices in the next few months, CNBC’s Jim Cramer said Tuesday after consulting with a top volatility chartist.

The fear gauge, also known as the CBOE Volatility Index or the VIX, tracks S&P 500 option prices to measure near-term expectations of volatility, or the chances that the stock market will endure dramatic swings in the near future. When the VIX rises, it tends to mean investors are growing concerned about the market and making bets to protect themselves.

But the VIX has been trading lower since it peaked in December amid a marketwide sell-off, suggesting that fears about the market are subsiding. To make sense of the action after the late-2018 fallout, Cramer asked technician Mark Sebastian, founder of OptionPit.com and resident “Mad Money” VIX expert, for his input.

Sebastian, who also works with Cramer at RealMoney.com, said that while the nature of the VIX has changed, it’s still helpful in predicting what’s next for the market. And, right now, it’s quite positive, he told the “Mad Money” host.

“Sebastian thinks it signals that this earnings season may be a bit of snoozer, with a bullish bias, as the market gradually pushes higher over the next few months,” Cramer said. “The Volatility Index may not be working exactly like it used to, [but that] doesn’t mean it’s useless, and based on the current action here, he thinks the stock market has more room to run.”

To reach this conclusion, Sebastian reviewed how the VIX acted over the course of 2018. Plotting it against the S&P 500, he noted that during the market’s breakdown in February and March, the VIX acted normally: surging when the S&P plunged, and making a lower high when the S&P dropped again, which signaled that the market had bottomed.

But in November, the VIX barely budged when the S&P got crushed, Sebastian said. Normally, that means that stocks are bottoming, but in December, the S&P collapsed again. The VIX only lifted in late December, after the S&P had fallen several hundred points, and didn’t even reach its January peak despite the fact that the entire market was selling off.

“Sebastian says the fourth-quarter decline was different from anything else we’ve seen in the last decade. Since 2008, when the stock market experienced a major sell-off, that’s always been accompanied by a huge spike in the VIX,” Cramer explained. “If you were only looking at the fear gauge, it seemed to be saying that the garden-variety sell-off at the beginning of last year was worse than the total meltdown at the end of last year.”

And, according to Sebastian’s analysis, the trading instruments that Cramer railed against in February — the ones that profit when the VIX does down — were behind the unusual action.

Specifically, securities like the VelocityShares Daily Inverse VIX Short-Term exchange-traded note, or the XIV, which imploded while the VIX stayed calm, “[represent] a sea change in how volatility is going to work going forward,” Cramer said.

“The crazy price action from a year ago left a bad taste in traders’ mouths,” he explained, adding that fewer money managers are likely to hedge their positions using VIX options after seeing 2018’s swings.

“In this new environment, hedge funds will no longer be racing to cover their short positions, which means that the VIX is probably going to signal that there’s less volatility going forward,” Cramer continued.

But that doesn’t mean that the VIX has become a less useful measure, Sebastian argued. The VIX’s tepid action in late December and early January was likely a precursor to the higher prices stocks are currently enjoying, he suggested.

So, as more money managers steer clear of risky VIX trading products and more still unwind their hedges, the fear gauge’s recent breather is signaling a peaceful few months ahead for stocks, Sebastian said.

Cramer’s take? “Even though I’m a little flummoxed that the VIX really didn’t work, I agree with Sebastian. I think we go higher.”

Questions for Cramer?
Call Cramer: 1-800-743-CNBC

Want to take a deep dive into Cramer’s world? Hit him up!
Mad Money TwitterJim Cramer TwitterFacebookInstagram

Questions, comments, suggestions for the “Mad Money” website? madcap@cnbc.com



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Medtronic CEO pushes back on criticisms it has a ‘spotty record’

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Medtronic CEO Omar Ishrak pushed back Tuesday on a Barclays research note that said the U.S. medical device maker took a “step back” following disappointing comments on the company’s outlook from Ishrak at the 2019 J.P. Morgan Healthcare Conference.

The medical device maker has “the strongest pipeline that we’ve ever had in this company,” Ishrak told CNBC’s Jim Cramer from the 37th Annual J.P. Morgan Healthcare Conference in San Francisco, California. “We innovate, we create new markets and we disrupt our own market,” he added. “We think these are game changers for health care.”

Shares of Medtronic sold off Monday, closing down 6.5 percent to $82.45 each after Ishrak said during an investor presentation that the company could expect sales to be at the mid-point of its full-year range of 5 percent to 5.5 percent. The company is experiencing softness in its top-selling cardiac and vascular unit, which makes defibrillators, pace-makers, heart valves, and stents.

Barclays analyst Kristen Stewart late Monday cut her price target on the stock to $104 from $113 and reiterated her overweight rating. In a note to clients, Stewart said she wasn’t surprised by the sharp stock reaction and characterized Ishrak’s comments as “cautious.”

“If it isn’t one thing, it seems to be another when it comes to Medtronic,” Stewart said. “Medtronic has had a somewhat spotty record when it comes to providing guidance and has been affected by a series of one-off events over the past year and a half.”

Ishrak said the note did not accurately reflect his comments.

Medtronic’s stock is down about 4 percent over the past 12 months and down 9 percent year to date.

Wall Street analysts have had some concerns regarding questions of the safety of paclitaxel, the drug used in commercially available drug-coated devices, which Medtronic make. Medtronic has said they are working with the U.S. Food and Drug Administration on that.

Additionally, Medtronic, along with the rest of the medical device industry, could face new regulations from the FDA, which seeks to change how the device manufacturers bring their products to the market.

Advanced Medical Technology Association, or AdvaMed, the industry’s lobbying group, has pushed back against the agency.

Despite weakness in the cardiac and vascular unit, Ishrak told CNBC the company is focusing on introducing technologies such as Micra, a new kind of pacemaker that is implanted directly into a patient’s heart and is less invasive than current methods.

Ishrak also touted the company’s $1.64 billion acquisition of Israel-based Mazor Robotics, a maker of guidance systems for spine and brain surgeries.



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