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This company will protect you during the next market crash

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From Stansberry Research:

Most people forget what they own when they buy shares of stock…

They buy stocks expecting the share price to rise 20% or more each year so they can turn quick profits. They forget (or never even realize) that what they’re actually buying is a piece of the business.

You can bet that if they invested in a private business in their local town, they would be far less concerned about how much other people think that business is worth. More important, they’d demand the business to turn regular profits and management to return a reasonable share of those profits to the owners.

But for some reason, most investors don’t treat their investments in publicly listed companies the same way.

We do. As long-term investors, we look for companies where management treats its shareholders well. But sometimes, that’s easier said than done… Too often, management couldn’t care less about its owners. Instead, it treats corporate profits recklessly by enriching itself personally and squandering the money on bad ventures.

Like us, legendary investor Warren Buffett also looks for well-run, shareholder-friendly businesses. He became one of the richest people on the planet by understanding and investing in companies that constantly generate high returns on tangible assets without the need for large ongoing capital investments.

Buffett talks about return on tangible assets and economic goodwill. We call it “capital efficiency.” But the concept is the same.

In our Capital Efficiency Monitor, we calculate capital efficiency by looking at metrics like return on assets (“ROA”), free cash flow (“FCF”), how much cash the company returns to shareholders by way of dividends and share buybacks, and revenue growth. We then weight and rank them accordingly. But as a basic litmus test on capital-efficient, shareholder-friendly companies, you can compare how much a company spends on itself versus how much it returns to shareholders. You want to own companies that reward shareholders, not managers.

Investors who can learn this investing concept and implement it will do much better than those who simply roll the dice on which stocks may see their share prices jump higher.

As Buffett points out, consumer franchises are some of the best places to find this type of company. Take chocolate manufacturer Hershey (NYSE: HSY), for example…

In December 2007, just before the market crashed, we recommended shares in our flagship Stansberry’s Investment Advisory newsletter. Most investors were turned off by the company’s slow sales growth. Shares had fallen from their mid-2005 highs around $65 to about $40. But everyone was focused on the wrong thing…

From 2001 to 2007, Hershey returned more than $3.4 billion to shareholders through dividends and share buybacks. To put that in perspective, for every dollar in gross profit, the company returned an average of $0.29 to shareholders. And it only spent an average $180 million per year in capital expenditures (“capex”) over the same period. That’s nothing for a company that had around $5 billion in yearly sales.

After our recommendation, the overall stock market fell about 50% over the next 15 months. Hershey suffered, too. But it declined by less than half of the overall market’s fall. And since then, the stock has soared. Subscribers who followed our recommendation are now enjoying gains of more than 200%. The benchmark S&P 500 Index is up less than half that over the same period.

Most investors don’t factor in the impact that these reinvested dividends and consistent share buybacks have on a company’s future total returns.

Today, Hershey has annual sales of $7.5 billion – about 50% higher than a decade ago. It spent about $250 million on capex last year – roughly the same as it did 10 years ago. Meanwhile, cash profits – as measured by FCF – have quadrupled and cash returned to shareholders has nearly tripled.

This is the beauty of capital-efficient businesses… As sales and profits grow, capital investments don’t. Thus, the amount of money available to return to shareholders not only grows in nominal dollars, it also grows as a percentage of sales.

These types of companies look after their shareholders. Bought at the right price, they can help protect you from a major market pullback and lead to you to huge, triple-digit gains over the next few years.

Hershey is one of the most recognizable brands in America as a result of the enduring nature of the products it sells. Our grandparents enjoyed Hershey’s chocolate bars 50 years ago. Our bet is our great-grandchildren will enjoy them 50 years from now.

It’s not often that you can realistically expect to make 20 times your money in an individual stock. It’s even rarer to expect to safely hold a stock for 20 years. But with capital-efficient companies like Hershey, you can.

Sometimes investing is simple.


As mentioned, we recommended Hershey in our flagship Stansberry’s Investment Advisory newsletter in December 2007. Readers who followed that advice are sitting on gains of more than 200%. We re-recommended the stock in June 2018 as Hershey’s valuation level relative to its FCF was nearly identical to its valuation back in 2007. Including dividends, investors who followed that advice are up about 20%.


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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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