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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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Retail earnings reports, China trade impact

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CNBC’s Jim Cramer on Friday said he expects more of the same in the week ahead of stock trading.

“Next week, once again, is all about trade and retail,” the “Mad Money” host said. “This is the week when most retailers report, so we will be listening closely to what they say about the trade war.”

Monday: Trade watch

The stock market will confront the same issues on Monday as the week prior. The days following will see a lot of retailers hold conference calls, and Cramer is looking to see what they have to say about tariffs on Chinese imports.

“The market will punish companies that source in China and reward companies that don’t, because that’s what [President Donald Trump] is doing,” he said.

Tuesday: Home Depot, TJX, Nordstrom

Home Depot: The home improvement retail giant reports earnings before the bell. Cramer is expecting weather to weigh on earnings again.

“There’s much too much rain this gardening season, and I bet that hurt them,” he said. “I still believe Home Depot can tell a decent story about trade, but it won’t matter if gardening season, their equivalent of Christmas, turns out to be a bit of a bust.”

TJX: The T.J. Maxx parent delivers its quarterly results to shareholders in the morning.

Nordstrom: The luxury department chain has an earnings call at the end of trading. The stock is down more than 20% this year and more than 27% in the past 12 months.

“At these levels, it pays you a 4% yield. I think it may be too cheap to ignore,” Cramer said.

Wednesday: Lowe’s, Target

Lowe’s: Lowe’s, the main rival to Home Depot, presents its quarterly earnings before the market opens. CEO Marvin Ellison is guiding the home rehab chain through a turnaround.

“Wall Street loves Ellison, though,” Cramer said. “If Lowe’s gets hit, either before or after the quarter, I’d be a buyer of the stock.”

Target: Target comes out with its latest results before trading begins. The stock is about $20 per share off its September high and has a 3.6% yield.

“I know it’s battling both Walmart and Amazon, which might be too much competition for any one company, ” Cramer said. “But I think CEO Brian Cornell’s doing a terrific job. You know what, I like the stock here.”

Thursday: Best Buy, Splunk

Best Buy: The tech gadget store reports earnings in the morning. The stock is up 30% this year, and Cramer is warning not to take a chance on it at current levels.

“I’m betting they’re going to have to talk about tariffs on the whole darned conference call,” he said.

Splunk: The software analytics company, one of Cramer’s “Cloud King” stocks, presents its financial report after the market closes. Cramer expects Splunk to put up a good conference call out of CEO Doug Merritt. He said Merritt continues to deliver on promises.

“I like it a lot. … [It’s got] no China exposure — I say buy,” he said.

Friday: Foot Locker

Foot Locker: The shoe retailer will lay out its quarterly report for investors before stocks start trading. With a presence in shopping centers across the country, Foot Locker carries Nike, Adidas, Under Armour and a range of other sports apparel brands in its stores.

“The stock’s been held back by trade war worries,” Cramer said. “I bet it will prove to be immune, or at least more immune than most people think.”

WATCH: Cramer breaks down the week ahead in earnings

Disclosure: Cramer’s charitable trust owns shares of Amazon.com and Home Depot.

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

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

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



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Charts suggest markets could soon get a deep correction

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CNBC’s Jim Cramer said Thursday that his colleague is warning that danger could be on the horizon for the stock market.

The “Mad Money” host took a look at chart analysis as interpreted by technician Carolyn Borogen, Cramer’s coworker at RealMoney.com who also runs FibonnacciQueen.com, to understand what could come of this volatile market.

The major U.S. averages were taken for a ride this week as investors attempted to gauge whether the United States would raise existing tariffs on imports from China on Friday. Because of this uncertainty, the best way to get an empirical reading of the market is through studying chart action, Cramer said.

The high-to-high cycles, as explained by Boroden, in the weekly chart of the S&P 500 is cause for concern, the host said.

Highs on the index have ranged between 31 weeks and 36 weeks, and the most recent peak was recorded last Friday, he said. Prior to that, the last major high was set in September, which preceded the stock sell-off in October.

Markets tend to repeat themselves, and because stocks sold off this week after a big run, Boroden thinks there could be cause for concern.

“In fact, she’s looked at a series of previous high-to-high cycles, and what she’s noticed is that there’s a whole confluence of them coming due this month,” Cramer said. “That’s why she’s throwing up a caution flag, because Boroden thinks we might finally get a deep downside correction — even deeper than what we’ve already experienced during hell week.”

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These 6 stocks could make or break the S&P 500’s run

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Call them the Supersized Six.

Microsoft, Amazon, Apple, Alphabet, Facebook and Berkshire Hathaway — six of the most highly valued companies in the S&P 500 — don’t just boast the index’s biggest market caps.

In fact, those six companies are worth about as much as the bottom 290 companies in the S&P combined. Taken together, their market caps total $4.2 trillion, while the bottom 290 S&P companies are worth roughly $4.3 trillion.

It’s fairly common knowledge that the top 50 S&P stocks are worth more than the bottom 450, and it’s not unusual that the market is frequently this “top-heavy,” says Carter Worth, chief market technician at Cornerstone Macro.

But the concentration in these six names is noteworthy, and it could mean trouble for the market, Worth said Tuesday on CNBC’s “Fast Money.”

Considering the influence they have over the S&P’s direction, it makes you wonder: “Is it an index, or is it a few big names that drive everything?” Worth said. “That’s what makes beating the index so hard.”

He called attention to this chart tracking the six-stock basket against its 150-day moving average, as well as the number of times it has traded above or below that average.

“Literally, every single time we have gotten this far above the 150-day moving average, we have peaked. It is right at that level yet again,” Worth said, pointing to the uptick in the bottom panel’s trend line. “So, as this goes, so goes the market. I think you’ve got a crowding that’s not so good. Just to put it in real context, think of those six names relative to the S&P. It’s all so dependent on these big names.”

Moreover, while the market’s “heavy hitters” have made up 15% of the S&P’s total market cap, on average, since at least the 1990s, that percentage is also ticking up, Worth noted.

“We’re starting to get back to a level that is typically indicative of when markets peak. That’s ’07, so forth and so on,” he said. “None of this is particularly healthy.”

By market cap, Microsoft is worth about $963 billion, Amazon is worth $949 billion, Apple is worth $969 billion, Facebook is worth $540 billion, and Berkshire Hathaway is worth $515 billion.

The broader market mounted a recovery Wednesday, with the S&P lifting off its Tuesday lows early in the session.



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