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Transcript: Action Alerts PLUS – July 20th, 2016 Jim Cramer: Welcome to our members only conference call. It's an exclusive monthly event where we help members make sense of the themes, the trends, ideas, impacting the market, your portfolio, of course, what we do at Action Alerts. Before we lay out and update our views on the markets and our expectations going forward, all in the context, by the way, of our high cash balance in recent portfolio trades, we want to make sure our members know how much we appreciate you as part of our community. It's really important in the way that we've changed things to make it so people feel empowered and more of the club. Jack Mohr: And it truly is, and this is a true community. It's built on trust, education, empowerment, rigorous analysis, and transparency. We want to not only help grow, but protect your wealth. This is important because at times that means locking in profits on names that we love, Facebook being an excellent example. We're also here to teach you how to invest your hard-earned money wisely. You've earned that money and you deserve to find the right investments for your portfolio and be empowered with the tools to make those decisions, and those tools include our value-add index system that's designed to fit your objectives, or a core holdings list of companies you can count on. We encourage our members to head over to our website, we just sent an alert about it, too, and check out our recent features designed at enhancing the user experience. We have the updated indices, we have the updated core holdings as of today, and then take a look at the forum, if you haven't, where Jim and I engage with you and personally answer member questions, as many as we can, and certainly we prioritize the ones that are pertinent to the portfolio or can be used as a teaching lesson, but with that, I will turn it back to Jim for a market overview. Jim Cramer: All right. Can we both be bullish and have a huge cash position? Can we justify liking the market and still have sideline cash as we do? I think, in this market, the answer is absolutely. Here's why. First, I think that there's a level of instability to global events that after a gigantic run…remember, we're working on nine straight days of the Dow being up, the market is once again ignoring this. That's usually the case after we had a thorough cleansing, which is what Brexit really did to the US stock market. Think about it. We came down 6 percent in 2 days, warranting tremendous outflows of cash. In fact, the Monday after Brexit was one of the top 10 redemption days of all time. Money just poured out of this market the way it did back in 2009, during the year of the Great Recession. Fortunately, we, at Action Alerts, stayed the course, bought stock into the declines, sticking by our discipline of trying to buy below our basis when possible. That Monday, in retrospect, was a crescendo of selling, a capitulation, once again, by retail sellers, that was right on top of the creation of gigantic short positions by hedge funds, who seemed to have a biased gloom. We've seen this before. Jack wrote an excellent piece

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about the stages of capitulation, not long ago, that I urge you to read, incredibly thought out piece. When there was no follow-through to the weakness from Brexit, when our companies were unaffected, it became still one more artificial, great mini-crash moment when more stocks went down so far, so fast, on nothing, that it zoomed right back. How could it not? Interest rates went so low that they could not attract money versus, say, the Procter & Gambles, which you know we like, of the world, with their 3 percent yield, but the recovery has been done on very little volume, and I think it is now, after 9 straight days, vulnerable, not to anything major, but certainly to a couple of a percent decline that we have better entry point for the cash we took out of the market, and why did we do it? Well, we just talked about Facebook, because we've had such big wins, and we're not going to just let these all ride. You've got to take some profits, not all, but take some profits, plus we had WhiteWave, as you know. That decline that I'm expecting will justify the cash position in an otherwise fairly bullish outlook that we share. Now, it is true that we have already had a pretty good earning season with some of the largest consumer product stocks, bank stocks, tech, and drug companies, all reporting stellar earnings. Just think in the last 24 hours. We have fabulous quarters from Dow stocks J&J and United Health and Microsoft, on top of an excellent performance from JP Morgan last week, and a pretty decent number from IBN the day before, but it's also true that we are just about to embark on a series of days that I can tell you, from experience, have produced far more declines than advances in the last few years. When we run, as we are, into the heart of earnings period, as we have now seen, I have to tell you, and I've measured all these, some serious reversals into the heart, only when we've run up, and that's exactly what's been happening, and we're going to be ready for reversal. We have the cash, we have the bullpen names, we will be ready, so what would cause a reversal? First, I think that as we get closer to the labor department's nonfarm payroll report, and talking about 10 days, I'm talking about, and further from Brexit, we are going to start hearing about rate increases again. It's almost inconceivable, despite the meager wage gains, that Federal Reserve officials go back…they have to. They have go back on the bandwagon, given the worldwide, multi-trillion-dollar recover that we've experienced. Now, almost all advances this year have come on the backs of the Fed deciding it will be on hold because of some sort of crisis. Almost all of the declines, almost all of the declines, come when we hear the Fed is about to move, but the data really isn't strong enough that they can justify that, and that's where I think we will be, in 10 days, coming into that nonfarm payroll report, so we need to be ready to deploy capital into the calls of Fed governors and presidents that it is, again, a last time to raise rates, and when I say prepared, I don't mean just ready to buy the bank stocks that always gain when the Fed raises rates, and we've increased our positions there. I mean be prepared to buy more of the new names we were talking about, as well as old favorites that we have attempted to trade around where we can. Remember, we're not a hedge fund.

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Second, while I've said that the dollar would no longer be closely correlated with the S&P 500, it hasn't been since this quarter began, the spike that's been going on now for 3 weeks is getting a little unnerving to me. You get a rate hike and a stronger dollar, then you're going to see number cuts for the very same stocks that are going higher right now, because the dollar, year over year, is actually weaker in a basket of currencies. If you go over the quarters of the big, international companies that reported, the PepsiCos, the IBMs, the Johnson & Johnsons, the Microsofts, you will notice that many have stopped talking about the strong dollar. That's because we're now anniversarying an unchanged currency. However, that won't be the case if this stealth upward move in the dollar continues, and that certainly won't be the scenario if we raise, as so much of the rest of the world, developed world, has remained in a negative mode, so we raise rates, they're all negative, well you know where the capital's going to flow. Third and most important, we may like individual stocks in this market, and you know, we do very much, Jack and I, especially versus biomarket competition, but one thing's for certain, coming into today with this 9 straight day of rally, the market's no longer cheap on an earnings basis. This week, the S&P 500, at last touched 20 times earnings, and even though I am hopeful about earnings in general, that's a steep price to pay and one we haven't paid in years. I don't know if most participants are even aware that we just passed the threshold. I think that earnings will be strong enough to support when we shrink that multiple back when the numbers come through by the right way, by higher earnings, not from just negativity, but it will soon dawn on participants, especially my compadres on television, that we are at high valuations while we are also about to have…if we have a rate hike, that's a toxic combination. High valuations at rate hike, that means market goes lower. The market's overvaluation can be cured either by dramatically higher earnings, which is what I'm betting will happen, but people won't believe that initially, or by decline in stock prices, which I think is the short term…probably does happen. Right now we feel that it's more than likely that we could fall back, especially after this run, and having some cash is frankly the most prudent course, and we will be ready to buy when the stocks we like hit our target prices. I would love to think that the rally we have just had is the prelude for something bigger built right on it, but the 7 percent we've put on since Brexit Monday is not what I expect that we could build on, even as I think the foundation is better than we would've expected because of the stronger earnings that we're getting now. So, in sum, we believe we're going to get a better chance, and we are grateful that we are able to take some of the big wins off the table to be ready for the next decline. Jack? Jack Mohr: And when it comes to stocks we hold in the trust, we created, as you know and I referenced, an index ranking system. You follow live on the site, we publish an alert, as I said, posted in the indices tab when you're on the site. We won't go through each stock within the four indices right now, in the rankings. You can find that on the site, but the indices are value. They're growth, a blend in income. They're distinct. As the slide says, you can see the slides, NXPI remains our favorite name. We're going to talk a little

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bit more about that later. We bought some today. Walgreens is number two within the value index. Now, within growth, Starbucks, we also bought that this morning. We're going to talk about that, tops off the growth index, along with Facebook, we still love it, Alphabet, and Visa. Within our blend index, though, that's a combination of value and growth and sometimes income, Panera, that's moved into our top spot, given the recent pullback, and today it actually got an initiation with a buy, and that's kind of driving shares higher, but we had done the premarket trade where we had bought shares back from Panera, and we'll talk about that trade as well. So, we upgraded, and then we purchased the shares of the name this morning, and we're going to lay out our thesis shortly, but our income index, this is the one that has been outperforming everything. It remains relatively intact with Cisco and Dow, which both yield 3.5 percent, sitting atop as our favorite names with safe dividend yields, and just one little quick thing on the income. I think it's important for the investors and members to understand that the income index, the dividends, and the lucrative nature of the relative attractiveness of something that is yielding 3.5 percent versus a 10-year treasury that's huddling in the range of 1.3 to 1.6 percent, the market is pricing that in, and we have to be careful about that. We've had some incredible gains across all of our income names, and that's why we're seeing a sector rotation into growth, but our core holdings list, separately, is published in our slide deck and is on our page. Those are companies you can count on both for qualitative and financial quantitative factors that we lay out, but let's talk about the four trades we made this morning. I think that's the most interesting. First, WhiteWave, we exited it, and I know a lot of people are asking…we had said in a trade alert last week that we would exit it on Wednesday. I believe we said that on Tuesday, but the name was mentioned, we have restrictions, and yesterday was the first day that we were able to actually trade it, so we recommended subscribers exit it for that 30 percent gain off that bid that they got, and it was an all-cash bid, and we were unable to trade it until now, and even though we sold out at a lower price than what we recommended to our members, you guys matter way more, and that's just the reality, and that's why we put you first, and we wanted to make sure that you cashed out on WhiteWave because that acquisition was something that…it's very rare and it's money in your pocket. Lock it up. We downgraded the name back in April… So, Panera, so as I said, we downgraded this name back in April. Shares had had this remarkable run towards the 220 level, and then we decided to trim it at above 221, most recently, and we have always been saying, as when it was a 2 rated name, meaning kind of a hold, that we did not want to buy it until there was a pullback. That pullback has come. The stock has dropped from our last trim price of 221 and change. It went down to 206 and now it's up a little bit today, but we really see value in that, even ahead of the quarter. We don't like to play quarters at all, but we think that the long-term guidance in that, and that story is intact because…and I was just reading another note this morning which talked about the stickiness of their brand, and they are considered the highest quality ingredients in a wide consumer survey of fast casual restaurant names, and that matters, the high quality of ingredients.

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The second thing is their Panera 2.0 initiatives. Those have been unbelievably effective, and they made a lot of investments, and those fixed investments are actually kind of…I think the last round of them will happen this year where they're converting their stores to new, efficient technologies that are mobile-based, and it decreases the throughput, decreases the amount of time that you have to stand in line. Now, we've seen through the numbers that the relative outperformance of the stores that have implemented the Panera 2.0, those changes, are growing sales at a 6 percent faster clip, 6 hundred basis points, than the stores which had not implemented it, so we see a lot of opportunity long-term. Starbucks, we also bought that name this morning. Jim Cramer: Not big. Jack Mohr: Not big, very, very small. Jim Cramer: Because we know it's about to report, and we don't want to play the reporting game because the company has a history of actually dropping on the day it reports, but this could be different because the stock has come down. Jack Mohr: And that's the interesting dynamic. Again, we're not playing earnings. We bought a little bit of Starbucks. With WhiteWave, we're looking at okay, within retail, what might be another growth name that actually has lower expectations? This is one of the first cores that I can remember in most recent memory is Starbucks actually has low expectations, and you can see it in our index that Starbucks, its sales growth and long-term earnings growth of 15 percent and 20 percent respectively has stayed intact, but the price-earnings multiple has come down by 2 turns, so I mean that shows that into earnings that…and if there is any disappointment after earnings, we'll evaluate it and then potentially add to that position, but that is one of the few undervalued names, we think, relative to its growth. NXPI, what can I say? This company is in every pocket and literally in my pocket right now. It's in my iPhone and it's in, now, we learned that it actually penetrated Android in China, so it's being accepted, but the bigger story here is 40 percent of its sales now come from autos. It is the chip maker for all of the auto manufacturers, 28 out of 29 top ones, and they are growing their market share at a 50 percent faster rate than its peers. That's not reflected in its valuation. It traded 9 percent off since Brexit. It's up a little bit today. Jim Cramer: Well, we know also because the private equity firms bailed and that caused a tremendous decline, of which we wish…you know a lot of times we just get restricted or we weren't able to move fast enough, but we tell you that we love it.

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Jack Mohr: And we told you when that last one was priced at, I believe, 78.25 to buy it, and actually going back to the block trades, those block trades, which have been a significant overhang, I think there's only 5 percent left, so about 13 million shares that are left for private equity cashing out on the trade, so that actually provides an opportunity on any other sell off, so we're glad that we got you guys back in. Jim Cramer: The thing is really selling about 13 times earnings, which is just ridiculous. I mean a lot of times I look at…you know I like Broadcom, and I try to figure out which is better, Broadcom, Broadcom's more communications, I want their exposure to autos, and XPI's cheaper. Broadcom is very well run, Hock Tan does a great job, but I do think that NXPI, be it near field communications, or whether it be auto, has a broader Internet of Things position, and that's why I think it's a better opportunity. Jack Mohr: It's under the radar. Jim Cramer: Yeah. It really is. Jack Mohr: And that's something. That CEO and founder, Rick Clemmer, is one of the most impressive men I've ever met, and he has understood that he acquired that company Freescale, and the cost savings for…Freescale gave them exposure to autos, but the cost savings of 5 hundred million, I truly believe that they're going to re-up that number because they've raised it from 2 hundred to 3 hundred to 5 hundred million, so, and they're buying back their shares, so this is a company that is undervalued relative to…it's trading like a traditional cyclical chip maker, and it's not. Jim Cramer: It's crazy. Especially, I mean, I look at Intel reports and I know Microsoft, last night, said that PCs were a little bit better. I think that Intel, ridiculously, at this point, drives the group, so if Intel does a good job…I say that because Intel was left behind. I mean Intel's trying to do communications, but they're really much more PC. They have a good data center business, but I would say that NXPI's got the wind at its back now after being able to go through all of that private equity money, 5 points ago, it's a really great sign. It was put away with very solid hands, not unlike when you put up...with that note about T. Rowe. Jack Mohr: Yeah, exactly, and T. Rowe took a 10.5 percent passive stake, so the big thing with NXPI is that it has been under the radar. Now, when an institutional investor, and institutional fund like T. Rowe that manages almost a trillion dollars, and mostly in equities, puts a sizeable, literally over 10 percent of the company, that means that

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there's an institutional presence, that the fundamental long-term story is being appreciated. This has been trading a lot like a cyclical event-driven stock. It's not. Jim Cramer: Right. It's not. Jack Mohr: And that is the realization that has been validated by T. Rowe but is validated by the result, and will, I truly believe, will be validated by their exposure going forward. Jim Cramer: Right, and we're spending enough time on the call because we want you to obviously know what we think is front and center in what we're doing. Jack Mohr: And the trades that we made. We told you wait for the call and we're going to talk about why we made these trades, because the reality is, is that selling out of WhiteWave, I mean that was a huge cash inflow, and obviously we made a lot of money on that trade, but that would set our cash above 20 percent in the portfolio, and we didn't force any names. We've been talking for weeks Jim Cramer: Oh I know Jack Mohr: about how we're going to unload and deploy it, and we took bits and pieces on NXPI, Panera, and Starbucks, and we feel confident that those could…even though it's above our cost basis, it's pretty much everything is above our cost basis right now. Those are the names that are still under undervalued. Jim Cramer: But that's the problem. I mean, just so you know from behind the scenes, because that’s why you're a member of the club, okay? I go to Jack and say listen, you know, I think Comcast, you know it's pulling out of the station, and Jack, correctly, says well, look, we've got to have some discipline versus the last buy, but obviously what I'm saying is that we're trying to figure out how to deploy that cash in a reasonable nature, assuming, again, as I said at the top of our talk, that we are going to get a decline, but also recognizing that there's some stocks that are already in decline that were great, hence the NXPI. Comcast, no, we had to reject it because it's not…its price got high. Jack Mohr: It just ran from us. It just ran away from us. Jim Cramer:

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Lockheed Martin, I mean, you know, and remember we violated the basis with Lockheed Martin, which I felt awful about, but I said no, we have to, because people are underestimating how good Marillyn Hewson as a CEO is. Jack Mohr: And with Panera, we trimmed it at 221, we said they might pull back, it came back down, we had the rights to come back in, and we upgraded, and so we're trying to stay consistent, but we really are putting thought into it because it is a stretch market. Jim Cramer: I mean look, it's hard. I mean, for instance, we want the exposure, but take a look at Target, okay? We don't really have a lot of confidence in Target, we did some trimming, but at this point Target became a yield growth name, and so you just kind of are well, geez, if we sell Target, what are we going to do, plow into TGX at 79. Well, I mean, if TGX goes to 77 maybe. I'm just pointing out that I want you, as always, to know what we're thinking because that's the nature of the product. You cannot speak to the T. Rowe guy about why he bought NXPI, and as much as I like individual brokers, remember, I was a broker at one point, I just think that they are not even privy to what's going on in the research department of their own firm, as I wasn't at Goldman, so what we're trying to do is give you what the research department of us is thinking, so you can be part of the club. Jack Mohr: Yeah, and I mean as a former research analyst in that research department, you're constrained by the ability to actually talk freely about stocks, and I really want to make a point, really quickly, on Target, because it is something a lot of people have asked about. Jim Cramer: And you know I'm upset about this, upset about how poorly they did. Jack Mohr: They had an awful quarter. I mean really it was just, relative to the expectations that they had set, we said you know what, when it was falling back into the mid-60, lower-60 level, that we were not buyers of it, but we're not sellers of it. We didn't rush it. We said above 70, and particular a price target of 75 that we would be sellers, so, right now we don't really have room in the portfolio to take cash out. We don't expect all of you to mirror all of our trades, but a few have had that 10 point run in Target. That's a name that I really don't trust, going forward. Jim Cramer: Exactly. Jack Mohr: So, we trimmed it, but we didn't trim all of it, so I would take that off the table, personally, at 74.50.

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Jim Cramer: Yeah, I mean, look, the yield's 3.2, so people are very fine with that. It sells 14 times earnings, still, a growth discount change. It's only 43 billion dollars versus Walmart, but Walmart is taking it to them, so is Amazon. Jack Mohr: And it's not growing at the same rate that it set. That's the problem. Jim Cramer: But they don't report until the middle of August, right? Jack Mohr: So, anyways, now let's got to just briefly discuss a new bullpen name, live on this call, this is why you've listened to the call. You can get our analysis all the time, as we write it, but we're adding an insurance company, Travelers, to our bullpen. It has one of the strongest insurance franchises, property and casualty franchises, based on its high-quality management. Jim will speak to that. It has potential for strong book value growth, and better than average, and actually close to industry-leading underwriting performance. We don't recommend buying right now at current levels. It's trading near all-time highs. There is an uncertain macro in rate backdrop, and the company reports tomorrow, but we would welcome any post-earnings pullback as an opportunity to get into shares of a company which is run by a bankable CEO who has a track record of value creation, consistent value creation, the least of which involves a 4-billion-dollar buyback program this year. Jim Cramer: This is one of the most aggressive buybacks in the New York Stock Exchange. Let me speak to why…Jay Fishman has run the company for years. Now Jay Fishman, unfortunately, has contracted ALS. He's still the chairman and he's very active, okay? He's been replaced at the CEO level by Alan Schnitzer, who's a longtime…whom I like very, very much. Travelers is an incredibly disciplined company. When a lot of the insurance companies blew up during the great recession, they never put their money in anything other than high-quality municipals. They're a fabulous underwriter. Anybody who's used them knows they know how to price business. They know how to price business better than anybody in the country. We do want to have more exposure to financials. We have Citi, which Jack and I go back and forth all the time about I want to buy more Citi because I know Mike Corbat did a remarkable job with that last quarter, but I just feel like that Travelers, if you look at it, it's almost like a creeping takeover. They keep buying back and buying back and buying back, and initially, and the reason why we emphasize that they report tomorrow and don't want to jump the gun, this stock has a history of declining when it reports, and we want to take advantage of that decline in the same way I said at the beginning of this that we're waiting for declines, to be able to pounce, and if we get that one, then you should be aware that it's going to happen, which is why we're doing this talk, even though it shouldn't be a surprise.

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Jack Mohr: And actually they're saying kind of that they hit a trough and it could be extended from 1Q to 2Q, and on a return on equity metric, it went from 15 to 12 percent. However, they guided to mid-teens, going forward, but what I think is really interesting is that this company, so going back. Let's talk about Wall Street. Wall Street is equal weight pretty much across the board on this name. So, initially, that might cause pause, but we've studied this name. We've studied this management team. Jim has been very involved with trying to… Jim Cramer: I've been close to this management team since 2007, so. Jack Mohr: And that actual, having that, it's rare to have an analyst be equal weight, basically, a hold on a name, have a consortium of analysts has a hold on a name. That means that the bar is set low in that if they have an inflection, which we expect, there's so much room for upgrades, and upgrades can cause stocks to…it usually comes in like a wave. When it rains, it pours with upgrades because they're trying to catch up to the story, and we think that this is in the early innings of what is a turnaround story, inflection in their business, and so we're going to talk about it. It's in the bullpen now, but we're going to talk about it more once it reports tomorrow. Now, let's go to Q&A because we really want to hear from the members, and that's what we care about. Let's start with Barry K. He has something currently in a 70 percent cash position and new to the product. What's the best way to start? That's, you know, look, this is a question that I imagine there are a lot of members on the call who are new, who are new to the product and are seeing these multiples that are very high, you know the stock market, hearing that it's overvalued. Yeah, you look at bonds and you don't see really any returns. Jim Cramer: But at the same, it might be nice, as I said, it's 20 times earnings, but there are individual stocks that are not overvalued. Jack Mohr: Exactly. Jim Cramer: And that's what you have to be doing, Barry. Jack Mohr: And so, and that's where it goes back to, Barry, I don't know what your particular objective and style is, but that's where we have the index system, too, to match, and it lays out exactly what the time horizon is, what the risk profile is, and it's designed to curate towards your style. So, if you're looking to protect your money in safe dividend

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stocks, go to income. If you're looking to mix up your portfolio with some growth, look at our growth names. Panera is a great one, especially if it pulls back even more. If you're looking at the undervalued names, NXPI, but ultimately if you're looking for a very long-term investment horizon, also parallel that with our core holdings list, which we have really dug into and are companies that have sustainable return on equities, that have the qualitative factors that we lay out, and those are the tools that…we don't want to tell you exactly what to trade, we don't know what your objectives are, but for all of those who are asking or have cash on the sidelines, don't run into the market right away, but look at some of the names that we like that we've ranked. Jim Cramer: That we've been putting money into. Jack Mohr: That we've been putting our own money into, and see if that reflects your risk tolerance because I think there are some opportunities, albeit select. Second question is from Eric V in Downingtown Pennsylvania. Jim Cramer: Downingtown. Jack Mohr: Downingtown. Jim Cramer: Not that far from me. Jack Mohr: Yeah, sorry. Jim Cramer: That's all right. Jack Mohr: Jim, I'm going to let you take this one. Jim Cramer: So, that's how I would pronounce Downington, and that's right, just Philadelphians pronounce it incorrectly. Jack Mohr: Yeah. I'm going to let you take the question. Here you go. Jim Cramer: Okay, can you help explain how the AP portfolio could be utilized for a retiree portfolio? This is so core of what we've changed in the company, okay. What we've changed is

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part of our club. We now actually have the list of stocks that you should choose from, which is the… Jack Mohr: Income index is probably the most ideal for retirees. Jim Cramer: Right, and I just want you to look at the income index and get comfortable with the ones…remember, we're not individual investment advisors of yours. What we're doing is showing what we're doing with the charitable trust cash when we can take advantage of it. One of the reasons, again, why we've done these calls is we're so often restricted. We send these bulletins out. Maybe people say oh, it's not really what they're doing so I don't want to do it. Just the opposite. You should just say hey, listen, they really want to do it, they can't, you should do it, and I suggest you look at the interest portfolio. I mean you can take a stock like Cisco and you say okay, well, look, it's at a 52-week high. Yeah, not an all-time high because it's much higher, and you can say to yourself all right, well, look, I can start there, buy some. If it comes in, in that 1 to 2 percent pullback, I'm not expecting a huge pullback here, too much cash in the sidelines. That's what you do, but use the income portion of our portfolio as your buy list. Jack Mohr: And it's really important because we have carefully constructed that income, and for all the retirees out there who are looking to protect their money, at the very least, these are companies…I mean Cisco, 3.5 percent dividend yield, yet its payout ratio, meaning the amount of income it generates relative to what it pays out, so it pays out only 47 percent of its income, so it has cash just flowing into its balance sheet that protects it. Actually, when I was running the leverage numbers on it, it has a negative 2.4 times leverage, which means it has a ton of cash and it doesn't have a lot of debt, so it has way more cash than it has debt, and it uses that cash and deploys it, and it is still trading, even after its recent kind of mini-rally, it's still trading like a legacy tech name Jim Cramer: Right. Jack Mohr: and so I think that that is a great name to start with. I mean we've been recommending Procter & Gamble and Pepsi. Jim Cramer: Procter, by the way, you might've seen Unilever announce that they bought Dollar Shave Club. That is a direct attack, admittedly, on Procter, but I think that Procter is cognizant of what Unilever wants to do. This a direct-to-consumer model that Procter has to get wise to, too, and they're doing it with Tide, so I think that Procter, you're getting at a discount because people feel that Unilever's so aggressive. Procter's a very, very important weak dollar play. It really needs a weaker, so remember we were getting

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that, so provided the dollar doesn't get too strong, I'm not concerned about Procter, but I am wanting to be bigger in it. Jack Mohr: Right, and PepsiCo is one of our favorites, but I mean that came up to our price target from 99 to 100 and we decided to trim it, so I think we'd wait on that one within the income index. American Electric Power, I just want to address really quickly, AEP, that's up 20 percent from our cost basis. Valuation is stretched in our opinion. We'd like 3.2 percent yield, but that's well understood, so I'd say look at Cisco, look at Dow, and I think that there are a mixture of names that I do believe that NXPI can fit a long-term portfolio, but there is an inherent risk in the near term, given the way in which the stock trades traditionally. Jim Cramer: Right, just a word on Dow. We just now learned that the Dow-DuPont Shareholders have approved the 59 billion dollar merger of equals. It now goes to Justice. I just want to tell everyone out here the reason why we own Dow is if Justice blocks this, I believe Dow goes higher, not lower, so I'm not fretting this as much. Now, initially it may go down just because there's _____ (29:23), but we would just use it to buy because it's actually better if… Jack Mohr: They're such a good standalone. Jim Cramer: DuPont's going to bring Dow down. Dow had a very good quarter. Jack Mohr: Dow had an excellent quarter. It has excellent operational efficiencies and one of the best management teams. Jim Cramer: Now, just, you know when Ed Breen comes in, and I'm close to Ed, when he merges Dow and DuPont, if the Justice Department gives it a greenlight, he's going to split it into three companies. The reason why, by the way, that Justice might block it is because they're both seed companies, and as you see from what's going on with the HMOs, they don't like consolidation among the top 3 or 4 players, and that’s what Dow and DuPont merging is going to give you the number one seed company in the world, but either way I think we're absolutely great. They split it into three companies after Breen gets it and you'll make money from all three. If they don't do it, you'll be in a position to be able to buy a very high-quality stock that has a really good yield. Jack Mohr: Right, and it's certainty, certainty, certainty. That's what we look for in our investments, and that's what we invest in, especially for retirees, and going to the next question, actually, this will kind of address it, going back to California. We've got a Jim M. If have

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10 K to invest to emulate your AP portfolio, how do you recommend following your advice, by a little of each holding or a specific subset? So, I mean, the first thing that we say is that when you have 10 thousand to invest, put it in an index to start. Jim Cramer: Right. We just have to do that. You have to be diversified. It's the most important thing to be done. We would love to be able to say use our product, bang, bang, bang, but I have to be truthful. Jack Mohr: We're transparent with you guys, but the incremental disposable money that you can invest, let's say 10 K as this kind of just basis, emulate the portfolio based on how you emulate your objectives and how your risk tolerance is your horizons, align that again with our indices, but I do think that following our advice, and in terms of…we do buy in bits and pieces, and we'll buy a name, like even a Comcast, we'll buy decent size, we love the story, but then it runs ahead and we can't add to it. So, when there is a story that we lay out, we don't expect you to emulate. We don't want you to emulate. It's prohibitively expensive to trade at the 28 names that we own, but what we want you to do is we lay out a story, we lay out a thesis, and we provide you the tools to use that thesis to empower it and make that investment decision yourself. We want you to, when you see a story, like I got a lot of emails after the NXPI, after I laid that out. No one knew that it's in their phone, it's in their wallet, it's in their credit card, it's in every single car that they're in. They were fascinated by the story and it was a reasonable valuation, and that triggered the investment because it fit certain people's investment style. So, read the investment and our theses that we lay out, both in individual and also every single week, and see what story clings to you, what investment fits your style, and what fits your portfolio, because we don't want to make it vague, but we've provided those tools and I think that's the best way to emulate it. Now, the next question is from… Jim Cramer: We kicked this around very early. At 4 AM this morning, we're kicking this question around. Jack Mohr: Yeah. Jim Cramer: But Daniel K. in Valparaiso, Indiana, with the volatility we have seen this year, why are we not trading around our favorite stocks? Jack Mohr: That was a 4 AM that we were saying… Jim Cramer: Yeah, it was. It's so important because we're not a hedge fund, and we just, frankly, I mean if Facebook got to be 5.5 percent of our portfolio, we had to take something off…

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Jack Mohr: For sheer appreciation. Jim Cramer: This is meant to be just a charitable trust that we're running, okay, and we're not running a hedge fund. We don't want to run a hedge fund. If we trade you in and out and in and out, commissions will kill you. Jack Mohr: They'll kill you, statistically will kill you, and so that's why you need to make…I don't want to say concentrated, but within the portfolio that you allocate towards single stocks, you need to…trading around them, as exciting as that is, and taking profits and all of that, but we waited two years to take profits on Facebook, and I think that was something that was extremely gratifying. You don't want to wait too long to take profits, but I think you invest in a name, and say it appreciates, like a Facebook, the proceeds were essentially house money that we were playing with. Jim Cramer: Right, and that's what we wanted. I mean on some of this we were up 80 points. Jack Mohr: Yeah. Don't get lured into the trading in and out, in and out, because that is going to just rack up cost. Find the companies, the investments for the long term, that you think fit your portfolio, and don't get too greedy once they have appreciated. So, that's why we are trimming, we are taking gains, and that's why we have a big cash position because we're not willing to trade around the portfolio just for the sake of trading, because it doesn't make sense right now. Jim Cramer: I mean we did do a Panera. Jack Mohr: Yeah, we did Panera, Starbucks. I mean we made a trade. Jim Cramer: Right, and we did Starbucks when it spiked. On a spike, a spike that is just dramatic that we think is unsustainable, we will take some profits, but we're not going to take profits as a matter of course and trade around all the time. Jack Mohr: SWK, I mean we have a lot of names. Jim Cramer: SWK was good, you know, like SWK ran…

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Jack Mohr: WhiteWave. Jim Cramer: I'm not even sure how well SWK's quarter's going. I do know that we had a huge gain, and we want to be prudent. It's not like the market just started running. I mean this is the 9th straight day up, and we can't be…I know that just because it's overbought doesn't mean it has to go down, but we have to be cognizant that if we don't take some profits, we're really just not doing our job. Jack Mohr: And that's the other thing. You know I do get some questions, sometimes, why didn't you sell at the top and buy at the bottom, and I say, you know, if we could do that, we'd take all of you members and we'd go and buy our own island because we'd have enough money. We'd have trillions of dollars. So, there's no way to time the top or time the bottom. What we need to do is make prudent…detach our emotions. So, having that comfort of seeing Facebook up for an 89 percent gain in the portfolio was comforting to wake up every morning and see that. However, you don't have the money until you lock in some profit, so be careful, and don't get greedy, and don't try to time the top or…I guess detach emotions, and that's, I think, the investing style that works the best. Jim Cramer: Discipline trumps condition. Jack Mohr: The mistakes that we have made have always been because our emotions outcharged our logic, and so I think that we always will educate you around teaching lessons, both on the negative and positive side, but use those lessons to kind of inform yourself an insight for your own portfolio and constructing it. Now, Rich H has a question that we kind of addressed, can you further explain, with the NXPI block trade, how does it impact valuation? So, I do have a graph here and I just wanted to mention it, is the block trade has been something that has been overhanging the stock. So, the first thing is understanding what the block trade is. So, private equity companies, it was Carlyle, Blackstone, and I believe one other, concentrated, had 50 or 60 percent ownership of Freescale. Now, that was a leveraged buyout, that's what these private equity companies do, back in, I believe, 2005, and so when Freescale was acquired by NXPI, a lot of it was the shares transferred from the ownership of Freescale to relative ownership of NXPI, so there was a huge private equity presence. Now, if you're private equity, if you're Blackstone, if you're Carlyle, you've made a lot of money on this trade or you're covering your losses. It depends when they got in on it. However, after 11 years of owning shares, investors want their money back, so private equity has mostly gotten out of the name. There are 13 million shares remaining, and outside of that, we…yeah, so 5 percent of the outstanding stock is remaining, but we've gone down.

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Jim Cramer: Meaning they don't need this to necessarily sell. Jack Mohr: Exactly, but it's gone down from 60 million of private equity ownership, which you don't want because of the block trade risk, which trades at a discount, to now 18 shares remaining, and it actually has proved to be a good buying opportunity, as we got you guys in, so. Jim Cramer: It's an important point. I mean I happen to be looking at Blackstone, KKR, I think these are very inexpensive stocks. Carlyle, I'm not as much of a fan of, but they have to take profits in order to be able to generate cash to be able to give back to you, and so therefore they're doing this as a matter of course. Jack Mohr: 11 years. Jim Cramer: Do they want to do it? I don't know. I mean we can't read their minds. We know that it was the right thing for them to do, but it was also the right thing for us to tell you that we thought you should buy it. Jack Mohr: Right. Jim Cramer: Let me take this one from Larry B. Is the warning flash by the S&P oscillator last week now in the rearview mirror, and if not, which sectors are ripe for the profit taking? Okay. First of all, as I said, just because the oscillator's up doesn't mean the market's going to be down like five weeks from now. It does just mean that you should be a little more cautious because what tends to happen is we work off, by slow decline, or by a little bit here, little bit there, we work off the overbought. The areas that are the most overbought tend to be the areas that I think are the consumer product goods stocks because they've had such a run, because people were worried after Brexit that we were going to have a recession, so people piled into PepsiCo, which we had to trim. People piled into Kimberly, which had been on our list, and now we wanted it to come down, then Clorox. That group got overheated, and I feel that that is the group that is the most stretched when it comes to price-to-earnings ratios. The ones, by the way, the cheapest is the financials. They're 10, 11 times earnings. Citi is ridiculously cheap. Jack Mohr: And even on a book-value basis, that's kind of how we look at it, especially like a deep value like a Citi, is it's improved its return on assets. It's improved its regulatory position. The regulators actually kind of love the company now, which two years ago, you would've been shocked to hear that, and it shrunk its asset base, shrunk its risk, and it's

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now a more simplified, streamlined bank. However, it's not afforded that premium, which Wells Fargo is afforded, for the relative predictability, and this is all relative to Citi. So, Citi's trading at still a very steep discount to its tangible book value, meaning if it liquidated all of its assets right now in the open market, it would be worth around I think 25 percent more than what it is today, so. Jim Cramer: Right, so, and I do think that, again, and Corbat got rid of the stuff that was questionable to value. Jack Mohr: Citi holdings is now basically not… Jim Cramer: Yeah, so, the tangible book value is the tangible book value. Jack Mohr: And one quick thing on going back to the consumer staple stocks, the other thing outside of their non-cyclical nature and the safe-haven type of perception is that like a Procter & Gamble ran after we initiated it, at around, I think, 80. It ran to 85 very quickly because of its yield, and that's something that a lot of these non-cyclical, consumer good, consumer product, household product names, they generate a lot of cash, they have a high dividend, so when rates are very low, in 10 years dropped to 1.36 percent, now they're at 1.58 percent, but when they dropped there, the relative attractiveness of the equity bond that is a Procter & Gamble increased the demand, so that's kind of the dynamic at play too, and that creates a stretch. Jim Cramer: Yeah, you know, again, if that company comes down, I want to buy it. Jack Mohr: Yeah, yeah, and so the next question we're going to take is from David F in Melbourne, Florida. The latest rally has allowed us to trim winners of price targets, but has similarly left us with little room to deploy cash at decent entry points, patience or join the rally? Yeah, this is a theme, and this is something that we are addressing head-on, and I think that, yes, you've got to lock in some profits when you have such winners. WhiteWave was a very obvious one because the all-cash bid was, there was, I mean when you have it unanimously approved by the board, so you don't have the… Jim Cramer: Yeah, every expensive stock, exactly, and of course we loved it and bought it and- Jack Mohr: Yeah, it's up 30 percent, no counterbid emerged, and so we told you guys to take those gains, the 30 percent, but also the Facebook. You know we trimmed a stock that I was looking back at it, and our cost basis was, let's see, it was an average of 62.50 at the

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time, and so the stock ran to 118, and it's still running up further, and we're capturing the upside, but we wanted to lock-in profits. I mean you don't have the money in your portfolio. It might say you have that gain-loss on the right-hand side, but that's unrealized, so to realize that you need to trim, and you know Stanley Black & Decker was another one, but we're keeping some cash on the sideline because we don't know exactly when a pullback will occur, but as we did, we put three names to work today, and we'll tell you when other names arise, but we're not going to force names into the portfolio. Jim Cramer: Okay. Can you help explain why Citigroup trades at such a discount to its tangible value. Michael asked this. Okay, there's a couple reasons. First, that Citi needs rates to be higher, because what people want out of a bank is the net interest rate to go higher and that’s the money they make on your deposit without having to think about it. People love the risk free nature of the profit the banks make on your cash deposits. And, right now they are making almost nothing because you know how the Federal Funds rate is. The second reason is that people don’t trust it, and people don’t trust it because the people have been through banking hell. No one trusts any of the banks anymore. They figure there is no way they can get the return on equity that they used to, given the fact that the government is so heavy handed. Look we have Both parties are talking about Glass Steagall. I don’t think Glass Steagall is going to happen, Citi is a company that would be hurt by Glass Steagall, if they came back. Jack Mohr: The bigger regulatory risk is that they didn’t pass the trust test two years ago. Jim Cramer: Right, some people think that they may not be, but, they are. They are. Jack Mohr: Corbat has made it his mission that he has personally held himself responsible for making sure that they get back into the regulatory, I don’t like to say teacher’s pet, but it really is the regulators who like to discern between the ones that they like. And, Citi was the only company, I’ll tell you this, this is why I think it defies the discount to book value, the only company that passed the living will test. The biggest risk of the regulators is that another 2007, 2008 will happen and there won’t be the operational mechanisms in place for these large banks to unwind in a fashion that does not disrupt the market. So, the living will test, every other large cap bank failed it. Jim Cramer: The last reason why Citi has this big discount is because people don’t think their buy-back is real. In other words, the disparity, the only other way to really close this thing is for the stock to go higher, and Citi has to be in there buying every day in order to be able to take advantage of it. What I’m telling you is that Citi is in there buying, and you should be buying too.

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Jack Mohr: I completely agree on that one, and I think that’s a real value name where the risk/reward is set to the upside. Next one from Jay, with the recent breakthrough of all-time highs on the S&P, what is your forecast for the balance of the year from a risk/reward perspective? Look, we are never going to give specific S&P price targets, at least I don’t. I think anyone who does that is playing a fool’s game. Jim laid it out, it’s the see-saw, we go back to that see-saw. It also goes back to that behavioral finance wide paper that I wrote about the different cycles of emotion. So, I think right now we are in a cycle of excitement. They are excited about post-Brexit; they are excited about the economy indicators coming in. However, the see-saw turns when it turns into an earlier than expected Fed rate hike. So, the fed, when they see the economy heating up, they get worried about inflation, and that makes them compelled, it’s almost their duty, to raise rates. Jim Cramer: We are trying to anticipate that discussion. Jack Mohr: Right, the market does not like, we’ve seen it sell off, we went through that entire timeline, when it raises rates and anything else happens. For instance, you either have some news out of China, or any geopolitical concerns. That and a rate hike is a combination for a correction. So, we think that the Fed might be compelled to raise rates at some point, if the economy continues on its pace, but we also see the opportunity on a pullback to buy the stocks we know have value-creation in the long-term. I think that is how we play it. Jim Cramer: Ok, once the AGN/TEVA deal finally closes, how do you expect AGN shares to react? I expect that you will see Brent Saunders in there buying the heck out of it. He thinks it still represents great value. He spoke at one our conferences, we just ran a corporate government conference, and did a terrific handbook I’ve been working on. I’m glad I produced that event. You heard from Brent that it’s really important to be able to live for shareholders. We debated again, do we buy more right here? The stocks up 3% today. There’s an expectation every day that this thing is going to close. TEVA raised the stock today, So maybe the acquisition happens this week. It doesn’t matter, we think the stock is very cheap versus its growth rate. It’s one of our favorites and we are sticking with it. Jack Mohr: I think that Brent Saunders is waiting for the day where he can finally get on the table and say: This is our business. This is our post-divestment growth rate. We are a great stand-alone business. Once, he can operate these projections with a great pipeline. Then, the visibility increases. That, deserves a premium valuation, so that is when it will be realized. There might not be a knee-jerk reaction once the deal closes. I think there is relative pricing and that, that is going to occur. I think it’s going to be more about Brent Saunders having the opportunity to tell his story, and what they are going to do

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with those proceeds and how they are going to help their existing pipeline. That is what is going to really re-rate shares higher. Next, what are your latest thoughts on Wells Fargo? Jim Cramer: Look, Wells is problematic. Wells delivered a good quarter, but it doesn’t matter. JP Morgan delivered a better quarter. Citi delivered a better quarter. Bank of America delivered a better quarter. But, Wells yields more than 3%. Wells has a gigantic buy-back that I think it is going to expand. Wells is a great player on the Fed raising rates. And, Wells is I think the cheapest I have seen it in many, many years. So, it’s the best run, now is it better run then JP Morgan, remember Wells does not have a big trading operation. Jack Mohr: It doesn’t need to be. Jim Cramer: The trading operations is what made the quarter for a lot of these banks. I like the consistent loan business and I think Wells Fargo is a great hold. If you want income, it’s fantastic. Jack Mohr: So, here’s how I look at Wells Fargo: one, the upside you get with a JP Morgan, Goldman Sachs, and Morgan Stanley from their banking and trading operations is also tempered by the downside you get when those trading operations have the cyclical nature and have an off quarter. That is when those stocks will sell off. Wells is a domestic business focused on retail. It’s a commercial bank. It’s not about the investment banking, that is a very small piece. What it does, is that it is the best mortgage originator, and it has a natural inherent edge in two ways. One, with refinancing, it has a mortgage servicing fee. So, ass rates go low, it provides re-financing out the roof, I’m sure many of you have re-financed your homes. Wells collects cash on that. So, even though their margin is compressed by the lower interest rates, they have fees that off-set that. Secondly, when interest rates go low, Well’s respective dividend yield, 1.3%, is comfortably attractive. So, I see Wells as a natural hedge within a hedge. It hedges by having a high dividend against the lower rates that hurts banks in general. And, it hedges by having re-financing fees to off-set the pressure on margins that comes with having a pressured net-interest margin. Jim Cramer: Alright, can you speak about the process that goes into a decision to take some profits off the table? Is it art or science? In one of my books I talked about how there are some pure disciplines, which is, if you are playing with the houses money, you literally have to take something off the table. I think that is really important. Otherwise it is a bit more of an art. If the stock spikes and there is nothing that happened at the company, I think it is imperative that you take a little bit off. But, I have to tell you, at all times when we weigh this, we always think, but, wait a second we have done so much work, we really like the

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stock. We are very reluctant to take it off. For instance, 3M, J&J, those were two where we were to quick to pull the trigger on the go out. So, we have been much more measured in trading out of stocks. But, houses money is one, quick spike up Panera is another. Those are really the reasons we would do it, but the second is art not science. Jack Mohr: Yeah, and I’d use target as another example. We were pissed off at that quarter, because we felt burned. They had told the entire street 2% sales growth, and they had this whole e-commerce story that really didn’t play out. And our emotions could have led us to sell out at 65, but we said that that would be an emotional trade. That, just the shear under valuation, given our frustration, we waited for it to come back, and it did come back. So, that is the kind of discipline of not trading on emotion. And, even in a story that was disappointing, we are now close to breaking even on the name and we would like to exit it soon. Jim Cramer: We did have such a great buy initially, and then it ran and we trimmed some down. Jack Mohr: It’s a good example of anecdotally how we get through this. And the next one, can you explain how “the futures” and pre-market trading works? Who participates? It is relatively esoteric. Jim Cramer: People who are betting that the market will carry over from Europe. People who feel like they may have some sort of insight. I have to tell you, I really urge everyone not to do it. It’s a cowboy market. You really do not know what you’re doing. The people are often wrong. I make fun of them as being pajama traders. They literally do not know what they are doing, but that doesn’t keep them from doing it. Jack Mohr: They put in these beds that don’t make sense, you probably have seen artificial spikes or sell-outs in the market. Don’t do it. It’s not worth it. NXPI had a trade the day before it announced its block trade. It had a huge short trade that essentially sent shares lower early in the market. Sometimes, it’s just a sketchy market I would say. Just stay out of it and stay in the game while the market is open. Jim Cramer: Here’s a controversial one, what are your current thoughts on Apple, when is a good time to buy? First of all, I have been saying own Apple don’t trade it. This quarter is bad for Apple. We need to see the fourth quarter be good. At a certain point, if it doesn’t deliver than we have to change our attitude. It is not like I am saying autopilot just hold it. I am betting that the 7th phone does have some pick up. If it doesn’t than you are going to hear from us. That was a great run we had, and it is not happening anymore.

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So my take is that when apple goes to 92/93, on bad news, you can do some buying. I don’t like the current spike, which is back up to 100. Jack Mohr: It literally is 5 cents away from 100 right now. Jim Cramer: This current spike is about the fact that Nintendo Go, has the Pokémon Go, which is a lot of fun to play. You can download it as an app. So, Apple is going to get a chunk. A broker’s firm said that they can get 3 million dollars from it and that caused a lot of people to get excited. But, I don’t want any excitement associated with Apple because this is not a good quarter. Jack Mohr: The analysists are so excited to temper those expectations ahead of the quarter. They are going to come off bearish and say this is going to be a trough quarter. Tim Cook, who is likely going to be conservative with guidance on the IPhone 7. People panic on it, and the analysists really dictate it. For now, even though we love the services business, the market doesn’t respect that and it is going to take a few quarters until they do. Jim Cramer: Alright, Let’s take one more. You always say on Mad Money that a person should start retirement with a Mutual Fund. Which Mutual Funds do you suggest? Now, I have had a long history of not being able to own individual stocks. So, I own, for full disclosure, the Fidelity Blue Chip Fund for my four one K, and I own the Fidelity Contra Fund. Contra Funds with Will Danoff, he had been there for Fidelity for years. He is a great manager. These are the ones that I am in, and I have been in them forever and I think that they are very good. Should I have done an index fund? I like that Vanguard total return fund. I also like the Vanguard S&P, it has the lowest cost. I am not going to tell you I like the Fidelity Dividend Fund because I am in the Fidelity Blue Chip Fund. How did I find these? I used to be in Magellan Fund, when Peter Lynch was running it, he retired, and I switched to Blue Chip because I wanted a little more yield. I still contribute to these funds, but they are just the ones I have done historically. If Will Danoff left Contra, I would probably stop putting money into it. I do feel as though it is important that you know to play with an open hand. Am I saying go buy Fidelity Funds? No. Am I saying the Funds that I own are good? Yes, I do like them. Jack Mohr: You guys deserve a follow-up note where we talk about the fund industry and talk about weighing the portfolio. But, as we end this call, it’s all about you guys, it’s all about the members, it’s about this community. Please participate, please engage. Go to the forums! Jim Cramer: Go to the forums! It’s different, like the press will write about us periodically, and say look these guys cannot perform like Cramer did at his hedge fund. But I am not running

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a hedge fund, and second you have to read the bulletins, because I am on twice a day. Between the twice a day, usually the stocks we have, like a white wave, are going to be talked about. And we cannot make our move, we have to wait, but that is why we give you the bulletins. Now, no one in the press is going to give us a break; they don’t give me a break. I don’t care. This is about you. Jack Mohr: One thing that we guarantee is that we are going to talk to you straight, we are going to be honest. We are always going to play with our hands open. We are never going to beat around the bush. When we make a mistake, we are going to use that as a learning lesson. When we have a winning stock, we are going to use that as a teaching lesson. We are not going to get too greedy. This is about empowerment. It is about education. We want you to be invested in these companies; we do not want you to just blindly follow us. We want you to participate, engage, be part of this community, and have fun! Because companies are interesting, investing in them is difficult, but ultimately, finding good companies at reasonable values is what we are here to do. We are here for you, please keep looking at our site. Jim Cramer: Thank you so much for being a member. Jack Mohr: It’s a privilege.