Does General Mills Belong In Your Portfolio?

With shares of General Mills (NYSE:GIS) trading around $50, is GIS an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

General Mills manufactures and markets branded consumer foods worldwide. The company also supplies branded and unbranded food products to the foodservice and commercial baking industries. It offers ready-to-eat cereals, refrigerated yogurt, ready-to-serve soups, dry dinners, shelf stable and frozen vegetables, refrigerated and frozen dough products, dessert and baking mixes, frozen pizza and pizza snacks, grains, fruit and savory snacks, ice cream, and grain snacks. Convenient, affordable, and enjoyable food products will see increased demand by consumers worldwide as they are staple items to an increasing world population. As countries around the world see modest to explosive growth, General Mills is one of the first that will see rising demand and in turn, rising profits.

T = Technicals on the Stock Chart are Strong

General Mills stock has seen a beautiful uptrend over the last several years. The stock is now trading at all-time high prices, and looks to continue this trend, but it may be ready to digest its gains for a bit. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, General Mills is trading above its rising key averages which signal neutral to bullish price action in the near-term.

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GIS

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of General Mills options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

General Mills Options

17.61%

90%

91%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Flat

Average

July Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on General Mills’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for General Mills look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

3.45%

22.39%

34.43%

1.15%

Revenue Growth (Y-O-Y)

7.54%

5.58%

5.29%

11.89%

Earnings Reaction

2.56%

-1.19%

1.8%

-1.57%

General Mills has seen increasing earnings and revenue figures over the last four quarters. From these figures, the markets have had mixed feelings about General Mills’s recent earnings announcements.

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P = Excellent Relative Performance Versus Peers and Sector

How has General Mills stock done relative to its peers, Post (NYSE:POST), Kellogg (NYSE:K), J.M. Smucker (NYSE:SJM), and sector?

General Mills

Post

Kellogg

J.M. Smucker

Sector

Year-to-Date Return

14.11%

-0.18%

22.83%

13.06%

7.31%

General Mills has been a relative performance leader, year-to-date.

Conclusion

General Mills provides essential and highly demanded food products to consumers and companies in a multitude of countries. The stock has exhibited a strong uptrend over the last several years and is now trading at all-time high prices. Earnings and revenue figures have been showing steady growth, over the last four quarters, but investors have looked for a little more from the company. Relative to its peers and sector, General Mills is a year-to-date performance leader. Look for General Mills stock to continue to OUTPERFORM.

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