Can Kellogg Continue This Bull Run?

With shares of Kellogg Company (NYSE:K) trading around $64, is K 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

Kellogg is engaged in the manufacture and marketing of ready-to-eat cereal and convenience foods. Kellogg’s principal products are cereals, cookies, crackers, toaster pastries, cereal bars, fruit-flavored snacks, frozen waffles and veggie foods.  It also markets under other brands such as: Keebler, Cheez-It, Murray, Austin, and Famous Amos, to supermarkets in the United States. The company’s cereal products are generally marketed under the Kellogg’s name and are sold principally through direct sales forces for resale to consumers. As of this year, their products were manufactured in 17 countries and marketed in more than 180 countries. Convenience food continues to see increased demand so a company like Kellogg that can provide these products at affordable prices across the globe stands to make significant profits.

T = Technicals on the Stock Chart are Strong

Kellogg has seen a strong uptrend extending back to the year 2000. The stock is now trading at all-time high prices and does not show any signs of slowing. 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, Kellogg is trading above its rising key averages which signal bullish price action in the near-term.

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K

(Source: Thinkorswim)

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Kellogg Options

15.39%

76%

71%

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

May Options

Flat

Average

June Options

Flat

Average

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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 Kellogg’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Kellogg 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)

102.78%

2.50%

-10.64%

0%

Revenue Growth (Y-O-Y)

18.18%

12.32%

2.60%

-1.29%

Earnings Reaction

0.68%

2.25%

3.4%

-0.35%

Kellogg has seen increasing earnings and revenue for most of the last four quarters. From these figures, the markets have been very pleased with Kellogg’s latest earnings announcements.

P = Poor Relative Performance Versus Peers and Sector

How has Kellogg stock done relative to its peers, Post (NYSE:POST), General Mills (NYSE:GIS), Mondelez (NASDAQ:MDLZ), and sector?

Kellogg

Post

General Mills

Mondelez

Sector

Year-to-Date Return

13.44%

20.19%

19.26%

14.30%

14.99%

Kellogg has trailed its strong peers and sector in year-to-date performance.

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Conclusion

Kellogg is global giant that provides products which are seeing increased demand due to their convenience and affordability. The stock has been in a long-term uptrend and is now trading near all-time high prices on increasing earnings and revenue figures. However, Kellogg has trailed its strong peers and sector in year-to-date performance. Look for Kellogg to OUTPERFORM.

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