Friday, July 14, 2017

General Mills: A widow-and-orphan stock on sale



Investopedia defines a widow-and-orphan stock as "A stock that pays high dividends and is generally considered to carry low risk.  Widow-and-orphan stocks would likely be in non-cyclical industries that are less likely to be negatively impacted during economic downturns.

General Mills

GIS Chart
GIS data by YCharts

Why is GIS near it's 52-weeks low?


  1. Amazon bought WFM.
    1. retail should be afraid
    2. especially food producers
    3. 10 years from now there will be only amazon and no other retailer in the world
  2. The death of branded foods by generic foods.
    1. WFM will destroy all branded food companies (seriously this is a fear on why nobody should buy consumer foods on SA)
    2. Generic are cheaper who buys named brand?
    3. Soon you will get AMZN drones flying you your AMZN cereal with your AMZN milk in your AMZN bowl with your AMZN spoon. 
  3. GIS only "Sells cereal" argument
    1. Cereal sales are down and that's all GIS sells
    2. Organic earnings are expected to be negative for this year
  4. Dividends
    1. increased by 1 cent
    2. slow dividend growth or no growth 
Why I'm buying in bulk

Last time GIS yield reached this high....

GIS Dividend Yield (TTM) Chart

Comparing payout ratios


GIS Normalized Diluted EPS (Annual) Chart

Revenue is crashing

GIS Revenue (Annual) Chart

but net income is slightly imrpoving

GIS Net Income (TTM) Chart

GIS financial leverage is lower than its competitors but closer to KO meaning it can take on a lot more debt (which I suspect it will)

GIS Financial Leverage (Annual) Chart

and it's PE is close to normalization

GIS PE Ratio (TTM) Chart

Crystal Ball Prediction

  1. GIS will turn around their yogurt issue and invest heavily into their ice cream and snacks (the two growing areas)
  2. With it's lower than average leverage and low dividend increase I predict a buy coming soon. Late 2017. There is a lot of talk about HAIN being bought out. (Note: HAIN pays no dividend but contains a large portfolio of organic and natural products. I'm thinking of buying some shares as a speculation) HAIN is 4B in market cap and easy for GIS to snatch up. 
  3. As a side note I rather GIS buy Conagra and focus on their snack and frozen food division but at 1/4 of GIS market cap it's a lot harder to digest than HAIN
  4. With the yields at these levels I believe the patient investor will be greatly rewarded. This reminds me of when KO and UL was at $40. Buy now until that bull destroys the party.
  5. Why I'm not afraid of AMZN or generic brands
    1. People for some reason assume that generic brands never existed until now. Great Value has a generic everything, but people still buy the name brands. People are shallow and must show off their lifestyle. Something SA readers do a lot showing off their investments and profits, but assumes no one else does it for anything else .
    2. When whole foods was started the term "organic" was a mystery and no market had these things. Now it's hard to find a market that doesn't have organic foods. The produce dept at my Walmart contains all organic meat/veggies/fruit. Even my ALDI contains organic generic cereal and produce. 
    3. The shift I'm seeing now is towards local organic produce. Farmer markets are popping up all over the place and even walmart is promoting local organic produce. AMZN is trying to get into the game, but already down a touchdown.  AMZN is not the biggest threat to the food market, but local community gardens and retailers carrying those products.  
  6. I've done well buying against the market and I will keep at what I know best.
    1. KO, UL, PEP, JNJ, AMGN, HASI, O, LTC, etc. 

These are just my thoughts on the matter. I'm just some guy on the internet with no financial training. That's all I have. Also forward dividend stands at $4611.12.  Also I might buy 5 shares of hain for $200 on monday. I like their products, but with a negative EPS and only goal is getting bought out....

in the words of a crazy guy


2 comments:

  1. I think a lot like you and like you I always buy against the market. Thanks for sharing!

    ReplyDelete
  2. Well said. Preaching to the choir. I agree with all your points.

    ReplyDelete