General Mills, Inc. (GIS) owns many familiar brands found in your kitchen cabinets and in your grocery store aisles. Its success and status as a household name make it one of the most traded stocks. Should investors restrict their research to stocks like General Mills because they are well-known?
Not at all! On the contrary, investment returns are ultimately dictated by financial performance, not fame or popularity. Independent research allows investors to go beyond the stocks featured in the news and shop lesser-known alternatives. As simple as it sounds, you are better off shopping around than using the media or marketing campaigns as a filter that selects for familiar or popular stocks.
Regardless of how popular General Mills brands are, the earnings and future cash flows of GIS stock will determine its value. The future financial potential of a stock can be gauged by using financial metrics to determine how cheaply a stock is priced, its ability to weather hardship, and its growth potential.
As alternatives to GIS, consider the following stocks with strong track-records and solid credit scores:
Ticker | Company | Industry | 10-Year Average ROE | Altman Z-score |
Atlas Pipeline Partners LP | Oil & Gas Pipelines | 4.2% | 3.06 | |
Big 5 Sporting Goods Corp. | Sporting Goods Stores | 32.8% | 3.66 | |
Cato Corp. | Apparel Stores | 16.9% | 6.58 | |
Crown Crafts Inc. | Textile - Apparel Clothing | 5.7% | 5.38 | |
Darden Restaurants, Inc. | Restaurants | 23.1% | 3.09 | |
Ennis Inc. | Office Supplies | 11.0% | 4.64 | |
Emerson Electric Co. | Industrial Equipment & Components | 19.9% | 4.36 | |
Hasbro Inc. | Toys & Games | 13.2% | 3.95 | |
GIS | General Mills, Inc. | Processed & Packaged Goods | 23.8% | 2.74 |
These alternative stocks are all categorized as "safe" according to the Altman Z-score,* indicating that they are not considered bankruptcy risks. Moreover, the average 10-year return on equity demonstrates that each of these stocks have grown shareholder wealth faster than 8% per year. It is clear from these two metrics that each of these seven alternative stocks is high quality.
What's more, these stocks are cheaper, pay an equal or greater dividend yield, and have better growth prospects than General Mills:
Ticker | P/E | P/S | P/B | Dividend Yield | Payout Ratio | EPS growth next 5 years |
APL | 7.01 | 1.54 | 1.47 | 6.2% | 0.07 | 10.0% |
BGFV | 12.18 | 0.21 | 1.22 | 3.4% | 0.39 | 10.4% |
CATO | 13.4 | 0.89 | 2.3 | 3.2% | 0.37 | 10.0% |
CRWS | 10 | 0.45 | 1.22 | 3.9% | 0.26 | 14.0% |
DRI | 15.5 | 0.84 | 3.79 | 3.4% | 0.45 | 12.3% |
EBF | 11.58 | 0.84 | 1.21 | 3.7% | 0.43 | 17.0% |
EMR | 16.47 | 1.57 | 3.71 | 3.1% | 0.46 | 12.4% |
HAS | 12.52 | 1.08 | 3.27 | 4.0% | 0.41 | 8.8% |
GIS | 16.93 | 1.63 | 3.9 | 3.1% | 0.49 | 8.1% |
Based on lower price multiples and higher dividend yields, these stocks are cheaper than General Mills at current market prices. Better yet, they have better growth prospects according to analyst projections. Rather than restrict yourself to concentrated investments in a familiar stock, consider a diversified mix of these seven securities as a more attractive alternative.
Of course, you can still enjoy your Cheerios without being an investor.
*Please read this article's disclaimer and Altman z-score calculations.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
