General Mills Might Be Everybody's Darling Again

May 05, 2020 7:43 PM ETGeneral Mills, Inc. (GIS)3 Comments
The European View profile picture
The European View
12.97K Followers

Summary

  • For a long time, General Mills underperformed the market.
  • In the COVID-19 crisis, however, the company shows enormous price stability and has gained 10 percent.
  • The operating performance and statements by management give reason to hope that the company will once again become the darling of investors.
  • The company also appears to be relatively favorable, based on the P/E ratio of the last 10 years and current expectations.

In 2016, General Mills (NYSE:GIS) quit being everybody's darling due to weak growth and high debt and the dividend freeze after years of growth. But after the COVID-19 volatility erupted, something interesting happened. The shares have moved surprisingly successfully through COVID-19 and have outperformed the stock. It seems that the lockdown and economic turmoil cannot harm General Mills market.

Fundamentally, the company also appears to be relatively favorable, based on the P/E ratio of the last ten years and current expectations. If it manages to reduce its debt further successfully, it can serve as an anchor company in any well-diversified retirement portfolio.

Price stability as a good sign and its meaning

If you had to sort the following companies according to their relative strength to the broader market, where would General Mills stand?

  • Kimberly-Clark (KMB)
  • Amazon (AMZN)
  • Microsoft (MSFT)
  • Johnson & Johnson (JNJ)

All four companies survived the COVID 19 crisis with extremely stable prices, while the S&P 500 and the Dow Jones are currently still well over 10 percent off their highs. And if you think General Mills is presently somewhere in no man's land, you're wrong. General Mills has outperformed all these companies. Not only have investors not suffered any losses in the COVID-19 volatility, but the shares are also 10 percent up (excluding dividends). At the time I am writing this article, General Mills has done even better than Amazon.

ChartData by YCharts

Of course, investors should not overestimate such considerations because General Mills has underperformed in recent years. This is especially true when compared to Amazon and Microsoft.

Nevertheless, the market has something to say to investors here. It seems that the market is not so critical of the debt problem and slow growth. In these times, other aspects seem to count. A stable business, a good infrastructure, and management that acts

This article was written by

The European View profile picture
12.97K Followers
Runner of the TEV Blog | Lawyer For Competition Law And Antitrust | Private InvestorI am a long-term oriented investor and in my early thirties. I hold a law degree and a doctor in law and love investing and talking about my and others' investments. I regularly write about my research and investments on various investor platforms and on the TEV Blog. Living and working in Europe in an international law firm as a lawyer for antitrust & competition, I may have another view on American companies, especially when it comes to the reputation of a company or possible alternatives here in Europe. Hence, I try to build a diversified portfolio not only with American blue chips but also with smaller and maybe hidden European Champions. Given that, I am very sensitive and close to the political and economic fundamental environment in Europe. My readers benefit from this. When it was foreseeable that Qualcomm would be fined by the European Commission, I calculated the exact amount in advance and was able to inform my readers about it. The same applies to the European Commission's first interim measures against Broadcom, which were the first in two decades. Furthermore, I was the first analyst (to my best knowledge), who predicted without any doubts a dividend cut by Deutsche Telekom. **My articles represent my opinion only and in no way constitute professional investment advice. It is the responsibility of the reader to conduct their due diligence and seek investment advice from a licensed professional before making any investment decisions.**

Disclosure: I am/we are long GIS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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