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A Defensive Play with a Bang

|Includes: General Mills, Inc. (GIS)

General Mills (NYSE:GIS) earnings report impressed investors this week, as they not only beat but also raised their outlook. Shares which normally do not have volatile moves surged more than 5%, as the packaged food giant was able to raise net income by 51% in the first quarter. EPS came in at $1.28 which beat consensus estimates by about $.25. The increased earnings were due not to huge sales gains, but rather improved margins from decreased commodity costs and other cost cutting measures.

The company management emphasized that they continue to see strong consumer demand as General Mills has been able to maintain its share versus private label products. Sales were just slightly better, but the company did raise its full year earnings projections by 20 cents to $4.40 to $4.45.

General Mills has been managed very well during this recession and has positioned itself to come out stronger from it. The management team has shown good execution as they have beaten estimates in all but one report in the last 2 years. According with the company, they have not raised prices but the shrinking commodity costs have allowed the gross margins to swell to 41.5% form 34.1%.

The stock is a defensive play, as in though times like the ones we are facing, consumers stay home more often, but in general they have not traded down to cheaper brands. Apparently the food packaging giant has done an excellent job positioning their brands to fend off switching to private label products.

The Stock offers you a defensive play, as the economy clearly is not out of the woods, while also offering you a great value for this great franchise that will surely provide you with above average returns. General Mills has normally traded around 2 times sales, currently the stock are trading at 1.36 times sales, giving you a great entry point for further appreciation potential. has no position in GIS