Recommendation: General Mills, symbol GIS

General Mills is most known for its cereal brands (Cheerios, Wheaties, Lucky Charms, Chex...) but has many other consumer packaged consumer goods: Betty Crocker, Progresso Soups, Green Giant, Pillsbury, Yoplait, Haagen-Dazs....

GIS has three business segments:

Segment                                          Sales             

U.S. Retail Segment                        70%     

Bakeries and Food Service              12%

International                                     18%

Wal-Mart accounted for 21% of net sales last year.

Valuations

The one year consensus target estimate from Yahoo is $40.30 (15 analysts)

Here is the price target from Ativo:

The Ativo price target is $39.69, the upper bound target is $52.39 and the lower bound target is $30.07.

GIS is expected to earn $2.48 in 2011. If we give it a 16 P/E, we would get a target price of $39.68.

Just as important as valuations, so is a company’s financial health. Our Torpedo Watch Stock Tracker is an excellent tool to help investors determine the financial health of a company.

Here is the rating by Torpedo Watch Stock Tracker:

The overall rating is “No Alert”. With most indicators green “No Alert” and one “Alert”. Financial quality is above average.

Below are more fundamental metrics for GIS:

P/E, 15.09

Dividend, 3.3%

Market Capitalization, $22.02 Billion

Revenue, $14.80 Billion

Current Ratio, .92

Long-term Debt/Equity, this is a capital intensive business so debt/equity is high, 97.05

Dividends

The dividend did not change in the early 2000s, but is averaging about 9% growth since 2004.

Catalysts

- Strong brands

- Diverse consumer staples product mix

- Products are consumer staples and hold up better than most industries during economic weakness

- Effective cost savings program

-Benefiting from more Americans eating at home more

-International and new product growth opportunities

-Dividend growth average 9% since 2004

- Healthy financially

-Board approved $100 million stock buyback program

Risks

- Increased input prices: energy, packaging, ingredients (now wheat, soy, corn)

- Higher competition leading to higher advertising and promotional costs

-Potential for low consumer acceptance of new products

-A slowing global and U.S. economy

Technicals

Below is a long-term chart for GIS:

GIS has been a steady grower and remains in a bullish trend, as it remains above its long-term trendline, the dark line.

It did pullback during the bear market of 2008, but it stayed above its long-term bullish trendline.

Here is a shorter-term chart for GIS:

Price broke down below support at $34.

As mentioned above, GIS has pulled back due to the jump in wheat prices. This gives us an opportunity to buy about 15% below its recent peak.

Recommendation

We recommend buying 100 shares of GIS at the market.

Currently the stock is at $34.27.

We also recommend open to sell short the Sept. $33 put, symbol GIS100918P33, at the market.

The option is around $.35.