Is General Mills, Inc. (GIS) Overvalued? Consider This Stock Instead

Page 1 of 2

If you are looking to track the broader market, food marketers are often a good way to go. However, some have such weak growth prospects that an investment will cause you to underperform in an economy experiencing an upswing. Below, I consider several marketers to buy.

Sleepy General Mills Delivers in Turbulent EnvironmentWhy You Should Not Invest in General Mills, Inc. (NYSE:GIS)

General Mills is forecast 6% y-o-y sales growth this fiscal year. While shares are near their 52-week high after a relentless rise, the bull rally appears a bit overdone. My opinion is based on the fact that the 6% growth represents deceleration compared to the 8.2% rate that was achieved over the past five years.

For the FY 2013, analysts expect revenues to climb by just 4.5%. Unfortunately, the dividend yield of 3.2% and PE multiple of 15.6x are not compelling enough to expect outperformance. The stock is trading at its 5-year average PE multiple, so there is no reason to believe it is discounted, especially since growth is decelerating. And, of course, 4.5% growth plus 3.2% puts the total return at 7.7%–not strong enough, in my view, to risk taxable turnover in an active investment.

With that said, there is limited risk and there could be some positive surprises in store given weak growth. Dividends have increased (by 10% recently), and the stock has a shockingly low beta of 0.15, which indicates that volatility is 85% less than that of the broader market. Goldman Sachs, however, is not optimistic about General Mills’ new cereal lineup–a view the company certainly did not want shareholders to hear in light of the report that its cold cereal category declined by 3%. Therefore, a lot hinges on the success of Yoplait and the related yogurt category, which General Mills spent $1.2 billion growing through acquisitions.

ConAgra Foods, Inc. (NYSE:CAG) : Growth Through Acquisitions

ConAgra Foods, Inc. (NYSE:CAG)’ decision to acquire Ralcorp Holdings for $6.8 billion represented an aggressive expansion into private labels. When the deal closes, ConAgra will be one of the biggest packaged food makers with $18 billion in yearly sales and employees numbering over 36,000. This acquisition will give ConAgra access to more private labels, increase sales by $4.5 billion, and will reduce the capex of the company as a percent of sales.

S&P believes CAG overpaid for Ralcorp Holdings at the same time that the integration signaled the firm’s willingness to expand operations and sales. The rating agency lowered the company to BBB-, on the brink of “junk status.” The recent receipt of a no-action letter from Canadian regulators further indicates that the company won’t have to make major concessions to proceed with the transaction. At the same time, the firm is looking to continue its strategy of bolt-on acquisitions in the private label space.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

The 10 Longest Wars of All Time

The 13 Worst Looking Foods that Taste Great

The 6 Most Gruesome Injuries Suffered During a Sports Match

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!