This $26 Billion Stock Has a Beta of Zero

Well, we guess that people buy Cheerios no matter what. General Mills, Inc. (NYSE:GIS) has so little exposure to the broader economy that statistically there is no relationship between movements in its stock price and the fluctuations of the market indices. As such, it is a good pick for any investors who worry about a bear market or merely want to offset a portfolio that carries quite a bit of market risk; conversely, of course, the stock doesn’t necessarily provide an upside during bull markets. In fact, the stock is down 2% year to date against a rising S&P 500 (though investors have picked up dividends: the dividend yield is 3.3%).

General Mills, Inc. is best known for its cereal products, but as with any large packaged food company it owns a number of types of brands; particular examples here include PillsburyYoplait, and Betty Crocker. The first quarter of General Mills’ fiscal year ended in August (the company has a fiscal year ending in May). The 10-Q shows 5% higher sales than in the same period a year earlier; costs grew, but at a slower rate (cost of goods sold, for example, was essentially unchanged), leaving earnings an impressive 35% higher. General Mills also reported that its dividend payments had been matched by a slightly higher amount of cash used on share repurchases. At its current market capitalization, General Mills carries a trailing P/E of 15. Wall Street analysts expect little growth in earnings: even taking into account the effects of further repurchases, the company trades at only 14 times earnings estimates for the fiscal year ending in May 2014.

RENAISSANCE TECHNOLOGIES

Ric Dillon’s Diamond Hill Capital increased its stake in General Mills, Inc. by 6% during the second quarter of 2012, and reported a total of 3.9 million shares in its portfolio at the end of June (see more stock picks from Diamond Hill Capital). Renaissance Technologies, founded by billionaire Jim Simons, nearly doubled its own stake in the company to a total of 1.1 million shares (research Renaissance Technologies’ favorite stocks).

Kellogg Company (NYSE:K) is General Mills’ closest peer. It is another good defensive stock with a dividend yield above 3% and a low- though not zero- beta. Its revenue was up 12% in the third quarter versus a year earlier, but the company was only able to convert this into a small increase in net income. It has very small premiums to General Mills in terms of a P/E multiple, and so the two companies seem about fairly priced in relative terms.

We can also compare General Mills to Ralcorp Holdings, Inc. (NYSE:RAH), Campbell Soup Company (NYSE:CPB), and The J.M. Smucker Company (NYSE:SJM). Campbell is the cheapest of these companies on a forward basis: it trades at 13 times the expected earnings from its fiscal year ending in July 2014. The trailing P/E is even with General Mills’, and the company also delivered good earnings last quarter. Read our analysis of Campbell. Ralcorp and Smucker also have forward P/Es in the teens. Smucker has been struggling on the earnings front recently, failing to convert good top-line numbers into shareholder value; Ralcorp’s most recent quarterly report saw modest increases in both revenue and earnings, though it is more of a mid-cap company. We think that the other three companies we’ve discussed are more appealing.

General Mills, Campbell, and Kellogg all look like potential value stocks and have all seen at least small earnings growth recently. They are large consumer staple names, and while we wouldn’t call any of them a screaming buy they do look cheap enough to be worth considering.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

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!