Sunday, January 03, 2010

GIS General Mills

GIS General Mills

In all honesty, I had to go back into the history on the SL Portfolio to try and figure why I bought into GIS. From what I could tell it might have been from Cramer who was pimping his about to be released book “Getting Back To Even”, timed with a mentoring session from Tim T., who pontificated as only he can about buying stocks with dividends. You see, GIS is what Cramer would labeled an accidental high yielder.

For what ever reason, after doing my valuation homework, GIS came in the high 80s. They had an attractive Return on Equity, a PE of 15 which was cheap no matter how you looked at it. They could pay off their long term debt in less than 3 years out of current income. What caught my attention was their margin. They blew away the industry average and was just a hair short of their 5 year average.

So we (Who is this we?) started adding it to the portfolio in July 2009 at 57 a share. The position was increased in August and October. Erin Swanson CFA and analyst for Morningstar is very bullish on the stock and predicts margin improvements in 2010. After the dollar a share drop on the last trading day of the year, I will be adding more to the Salve Lucrum Portfolio on Monday the 4th 2010. There are some interesting call options for April. You can buy a 70 dollar call for 2 and change. Also worth noting is some huge open interests in the 90 dollar range. There is also a lot of institutional monies going into the stock. The last quarter earnings were $1.66 a share. Using the current PE of 14.74, that makes a 92 dollar a share value. The industry average PE is 20.3. When you do the math, that makes for a 132 dollar stock. I am not that optimistic, but GIS is a value brand in good times and bad. I am looking for 85 by midyear 2010.

Oh yeah, don’t forget that dividend, regardless of the stock value. The company’s cash flow should support existing dividend level and probably be cause for a jump.  After the trade on Monday 4 2010, GE will be 5.1% of the Salve Lucrum Portfolio.


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