General Mills (NYSE: GIS), arch competitor of fellow cereal seller Kellogg (NYSE: K), posted some good news for shareholders on Monday. In an otherwise gloomy day that saw the Dow remain below the 12,000 level and inflationary pressures still exerting a hold over the market, General Mills proved that dividends are at least one island of safety in a sea of trouble.
The company indicated that it will now pay an annual dividend of $1.72 per share. Previously, the annual dividend was set at $1.57 per share. This is a nice example of double-digit appreciation of approximately 10%. Based on Monday's closing price, General Mills' stock now yields a hearty 2.7%.
As a long-term idea, General Mills is certainly one of the best. As I observed with Kellogg, you can put this one on perpetual dollar-cost-averaging. However, with the stock in 52-week-high territory, and with prices for commodities, especially corn, still exerting a negative effect on businesses, I'd be a bit cautious about entering just now. Is it possible one might get General Mills closer to a 3% yield? I can't predict the short-term future, but my gut says that a pullback is inevitable. Even with cool dividend increases, stocks can return to the low end of a 52-week range at any point. Just look at Coca-Cola (NYSE: KO) and the recent pressure its stock has been under. And Coke is a dividend stalwart. Nevertheless, I am bullish on General Mills' future. Just watch out for commodity trends, and perhaps remain patient for better prices on the shares.
Disclosure: I own Coke; positions can change at any time.
General Mills (NYSE: GIS) shares are trading higher today after the company raised its fiscal-2008 earnings estimate to $3.52 per share, up from a range of $3.45 to $3.47 per share. Analysts are expecting a profit of $3.48 per share. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on GIS.
After hitting a one-year low of $51.00 in January, the stock hit a one-year high of $63.91 earlier this month. GIS opened this morning at $61.13. So far today the stock has hit a low of $61.13 and a high of $63.37. As of 11:30, GIS is trading at $62.87, up $2.14 (3.5%). The chart for GIS looks bullish but deteriorating, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $55 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 9.9% return in just four months as long as GIS is above $55 at October expiration. General Mills would have to fall by more than 12% before we would start to lose money. Learn more about this type of trade here.
Talk about a tough time in the markets. Between the financial crisis and oil prices rising on an almost daily basis, with the Fed damned if it raises rates and damned if it doesn't, the floods in the Midwest are now threatening to make a trip to the supermarket much more expensive. Yes, break out the coupons and pray for sales, because, according to The Wall Street Journal [subscription], food prices are destined for one direction: higher. That's because a lot of farmland has been damaged, throwing the supply-demand dynamic into chaos.
What does this mean for investors? Look for potential pressure on the stocks of companies such as Coca-Cola (NYSE: KO), PepsiCo (NYSE: PEP), Kraft (NYSE: KFT), Kellogg (NYSE: K), General Mills (NYSE: GIS), and Hershey (NYSE: HSY). I happen to own Coke, and I've heard the news reports talking about how higher corn prices will affect Coke and Pepsi because they use corn syrup as an ingredient for their sodas. It's also been pointed out by others that PepsiCo owns Frito-Lay, and since that company manufacturers salty snacks such as Doritos and Tostitos (I love them both), corn prices will also have an impact on that division.
If you're a trader, be wary. We might be in for a rough ride this summer with not only the stocks I've mentioned here, but in a general sense. Since I own Coke, I've been acutely aware of the pullback experienced in that stock as the external pressures surround it. As I write this, the stock is trading at $54.27. The shares were over $65 during their wonderful stay at the 52-week-high suite. So, yes, buyers with short-term mentalities must be wary. However, long-term investors should look upon any pullbacks as potential opportunities for some of these food-selling companies. If you don't intend to trade, then adding to a Coke or Pepsi position might make sense.
Disclosure: I own Coke; positions can change at any time.
I love coupons; who doesn't? They are, arguably, one of the most important marketing tools used by companies such as Procter & Gamble (NYSE: PG), Colgate-Palmolive (NYSE: CL), and General Mills (NYSE: GIS). I also love coupon distribution on the web, so I'm hoping a new technology reported on by BusinessWeek really takes off.
A company called Coupons, Inc. has developed a system dubbed Brandcaster. It essentially follows Google's (NASDAQ: GOOG) model of monetization. Depending on where you are on the web and what you are looking at, the Brandcaster will determine if a coupon may be applicable to you. It will then try to get you to access the coupon and print it up. Web sites who use the application will be given a cut of revenues generated from successful coupon printings. So, speaking hypothetically, if I'm on a site that's dedicated to video games, maybe this Brandcaster thing will someday tell me that I can print up a coupon allowing me to get $5 off a new software title.
If this is promoted properly, and if the value to consumer companies can be adequately communicated, then I think Coupons, Inc. has a hit on its hands. Like I say, people love coupons, and I think they are more likely to act on printing out a coupon then they are to, say, buy a product immediately online through a banner ad. I see this kind of advertising as being more effective over the long-term than other kinds of ads.
After hitting a one-year low of $51.00 in January, the stock hit a one-year high of $62.50 last month. GIS opened this morning at $61.48. So far today the stock has hit a low of $61.33 and a high of $62.00. As of 12:54, GIS is trading at $61.58, up 0.68 (1.12%). The chart for GIS looks bullish but deteriorating slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider a July bull-put credit spread below the $55 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.4% return in just 6 weeks as long as GIS is above $55 at July expiration. Evergreen would have to fall by more than 10% before we would start to lose money. Learn more about this type of trade here.
GIS hasn't been below $55 by more than a few cents since February and has shown support around $60 recently. This trade could be risky if an economic recovery causes investors to rotate out of defensive stocks, but even if that happens, this position could be protected by the support the stock might find at its 200-day moving average, which is currently around $57.50. Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in GIS.
Cereal maker Kellogg (NYSE: K) issued its Q1 earnings today, and while it may not have been the most exciting event on Earth, it did beat expectations, according to Briefing.com.
The strong dollar benefited the top line, as net sales increased 10% (stripping out the effect of the strong dollar yields a top-line growth rate closer to 5%). Operating profit advanced 9%. Unfortunately, not much was happening on the bottom line -- earnings per diluted share only gained a penny, coming in at $0.81 (there was a better tax situation in last year's similar quarter, however). Not much took place in the area of cash flow either -- free cash flow declined to $181 million; last year at this time, the breakfast guru reported $289 million in free cash.
Still, Kellogg's management seems pretty confident in the company's future prospects as it saw fit to bestow a 10% dividend increase on shareholders. And going back to the expectations game, earnings came in $0.05 more than expected -- that's excellent. Kellogg, like General Mills (NYSE: GIS) and Kraft (NYSE: KFT), is a great idea for long-term dollar-cost-averaging and dividend-reinvesting (love those hyphenates!). Just don't expect tech-like growth, and do expect bumps along the way, especially with commodity prices acting as they have been.
Disclosure: I own none of the companies mentioned here; positions can change at any time.
As grain prices continue to rise, fueled in part by increasing demand worldwide, as well as farmers turning over their fields to grow corn for ethanol, earnings out from General Mills, Inc. (NYSE: GIS), while good, were weighed down by those soaring grain prices.
According to an AP report: "The cost of grain has affected a number of companies, especially those that make cereals. Grain prices have skyrocketed largely due to demand for corn used to make the alternative fuel ethanol."
So now my Cheerios and Wheaties cost substantially more, partly in order to produce ethanol, which is a suspect alternative fuel that's being used to fight a suspect phenomenon, global warming. Legislators, together with environmentalists, have created global inflation, to fight a problem that some scientists don't think exists. Does that make sense?
Grain costs not withstanding, General Mills had a very strong quarter. Sales were up across the board and international sales grew by more than 20%. Could it be that the weak dollar, is starting to help the bottom line of U.S. multinationals?
Look for other consumer staples companies to potentially post strong earnings in upcoming quarters as they profit from the sagging greenback.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 3/19/08.
The Federal Reserve's overnight rate that was reduced to 2.25% just yesterday, and sent the Dow flying 420 points into posititve territory, gave a good chunk back today. The DJIA falling 293 points to 12,099.66 means that Bernanke's magic bullets were a very short-term fix to what ails us.
Not even some positive earnings reports and falling oil prices could sustain the markets run-up. The following stories were posted by my colleagues:
This has to be very discouraging to the folks in Washington DC, and on Wall Street. There is no telling what tomorrow will bring but you can only cut so far before there is nothing left to cut, and you also have a dollar that won't buy much.
But one day is meaningless in the grand scheme of things, and reduced interest rates and increased stability in the financial sector has historically given way to a stronger stock market six months out. After all, that's when the presidential elections will take place and those are the high stakes games to keep your eyes on. For that reason, I expect still another rate reduction before too long so that there is time for it to take effect.
Sheldon Liber is the CEO of a small private investment company and the design and research principal for an architecture and planning firm. He writes Chasing Value and Serious Money columns.
The company said its quarterly profit climbed to $430.1 million, or $1.23 per share due to higher demand for its products. Excluding one-time items, the company's earnings figures came in at 87 cents a share, exceeding analysts' forecast for a profit of 79 cents a share.
General Mills posted 12% growth for its third-quarter revenue, which surged to $3.41 billion from $3.05 billion a year ago. This was above analysts' predictions for revenue of $3.24 billion in the quarter, according to Thomson Financial.
Everyone loves ketchup (well, then again, I'm sure there are a few out there who don't). But should everyone love Heinz's (NYSE: HNZ) latest earnings missive?
I say the earnings were respectable, if not utterly spectacular, in the third quarter. The top line moved up a robust 14% to $2.6 billion in sales; operating income increased 8%. The bottom line, however, was, eh, okay -- $0.68 per diluted share for this Q3 versus $0.66 per diluted share for last year's Q3. A two-penny increase isn't a reason to party, I suppose. Then again, Heinz isn't one of those companies that inspire you to throw a party upon an earnings release. Like Hershey (NYSE: HSY), Campbell Soup (NYSE: CPB), General Mills (NYSE: GIS), Kellogg (NYSE: K), and Kraft (NYSE: KFT), it's a consumer foodstuffs name backed by a portfolio of well-known brands that people gravitate toward every day in supermarkets across the globe.
Here's the thing about Heinz, however: it sports a yield of approximately 3.3%, and it is in the middle of a tight 52-week range. That is definitely an attractive situation for the stock. Heinz is being perceived as a safe, recession-proof play. I'm not sure anything is truly recession-proof, but I do think the yield is impressive, and I think that such a stock may continue to hold steady, and even outperform, in this environment.
TheStreet.com's Jim Cramer tells you he wants to own companies that make stuff that gets bought no matter what and that don't have outrageous raw costs.
We are holding by the strikes, so typical of expiration week. You get a floor on Intel (NASDAQ: INTC) (Cramer's Take) for certain, maybe catch a bounce. Obviously, people listened to Intel last night when it said PCs weren't a problem, but it traded at $42 last night and I fear that it could trade lower and would be trading lower if it weren't for the $45 tug.
Here's what I am watching, though: Coke (NYSE: KO) (Cramer's Take), MO (NYSE: MO) (Cramer's Take) and the Drug Index, the DRG. As soon as everyone knows we are in a recession, then these will be bought again. I pick those because they have the least inflationary pressures. Allergan (NYSE: AGN) (Cramer's Take) holds up and Schering-Plough's (NYSE: SGP) (Cramer's Take) trying to bottom; good signs, again.
MOST NOTEWORTHY: Kindred Healthcare, Five Star Quality, Corporate Executive Board, Deckers Outdoor and Discover were today's noteworthy upgrades:
Jefferies upgraded shares of Kindred Healthcare Inc (NYSE: KND) to Buy from Hold on valuation as they believe the risk/reward is attractive given good near-term earnings visibility and reasonable prospects for legislation to remove a significant reimbursement overhang.
The firm also upgraded Five Star Quality Inc (AMEX: FVE) to Buy from Hold following a meeting with management, to reflect the company's improving occupancy and better cost controls.
Deutsche Bank upgraded shares of The Corporate Executive Board Company (NASDAQ: EXBD) to Buy from Hold as they believe the company is positioned for strong growth in 2008.
Nollenberger upgraded shares of Deckers Outdoor Corporation (NASDAQ: DECK) to Buy from Neutral, as they believe the UGG brand will continue to outperform expectations both domestically and internationally.
MOST NOTEWORTHY: Motorola, Nokia, General Mills, AudioCodes and OceanFreight were today's noteworthy upgrades:
Cowen upgraded shares of Motorola Inc (NYSE: MOT) and Nokia Corporation (NYSE: NOK) to Outperform from Neutral. The firm expects Motorola to benefit as the mobile phone market in North America improves as market supply tightens in Q4 and results in better unit pricing, while Nokia's new phones put it in a position to realize higher unit sales.
Credit Suisse upgraded shares of General Mills Inc (NYSE: GIS) to Outperform from Neutral citing management's improved execution and openness, and well as valuation.
Cantor raised shares of AudioCodes (NASDAQ: AUDC) to Buy from Hold after channel checks suggested that Q3 business is tracking well.
OceanFreight Inc (NASDAQ: OCNF) was upgraded to Buy from Neutral at Oppenheimer on valuation and strong dry-bulk fundamentals.
OTHER UPGRADES:
Lehman upgraded shares of Roche Holding (OTC: RHHBY) to Overweight from Equal Weight.
MOST NOTEWORTHY: The U.S. food industry, Mylan Labs, Amerigroup and Isle of Capri were today's noteworthy upgrades:
BMO Capital upgraded the U.S. food industry sector to Outperform from Market Perform to reflect the group's defensive nature, the recent valuation contraction, and predictable earnings growth. General Mills (NYSE: GIS) is the firm's top pick in packaged food, and they raised Kellogg Company's (NYSE: K) target to $59 and Kraft Foods' (NYSE: KFT) to $36.
Credit Suisse upgraded Mylan Laboratories (NYSE: MYL) to Outperform Underperform, as the firm believes investors are "too negative" on the Merck transaction. The firm said the company is well-positioned long-term to be a leader in the global generics industry.
Credit Suisse also upgraded shares of Amerigroup Corporation (NYSE: AGP) to Outperform from Underperform, as they believe the company is poised for better than expected margin improvement in 2007 and 2008.
Isle of Capri Casinos Inc's (NASDAQ: ISLE) rating was upped to Buy from Hold at Morgan Joseph, citing indications of progress in the company's turnaround.
OTHER UPGRADES:
Epic Bancorp (NASDAQ: EPIK) was upgraded to Buy from Hold at Sandler.
Aruba Networks Inc (NASDAQ: ARUN) was upgraded to Outperform from Sector Perform at Pacific Crest.
General Mills (NYSE: GIS), arch competitor of fellow cereal seller Kellogg (NYSE: K), posted some good news for shareholders on Monday. In an otherwise gloomy day that saw the Dow remain below the 12,000 level and inflationary pressures still exerting a hold over the market, General Mills proved that dividends are at least one island of safety in a sea of trouble.
Talk about a tough time in the markets. Between the financial crisis and oil prices rising on an almost daily basis, with the Fed damned if it raises rates and damned if it doesn't, the floods in the Midwest are now threatening to make a trip to the supermarket much more expensive. Yes, break out the coupons and pray for sales, because, according to 
Cereal maker 
The Federal Reserve's overnight rate that was reduced to 2.25% just yesterday, and sent the Dow flying 420 points into posititve territory, gave a good chunk back today. The DJIA falling 293 points to 12,099.66 means that Bernanke's magic bullets were a very short-term fix to what ails us.
This morning, better-than-expected earnings results at 
TheStreet.com's Jim Cramer tells you he wants to own companies that make stuff that gets bought no matter what and that don't have outrageous raw costs.
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