Today we have a conservative idea for you: take stock of product manufacturer General Mills (NYSE: GIS) in view of that, that they will be pumped up by investors, waiting for stability in the world, lost all stability.
Growth potential and validity: 10% behind 14 months excluding dividends; 10% per annum during 10 years including dividends.
Why stocks can go up: the company's business is very stable and it also pays generous dividends.
How do we act: we take shares now by 65,63 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
We love, appreciate,
Investment editorial office
What the company makes money on
GIS produces food products under its own brands, mostly flour. We analyzed her business in detail in the previous idea for this company., so we won't repeat ourselves here..
For our history, only, that GIS is a well-known manufacturer of products in the USA, whose brands every American is familiar with.
Arguments in favor of the company
"This winter will be cold and will never end". In the previous edition of this idea, released in March 2020, we focused on seasonal factors. Then it seemed, that the coronacrisis is not for long, and we expected to earn on these shares in a few months on the seasonal purchases of Americans during the quarantine - and so it happened.
But now it's getting clear, that the pandemic will never end and in the West there is a gradual primitivization of consumption: people are spending less on “high” consumption like travel, expensive gifts and more and more - for such simple things, like food.
Under these conditions, well-known product brands are in the most advantageous position., which are highly recognizable among the population and can hope for stable sales. Probably, that those investors will crowd into GIS shares, who want stability, and there are so many. Fortunately, GIS has a low P / E — 18,09, more or less stable high final margin - 12-13% of revenue - and large dividends. The company pays 2,04 $ per share per year, which gives approximately 3,1% per annum - a lot of money by today's standards.
GIS, taking into account the above points, will retain its attractiveness in the eyes of investors for a very long time, who will clearly appreciate a stable business.
Can buy. The listed advantages of the company and its not the most huge capitalization of $ 39.79 billion make it likely that someone larger will buy GIS in the long term..
What can get in the way
No surprises, no positive too. The company's report for the last quarter released the day before yesterday showed revenue growth by only 6% compared to the same period last year. Approximately the same growth rates of financial indicators should be expected in the company in the future..
Didn't take off. In the last quarter, the company's operating profit fell by as much as 13% due to the rising cost of raw materials and logistical disruptions. You should mentally prepare for the continuation of these troubles in the next couple of quarters..
Accounting. The company spends 1.248 billion a year on dividends - approximately 55,81% from her profits for the past 12 Months. At the same time, it has a huge amount of debt - 22.115 billion dollars., of which 7.813 billion must be repaid within a year. There is not a lot of money in the company's accounts - 1.021 billion, there are still 1.766 billion counterparties in arrears. So dividends can and cut if necessary, especially if the company's costs grow.
What's the bottom line?
We take shares now by 65,63 $. And then there are two options.:
- keep until 72,5 $. Think, we will reach this level in the next 14 Months;
- we hold shares 10 years and receive dividends.
And still check out the news section on the company's website.: the lion's share of the attractiveness of these stocks is based on the dividend yield, so if payments are cut, then the stock will fall. But if this news comes before the US market opens, then we will have the opportunity to sell General Mills shares on the St. Petersburg Stock Exchange before, How will investors react to this sad news?.
