5 Reasons To Buy General Mills

With new cases of the coronavirus spiking in the US and worldwide.

With the already historic unemployment levels and job losses in recent months.

With massive uncertainty in hospitals, banks, and other industries.

And with many Blue Chip stocks looking vulnerable when they’re supposed to be among the best areas to invest your capital.

There are few safe places to invest your capital today.  And this number is growing smaller every day this crisis lasts.

The key to continue compounding your investments and build wealth is to keep investing well over time.

Most people think the number one way to do that is to invest in assets that will grow your capital over time.

And this is huge part of things.

But another huge part of this is also losing as little capital as possible.

The fewer investment losses you have the more capital you keep.  And the more capital you keep the faster you can invest well to grow your wealth.

In recent articles I’ve shown you several stocks to avoid investing in…

Today, I want to show you 5 Reasons To Buy General Mills To Depression Proof Your Portfolio.

General Mills (GIS) is a leading global packaged food company.

It produces snacks, cereal, yogurt, dough, baking mixes, pet food, and ice cream among various other products.

Some of its largest brands are…

  • Nature Valley
  • Cheerios
  • Old El Paso
  • Yoplait
  • Haagen-Dazs

The company is based in Minneapolis Minnesota.  It has a $39.5 billion market cap.  And it also pays a 3.1% dividend.

This is reason #1 to buy GIS to Depression Proof Your Portfolio.

GIS’ 3.1% Dividend

Over the last decade GIS’ paid out a total of $16.46 per share in dividends.

At today’s share count of 613 million shares that’s equal to $10.1 billion paid out to shareholders in the last decade.

These dividend payments will help you in normal times earn cash if you take the money out.  Or allow you to buy more shares over time if you reinvest the dividends.

Both help you earn higher returns over time and will especially help in any kind of prolonged economic issues like we’re dealing with today.

It can do this because it earns huge profits and cash flows.  Which is reason #2 to buy GIS to Depression Proof Your Portfolio.

GIS Earns High Profits

Over the last decade it earned an average operating income margin of 16.7% per year.

I look for anything above 10% on a consistent basis so GIS surpasses this number.

Why 10%?

Because after evaluating thousands of companies over the last 13+ years of my career I estimate fewer than 5% of all companies in the world produce consistent operation profit margins above 10% over long periods of time.

This makes GIS a great operating business.

But it also means the company earns enough money from its operations to continue investing in the business for growth… Without having to issue debt or equity.

Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 10.7% per year on average.

I call this the “Cash Machine” metric.

I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above.

If companies are consistently above 5% on this number, it makes the company a cash machine that spits out more and more cash from its operations.

GIS surpasses my thresholds on both important metrics and that makes it an incredibly safe investment.

These profits also allow it to continually reinvest in operations.  And to pay you a large dividend as well.

Its large profits and cash flow and growing dividend payments over time make GIS a safe income play in whatever is to come in the next few months or years.

But these profits also allow another layer of safety in the amount of debt the company has which is reason #3.

GIS’ Low Debt Levels

With GIS being a multibillion company, you’d expect it to have debt.

And it does…  But its debt levels are extremely low compared to its profits and the equity in the company.  This makes GIS an even safer investment.

As of this writing its debt/equity ratio is 1.4.  I look to invest in companies with numbers below 1 on this metric.

Why?

Because the lower debt levels the company has means the lower chance it has of going bankrupt.  And this make it a safer company.

Generally, the more profits and cash flow the company produces the higher its debt levels can be without becoming problematic.

This gives the company a ton of options in how to run and grow the business.  Which further allows the company to work in creative ways to continue growing revenue, profits, and cash flows.

This cycle gives companies enormous advantages AKA optionality.

But GIS’ number is above this threshold of 1… Is that bad?

Not really because of GIS’ huge profits.

These provide enormous protection to the company and allow the company to have more debt than companies that produce average profits.

Another thing that provides protection from its above average debt loads is General Mills business of selling food to consumers isn’t getting hit hard by the coronavirus pandemic…

This gets us to the next reason to consider buying its stock.

The Coronavirus Won’t Harm GIS

People may stop paying their mortgages.

They may stop paying their credit cards.

They may stop paying their vehicle loans.

And they may stop paying their student loans.

Because of the mass unemployment caused economic issues we’re now dealing with people may stop paying these things if they need to.

But they won’t stop feeding their kids.

This was illustrated when GIS released its most recent quarterly report on July 1st, 2020.

Its sales rose 5% in the year to year quarter to $17.6 billion.

Its adjusted operating profit rose 7% in the year to year quarter.

And its earnings per share rose 12% in the year to year quarter.

Why?

Because people are eating at home more and have less disposable income.  And General Mills is one of the largest producers of food in the US so its benefits a lot from this.

While many other companies’ revenues, profits, and cash flows are getting crushed by the coronavirus… General Mills numbers rose.

This shows the power of the company and its ability to survive and thrive during this pandemic… No matter how long it lasts.

This gives enormous stability to the company in these highly uncertain times.  And it also means you should expect GIS to continue earning enormous profits and cash flows.

And this means you should expect the large dividend payments to continue as well.

But what about its valuation?  Is it cheap?

GIS Is Cheap

This is reason#5…

With the markets at or near all-time highs you’d expect a fantastic stock like GIS to be selling at an enormous valuation.

But it’s not.

As of this writing its P/E is 17.9.

Its P/CF is 10.6.

And its forward P/E is 18.4.

On all three metrics I look to buy investments below 20 to consider them undervalued.

And GIS’ current valuations fall well below this number putting it into the cheap valuation category.

This means GIS stock offers you a margin of safety in investing terminology.

A margin of safety means you’re buying a safe investment… And this makes the investment even less risky.

Conclusion

If you’re looking for a solid, safe, stable, dividend paying, cheap, and enormously profitable investment to Depression Proof Your Portfolio – consider investing in General Mills.

Click here to see some of the other stocks we recommend to Depression Proof Your Portfolio.

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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