A laid back friend of mine recently returned from the doctor having completed his annual physical exam. After having his blood pressure and lab test results in hand the doctor told him he had good and bad news, all wrapped up in one statement. "Based on your tests," the doctor said, "you are likely to lead a long and boring life."
A similar statement can be made regarding General Mills (GIS). The company’s stock continues to trade in a very narrow range based on a multiple of earnings that rarely breaks out of the range of 15 to 19 times earnings. Pursuing a consistent growth strategy of expanding through the introduction of new products, selling off units which are not contributing at the expected levels and growing its international business has produced a stable company that is structured and poised for prosperity over the long haul.
Success in carrying out this strategy has resulted in a long but unspectacular life for the company. Most analysts concur that GIS belongs in the category of companies whose stock may be boring but likely to deliver a consistent return.
Like Kraft Foods (KFT), about which I wrote earlier, GIS is positioned to continue this pattern of well managed growth throughout the next several years while the international economies are struggling to emerge from a global recession. The company will benefit from a consumer public which is struggling with their personal financial hardships and having more and more of their meals at home.
Fear of the future may lead consumers to become cost conscious. Low-cost, easy to repair meals of the type representing the bulk of GIS’s products will bolster sales while increased commodity prices and foreign exchange vagaries will temper overall results.
A note of interest: 19% of GIS sales have been made through Wal-Mart (WMT). If you haven’t noticed…
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…WMT is one of the few retailers doing well in this crummy environment. That bodes well for GIS.
Also like Kraft, GIS offers an attractive alternative to investing in the shares of the company. For investors who are reluctant to take the risk of stock ownership in a turbulent equity market, the purchase of the outstanding debt of GIS is a very attractive option.
GIS debt is currently rated at an investment grade level by Standard and Poors, Moodys and Fitch. The purchase of GIS bonds in the 5 year range at current prices will produce a yield of close to 6%. Extending the maturity to 9 years can achieve a yield of over 6.9%.
While not without risk, the purchase of investment grade bonds of GIS can offer a decent rate of return without the worry over events affecting the stock market.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com.
James F. Dlugosch contributed to this article. Jim has over 40 years experience in the credit markets including serving as Director of the Minnesota Housing Finance Agency in the 1970s. He also led the fixed income group of a large regional brokerage firm before owning his own firm that specialized in underwriting and trading fixed income securities. He is a contributor to The Rational Investor, but most importantly he is my father.
