Please ensure Javascript is enabled for purposes of website accessibility

It's Time to Buy General Mills Stock. Here's Why.

By Rich Smith - Apr 10, 2013 at 8:29PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's one of the cheapest, best performing, most cash-gushing cereal companies around.

It might not be obvious to the casual observer, but right now, today, General Mills (GIS -0.75%) stock offers one of the best values available in the packaged-cereals industry. Why?

Three reasons.

General Mills is cheap
When you stack up General Mills stock against two of its bigger rivals -- Kellogg (K 0.38%) and ConAgra Foods (CAG -0.93%), which bought cereal maker Ralcorp late last year -- it's clear that General Mills is the cheapest of the three. Its 17.9 price-to-earnings ratio is a full 25% cheaper than what a share of Kellogg will set you back. It's a whopping 34% discount to the P/E ratio at ConAgra.

General Mills has the best record around
General Mills stock looks great in the rearview mirror, and nearly as good when viewed through the windshield. Over the past five years, it's grown its annual sales 25% faster than the closest rival, notching 6% annualized sales growth to ConAgra's 4.8%. General Mills has outperformed Kellogg's 3.8% rate of sales growth by an even wider margin -- and its profits growth has similarly outperformed all comers.

General Mills pays you best
Perhaps most important to investors, though, is the simple fact that out of the three big cereal concerns discussed above, General Mills is the firm generating the most cash from its business -- and gives you the biggest free cash flow bang for the buck.

Measured by dividing a company's market capitalization (the price you pay for General Mills stock) into its free cash flow (the money your investment generates for you), General Mills offers investors quite simply the best "free cash flow yield" of the three named. Put even more simply, for every dollar you invest in a share of General Mills stock today, you can expect the company to generate nearly 6.9 cents' worth of real, cash profits on your investment.

GIS Free Cash Flow Yield Chart

GIS Free Cash Flow Yield data by YCharts.

General Mills may ultimately use this cash to pay you bigger dividends (it already pays a 3.1% dividend -- more than either Kellogg or ConAgra), to buy back shares (increasing the size of your stake in the company for every share it takes off the table), or to reinvest in its business and maintain its lead over rivals for years to come. Any way you look at it, though, General Mills' ability to generate cash offers investors a great reason to invest.

And that, Fools, is the reason I think now's a great time to buy General Mills stock.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

General Mills, Inc. Stock Quote
General Mills, Inc.
GIS
$72.91 (-0.75%) $0.55
The Coca-Cola Company Stock Quote
The Coca-Cola Company
KO
$65.78 (-0.27%) $0.18
Kellogg Company Stock Quote
Kellogg Company
K
$73.44 (0.38%) $0.28
Conagra Brands, Inc. Stock Quote
Conagra Brands, Inc.
CAG
$35.31 (-0.93%) $0.33

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
338%
 
S&P 500 Returns
119%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.