After almost a decadelong bull market, now is a good time to be defensive.
The benchmark S&P 500 Index fell almost 20% from September through mid-December before recovering and closing the year down just 7%.
The Consumer Staples Select Sector SPDR Fund (XLP) – which holds a basket of consumer staples like Procter & Gamble (PG), Coca-Cola (KO), and Walmart (WMT) – finished the year down roughly 10%. Fears about rising input and shipping costs, rising interest rates, and the threat of store brands have all contributed to the pessimism toward the sector. Meanwhile, investors have also soured on the staples due to low growth rates.
But we think the consumer staples are poised to outperform over the next few years, just as they did during the during the 2000-2002 bear market. The stock we're covering this week far outperformed its staples cohort back then... And we're confident it can do it again.
In 1866, Wisconsin lawyer and banker Cadwallader Washburn built a flour mill on the Mississippi River's St. Anthony Falls in Minnesota. It was the genesis of what would become General Mills (NYSE: GIS).
During the bear market that followed the Internet bubble, GIS shares returned an impressive 26%. And the company's valuation today is much lower than it was back in March 2000 – when its period of outperformance began. Granted, we could be early. But as we'll explain, you get paid a solid dividend to wait with General Mills.
Before we get to that, let's first cover what makes General Mills a "Global Elite" business.
These companies have dominant, widely recognized brands. That's their competitive advantage. And General Mills is a quintessential Global Elite business.
Today, the company is a global packaged-food juggernaut, with roughly $16 billion in annual sales.
Convenient meals, a category that includes meal kits, pizza, soup, and frozen entrees, accounted for 17% of sales last fiscal year. Cereals and snacks made up 22% and 17%, respectively. And yogurt contributed to 15% of sales. The U.S. brings in approximately 58% of sales. Europe accounts for almost 13%, Latin America 11%, Canada 6%, and the remaining 12% comes in from the rest of the world.
You'll probably be surprised to find out just how many General Mills products are in your kitchen right now. Among its most notable brands are Cheerios, Pillsbury, Betty Crocker, Yoplait, Annie's, and Häagen-Dazs.
It's clear that General Mills has brand recognition. But until recently, it has been lacking growth...
General Mills' sales declined from $17.9 billion in 2014 to $15.7 billion for the fiscal year ending last May.
But growth has started to resume, as the company posted positive sales growth in the latest four quarters.
One bright spot for the company has been organic foods. General Mills bought organic food-maker Annie's in 2014. The brand's net sales doubled in a little more than three years after the acquisition.
Now, General Mills has gotten into another high-growth food category. But this food isn't for humans...
Over the past decade, the pet food market in the U.S. has grown about 5% a year to reach $30 billion. But the market for wholesome, natural pet food is growing faster than the overall pet food market.
General Mills wants to profit from this trend. Last year, it bought Blue Buffalo Pet Products for $8 billion. Blue Buffalo makes super-premium pet food with high-quality natural ingredients. Blue Buffalo grew revenues by 11% in 2017 to hit nearly $1.3 billion. Its Blue Life Protection Formula for dogs and cats has become a top-selling natural pet food.
The acquisition was expensive, at six times sales. But it will add much-needed growth to General Mills' revenue mix. And with this new pet-food segment, General Mills becomes an even more diversified consumer-staples company.
Nonetheless, investor fear continued. And the market has punished the stock. General Mills' share price has declined more than 40% since its mid-2016 peak.
However, this type of unwarranted fear in Global Elite businesses is exactly what we look for at Stansberry Research. You see, General Mills' valuation is trading near all-time lows...
Today, GIS yields almost 5%. General Mills and its predecessor companies have paid dividends for 119 years straight. And the company has increased its annual dividend in each of the past 14 years.
With the recent pullback, shares now yield 4.9% – around the highest level since 1988 – and far higher than their 10-year average of 3.1%.
All we need is for the market to start appreciating General Mills' low valuation and high-yielding dividend. That will put a floor under the shares, and we should see the share price start to trend higher.
Sometimes investing is simple.