Trend Technician

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General Mills is an interesting analysis candidate.  Many people like to disregard the fundamentals and simply follow the trend, but I see no reason not to put every component in your favor.  If two stocks have similar charts and one has no debt and a great dividend and the other the opposite, I’m going to be much more reluctant to go long on the second one.  Thus let’s start out with some appealing factors about General Mills from a fundamental standpoint.

The first thing that grabs your eye is that it’s sporting a 3.2% dividend yield.  Dividends are particularly appealing in an era of wild uncertainty.  When compared with a stock with no dividend, a stock like this seems to have a much more solid price floor.  A P/E of 15 is not particularly good or bad in this environment.  Lower multiples have been fairly common these days, and I’d like to see it lower; but General Mills is a very well-known stock, and 15 isn’t outrageous.  Interestingly it converts 9 cents of free cash flow for every 1 dollar of sales.  It also has stable margins.  Ultimately all this suggests a boring, but relatively safe bet in the current market.

Now that you know you’re not playing with fire, let’s take a look at the chart.  The trend analysis suggests that we’re in the midst of an uptrend in both the long and short term, with a new 3 month high in July.  You can check these up to date results with trend analysis, giving you a breakdown of several salient indicators. Ultimately for a safe stock the chart looks pretty good from the trend analysis.  It did however hit a new 3 day low on Friday, so let’s keep digging.

The final question is the chart itself.  Looking at that recent gap up it was followed by a few new highs, but then seemed to peter out.  I would be hesistant to enter a position until it made a new high or closed the gap.  If I went long on this right now I would use a close stop.  The nice thing about waiting for an upside breakout is then it becomes a very straightforward play.  You simply go long and put your stop about 1.5% inside the trading range.

The purpose of this discussion is an example of how I use value investing in combination with trend analysis to identify the approach.  It doesn’t constitute any kind of recommendation on General Mills.  Your milage may vary.

Photo credit: yaybiscuits123

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