As you know I follow a lot of companies but mostly dividend paying companies. I wanted to highlight one sample use case of Custom Stock Alerts. General Mills reported earnings this morning and based on those earnings I like to adjust the alerts I have setup. In particular I want to highlight the power of what a membership can offer through unlimited alerts.
To start, packaged food companies have been utterly crushed by the stock market the past year. Top line growth has stalled as consumer tastes have been changing. The favorite snacks and cereals of yesteryear are seeing challenges in this modern day and age.
Check out the 3 year stock chart for Kellogg, General Mills, Campbell Soup and J.M. Smucker.
With that high level background and with low expectations looking into the future, I’ve been hesitant to start positions in these companies given the secular headwinds.
Sample Use Case
With that backdrop, General Mills reported earnings this morning that were generally “meh”, top line growth up 1%. There were some bright spots internationally, US sales continue to lag, this has been the similar story reported across these types of companies the past few years. The guidance given was also not particularly compelling:
FY2019 Guidance: Organic net sales: flat to +1%% ; Adjusted operating margin: +6% to +9% (on a constant currency basis); Adjusted EPS: flat to -3% (on a constant currency basis).
Basically management is saying that next year will still be a “rebuilding year”, i.e, don’t expect much. The dividend is covered but is the stock cheap enough to account for the lack of growth baked in? For investors, particularly with longer time horizons, this is where CSA can help out.
To start with, the stock is not expensive but you get what you pay for. Right now this is a yield play with hopefully some growth attached years down the road. There is also the chance of multiple expansion (the 10 year average P/E is about 18 according to the blue line on the Fast Graph below).
Fast Graph pegs the adjusted P/E currently at 12, I’ve seen the GAAP number at 12 so it depends on which one you are looking at. Multiplying across the P/E and the yield gives the payout ratio in the 65% range.
So based on the best estimates, earnings growth is virtually non-existent for a while though it does sport a nice dividend yield which also will grow very slowly currently (without making the payout ratio grow). Generally I would contend for me, the stock isn’t cheap enough to start a position. Given that, I’ve setup some alerts for General Mills at places where I may become more interested. I’ll wait for an alert to trigger before taking a deeper dive into the company.
So here is what I have setup currently:
- I’m interested if the stock hits a new 52 week low, you can see it is currently 11% off it’s low
- I’m interested if the stock spikes above a 4.5% dividend yield
- I’m interested if the PE ratio drops below 11
- I’m interested if the price drops below $40
These alerts are all generally flavors of the same concept, I’d be interested if the stock price drops. There is nuance to these figures though, the P/E will move through time as earnings are released while a static share price would not. Dividend yield levels and 52 week lows can be more psychological to investors and analysts and may offer some support.
This is a sample use case in how I use Custom Stock Alerts on a daily basis. Particularly as earnings season rolls on, I’ll take the updated figures reported and adjust my series of alerts I have. From that point, I can sit back and wait for my text alerts to hit and not have to watch the market all day. It only takes a few minutes so even with a lot of holdings this process is very quick each quarter.
It’s freeing and gives me piece of mind that I have predefined situations in which I may take action in. It helps to remove emotion and saves a boatload of time also. Hope this demo helped!