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Berko: General Mills a better bet than Bank of America

By Malcolm Berko

Published: September 20, 2015, 6:10am

Dear Mr. Berko: I am 46 and have $14,000 to invest in my very conservative individual retirement account. I have a choice between General Mills and Bank of America. Which should I buy?

— L.W., Kankakee, Ill.

Dear L.W.: Never buy stock in a company whose management is more crooked than a barrel of snakes. That eliminates Bank of America (BAC-$16.29), which might have a good year in 2015 and 2016 but a bad 2017.

In 1866, a man named Cadwallader “Cad” Washburn — a lawyer, banker, U.S. Army officer and three-term congressman — built the first flour mill on the banks of the Mississippi River. This was the beginning of what much later became General Mills. It was also a beginning that revolutionized the milling industry, because Cad’s mills produced flour with significantly superior baking properties.

Cad died in 1882, but his flour mills are credited with the founding of the great city of Minneapolis, which anchored the Midwest.

In 1880, Cad’s company entered the International Millers’ Exhibition in Cincinnati and earned gold, silver and bronze medals, establishing Cad’s flour as the best in the world. Nine months later, the company changed its name to Gold Medal Flour, which is still the No. 1 flour brand in the U.S. today.

In 1928, Gold Medal Flour changed its name to General Mills, was listed on the New York Stock Exchange and became a respected name on Wall Street. When the name was changed to General Mills, Betty Crocker (she admired generals) waxed eloquently about the company on her daily radio show; in 1936, a leading opinion poll rated Crocker, whose program was the most popular show among women for more than two decades, as the most famous woman in the U.S. after former first lady Eleanor Roosevelt.

Today General Mills (GIS-$56.40) is recognized by most consumers for names such as Gold Medal, Cheerios, Wheaties, Kix, Trix, Chex, H?agen-Dazs, Progresso, Green Giant, Yoplait, Fiber One, Nature Valley, Pillsbury and Betty Crocker. Its brands produce convenient meals, ethnic meals, pizza, frozen breakfasts, side dish mixes, hot snacks, refrigerated products, baking mixes and ingredients, frozen dough and various organic products.

Today, GIS operates three distinct segments — U.S. retail (60 percent of revenues), international (29 percent of revenues) and convenience stores and food service (11 percent of revenues) — which might generate $17.8 billion in revenues this year.

GIS employs 44,000 people and is a classy, nearly incorruptibly managed company that’s a step above blue-chip quality. GIS is a supercalifragilistic employer with top-notch executives, although I’m told there are a couple of high-level sadists (the kind of guys who enjoy kicking puppies) who make life tough for the 30-somethings who work like bunnies for advancement and promotions.

In the past 10 years, management has grown revenues from $11 billion to an expected $17.8 billion this year. In that decade, management has increased earnings yearly, from $1.37 a share to probably $2.86 in 2016, while the dividend has been raised annually, from 62 cents a share to an anticipated $1.76 this year. Meanwhile, GIS’ share price has doubled since 2005, which includes a 2-for-1 split in 2010. Revenues should grow at an average of 5 percent a year, and if net profit margins improve to 11 percent as many believe, net income and dividend growth will improve better than they have in the past 10 years.

GIS trades at a high 20 times earnings and has a low beta of 0.7, meaning the shares are 30 percent less volatile than the stock market. The near-term price action is neutral. However, GIS should appeal greatly to investors who wish to improve their portfolio performance with minimum risks. Many on the Street say that in the coming 10 years, GIS’ performance will exceed that of the previous 10 years. GIS is an excellent fit for you. Just buy 200 shares in your IRA and reinvest all of the dividends, and in 10 years you’ll be as pleased as a puppy with two tails.

Malcolm Berko addresses questions about stocks. Reach him at P.O. Box 8303, Largo, FL 33775 or mjberko@yahoo.com.

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