General Mills Does 4900% Dunkaroo Trix! (GIS)

General Mills, Inc. (NYSE:GIS) has been producing poisoned and pesticide-laced foods for the last 155 years.

BUT IT TASTES GOOD!

That doesn’t mean we can’t make money off them.

After all, everyone should have a chance to savor his own Bugles, Go-Gurt and Fruit Gushers.

However you slice it, the company’s stock has been on fire of late, and thankfully we’ve been retained by good Jews and Noahides the world over to douse the flame.

But before we do, have a look at some fundamentals—

• To begin, P/E is too damn high at 18.69,
• Dividend Yield is 2.50% (still acceptable), while…
• Price to Book is a Cocoa Puffy 5.01.
• Q/Q EPS FELL in the most recent report (March 23^rd) by 14.40%, and…
• Over the last six months, insiders dumped 12.31% of their holdings, to the tune of some $30 million.

GIS’s cereal brands have suffered from input cost inflation, supply chain disruptions and general shortages.  But the bulls have chosen to ignore all that and just keep buying.

Yet the truth comes through in the technicals.

As you’ll see below, the bears are slowly taking over trade in GIS stock.

Have a look at the chart—

1. Price is reluctant to push above her all-time highs at 88 (in black), and therefore appears to be forming a double top at that level.
2. A bearish engulfing pattern also appeared at the end of last week (in blue), offering additional proof that the bulls are nearly exhausted.
3. Immediate downside support arrives at the rising trendline (in red), currently at 84. Should that level be traversed, we’ll likely get selling through…
4. The 137 DMA, now at 81 and rising (light blue), and…
5. Possibly as low as the gap at 77 (in purple).
6. It’s been almost a year and a half since price touched her long-term MA, now at 72.50 (in brown).  That’s a might long time to be floating about in the ether, we say, and another reason to expect a pullback—and soon.
7. Finally, RSI and MACD indicators are declining, and though still a distance from their respective waterlines, they offer a picture of imminent bearish ascendance.

And it’s for all the foregoing that we’ve crafted the following for your option-dining pleasure:

A Jew and His Money recommends you consider selling the GIS June 16^th 87.50/90 CALL spread* for a credit of $1.00 (2.20/1.20) and buying the GIS June 16^th 85/80 PUT spread** for $1.10 (1.60/0.50).  Total debit on the trade is ten cents.

[*Sell the 87.50 CALL and buy the 90 CALL.  **Buy the 85 PUT and sell the 80 PUT.]

Rationale: max gain on the trade is $4.90 (4900%), while…

Max loss is $2.60 (difference between the CALL strikes plus the initial debit).

Great risk reward profile.

We require a decline of just 1.9% to hit breakeven.  Thereafter it’s all gravy.

May the Holy One ever provide the meat!

!אין שמחה אלא בבשר ויין

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew