General Mills Inc. (GIS) has rewarded long-term investors with a 25-year uptrend and an average annual dividend yield near 3.00%. Just a few hiccups and detours have marred its bullish path since the 1980s, despite three bear markets and a host of shock events that have crippled other big income plays. More importantly, there are good reasons to believe the upward trajectory will continue in coming years.
The July 2016 all-time high gave way to a pullback that dropped the stock to an 11-month low in February. Long-term technical readings reached extremely oversold conditions at that time and crossed into a new buy cycle, predicting it will now enter a prolonged recovery wave. That turnaround shines a spotlight on the company’s March 21st earnings report, with consensus EPS estimates now at 71-cents per share.
GIS Long-Term Chart (1994–2017)
The stock escaped the 1987 crash with little technical damage, recouping a 2-point loss within 18-months and resuming a long-term uptrend that stalled at $15.68 in 1992. It lost ground into 1995 and bounced strongly, spawning a fresh series of new highs starting in 1997. Aggressive sellers stepped in just above $20 in 1999, generating two-sided price action that carved a broad trading range between that level and support in the mid-teens.
It broke out and rallied to a new high at $26.43 a few months after the September 11th attacks and sold off into the upper teens, testing new support. The range between high and low contained price action for the next four years, finally yielding a 2007 breakout that topped out in September 2008 at $36.01. The stock plunged with world markets during the economic collapse, posting the biggest loss in its public history, losing more than 12-points into the March 2009 low at $23.18.
A V-shaped recovery lifted price back to the 2008 high in January 2010, giving way to a shallow rising channel that continued for three years while adding just 5-points. It broke channel resistance in 2013 and again in 2016, with each stairstep adding momentum to the low volatility tape. The uptrend finally topped out at $72.95 in July 2016, giving way to an intermediate correction that failed the second channel breakout (red line) in September.
The monthly Stochastics oscillator dropped to the deepest oversold reading since the 1990s in the fourth quarter of 2016 and crossed into a buy cycle that should last a minimum of six to nine months. This tailwind should end the downside and support a recovery wave that reaches resistance at the failed channel breakout in the mid-60s. A failure to find willing buyers at that level could open the door to a renewed decline that reaches the 8-year trendline in the mid-50s.
GIS Short-Term Chart (2015 – 2017)
The August 2015 mini flash crisis dropped the stock into the blue trendline for the first time since 2012, reinforcing support at that level, ahead of the healthy uptick into the middle of 2016. The subsequent pullback reached the 50% rally retracement in October, generating a 4-month test, followed by a February breakdown. The bounce into March is testing broken support, requiring a buying spike above 62 to trigger a failed breakdown.
On Balance Volume (OBV) gained ground for many years into 2016 and escalated to an all-time high in August, ahead of a downturn that’s held high in the long-term range. This resilience reveals stubborn institutional sponsorship that hasn’t abandoned ship during the 8-month correction. This bodes well for the next recovery wave, which could lift the indicator to a new high.
The Bottom Line
General Mills has offered a nearly perfect income play in the last few decades, engaged in a long-term uptrend that’s posted an endless series of all-time highs. The stock turned lower last summer, lost ground into February’s 11-month low and could now enter a recovery wave that tests resistance in the mid-60s.
<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>