Wednesday, December 17, 2008
(Cont'd from above)...

Jim (cont'd):   

General Mills is consistent. It's met or beaten the earnings estimates set by analysts for at least the last six quarters, and it beat the numbers again today, even in this environment. It's actually the only food company that didn't shade down the numbers after it reported. The company is actually remarkable when it comes to taking out costs... General Mills also seemed to make more profit per dollar... more profit per Cheerio... per sales each quarter... which, frankly, that's astonishing...

General Mills is essentially a lemonade stand with lemons continually coming down in price. They should call it, "Consistency Mills"... No, they should call it, "General Consistency"...

Then there's Joy Global, selling at less than half that multiple. General Mills, 14x... Joy Global, 7x?... Why? Because, historically, Joy Global has no control over its destiny. It's a huge capital equipment play that needs massive global orders, and thus, a strong global economy, and has no joy when it doesn't.

You need millions of dollars in credit to buy a Joy Global shovel... You need a couple of bucks and some buy one-get one coupons to buy Cheerios...

Now, there are some similarities...

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Both companies yield about 2.8%... Both buy back stock aggressively... especially Joy Global. It bought back $266 million worth of shares this quarter. Hey, 10% of its market cap... It's got another $900 million to buy...

Hey, General Mills is no slouch. It bought back more than 10 million shares this quarter, which is just a monster amount. That's $708 million worth, this quarter alone.

Both companies are absolutely the best-run companies in their industries, and they have fabulous CEOs. So, how do you make your decision?... How do we pick between these two great companies?...

I say, I don't. You do...

If you can't sleep at night... If you want a stock that goes up the equivalent of 25 miles per hour a year, that's General Mills...

Joy Global, on the other hand, is the kind of stock you buy if you want something that can go 50 miles per hour... and sometimes, 75 miles per hour... but then, sometimes, it will stall out... A lot of people can't handle that. And, if you're one of them, I can't blame you for completely washing your hands of this stock.

Someone described General Mills as a highway to more money over time... maybe a highway, but certainly the old people's lane. Others would say Joy Global is a roller coaster that goes up and down, but ends in the same place, and you've got to trade it... buy it low, sell it high, to make money...

Well, I think that the latter is actually true...

Now, let's look at these closer...

Remember, stocks are valued at future earnings, not the past ones, and General Mills just gave us a green light on future earnings, thanks to strong cereal and baking sales. People are staying home man...

The company's been held back by the cost of food... thanks, ethanol... the cost of packaging... thanks, oil... and the cost of hedging, which they got wrong... General Mills has consistent, mid single-digit growth to sales. That really doesn't change, but we believe that the margins - what they make after the sales - will improve. The company's operating margin already increased by 20 basis points this quarter.
They make so much money... why?... Why will it get better?...

The crash in grain prices, the crash in packaging costs, oil's big decline, and the weakening dollar, which will bolster the company's international sales, as fewer Euros will translate into dollars, all will help.

I think you have to take what's known as a "bottom's up" approach to a company like General Mills. It doesn't appear to be really affected by the economy, and our "bottom's up" analysis says this is a good one to buy.

How about Joy Global?...

Well, it's on the downside of all of these positives... For Joy Global, the future is dark. It's kind of like a remembrance of things past...

This quarter, the company saw two cancellations of orders... a harbinger of worst things to come... and some of its customers had credit problems, which are getting worse, not better... Overall, Joy Global's orders fell 22% quarter over quarter... nasty.

The prices of everything they mine... copper, iron ore, especially coal - there's no such thing as "clean coal"... have all fallen dramatically... but, amazingly, Joy Global's stock is up 12.6% today. Why?... Because it wasn't as bad as people thought it would be... People were expecting mining equipment Armageddon!... But Joy Global is still there, and still making money hand over fist.

You have to look at a company like Joy Global from the top down, from the macroeconomic perspective. People who believe we are going to see a recovery will buy this one. They do not care how the business looks now, because they see a bright future. Plus, Obama and infrastructure spending could really send this one higher... and today's stimulus pep talk powered the stock up even higher. That was at the opening.

If you are a trader, I think you should be all over Joy Global, even up here. The stock's been trampled by hedge funds gone wild. It's presuming no turn in the economy... something I can't believe, now that Santa Bernanke has come to town...

As I see it, Joy Global should be at the bottom part of the roller coaster; that's when you buy. Trading isn't a sin.

I've got to tell you something... I had this experience, when I first started as a hedge fund manager... I would bring the money to the bank, and the teller never once asked me, "Hey, did you make this money trading or investing?"...

But, if you're temperamentally an investor, you should buy General Mills...

Investors in food stocks look for margin expansion, so when they see this one, they will love it. And don't feel bad if the stock didn't pop up big on the great quarter... That's exactly what we want to see if we're investors... a stock that doesn't go up huge on one particular day... it doesn't pop on earnings the way that Joy Global did... which is exactly what you want if you're a trader... because, remember, what pops up can pop down...

Bottom line...

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The Bottom Line!:     If you can't sleep on a roller coaster, particularly Cramer nemesis, "Kracken" at Sea World, and you want something slow and steady, you buy General Mills (GIS*). If you like the trade, Joy Global (JOYG) is for you. They both work, just different reasons... with different investors... with different goals.

[verbatim recap]

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