I have joked over the years about the cornerstone of the “old man” portfolio, General Mills (NYSE:GIS). For those of you new to my writing, my dad eats about a half a box of Cheerios every morning and has done so for years. My mom buys it for him a case at a time from the grocery store. He is ok with my calling him an old man now that I am getting mailings from AARP as well. This is where the term “old man” stock comes from. Well, that is only partially true. It also comes from the high yield dividend that tends to attract income investors (another word for old people).
But General Mills has made a few changes recently, trying to lower the average age of their product users perhaps. They bought Annie’s, you know them, cheddar bunnies, and fruit bite snacks that resemble gummy bears. So maybe it is ok for younger investors to buy this stock as well now. They kind of look alike don’t they?
The chart is really all that matters to me when assessing a trading opportunity. When I look at the chart of General Mills on a short term basis I see a bull flag. After a move out of the consolidation over December and the first quarter of 2015, General Mills has consolidated again. This pattern would target a move to 60 should it break to the upside. And that 7% upside is what makes it attractive for a trade. But even if it does not move higher immediately, but rather retraces to the 52 level, there is that 3.1% dividend. This is what makes it interesting possibly for a longer hold.
So how do you develop a strategy to deal with this? lets build into it. First there is the original opportunity. To capture that and retain access to a longer term dividend look to buy the stock on a break of the flag higher. To cover the potential for a move lower, then add a June 55/52.5 Put Spread. This protects some of the downside but at a cost. So to lower that cost also sell a July 60 Covered Call. The combination of these options is called a collar, and should cost about 10 cents.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.