GIS and Inflation

Recently I have been hopped up on buying Natural Gas related companies and instruments. It is my opinion (and what the hell do I know) that gas simply can’t stay at $4. In the short term it looks like I am right, but I am in it for the loooong haul.

I have also been doing some inflation hedges, and inflation is here to stay, baby. There are a lot of instruments you can buy out there that do this, but one way that I didn’t think of was looking at stocks that may benefit from inflation. Sounds weird, but there it is.

My FA recently brought General Mills to my attention (GIS on the ticker). People who know more than me (including GIS themselves) think that the inflation will benefit General Mills with higher prices. They must be banking on commodities topping out at some point. GIS says that inflation is “fundamentally good for their business” and that the company grows their EPS in times of inflation. Also mentioned is the fact that retailers are more acceptable to price increases in times such as these.

I can relate to the price increase part. I run a small business, and I am getting vendor price increase notices DAILY from all sorts of vendor. Copper quotes are done with a ONE DAY window. If you call back tomorrow, we have to requote it. In this ocean of price increases, it isn’t that big of a deal to just get one more. I think this is what GIS is talking about with their lines as well. GIS just raised their pricing 5% in March.

Kellogg is reported to have their recall problems behind them and GIS management looks to be pretty positive that they can not only survive in the high inflation environment, but thrive. Also mentioned is the GIS acquisition of Yoplait, and their high hopes of introducing Yoplait into China.

I took a small dive into GIS based on the report my FA provided me. It will be interesting to follow this one in our inflationary environment.

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2 thoughts on “GIS and Inflation”

  1. This does look like a good pick. I am also kind of stunned when someone just comes out and says that inflation is good for them. People hanging out in fixed income securities with long durations better pucker their rear end if this comes to pass because that paper is going to get shredded at some point. Either because the Fed has to raise rates or no one is going to buy paper when other assets are inflating so much faster.

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  2. I think they make those “we will do well with inflation” comments based on past performance. That doesn’t mean that it will happen again, but it is certainly set up the same way. I think they would benefit greatly from a commodity drop, but that doesn’t look likely with the corn supply so low.

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