While rival General Mills pops after a bowl of Wheaties drove a positive earnings report this morning, Post fortifies a new buy point with a helping of Grape-Nuts. Meanwhile, Kellogg is looking for its Rice Krispies brand to snap, crackle and pop K stock into a buy zone.
Post and General Mills have earned a spot on the IBD Breakout Stocks Index as the market indexes flash pressure on the young uptrend.
Although Post, General Mills and Kellogg did not make latest list of new buys by the best mutual funds, they have shown signs of institutional demand. Twenty funds with an A+ rating from IBD have reported a position in the Post. Forty-two such funds own shares in General Mills, while 45 hold Kellogg stock.
Plus, in a further sign of demand, Post earns a B+ Accumulation/Distribution Rating. Kellogg and General Mills earn a B- and C- rating, respectively.
All three cereal leaders hail from the packaged foods industry group, which ranks a solid No. 34 out of the 197 industry groups IBD tracks. Post earns a 90 Composite Rating, meaning it is outpacing 90% of all stocks in terms of key stock-picking traits. General Mills and Kellogg both earn an 87 rating in Stock Checkup.
Who Joins Post And General Mills On The IBD Breakout Stocks Index?
Post Turns Cereal Into Cash Flow
Post traces its history back more than 100 years through its cereal and egg businesses. In addition to Grape-Nuts, its many brands include Malt-O-Meal, Peter Pan Peanut Butter, PowerBar, and Weetabix.
In 2012, Post separated from Ralcorp Holdings through a tax-free spinoff with the Post cereal brands, forming the new entity's only operating segment. Since then, Post has made several acquisitions, transforming into a diversified consumer products holding company. In fact, it operates as a public company in a manner similar to a private equity firm.
Post's operating model emphasizes both inorganic and organic growth, focusing on cash flow over GAAP earnings. As shown in MarketSmith, Post's cash flow stood at $5.44 per share last year, nearly three times its $1.90 earnings per share.
But Post did deliver a 118% EPS spike last quarter, when it reported numbers for fiscal Q2 on May 5. Analysts see a 2% slowdown for the full year, followed by a 66% earnings spike in 2023.
Post Tests Breakout As General Mills, Kellogg Set Up
With its relative strength line already hitting a new high, Post is testing a new breakout from an 83.08 buy point in an early stage flat base. After rising sharply on Friday and Monday, Post jumped into a buy zone Tuesday before coming off its highs to close below the entry. Volume on the reversal was below average. The stock gained 1.5% Wednesday, closing just below the entry.
Heading into earnings before today's open, General Mills had been working on a cup formation showing a 74.09 buy point. It was trading above its 50-day moving average with its RS line already at a new high. After releasing earnings, General Mills broke out into a buy zone in volume 175% above average.
Showing that stocks tend to move in groups, Kellogg is also forming a chart pattern and nearing a buy point with a strong relative strength line. The stock is approaching a 75.66 buy point as it finds support at its 10-week line. Kellogg is now just 5% shy of the buy zone.
With General Mills breaking out, Post not far behind, and Kellogg on the rise, Wall Street likes what it sees so far. See if the positive report from GIS stock provides a sustained boost to all three captains of the cereal industry. Plus, as The Big Picture noted Tuesday and market indexes showed again Tuesday, investors should also keep a close eye on selling pressure on the nascent uptrend.
IBD Breakout Opportunities ETF
The IBD Breakout Opportunities ETF from Innovator Capital Management tracks the IBD Breakout Stocks Index. As with other index ETFs, this fund allows you to essentially invest in the entire index in addition to or rather than buying the individual stocks. Learn more here about the ETF and Innovator funds.
Follow Matthew Galgani on Twitter at @IBD_MGalgani.
