Risk aversion was the story of the week last week amid rising exasperation with Eurozone countries to act in unison to solve their debt afflictions and swelling concerns that financial reform may constrain U.S. financial companies' profits. Economic reports didn't offer much help to the stock market, as industrial manufacturing outlooks showed a surprising amount of slowing.
Stocks mounted a modest bounce on Friday after a week that saw the major market averages sink another 2% to 4%. All of the positive action in the week came in a single low-volume session on Thursday that didn't ultimately do much to erase the negative tone of the worst May since the Kennedy administration.
More troublesome was the fact that positive corporate earnings news and mergers failed to bolster the appetite for stocks. Companies as varied as Dell Inc. (Nasdaq: DELL), Chicos FAS Inc. (NYSE: CHS), Brocade Communications Systems Inc. (Nasdaq: BRCD) and Sears Holding Corp. (Nasdaq: SHLD) beat analysts' expectations this month but saw their shares thrashed by up to 20%.
Most emerging markets fell hard during the week, and there was a broad sense that institutional investors were purging portfolios of high-beta assets that could be vulnerable to a slowdown in earnings growth. This is why bland food makers like Campbell Soup Co. (NYSE: CPB) and General Mills (NYSE: GIS) have survived the month without a crunch, but more economically sensitive companies like Johnson & Johnson (NYSE: JNJ) and Intel Corp. (Nasdaq: INTC) have flailed.
While the Standard & Poor's 500 Index did not close on Friday above its 200-day average -- the level that separates bull cycles from bear cycles -- the Nasdaq 100, Midcap 400 and Smallcap 600 did. This will be used by bulls as evidence that the May decline was just a modest setback on an upward journey.
Yet bears are making a good case that this is much more than a mere correction. Breadth has been hellaciously negative except for the 11-1 positive session on Thursday, and less than 100 stocks are making new highs on the three major U.S. exchanges. Plus volume has been much bigger on down days than up days, a sign of distribution.
General Mills
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Caution Is the Buzzword After Last Week's Stock Market Drop
Buy, Sell or Hold: General Mills Stock Has Shown Its Short-Term Value and Is Still a Long-Term Winner
On May 26, 2009, I recommended buying shares of General Mills Inc. (NYSE: GIS) stock. Investors who took my advice then would have paid about $52.61 for the stock, which is currently trading at $70.96 a share, resulting in a gain of about 35%.
The stock at the time had been neglected and offered a very compelling risk-reward situation, especially considering the market conditions. But the market often takes some time to recognize tremendous opportunities that to others seem obvious.
That was the case with General Mills, which has been successful for decades. Strong execution and a strong product lineup in a stable business have led to sustained capital formation that weathered the debacle of 2008 relatively well. The 30% drop the stock suffered turned out to be a gift for investors, as it has completely reversed course.
In fact, GIS earlier this month hit a fresh all time high of $72.25. The question now is: Can General Mills keep it up?
The stock at the time had been neglected and offered a very compelling risk-reward situation, especially considering the market conditions. But the market often takes some time to recognize tremendous opportunities that to others seem obvious.
That was the case with General Mills, which has been successful for decades. Strong execution and a strong product lineup in a stable business have led to sustained capital formation that weathered the debacle of 2008 relatively well. The 30% drop the stock suffered turned out to be a gift for investors, as it has completely reversed course.
In fact, GIS earlier this month hit a fresh all time high of $72.25. The question now is: Can General Mills keep it up?
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