General Mills Weathers the Storm

General Mills, Inc. [[GIS]] continues to see its products fly off the shelves as consumers eat at home to conserve money, but higher costs for key ingredients and a stronger dollar may end up eating into its performance. Regardless, the cereal-maker announced that it would meet or exceed its goals for fiscal 2009 while many analysts also remain confident in the company’s prospects.

“We believe the company’s strategy to remain focused on new product innovation supported by increased consumer marketing spending is well conceived and should drive consistent earnings growth at General Mills for years to come,” wrote Citi Investment Research analyst David Discoll in a research notes to clients after reiterating his rating on the company.

Other experts aren’t so confident in the future of the U.S. food sector after it lost 27 percent in 2008, according to the Dow Jones U.S. Food Producers Index. The costs of key ingredients like corn and oil rose to record highs over the summer, which hurt margins despite efforts to raise prices to offset the costs. Meanwhile, several large industry players were even forced to declare bankruptcy.

Luckily, General Mills and others with strong brands and pricing power were not so affected by the downturn. These strong brands have seen great sales in recent months as cash-strapped consumers looked to save money this year on food costs by purchasing from grocery stores rather than going out to eat. Meanwhile, some hedges against commodity costs have turned out to be successful.

Investors looking to capitalize on these positive trends may want to look at long-term options called LEAPS. Currently, investors can purchase $50 January 2011 LEAPS calls for just $13.10 per share. This means that investors can purchase the rights to 100 shares at $50 during the next 738 days for just $1,310 down. The breakeven point would then be $63.10 per share over the next two years.

See “Using LEAPS as a Stock Substitute” for more information on this strategy or check out our Tools & Products for more ways to make money using LEAPS.

General Mills Options Present Opportunity

General Mills (NYSE: GIS) has seen its shares fall in recent months as commodity prices have risen higher. Higher raw ingredient costs have put pressure on profit margins while stingy consumers have prevented any price increases. However, General Mill’s strong brand portfolio makes it one of the most resilient companies in its sector that could be poised to rise higher.

Some investors believe that consumers will choose to switch to packaged foods to cut costs in their daily lives. Familiar brands are likely to be the beneficiary of this switch and General Mills is the proud owner of many of these brands, such as Cheerios and Green Giant. Meanwhile, some investors also believe that commodity prices will begin to decline as the dollar continues to move higher.

Analysts are confident that General Mills can improve its long-term profit margins by focusing on things like manufacturing and spending efficiency, global sourcing, and sales mix. The cash flows generated from these initiatives could then be used for share buybacks or special dividends to boost shareholder confidence and deliver value to long-term holders.

Investors looking to purchase a stake in General Mills without taking on as much risk in these troubled times may want to consider long-term options called LEAPS. These options enable investors to purchase the rights to shares at a certain price and range of dates. Currently, long-term investors can purchase $60 January 2010 LEAPS for $8.20 per contract.

This means that investors can pay $820 to purchase rights to 100 shares at $60 per share anytime during the next 400 days. This compares to more than $6,000 required to buy 100 shares of the underlying stock. For more information on this strategy, please see “Using LEAPS as a Stock Substitute”.