General Mills, Inc. (GIS) Dips on Analyst Downgrade, Downside Risk

General Mills, Inc. (NYSE:GIS) is in the red today after analysts at Goldman Sachs downgraded the stock to ‘Sell’ from ‘Neutral’. The Goldman Sachs analysts don’t think General Mills will be an acquisition target in the near future and that the stock isn’t exactly cheap with a forward P/E of 20.63. General Mills has had a good run, with shares up by 10.4% year-to-date, but shares seem to be meeting some resistance at the $64 level. The analysts at Goldman Sachs also think that General Mills, Inc. (NYSE:GIS)could make an expensive acquisition of its own, which would negatively impact its near-term valuation. Goldman Sachs has a $58 price target on the stock, 8% below Monday’s closing price, while shares have dipped by 0.78% today.

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 750 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their March 31 holdings, data that is available nowhere else. Should you consider General Mills, Inc. (NYSE:GIS) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

General Mills, Inc. (NYSE:GIS) was in 25 hedge funds’ portfolios at the end of March. GIS investors should pay attention to a decrease in hedge fund sentiment lately. There were 26 hedge funds in our database with GIS holdings at the end of the previous quarter. At the end of this article we will also compare GIS to other stocks including Banco Bradesco SA (ADR) (NYSE:BBD), Illinois Tool Works Inc. (NYSE:ITW), and Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) to get a better sense of its popularity.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

According to Insider Monkey’s hedge fund database, AQR Capital Management, managed by Cliff Asness, holds the largest position in General Mills, Inc. (NYSE:GIS). AQR Capital Management has a $167.3 million position in the stock, comprising 0.3% of its 13F portfolio. Coming in second is David Harding of Winton Capital Management, with a $36.3 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other peers with similar optimism comprise Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Joel Greenblatt’s Gotham Asset Management, and Matthew Hulsizer’s PEAK6 Capital Management.

On the next page we’ll look at some funds that are not quite as bullish on General Mills, as well as compare the stock to a handful of others with similar market caps.

Because General Mills, Inc. (NYSE:GIS) has experienced falling interest from the smart money, logic holds that there lies a certain “tier” of hedgies that slashed their full holdings in the first quarter. It’s worth mentioning that Israel Englander’s Millennium Management cut the largest stake of all the hedgies watched by Insider Monkey, worth an estimated $31.9 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also cut its stock, about $22.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 1 fund in the fourth quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as General Mills, Inc. (NYSE:GIS) but similarly valued. These stocks are Banco Bradesco SA (ADR) (NYSE:BBD), Illinois Tool Works Inc. (NYSE:ITW), Royal Bank of Scotland Group plc (ADR) (NYSE:RBS), and Charles Schwab Corp (NYSE:SCHW). This group of stocks’ market valuations are similar to GIS’s market valuation.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $763 million. That figure was $482 million in GIS’s case. Charles Schwab Corp (NYSE:SCHW) is the most popular stock in this table. On the other hand Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) is the least popular one with only 10 bullish hedge fund positions. General Mills, Inc. (NYSE:GIS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard SCHW might be a better candidate to consider a long position in.

Disclosure: None