I can understand why some investors may be interested in General Mills (GIS 0.09%) stock at the moment. So far this year, the share price of this processed and packaged foods company has fallen more than 26%. This is in contrast to the S&P 500 index, which is up 15.6% over this same time frame.
Following this pullback, General Mills' stock now trades at a historically low valuation and boasts a forward dividend yield of around 5.2%. Despite these positive indicators, there may be a better choice among packaged food stocks in terms of yield, value, and rebound potential.
NYSE: GIS
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Why General Mills is not necessarily a strong opportunity
I can see why you might find good value in General Mills shares. Trading at a forward P/E of just under 13, the stock trades at a discount to other packaged foods companies like Nestle and Mondelez International, both of which trade at forward multiples of around 17.
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Historically, General Mills has traded at a valuation comparable to its peers. However, the current discount makes sense, namely because the company continues to experience a growth slump. Customers have cut back on its branded products in favor of private label alternatives.
That's not to say lackluster results will persist, but it may be too early to say a turnaround is in motion. Management just launched a new cost reduction program and is exploring ways to jump-start a resurgence in sales growth. Even so, sell-side analyst estimates still indicate weak revenue and earnings growth for the next fiscal year.
What makes this competitor's shares a better buy
Kraft Heinz (KHC +0.73%) has turned out to be a poor long-term investment, and don't just take my word for it. Warren Buffett has said it as well, when discussing Berkshire Hathaway's ill-fated investment in the company.
However, past performance is not necessarily indicative of future results -- especially given Kraft Heinz's upcoming split into two separate entities. One of these two entities will own Kraft Heinz's faster-growing brands, including Heinz condiments. The second entity will consist of slower-growing brands.
NASDAQ: KHC
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After the stock spinoff happens during the second half of 2026, the faster-growing segment could experience valuation expansion. Even if the slower-growing segment's valuation holds steady, the net result for investors in both companies could prove positive.
Kraft Heinz has this strong potential catalyst while also beating General Mills in terms of value and yield. Kraft Heinz trades for under 10 times forward earnings, a moderate discount to General Mills. This packaged food stock also has a forward dividend yield of over 6.5%.
The verdict on General Mills vs. Kraft Heinz
There could still be a scenario in which both of these packaged food stocks languish in the coming year due to the ongoing macroeconomic challenges. If inflation persists, everyday families may make a further shift away from branded food products.
However, if you believe inflation will normalize in the coming year, Kraft Heinz may be the better choice. If you haven't already bought General Mills, consider skipping it in favor of this stock. If you've already bought General Mills, sell it, using the proceeds to buy Kraft Heinz on the pullback.
