With shares of Kellogg (NYSE:K) trading around $64, is K an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
T = Trends for a Stock’s Movement
Kellogg is engaged in the manufacture and marketing of ready-to-eat cereal and convenience foods. Kellogg's principal products are cereals, cookies, crackers, toaster pastries, cereal bars, fruit-flavored snacks, frozen waffles and veggie foods. It also markets under other brands such as: Keebler, Cheez-It, Murray, Austin, and Famous Amos, to supermarkets in the United States. The company's cereal products are generally marketed under the Kellogg's name and are sold principally through direct sales forces for resale to consumers. As of this year, their products were manufactured in 17 countries and marketed in more than 180 countries. Convenience food continues to see increased demand so a company like Kellogg that can provide these products at affordable prices across the globe stands to make significant profits.
T = Technicals on the Stock Chart are Strong
Kellogg stock has seen an explosive run over the last few months that has taken it to all-time highs. The stock is now pulling back a bit but seems to have stabilized. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Kellogg is trading around its rising key averages which signal neutral to bullish price action in the near-term.
(Source: Thinkorswim)
Taking a look at the implied volatility (red) and implied volatility skew levels of Kellogg options may help determine if investors are bullish, neutral, or bearish.
| Implied Volatility (IV) | 30-Day IV Percentile | 90-Day IV Percentile | |
| Kellogg Options | 17.08% | 63% | 61% |
What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.
| Put IV Skew | Call IV Skew | |
| July Options | Flat | Average |
| August Options | Flat | Average |
As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.
On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.
E = Earnings Are Increasing Quarter-Over-Quarter
Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Kellogg’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Kellogg look like and more importantly, how did the markets like these numbers?
| 2013 Q1 | 2012 Q4 | 2012 Q3 | 2012 Q2 | |
| Earnings Growth (Y-O-Y) | -13.27% | 102.78% | 2.50% | -10.64% |
| Revenue Growth (Y-O-Y) | 12.24% | 18.18% | 12.32% | 2.60% |
| Earnings Reaction | -1.84% | 0.68% | 2.25% | 3.4% |
Kellogg has seen mixed earnings and increasing revenue figures over the last four quarters. From these numbers, the markets have generally been pleased with Kellogg’s recent earnings announcements.
P = Poor Relative Performance Versus Peers and Sector
How has Kellogg stock done relative to its peers, General Mills (NYSE:GIS), Post (NYSE:POST), Mondelez (NASDAQ:MDLZ), and sector?
| Kellogg | General Mills | Post | Mondelez | Sector | |
| Year-to-Date Return | 14.74% | 21.23% | 31.56% | 17.61% | 18.94% |
Kellogg has been a poor relative performer, year-to-date.
Conclusion
Kellogg provides essential food products that consumers enjoy all around the world. The stock has been on an explosive move to higher prices, in recent months, but is now pulling-back a bit. Over the last four quarters, earnings have been mixed while revenue figures have been on the rise which has maintained investors generally pleased with the company. Relative to its peers and sector, Kellogg has been a poor year-to-date performer. Look for Kellogg to catch-up and OUTPERFORM.
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