Post: A Breakfast Buy

02/28/2014 7:00 am EST


Leo Fasciocco

Investment Columnist and Publisher, Ticker Tape Digest

Our latest featured breakout stock is a St. Louis-based company well known for making branded ready-to-eat cereals and other food products, explains Leo Fasciocco, editor of Ticker Tape Digest.

With annual revenues of $1.1 billion, Post Holdings (POST) makes Honey Bunches of Oats, Pebbles, Post Selects, Great Grains, Spoon Size Shredded Wheat, Post Raisin Bran, Grape-Nuts, and Honeycomb.

The stock came public in 2012, trading around $27. The stock trended sideways for several months. However, late in 2012, it broke out to the upside and climbed to a peak of $49.32 by July of 2013.

The stock then pulled back a bit, but then turned higher again. The recent breakout takes the stock to a new all-time high. That could draw in more buying from the new-high crowd.

The stock's momentum indicator has been bullish for the past three months. The accumulation-distribution line is trending higher and broke out before the price of the stock. That indicated good underlying buying.

POST is poised to show strong earnings. Earnings for the fiscal year ending in September of 2014 are projected to climb 41% to $1.33 a share from 94 cents a year ago.

The stock sells with a price-earnings ratio of 42. That is high for a food stock. However, going out to fiscal 2015 ending in September, the Street is looking for a 56% surge in net to $2.08 a share from the anticipated $1.33 for the current fiscal year. Thus, the earnings growth rate matches well with the premium P/E ratio.

We are targeting POST for a move to $70 off this breakout. A protective stop can be placed near $53. The stock also has the potential to split, which could push it higher.

Institutional sponsorship is very good. The largest fund holder is 5-star rated Fidelity Small-Cap Discovery Stock with a big 7.8% stake. It was a recent buyer of 754,400 shares.

Insider activity is very bullish. Insiders were recent buyers at $53.78. Also, options were awarded at $48 to $53. The price of the stock will have to move much higher for those options to be worth more.

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