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by Richard Band Editor, Profitable Investing November 17, 2003

Bargain hunting. It's a philosophy that never goes out of style, yet it's timelier than ever. All the truly great investors of the past century -- from Warren Buffett and John Templeton to J. Paul Getty and Bernard Baruch -- have been tightwads when it comes to the prices they pay for stocks. The cheaper you can buy a stock, the bigger the profit margin you've built in from day #1.

What's more, holding out for a bargain reduces your risk . As long as you focus on quality companies (their business value won't go to zero), you can be confident you're buying closer to the stock's ultimate bottom. Cheaper isn't just more profitable; it's safer , too.

OK, but why is it vital to be a price-conscious shopper right now? Precisely because stock prices have SOARED in the past 12 months. (NASDAQ has rocketed more than 70% from its October 2002 low.)

Let's not forget the lessons we learned from the last few years of the 1990s (which were a textbook case of investment delusion). Millions of investors got caught up in the idea that no price was too high to pay for a stock that promised “growth.”

Today, most stocks are closer than ever to what will prove to be their final peaks for this cycle. This market is getting riskier.

Fortunately, we've got a solution. As the old adage goes, "Well bought is half sold."

Let's take a look at an American icon, Coca-Cola (NYSE: KO). Nobody disputes that Coke is a well-managed company, with one of the world's great brands. Furthermore, KO just toasted another quarter of bubbling profits.

In today's market, however, Coke looks expensive. Currently, KO trades at 23 times projected earnings for the next 12 months. According to the consensus of Wall Street analysts, KO will grow its profits at an 11% rate over the next five years. Thus, Coke's P/E ratio is a little over TWICE its growth rate.

And consider this: KO trades at a HIGHER P/E ratio than the S&P 500 index, with only about the same growth prospects as the S&P over the next five years. That's no bargain.

Now consider another food stock, Minneapolis-based General Mills (NYSE: GIS). While not quite the behemoth Coke is, GIS rakes in some $11.5 billion a year in sales. We're talking about a major-league player here.

GIS also boasts a diversified stable of world-class brands, including Cheerios, Chex, Lucky Charms and Wheaties breakfast cereals, as well as other familiar grocery labels like Hamburger Helper, Betty Crocker, Old El Paso, Progresso, Green Giant, Pillsbury, Totino's, Bisquick, Gold Medal, Pop Secret, Nature Valley , Yoplait, Haagen-Dazs and more.

Over the next five years, Wall Street expects GIS to fatten its earnings at a 10% annual rate. (Company management is shooting for 11%.) In other words, the expected growth rate for General Mills is almost as high as for Coke -- and GIS has actually delivered faster growth than KO over the past five years.

Yet the pricing of the two stocks is worlds apart. General Mills trades at less than 15X year-ahead earnings -- almost a 40% discount to Coke, and a 17% discount to the S&P 500 index. In addition, GIS throws off a higher dividend yield than KO (around 2.5% at last glance), with more leeway to hoist the payout in coming years. GIS has paid dividends without fail for more than a century.

Any concerns? As every coupon clipper knows, brand names are fighting a pitched battle against private labels in the supermarket aisles. But GIS has held its own against the store brands, and I see little reason to fear that the company will soon lose its marketing magic. Recent numbers are encouraging. And unlike Campbell Soup or some other food processors, General Mills isn't grappling with a narrow, aging product line.

So what to do? If you own Coca-Cola, sell it. If you don't own KO, use the criteria I outlined here to evaluate any growth stocks you DO own. Is the stock expensive versus its growth prospects? Is it expensive compared to the S&P 500 index? If so, use the recent market strength to sell it – quickly. Use the proceeds to buy General Mills for safer, cheaper growth.

In addition to General Mills, Richard Band currently recommends 17 of the safest, soundest blue-chip stocks on the market. His Profitable Investing portfolio has notched a solid double-digit gain in 2003 – while taking on significantly less risk than the market as a whole. Richard's sleep-easy strategy has resulted in over 768% GAINS in the past 19-and-a-half years for his happy, loyal subscribers. Give his Profitable Investing service a try – completely risk-free. Click HERE for a special offer.

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