When all hell breaks loose, everything becomes correlated.
You may have heard some variation of this saying since the global financial crisis. Assets don’t typically move together as one… but they all move in the same direction during frightening times.
We saw this during the pandemic-induced bust. Everything went down in unison. And it happened again during the bear market last year… for the most part.
One blue-chip stock bucked that trend. It soared 24% in 2022. Meanwhile, the overall market dropped nearly 20%.
Those gains continued into 2023. But that rally came to a screeching halt in early May. The stock’s price started to plummet. It’s down 27% since then… And it recently hit a rare setup.
The good news is, this has created an incredible buying opportunity – one that could lead to 20% gains over the next year.
Let me explain…
Buying shares of stable businesses with strong, well-known brands is one of the safest ways to make money in the stock market.
If they sell the basics, they never go out of style. So these giants almost never face an existential threat to their business. And for investors, it often means stable, long-term returns without massive volatility.
It also means we have a shot at amplifying those returns when these “boring” stocks move in an extreme way. And that’s the setup we have right now with General Mills (GIS).
You probably have more General Mills products in your home than you realize. The company owns dozens of popular food brands… from Betty Crocker to Cheerios to Pillsbury. And with a history dating back to the 1850s, the company isn’t going anywhere.
Investors soured on its stock this year, though. GIS has dropped more than 20% in recent months. And that fall was extreme, according to the relative strength index (“RSI”).
This indicator tells us if a stock has moved too far, too fast in either direction. An RSI reading above 70 (or “overbought” levels) means investors are piling into the asset too quickly, and a price drop is likely.
On the flip side, an RSI dropping below 30 (or “oversold” levels) means investors are bailing on the asset in a big way. When that happens, a snapback usually follows.
The RSI for GIS recently dropped below 22. Take a look…
The sell-off was strong and consistent for several weeks. But the RSI is now hitting wildly low levels. And that’s setting up a rare opportunity to buy, based on history…
Specifically, we’ve only seen RSI levels this low 11 other times since 1990. Once the RSI rose back above these levels, the stock was higher 100% of the time a year later.
More important, its returns were darn impressive. Take a look…
General Mills is a “boring” stock. But it has still led to solid returns over the past few decades.
The stock has typically returned 6.2% a year since 1990. That doesn’t include dividends, either – which means investors have done even better.
Still, you can crush that performance if you buy after an RSI signal like this one…
Similar oversold setups led to 5.8% gains in three months, 13.3% gains in six months, and an impressive 19.9% gain over the next year. That’s more than triple the typical one-year gain you’d expect from this boring business.
This investment is off the radar for most folks. They’re focused on AI and soaring tech stocks. But when the market is giving you a rare chance to buy a blue-chip stock after a beatdown… make sure you’re paying attention.
This article was originally published on this site