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Reshaping my portfolio, two sales and one buy

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February 21, 2013 – Comments (0) | RELATED TICKERS: KRFT , MDLZ

In my recent post about analyzing my portfolio to sell the stocks that no longer have catalysts and tilt it more towards small caps and away from large caps (link), I alluded to two recent real money sales and one purchase stating that I would talk about them when I was allowed.  Here's the details:

Sale Number One:

Kraft (KRFT, must resist the urge to type KFT because that symbol no longer exists):  I don't recall creating some grand write-up on Kraft at the time that I bought it, but my main reason for doing so in early August 2011 was the Company's plans to split into two, a slower-growing North American grocery business and a faster-growing International snack business.  As a nearly pure special situation investor, any time I hear about a spin-off I'm instantly intrigued, especially if it's a company that pays me a dividend to wait for the event to happen.  That's just what Kraft was.  Here's my particularly eloquent pitch for the stock that I wrote at the time:

"I like the company's plan to split in two."

Enough said :).  I must have been busy that day.  So how did the trade work out?  Kraft's stock gained 42% versus a gain of 26% over the same period for the S&P for nearly 19% in outperformance.  Not bad...especially for a large cap stock.

Why did I sell?  The main reason is the catalyst that I was looking for has come and gone.  Yes, many analysts believe that Kraft has changed the way they are managing the company, focusing more on cash flow than volume and that investors will benefit from the shift.  KRFT also pays a solid 4.2% dividend, but that's really not enough reason for me to hold a company.  Particularly when I'm trying to shift away from large caps anyhow and I would like to raise some cash just in case something happens to spook the market when the government starts feuding in March.  I'm not a market timer, but I just have a feeling that now is a good time to have some cash on hand and this was an easy sale. 

I have decided to hold onto the snack business, Mondelez International (MDLZ) for now. 

Who wouldn't want to own a stock that has a name that means delicious world :).  Even though its dividend is a little less than half of Kraft's (1.9%) Mondelez has a much more attractive growth profile.  I know, the value investor in me is saying growth, pffffbbbtt what is that?  But I think that there's a lot to like with the synergies between Kraft and the recently acquired Cadbury business.  Once the short-term issues surrounding the split are ironed out, and coffee margins improve, MDLZ's growth profile should be more apparent to investors and its multiple will hopefully expand.

It's somewhat interesting that I continue to own a snack food and candy business when I have been making a concerted effort to cut sugar out of my diet and to eat more organic and less processed food.  I'm not morally opposed to yummy snacks and I'm not so rigid that I won't eat them from time to time, I have just been making an effort to increase my overall well-being over the past couple of years and eating healthier is part of that.  My latest initiative is cutting out things like white bread and sugar and eating more snacks in an effort to give myself more energy throughout the day.  My eight year-old son hilariously asked me a serious question on this subject the other day.  He said "Dad, why are you eating a little differently lately?"  I told him about wanting to get more energy and he replied "What do you need all that energy for, you sit in front of a computer all day." :)  Kids are hilarious.  He has a good point.

Since I went on longer than I had originally intended with the first stock, as is often the case ;), I have decided to break up these transactions into a series of posts.  I will elaborate on the other sale and the purchase as soon as I can.

Goodbye for now friends.  Have a great day!

Deej

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