Kraft Foods, Inc. (KFT)

TheGarcipian (99.28) Submitted: 1/22/2009 5:27:17 PM : Start Price: $25.97 KFT Score: -22.47

Macaroni-and-Cheese! It's got more to do with this economy than you might think. In the immortal words of Sting: "When the world is running down, you make the best of what's still around." (Ok, so not some of his greatest lyrics, but The Police will always be a favorite band of mine.) Noted for its classic Mac-n-Cheese staple, Kraft Foods will provide a safe haven for your money over the next year or two as the US suffers its worse recession since the Great Depression. Personally, I think it's going to last longer than most people expect right now, and we'll have deep losses on a percentage basis from its Oct. 2007 high (at least 50%). In times like these, investors go with solid consumer staples like Kraft, Gillette, and Proctor & Gamble. A broad-based company, Kraft will weather this economic storm fairly well, and certainly won't lose to the S&P500. Its margins aren't as thin as I'd thought (8% on Profit margin and 13% on Operating margin). Its RoA (5.5%) and RoE (9.5%) are tepid in a soaring economy, but I'll certainly take these rates now. It's PEG ratio is a little high at 1.69, but not bad at all. Its book value is $18/share, 64% of its current share price (a good value, I think). Its Debt/Equity ratio (78%) and Assets/Liabilities ratio (1.1) don't excite me, but they don't frighten me either. And given that 18.9% of the shares are owned by insiders for this massive $42.5B company, that's a very good sign. For all of these reasons, I think this is a good defensive play considering the souring economy.

When the soup lines start forming in the spring and summer of 2009 and unemployment pushes past 10% by August/Sept. 2009, "Mac-n-Cheese" will be the order of the day, for investors and the unemployed alike.