The king of comfort food, Kraft is the leading U.S. food company with brands that include Nabisco, Oreo, Oscar Mayer, and, of course, Kraft Macaroni & Cheese.
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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.
Great pitch, per usual, Garcipian.I agree with your analysis that this company is better positioned than most to weather the recession. Let's not forget the 4% dividend, either!
Kraft is an excellent product but people are hit so hard right now that they have to by no name brands, which I feel is lowering the value of this stock. It will go up in time though, so it's still a good investment, it's just that nothing is really safe in this market right now
That's a great thought...would grocery companies like Safeway or a competitor be a good idea since they stock their own "no name brands"?
Kraft isn't worth more than $20 without an acquisition. Low returns on equity, high debt, current ratio at exactly 1...my models don't like Kraft.
Man, my timing sucks. It's been nearly 2 years since I looked at this (think I'm a buy-n-forget investor or what?), but in review, it looks like this stock peaked exactly 6 days after I recommended it. Damn, I *am* good. Not too many of you out there have the financial prowess to be on the wrong side of the coin *AND* to do it within 1-2 weeks of the top/bottom of the curve as consistently as I have done, do ya?
Well, the stock has bounced back nicely, but then everything has since coming out of the Great Recession. While I'd be making money on this pick now, I'm not making points because I'm still losing to the index. Oh well, there's little change KFT is going to beat the market average in an advancing market, so I may have to pull the plug on this pick and take the points loss (now at -23.2).