Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Canadian Cannabis Stocks CRASH as Canopy Growth Hits a Dead End - 14th Dec 19
Retail Sector Isn’t Dead, and These 6% Dividend Paying Stocks Prove It - 14th Dec 19
Top 5 Ways to Add Value to Your Home - 14th Dec 19
Beware Gold Stocks Downside - 13th Dec 19
Fed Says No Interest Rate Hikes In 2020. What About Gold? - 13th Dec 19
The ABC’s of Fiat Money - 13th Dec 19
Why Jo Swinson and the Lib Dems LOST Seats General Election 2019 - Sheffiled Hallam Result - 13th Dec 19
UK General Election 2019 BBC Exit Poll Forecast Accuracy Analysis - 12th Dec 19
Technical Analysis Update: Tadawul All Share Index (TASI) - Saudi Arabia ETF (KSA) - 12th Dec 19
Silver Miners Pinpoint the Precious Metals’ Outlook - 12th Dec 19
How Google Has Become the Worlds Biggest Travel Company - 12th Dec 19
UK Election Seats Forecasts - Tories 326, Labour 241, SNP 40, Lib Dems 17 - 12th Dec 19
UK General Election 2019 Final Seats Per Party Forecast - 12th Dec 19
What UK CPI, RPI INFLATION Forecasts for General Election Result 2019 - 11th Dec 19
Gold ETF Holdings Surge… But Do They Actually Hold Gold? - 11th Dec 19
Gold, Silver Reversals, Lower Prices and Our Precious Profits - 11th Dec 19
Opinion Pollsters, YouGov MRP General Election 2019 Result Seats Forecast - 11th Dec 19
UK General Election Tory and Labour Marginal Seats Analysis, Implied Forecast 2019 - 11th Dec 19
UK General Election 2019 - Tory Seats Forecast Based on GDP Growth - 11th Dec 19
YouGov's MRP Poll Final Tory Seats Forecast Revised Down From 359 to 338, Possibly Lower? - 10th Dec 19
What UK Economy (Average Earnings) Predicts for General Election Results 2019 - 10th Dec 19
Labour vs Tory Manifesto's UK General Election Parliamentary Seats Forecast 2019 - 10th Dec 19
Lumber is about to rally and how to play it with this ETF - 10th Dec 19
Social Mood and Leaders Impact on General Election Forecast 2019 - 9th Dec 19
Long-term Potential for Gold Remains Strong! - 9th Dec 19
Stock and Financial Markets Review - 9th Dec 19
Labour / Tory Manifesto's Impact on UK General Election Seats Forecast 2019 - 9th Dec 19
Tory Seats Forecast 2019 General Election Based on UK House Prices Momentum Analysis - 9th Dec 19
Top Tory Marginal Seats at Risk of Loss to Labour and Lib Dems - Election 2019 - 9th Dec 19
UK House Prices Momentum Tory Seats Forecast General Election 2019 - 8th Dec 19
Why Labour is Set to Lose Sheffield Seats at General Election 2019 - 8th Dec 19
Gold and Silver Opportunity Here Is As Good As It Gets - 8th Dec 19
High Yield Bond and Transports Signal Gold Buy Signal - 8th Dec 19
Gold & Silver Stocks Belie CoT Caution - 8th Dec 19
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19

Market Oracle FREE Newsletter

UK General Election Forecast 2019

Kraft Foods Spin-off Strategy Will Unlock Value for Investors

Companies / Investing 2011 Aug 15, 2011 - 07:29 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleJack Barnes writes: Kraft Foods Inc. (NYSE: KFT) is about to unlock a lot of value for patient investors.

I chose Kraft Foods as my first "Buy, Sell or Hold" pick of 2011 as a hedge against inflation. At the time the world was looking at food inflation caused by fires in Russia, rains in Australia, and droughts in China.


The move paid off. In a market that had dropped by as much as 20% in the last two weeks, Kraft is still up about 8% since my recommendation.

Kraft is the very definition of slow, stable value, and in times of fear and uncertainty, nothing is more defensive than food. That is exactly why I recommended the stock at the beginning of the year, and why I believe it's a "Hold" today.

But that's not all. A recent development has given investors yet another reason to hold on to Kraft.

Kraft Foods - which is currently the second-largest global-food company, behind only Nestle SA - announced on Aug. 4 it was going to split into two.

It's going to separate its global snacks operations from its North American grocery business, creating two independent companies.

One company will include its European and developing markets units and will hold brands like Oreo cookies and Cadbury chocolates; it will have revenue of $32 billion.

Meanwhile, the North American grocery business, with revenue of $16 billion, will include such brands as Oscar Mayer processed meats and Kraft macaroni and cheese.

The news was a surprise since Chief Executive Officer Irene Rosenfeld - who favors big companies - said just 18 months ago that "scale is a source of great competitive advantage."

That's why the company spent $19 billion last year buying Cadbury PLC.

Now - with nudging from its biggest investors - Kraft has changed its direction. Large shareholders wanted the company to split and prompted the spin-off from behind the scenes.

"We have been evaluating this type of transaction over the past several years, and analysts and investors have also suggested this," a spokesperson for Kraft said in a statement. "Creating two strong independent operating entities was not feasible before today. Based on actions we have taken over the past four years, it's an idea whose time has come."

This is going to give patient investors a chance to profit from the unlocking of "trapped" value, making Kraft Foods Inc. a "Hold" as it positions itself to be spun apart. (**)

Why Two is Better Than One
The Northfield, IL-based Kraft Foods Inc., founded in 2000, spent years picking up pieces of the global market until it became second-largest global-food company. The scale of Kraft's global operations has allowed it to withstand higher food prices. It's also helped the company to generate a positive return in the market over the last year.

Kraft's global reach is one reason why I believe it is under pressure to break up.

The Cadbury deal gave Kraft a bigger global presence, but some investors feared the food company wasn't realizing as many cost or revenue benefits as originally expected.

Kraft can work better as two streamlined businesses. The new structure will split the company into two types of holdings: a fast European-focused growth stock and an American high-margin dividend-paying value stock. This gives investors the best of both worlds.

A split also will alleviate antitrust issues and allow each company to seek more deals. That increases the likelihood of more merger and acquisition (M&A) activity in both Europe and the United States.

Kraft has a $60 billion market cap, with an enterprise value of $85 billion once net cash and debt levels are taken into consideration. The company reports a Price/Earnings (P/E) ratio of 19, on a trailing twelve-month window.

The company currently pays a 3.4% dividend on a forward-looking basis. When you take a look at what a 10-year U.S. Treasury is paying, the yield is a nice final reason to hold the stock.

Kraft's stock rose 0.88% Friday to close at $34.40.

Action to Take: Hold Kraft Foods Inc. (NYSE: KFT) (**).

When we put a "Buy" recommendation on Kraft, it was trading about 8% lower than it is today, even after the big stock-market sell-off. The stock has held up great in the market in the face of relentless sellers.

I love this kind of relative and total return. Kraft is performing exactly as I had hoped it would. Let's continue to hold these shares, and if we get a flash-crash dip in the prices, look to add a few more.

Additionally, with the spin-off coming, investors have an opportunity to profit from a real value-unlocking event. It's nice to know that a catalyst is on the horizon to help jumpstart both of the future companies - but be patient.

(**) Special Note of Disclosure: Jack Barnes has no interest in Kraft Foods Inc. (NYSE: KFT).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning twice a week. In his last BSH column, Barnes gave us a closer look at Compania de Minas Buenaventura SA (NYSE ADR: BVN).

Source :http://moneymorning.com/2011/08/15/kraft-foods-inc-s-nyse-kft-spin-off-strategy-will-unlock-value-for-investors/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules