In an interview with Reuters, Kraft Foods Inc. (NYSE: KFT) reported that it expects sales in China to gain 10% in 2009. "This is one of the times when I love being in the food business. This is a market that, whatever happens in the economy, people still eat. And we have a range of products to serve everybody's needs," explained Lorna Davis, the company's president of operations in China. "Opportunities here are just huge," she added.
The projected 10% sales growth for 2009 roughly corresponds with Kraft's 2008 sales results in China. The food firm plans to maintain its healthy pace of expansion by way of a 20% boost to advertising spending. "If you want to build your business here and you don't spend more than 10 percent of your total revenue on advertising, you are not going to grow," asserted Davis.
Despite her upbeat comments, the stock is wallowing in negative territory today, succumbing to a downside bias in the broader Dow Jones Industrial Average. The security recently broke out above a trendline connecting a series of lower highs since September 2008, and KFT is now attempting to notch a weekly close above resistance at its 40-week moving average.
As the stock shows signs of life, investors have rushed to the bullish bandwagon. During the past 10 days, traders on the International Securities Exchange (ISE) have bought to open 7.06 times more calls than puts on KFT. This ratio ranks higher than 78% of comparable readings on the equity, indicating a stronger-than-usual optimistic bias among speculative investors.
KFT is currently trading north of peak call open interest at the June 25 strike, which has 11,394 contracts in residence, but the shares are staring up at another notable accumulation of 11,020 call contracts at the June 27.50 strike. This configuration suggests that short-term traders expect the stock's recent burst of positive momentum to continue -- since reporting a positive earnings surprise on May 5, the shares have gained 11.5%.
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
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