Kellogg: The right products for the 'frugal consumer' era

Posted Aug 13th 2009 4:20PM by Joseph Lazzaro
Filed under: Kellogg Co (K), Stocks to Buy

I'm Reiterating my Buy rating for Kellogg (NYSE: K), first recommended on April 13, 2009 at a price of about $40. If you purchased K at that time, you're up a decent 15%.

The basic value-added thesis remains in place for Kellogg: Kellogg should benefit from more 'frugal consumer' Americans eating breakfast at home, although there is some risk of sales attrition, due to the rise of generic substitutes.

Meanwhile, Kellogg's overall cost reduction efforts are succeeding; ingredient costs, while not low, are not likely to increase at above-trend rates registered earlier in the decade. And product innovation should provide an additional tailwind. The First Call FY2009/FY2010 EPS estimates for K are $3.14 to $3.47.

Stock Analysis: Kellogg is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% position in K now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your K position before October 2009. Sell/Stop Loss if you were to buy shares in this company: $27.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

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