Kraft: Suddenly, it's a 'frugal consumer' play

Posted Oct 19th 2009 10:00AM by Joseph Lazzaro
Filed under: Kraft Foods'A' (KFT)

Kraft Foods (NYSE: KFT) is turning into a "frugal consumer" play, which is why I'm reiterating my Buy rating for the company, first recommended on July 13, 2009, at a price of $26.88.

Kraft will benefit from the now-established "frugal consumer" trend, whereby Americans save more and eliminate needless, optional purchases. Included in the above will be more meals consumed at home per month, which is good news for food company Kraft.

One example: Forget the bagel & a coffee out routine -- which will benefit sales of Philadelphia Cream Cheese and Maxwell House Coffee, both owned by Kraft.

Kraft has also done a good job containing costs in the recession, and its restructuring program should lead to better than $1 billion in annual savings. The First Call FY2009/FY2010 EPS estimates for KFT are $1.96 to $2.14.

Technically, Kraft's stock has meandered since the July Buy rating, but just view that as a momentary pause: the risk/return remains tipped decidedly in favor of the Buy for KFT.

Stock Analysis: Kraft Foods is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in KFT now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your KFT position before December 2009. Sell/stop loss if you were to buy shares in this company: $12.

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

Tags: frugal consumer, KFT, Kraft