Earlier this morning, embattled insurer American International Group (NYSE: AIG) announced that it is going to reduce its outstanding federal loans by $25 billion by giving a preferred stake in two spin-off units to the government. The two subsidiaries, American International Assurance and American Life Insurance, will be spun off into "special purpose vehicles" ahead of initial public offerings. The Federal Reserve Bank of New York will receive interests in the special purpose vehicles (SPVs), both of which will eventually become independent companies after the IPOs are complete.

The $25 billion breaks down like this: the Fed will receive $16 billion in preferred assets in American International Assurance and $9 billion in American Life Insurance. Reportedly, the outstanding debt for AIG will be cut to $15 billion thanks to this move. AIG now has as much as $182.5 billion in funding available from the government, extending the original offer of $85 billion from back in September.

Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.

Kraft Foods (NYSE: KFT) is the top conservative investment for 2007 from Ivan Martchev. The editor of Vital Resources and contributing editor to Personal Finance explains, "Despite having an impressive collection of food brands, Kraft has been a disappointment to investors since it sold shares as an independent company in 2001.

"The IPO price back then was $31; today the shares are in the mid $30s. So why look at Kraft? Altria bought Kraft in 1988 to diversify away from tobacco, as the skies were darkening on tobacco litigation. As the litigation environment is improving, and speculation is that Altria will finally spin off its non-tobacco business -- it owns 276 million Kraft shares -- this should allow it to be fairly valued by the market.

"Some conglomerates suffer from a diversification discount. It's believed that if the parts are separated, the total market value of its stocks together will be higher than the parent company's stock itself. One reason why Kraft has underperformed despite its large portfolio of well-established brands is the pressure from raw materials costs that it couldn't pass on to consumers in the form of higher prices.

"The company recently hired a new CEO, Irene Rosenfeld from Frito-Lay, to come up with a strategy out of this predicament. Since Frito-Lay had excellent financial performance while Rosenfeld was CEO, there is good reason to believe that she is the right person to fix Kraft. With better management and the pending Altria spinoff, Kraft is a buy at current prices."

To see Ivan's top speculative idea for 2007, click here.