Stocks for Mom: Kraft

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Maybe your mom starts her day with a steaming cup of Maxwell House coffee, grills up some Oscar Mayer bacon with eggs for breakfast, sends your younger siblings off to school with a package of Lunchables in their lunch box, and rewards them with a cold glass of milk and Oreos when they come home at the end of the school day.

Did mom whip up some Kool-Aid for you on hot days? Give you some Planters peanuts to snack on? Or more recently, suggest that perhaps that middle-age spread you've been noticing could be helped if you ate some South Beach Diet bars instead of a candy bar?

If so, maybe you'd like to return the favor this Mother's Day by recommending that she invest in the company that makes all of these products: Kraft (NYSE: KFT  ) .

Investing legend Peter Lynch often recommended buying what you know, and sometimes we "know" some products and companies so well that we actually forget how ingrained in our lives they really are. And if they're so much a part of our lives, they're probably as entrenched in your neighbors' lives, too. This means we really ought to take a closer look and see if the company is right for our portfolio -- and Mom's, too.

Released at last from the shackles of Altria (NYSE: MO  ) at the end of March, Kraft immediately posted profits that were 30% lower than last year. While Mr. Market's reaction may be predictable -- thinking that at 17 times 2008 earnings, the company is overpriced when it's only growing revenues in the low single digits -- Mom just might know better.

Although it has a passel of products that compete with Campbell Soup (NYSE: CPB  ) , Kellogg (NYSE: K  ) , and General Mills (NYSE: GIS  ) products, it has been losing market share to its rivals. After reaching a three-year high back in January, the stock has relinquished some of those gains. So why should Mom cook up some Kraft shares?

As an independent company, Kraft is now free to pursue strategies that can help it regain its status as a growth company. While first-quarter profits were below last year's results, much of that was because of restructuring charges from the spinoff, and revenues were actually nearly 6% higher. The food company also has a tough new CEO in Irene Rosenfeld, who has said she's willing to take on debt, buy back shares, and use Kraft's stock "as currency" to build shareholder value. Maybe Kraft will throw some acquisitions into the soup pot and look overseas, where revenues grew nearly 10% last quarter.

Although shares aren't exactly cheap, they are below industry levels, and the company pays a 3% dividend, which might make waiting for Kraft's growth plans to take effect more palatable. Considering eating is not exactly a cyclical industry -- Kraft is what professionals call a defensive stock -- Mom could cook up some healthy long-term profits. Maybe she'll give you a box of Barnum's Animal Crackers as a reward.

Snack on these related Foolish articles:

Kraft is a recommendation of Motley Fool Income Investor. See what other companies reward their investors with generous dividends with a 30-day free trial to James Early's newsletter service.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


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