Kraft Foods: Tomorrow's Monster Stock

Stocks climbing to 10 times their original price are rare breeds. But they're not impossible to find -- especially when you have Fools for friends.

The market's best stocks include companies that have risen dozens of times in value by taking advantage of the market's weaknesses. These aren't penny stocks; they're viable companies with sound business prospects that are achieving phenomenal returns. Finding just one or two of these monstrously successful companies can help you establish a winning portfolio.

Stalking the monster
To find tomorrow's winners, we've enlisted the help of the monster-trackers at Motley Fool CAPS, the 180,000-member-driven investor community where informed opinion is translated into stock ratings of one to five stars. We'll be peering in on the picks of those who have successfully chosen stocks that doubled, tripled, or even quadrupled in price, and this week All-Star member plumbroke200 gives us Kraft Foods (KRFT.DL) as his next monster pick. He made his mark with General Cable (BGC), which more than doubled in value after he picked it to outperform the indexes, compared with the S&P 500's 3% rise.

Of course, you shouldn't jump into the breach just because an All-Star stock picker did. Just consider this as a starting point for your own research of extreme buying opportunities.

Kraft Foods snapshot

Source: FinViz.com. N/A = not applicable; Sarepta doesn't pay a dividend.

Pulled apart, put together
Born from the divestiture of Mondelez International (MDLZ 1.40%) on Oct. 1 -- that's the old Kraft company that became an international snack-foods giant with the new name -- Kraft Foods houses the old U.S. grocery business that owns some of the most well-known, respected brands: Philadelphia cream cheese, Maxwell House coffee, Oscar Mayer meats, and of course, Kraft mac and cheese.

Mondelez is a market-share leader in its own right, enjoying top-dog positions in biscuits, chocolate, candy, and powdered-beverage categories worldwide, but that goes to the core of what a powerhouse the originally company was. It's interesting to note that it was the creation of a spinoff itself from cigarette maker Altria (MO 1.91%) a few years back and sold Post cereals to Ralcorp (NYSE: RAH), which spun it off to form Post Holdings (POST 1.05%), and is now being acquired by ConAgra (CAG 0.86%) for $5 billion.

The new Kraft plans to pay a $2 annual dividend that at current levels would yield around 4.3%. That's a premium to other food stocks such as Kellogg (K 1.49%), whose $1.72 dividend yields 3.2%, General Mills (GIS 1.93%), which pays $1.32 and also yields 3.2%, or H.J. Heinz's (HNZ) dividend of $2.06 and yield of 3.5%. With its stock trading at valuations comparable with its rivals on a trailing and estimated basis, it may be an attempt to lure investors in with the higher payout.

Sailing on the moat
Kraft is in the enviable position of having a business with defensible margins because of its brand portfolio. It's been able to pass through commodity cost increases with little harm despite the presence of private-label goods on the shelf at Kroger (KR 1.80%), Safeway (NYSE: SWY), and even Wal-Mart (WMT 0.46%). Yet while some commodity costs have eased, producers can still expect to see elevated input costs that will weigh on margins.

It's not looking to be a high-earnings-growth company like Mondelez, which is targeting double-digit profit gains, but instead looks to see earnings gain in a mid- to high single-digit range appropriate for its peer group .

Money, money, money!
To me, Kraft Foods seems like it will be the dependable grower that its name is associated with being, even though it won't have the high-charged global lines Mondelez possesses. I'll be rating Kraft to outperform the broad indexes on CAPS, but let me know in the comments section below if you agree that Kraft Foods will be able to craft a winning performance.