Kraft Foods Inc

Kraft Foods Inc (KFT:NYSE)

Following our buzz words for 2009 - quality, quality, quality, we have come up with Kraft Foods as our pick for this month.

Kraft was founded in 1903 when J.L. Kraft started selling cheese from a horse drawn wagon. Today, Kraft Foods Inc., together with its subsidiaries, manufactures and markets packaged food products
and grocery products in more than 150 countries. It is one of the World's largest food companies, with a market cap of $32.32 billion.

The company offers snacks, including cookies, crackers, salted snacks, and chocolate confectionary; beverages, including coffee, packaged juice drinks, and powdered beverages; cheese, including natural, process, and cream cheeses; and grocery,including spoonable and pourable dressings, condiments, and desserts. It also offers convenient meals such as frozen pizza, packaged dinners, lunch combinations, and processed meats.

Kraft Foods markets its products under various brand names, primarily including Kraft cheeses, dinners and dressings; Oscar Mayer meats; Philadelphia cream cheese; Maxwell House and Jacobs coffee; Nabisco cookies and crackers and its Oreo cookie brand; Milka chocolates; and LU biscuits. It sells its products to supermarket chains, wholesalers, super centers, club stores, mass merchandisers, distributors, convenience stores, petrol stations, value stores, and other retail food outlets. The company has revenues exceeding $1 billion per annum.

Kraft's bid for the U.K's Cadbury seems to have been running for months. The final bid has to be offered to the Cadbury shareholders by 7th December 2009. All the uncertainty has been pushing Cadbury shares up and the Kraft shares down. This is where we see a buying opportunity.

Kraft shares are trading 10.72% below their 52-week high of $29.84, set on January 28, 2009 and considerably lower than their highs of 2007 which were above $35.

For a blue chip company of the calibre of Kraft  Foods, the recent under performance of the shares represents an opportunity to buy a good dividend payer at a discounted price. If the Cadbury deal comes
to fruition the company should benefit from a number of synergies. If it does'nt come off then we have picked up a great company at a good price and Kraft will be left with a massive war chest with which to pursue other acquisitions. The company has a 5-year average return on equity (ROE) of 10.84%  - a good steady performer.

Warren Buffet likes Kraft foods too. His Berkshire Hathaway fund holds over 138 million Kraft shares in its portfolio (as at 30th September 2009) . From which dividend income of over $160 million a year is  derived.

During the credit crunch and the stock market meltdown of 2008 Kraft was a steady performer . Despite a tough economy, Kraft raised its 2008 organic net revenue growth to 7%, up from the previous forecast of 6%. Over the last year the company established a marketing niche as a value alternative to eating out ,as consumers returned to popular brand names, such as Kraft Macaroni & Cheese dinners.

We like the shares at their current price. We expect the share price to regain the $30 mark and beyond in the next 12 months. In the meantime we will also collect the handy 4.33% dividend.

Buy Kraft Foods (KFT: NYSE) up to $28