Q:Please give prospects for my shares of Kraft Foods Inc. I had been under the impression that food stocks wouldn’t be hurt by recession. — B.K., via the Internet
Answer: It is true that increasing numbers of consumers are shopping for food rather than dining out. That has boosted many of the products made by the nation’s largest packaged-food producer, especially its DiGiorno and California Pizza Kitchen pizzas, Deli Fresh meats and Kraft macaroni and cheese.
Eighty percent of the firm’s brands are in first place in their categories. Nabisco, Oscar Mayer, Maxwell House, Jell-O, Chips Ahoy and Kraft are all brands with long histories.
Nonetheless, the company is feeling the effect of grocers tightening their inventories and pushing their own cheaper private-label brands.
Kraft has cut prices on some nuts, cheese and coffee. Several less profitable snacks and pudding products were discontinued.
Shares of Kraft (KFT) are down 16 percent this year after declines of 18 percent last year and 9 percent in 2006.
Second worldwide in its industry behind only Nestle, Kraft replaced troubled insurer American International Group in the Dow Jones industrial average in September. Warren Buffett’s Berkshire Hathaway has been its largest shareholder since 2007, with more than 9 percent of its stock.
Kraft’s prior estimate of 4 percent sales growth in 2009 has been reduced to 3 percent. Fourth-quarter net income fell 72 percent on restructuring expenses and other one-time items.
Analyst ratings on Kraft shares, according to Thomson Reuters, consist of three “strong buys,” two “buys” and 12 “holds.”
Kraft has frozen the salaries of Chairman and CEO Irene Rosenfeld and 18 other managers for 2009, though it says other employees will receive raises. Rosenfeld, with more than 25 years of experience at Kraft, for the past two years has aggressively sold off less profitable brands and made acquisitions.
Kraft earnings are expected to increase 0.5 percent this year compared with a projected 1.2 percent rise for the major diversified food industry, according to Thomson Reuters. Next year’s 9 percent increase forecast compares with 8 percent projected for its peers. The five-year annualized growth rate expectation is 8 percent versus 10 percent industrywide.
Q:Eaton Vance Large-Cap Value Fund was recommended to me. Your opinion please. — A.H., via the Internet
Answer: You won’t find anything fancy here: Locating big, inexpensive stocks is its goal.
This value fund doesn’t make significant sector bets, and its volatility is generally low. To the credit of the research done by its manager and analysts, it avoided investing in the most troubled of financial firms, such as AIG and Washington Mutual.
The $8.9 billion Eaton Vance Large-Cap Value Fund (EHSTX) is down 40 percent over the past 12 months to rank around the midpoint of large value funds. Its three-year annualized decline of 11 percent puts it in the top one-fifth of its category.
In charge of the fund since January 2000, Mike Mach ran institutional accounts over most of the prior two decades and is backed by 13 analysts. He sticks with traditional value stocks and avoids higher-priced opportunities that might catch the fancy of other managers.
Mach is a disciplined investor, automatically dumping a stock when its valuation relative to earnings is 24 percent higher than that of the average stock on the Russell 1000 Value index. He also considers selling whenever his holdings dip 10 percent below their purchase price.
“Mach is not going to stray very far into growth sectors, and his strategy has worked out quite well over the long haul,” said Greg Carlson, an analyst with Morningstar Inc. in Chicago. “The fund fits the large value slot quite well in an individual’s portfolio, and it could be paired with a growth fund.”
Nearly one-fourth of the portfolio is in financial services, with other significant concentrations in industrial materials and health care. Top holdings recently were Exxon Mobil Corp., AT&T Inc., Verizon Communications Inc., JPMorgan Chase & Co., Chevron Corp., Nestle SA, Johnson & Johnson, Travelers Cos., Wells Fargo & Co. and ConocoPhillips.
The fund requires a 5.75 percent “load” and $1,000 minimum initial investment. The annual expense ratio is 1 percent.