91视频

Dear Mr. Berko: In mid-February, when you recommended Ralcorp at $59 per share, you never wrote a word about Kraft. I bought 150 shares of Ralcorp, but now I would like your opinion on Kraft, which is two points lower than it was in February. Would you recommend a $10,000 investment for the medium term?

Also, I have a $200,000 certificate of deposit coming due. I would like to invest this CD money in another CD for four years to get a 4-percent return. But I need to know if the government will renew the new $250,000 level of Federal Deposit Insurance Corp. insurance. Thank you.

C.T.
Des Moines, Iowa

Dear C.T.: Well, it鈥檚 true that last February when I fossicked through my haversack for a food stock, I preferred Ralcorp Holdings (RAH-$60) at $59 over Kraft Foods Inc. (KFT-$25) at $27. Since mid-February, Ralcorp crawled to $64 and settled back to $59-$60 and Kraft settled at $25. I recommended Ralcorp because I believed it had a more attractive balance sheet and income statement.

I鈥檓 not an aficionado of the Ralcorp food line, but I am an enthusiastic serial consumer of Kraft鈥檚 Crystal Light, Oreo and Nabisco cookies, Philadelphia cream cheese, Velveeta cheese, Post cereals, Oscar Mayer products and Kraft鈥檚 own marshmallow creme fudge. A couple of U.S. Army guys tell me how much they use and appreciate Kraft鈥檚 shopping site for members of the military. However, I am unimpressed with Kraft鈥檚 Web site, which is slow as molasses in downloading consumer data.

In 2009, Kraft is expected to produce $42 billion in revenues. The shares should earn $1.90 this year and $2.05 in 2010. Its $1.16 dividend yields a swell 4.6 percent, and the dividend could be increased to $1.22 in the coming 12 months. I like that dividend.

During the past 18 months, management has invested in various substantial restructuring efforts to improve global leverage and reduce high cost structure. Management has reduced its workforce, consolidated many of its facilities and eliminated less profitable products 鈥� such as juices, flavored water, hot cereal brands, etc. 鈥� that haven鈥檛 carried their weight in profits. Management will sell many of these brands, and reinvest the proceeds in new product development. Marketing will be focused on core brands. Kraft must raise prices, too, because its commodity costs are increasing.

However, as consumers rein in food costs by switching to less expensive products, Kraft鈥檚 volume will come under pressure, and the road ahead might be a bit lumpy. But Kraft鈥檚 great balance sheet and its attractive dividend make this an easy issue to hold for the long haul as investors wait for restructuring efforts to improve performance.

Meanwhile, Citigroup, Davenport and UBS each give Kraft a five-star ranking. Plus, Warren Buffett owns 9 percent of the company and added millions of shares to his position in March 2008 at $30. However, I will also tell you that Buffett bought millions of shares of General Electric Co. (GE-$11.70) in October 2008 at $22.

Kraft isn鈥檛 going to be a hot stock that you can sell a year or so later at a good profit. Kraft is basically a core holding for conservative income and growth investors that should have less volatility than the general market.

Not to worry. The FDIC insurance of $250,000 per account set to expire late this year has been extended to 2013. The decision to extend the insurance cap to $250,000 is evidence of its popularity and indicates that the new cap will become permanent.

However, I think that a $200,000, 3.2-percent CD for four years could be a bad financial decision. I can give you 11 reasons why you shouldn鈥檛 tie up that $200,000 at 3.2 percent for four years, not the least of which is that interest rates could rise later this year, and will certainly go up in 2010. Put just 30 percent of your $200,000 in the 3.2-percent CD for four years and invest the remaining $140,000 in six-month increments.

Address your financial questions to Malcolm Berko, c/o The Daily Journal of Commerce, P.O. Box 1416, Boca Raton, FL 33429, or e-mail him at [email protected].
漏 Creators Syndicate Inc.