Given the market's volatility, investors have stayed "defensive," beefing up their portfolios with recession-proof stocks. "Investors are being challenged on two fronts: the global economic slump and the housing and credit crises, which will take years to work out," says Joseph Battipaglia, market strategist at Washington Crossing Advisors. Risk aversion is high because of recession fears, he says, making it difficult for the equity markets to sustain rallies. Battipaglia favors shares of big-cap companies with stable earnings that are not exposed to financial-sector problems.
A top pick: Kraft Foods (KFT), the largest U.S. food-and-beverage company and No. 2 in the world, whose estimated 2007 sales of $36.9 billion are expected to jump to $41 billion in 2008 and $43.7 billion in 2009. Yet Kraft, with a 3.6% dividend yield, saw its stock fall from 37.20 in June to 29.45 on Jan.30. Battipaglia sees Kraft hitting 40 this year. The company is restructuring to spur sales growth and slash costs.
One big stakeholder is billionaire Nelson Peltz, with more than 2%. Kraft named two of his nominees to the board after he agreed not to seek control. Peltz's contribution has been a "positive" in keeping Kraft on track to enhance shareholder value, says Charlie Georgas of Jackson Securities, who rates Kraft a buy. He forecasts earnings of $1.97 a share in 2008 and $2.41 in 2009, vs. 2007's estimated $1.83.
Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.
Copyright 2008 BusinessWeek
