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Ticker Shock: Eight Reasons Kraft Looks Tastier Than Whole Foods


Wednesday's top stories and stocks with potential to move.

Ugh! I've got a sore throat today. Ricola!

Asian stocks sank overnight. The Hang Seng and the Nikkei were off 1.45% and 1.18%, respectively. European stocks were, however, in slightly positive territory earlier this morning. And here in the US, we're currently trading lower.

Here's what I'm focused on this morning:

Whole Foods (WFMI):
The stock was up more than 3 bucks in after-hours action on the heels of its third-quarter numbers.

The company beat estimates and indicated it's looking for $0.80-$0.82 a share in 2009, which is north of the $0.65-$0.70 it was previously looking for.

My thoughts:

1. I don't know what people are getting so excited about. It's great they've raised the estimate, but at the end of the day, we're talking about a company that trades at about 30.3 times that estimate (based upon last night's closing price). Not too attractive.

2. Sales in the period were up a whopping 2% and comp-store sales were off 2.5%. Really impressive (note sarcasm).

3. Even if the company put up right around a buck a share this year and blew out its outlook, it's still overpriced.

4. Insiders -- if you're reading this and think I'm wrong, the choice is yours. Let's see you step up to the plate in the mid to upper $20s.

For my previous take on Whole Foods, click here.

Kraft (KFT):
Here's a little something to chew on. Check out its second quarter.

Kraft put up $0.56, which was $0.02 better than expectations. And although its revenue number looked a bit on the light side, I think it will be overshadowed by its outlook.

This line in the release caught my eye and I suspect many others could end up honing in on it too, this morning: "Kraft Foods increased its guidance for 2009 diluted earnings per share to at least $1.93 versus the prior expectation of $1.88." (Note that the Street is currently at $1.93.)

Some thoughts:

1. I sense that this year's estimate is going to get a nice bump up in the next few days. I'm even beginning to feel that the current 2010 estimate of $2.09 is on the low side, too.

2. Whatever the case, paying in and around 14.7 times this year's estimate would be reasonable for a company like Kraft, which has a very promising future and enjoys prominence in the food space. It seems like a significantly better deal than Whole Foods (I don't mean to bash, but I'm having trouble letting it go).

3. There aren't too many people talking about it, but I don't want to look past the dividend.

4. My guess is the company will be testing its highs within the next few months. In fact, the mid $30s is where the stock would be more fairly valued at this point.

For my last take on Kraft, click here.
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No positions in stocks mentioned.

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