Kraft Spins Turnaround While Mondelez Delivers Growth

Includes: BNNY, KHC, MDLZ
by: Dana Blankenhorn

The big news today is the launch of two new stocks - Kraft Foods (KRFT) and Mondelez International (NASDAQ:MDLZ), from what had been one company, Kraft.

Here's how to think about it. Kraft is getting the assets that might be good for you -- things like meat, and cheese, and mayonnaise. Mondelez is getting the stuff that is not good for you -- things like Oreo cookies and Cadbury chocolates.

Analysts are spinning both stocks like politicians. You've got to buy Mondelez because it has the international growth. No, you've got to buy Kraft because it has the profit potential.

In fact, the management of the unified company was putting its attention into the products that became Mondelez because that's where the profit potential lies. The key part there is Nabisco, which became one of the first big-name brands in the late 19th century with "the Uneeda biscuit in the airtight sanitary wrapper that made the cracker barrel obsolete."

That last line is a direct lift from Meredith Wilson's "The Music Man," but it's true. Nabisco was a key player in creating a single national market in the U.S., 100 years ago. And what worked then is working now on a global level -- the world is becoming one market in many ways, and what works in the U.S. can work in China with only minor tweaking.

Kraft, meanwhile, has been getting the short end of the stick. Proof lies in the success of a 2012 IPO called Annie's (NYSE:BNNY), which rose on the back of a "better" macaroni and cheese product, and is now moving into related areas like pizza. Its products are innovative and well-marketed -- a contrast to Kraft's own -- and that's why analysts are now pounding the table for Kraft. They figure that spinning-out Mondelez will force investment in and attention on brands like Velveeta that could take Annie's down.

If it were only that simple. Have you tried Kraft Mac-n-Cheese? Have you tried Annie's? Get back to me when you do.

What the analysts are saying is this all comes down to marketing. Analysts are telling you that marketing alone can turn Kraft around, so you should buy that potential, while Mondelez has succeeded as a marketer, so you should buy that reality. When you didn't want Kraft, you're supposed to want its offspring.

The bottom line is that Kraft is a speculation, and Mondelez had better prove it can deliver numbers before you put a dime in it. Don't buy the hype. Wait for the proof. Don't be stampeded into buying these companies until they demonstrate they are what is claimed. It's not like they're technology outfits. It's not like the stocks are going to run away from you.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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