Food Stock That Beats Inflation

Food producers Kraft and Kellogg  reported lower earnings for the last quarter, chiefly because of the higher costs of ingredients.  So should an investor bite?

"I think what we're seeing now from both companies is pretty decent performance," Sanford Bernstein senior research analyst Alexia Howard told CNBC. 

"Pricing is coming up...and revenue growth remains very strong."

Recommendations:

Howard believes Kraft is the one to buy at this point.

"We are seeing a moderation in dairy cost inflation, which affects Kraft most amongst the packaged food groups," she said.  "That should start to come through next quarter and the quarter after."

She says pressures from rising grain prices have much more of an impact on Kellogg .

"It's actually pretty challenging for them," she said. 

"We saw about 32 cents a share of input cost inflation that Kellogg managed to ride out in 2007; this quarter, they basically said, 'We were anticipating 65 cents a share of inflation on top of what we already got last year.'  They actually raised that today, up to 80 cents a share."

She noted that Kellogg maintained its full-year guidance, largely because of productivity improvements.

Disclosure:

Howard's firm has provided non-investment banking securities-related services to both Kraft and Kellogg.

Disclaimer

© 2008 CNBC.com