It's time for a little humble pie.
Cramer hasn't been a fan of Kraft ever since it was spun off from Altria , but now he stands corrected.
Cramer was too enamored with the tobacco component of Altria to see what others saw in Kraft: that Carl Icahn and Nelson Peltz, a pair of activist investors with some of the best track records out there, were building positions in the company. Both of these guys are worth emulating, Cramer said. Peltz got involved with Heinz and the stock skyrocketed. Same story with Icahn and Time Warner , Temple-Inland and Kerr McGee . These guys were right, Cramer missed out, and he’s done being on the sidelines.
It’s hard to say when Peltz and Icahn got into Kraft, but it’s around the current prices, Cramer said. That means this game is still in the early innings for them. And don’t forget that activists generally outperform the indexes, and Peltz and Icahn greatly outperform the typical activist.
But none of this matters without the fundamentals. Cramer was sour on Kraft because it buys $3.5 billion in dairy products - a cost that is up 50% year-over-year and can’t be hedged. But cost comparisons should peak this quarter and get better after that, so the dairy element may not be so bad after all.
With Peltz and Icahn, better earnings and easier margins after this quarter, Cramer thinks Kraft could go past $40. But he wouldn’t recommend buying until after the quarter, when he predicts a sell-off that will create a buying opportunity.
Bottom Line: Cramer was wrong on Kraft, but there’s no point in continuing to be wrong when you can buy on weakness.
Jim's charitable trust owns Altria.
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