Kraft Foods rallied by 6.9 percent to close at $31.33, the day after Warren Buffett's Berkshire Hathaway revealed it has accumulated an 8.6 percent stake in the company, becoming Kraft's largest shareholder. That's the biggest one-day percentage gain ever for Kraft, which began trading on the NYSE in 2001.
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Buffett's Kraft Foods stake also helped push other food stocks higher in what one portfolio manager calls a "bit of a halo effect" for the sector that often accompanies news of a Berkshire buy. Bullish forecasts and earningsfrom H.J. Heinz , Hormel Foods and Campbell Soup also point to better pricing power for the industry, which has been hit by rising agricultural commodity costs.
Edward Jones analyst Matt Arnoldtells Reuters that Kraft "is a company with leading, high-quality brands with depressed margins (that) offers significant value if management can restore profitability and drive the top line with product innovation."
Well-known and highly-respected brands, like Kraft's Oreo cookies and Oscar Mayer hot dogs are important to what Buffett calls a company's "durable competitive advantage", a key factor he looks for when buying into a business. (See, for example, his "crazy" 1988 bargain buy intoCoca-Cola (now worth almost $12 billion) and his Gillette-generated holdings in Procter and Gamble (now worth about $7 billion.)
On CNBC's Squawk Box this morning, Buffett book author Andrew Kilpatrick of Wachovia Securities, noted that strong brand names "don't appear on a balance sheet" but are valuable nonetheless. Citigroup's Tobias Levkovich also found Buffett's recent interest in large-caps to be interesting.
Another big positive for Buffett is a strong, trustworthy management. Kraft Food spokesman says, "We're pleased with Buffett's vote of confidence... It signals he thinks we are doing the right thing." The company is in the middle of a multi-year turnaround plan under CEO Irene Rosenfeld. (Activist investor Nelson Peltz got some board members after he challenged Kraft's strategy last year.)
Berkshire Hathaway's Current Price:
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