Should You Buy Kraft Ahead of Earnings?

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T = Trends Might Support the Industry

The bad news is that costs have been high. Using a compound annual growth rate (CAGR) over the past three years, the cost of milk has increased 4 percent, the cost of beef has increased 6 percent, the cost of coffee has increased 15 percent, and the cost of chicken has increased 5 percent. This has led to a great deal of frustration throughout the industry. However, an ironic situation is likely to present itself in the future. It’s one of those “be careful what you wish for” situations. Eventually, our country’s massive government and private debts must be paid off, monetary stimulus must slow (or have less effect), and interest rates must increase. This will lead to a deflationary environment. The good news is that costs will come down for just about everything, including gas and food. The bad news is that demand will also fall.

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Conclusion

Apologies are in order, as no attempt will be made to predict earnings. Investors should consider waiting to see what happens and then plan accordingly. Listening carefully to management will often provide a good indication on where the company is headed. By not getting involved prior to earnings, investors might miss some upside potential, but it’s not worth the risk. This is a dividend play anyway; there is no sense in taking unnecessary risks. The generous yield will be in place either way.

Kraft is a WAIT AND SEE.

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Disclosure: All content posted represents my opinion and views and should never be considered professional advice. You should do your own research and consult with a professional financial advisor before making any investment decisions. I do not have a position in this stock. I am currently short technology, financials, the Russell 2000, and the euro.

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