3 Long Term Buys You Must Not Miss: FedEx Corporation (FDX) and More

Kraft Foods Group Inc (NASDAQ:KRFT)

After its spin off from Kraft Foods in October 2012, Kraft Foods Group has announced a ~$650 million restructuring program, which is expected to close by 2014. The main idea behind this program is to establish a more secure and independent set up for the company after the spin off. The restructuring savings could drive up EPS estimates over the next two years. Recently, on Jan. 14, 2013, Kraft Foods paid its quarterly dividend of ~$0.50 per share, which was the first dividend after it was spun off from Kraft Foods, Inc. With this dividend, the dividend yield for the company is ~4.3% and the payout ratio is ~76%, which makes it an attractive option in this sector.

The most interesting factor about the company is its pricing strategy: ‘PNOC’ (pricing, net of costs). In the current environment, when the other companies are focusing on price hikes to cover their rising costs and expenses, Kraft Foods is following its PNOC strategy so that the prices cover the inflation costs and the benefits of the enhanced productivity are passed on to the shareholders via re-investments or cash flow growth. Also, the company’s top-line growth target helps it in adopting this path of PNOC. I believe the company’s operating margin will improve by ~200 bps to ~19%. This would be possible mainly because around 32% of the Kraft’s portfolio is in higher margin grocery and other products. This could further enhance the EPS base by ~$0.65 in 2013.

Another important fundamental for the company is its combination with Cadbury, which helps the company to improve its sales and distribution process in the new as well existing markets. This combination will generate ~$1 billion of revenue synergy along with the ~$750 million of cost synergy by 2013. Based on these factors, I expect Kraft Foods to generate an organic revenue growth of ~5% and EPS growth of ~10% in 2013.

Conclusion

To sum up, the respective strong fundamentals of these companies present a compelling opportunity for investors. The cost saving initiatives will help FedEx to improve its margins and would boost its EPS in the short as well as the long-term. For Valmont Industries, the overall industry trends with improved demand scenarios would act as a tailwind for its EPS growth. Lastly, Kraft Foods is already placed among the top-performers in the industry with its robust growth numbers. Its pricing strategies would further support the top-line growth of the company. I recommend a buy rating for all three stocks.

The article 3 Long Term Buys You Must Not Miss originally appeared on Fool.com and is written by Shweta Dubey.

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