"License to Grill"

06/16/2006 12:00 am EST


Beth Gaston Moon

, Schaeffer's Investment Research, Inc.

"Having just unofficially kicked off summer with a large barbeque, I thought now would be a good time to look at the companies that stand to benefit when the nation's grills get fired up," says Beth Gaston Moon. Here's her plays, including one favoriteKraft.

"When considering stocks for a summer barbeque, I did consider Clorox, parent of Kingsford charcoal and KC Masterpiece barbeque sauce; ConAgra Foods, parent of Armour meat products; Hormel, parent of Lloyd's BBQ products; Pilgrim's Pride, the second-largest poultry producer in US; and Tyson Foods, the largest meat-processing company in the world. And of course, man cannot live by meat alone, so other companies such as Coca-Cola, PepsiCo, and Anheuser-Busch, are also positioned to enjoy the benefits of a cookout-infused summer season.

"But the most appetizing name from an our ‘expectational analysis’ perspective, is Kraft Foods (KFT NYSE), which owns the Oscar Mayer line of processed meats, along with Post cereals, Nabisco cookies and crackers, and of course the Kraft line of cheese products. The shares recently gapped lower following a downgrade from Prudential. The brokerage lowered its opinion to ‘underweight’ from ‘neutral,’ citing valuation and ‘fundamental difficulties’ in the packaged-food industry.

"While we never like to see bear gaps transpire, they can sometime serve as a buying opportunity, should the underlying equity have the benefit of technical support. The shares currently appear to be rebounding from their ten-week moving average. This trendline has helped guide the shares higher since the beginning of the year. In fact, KFT has endured just one weekly close beneath this trendline since late January.

"Based on sentiment, the stock's overall Schaeffer's Equity Scorecard rating of 9 out of 10. The options open interest readings seem quite lopsided at 8.35. Next up is short interest, which is a force to be reckoned with on KFT, accounting for more than 10% of its float. What's more, it would currently take nearly three weeks, or more than 14 trading days, to eradicate all of the standing shorted positions at the stock's average daily volume. Should KFT continue to sprint higher following its retest of technical support, nervous short sellers could begin to stream toward the exits, providing a short-covering boost."

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