In short, the company is debt heavy, with low single digit top line expectations, pressure on margins from commodities, and uncertain plan for margin improvement. I know I'm missing something - opinions?I agree that it isn't all that obvious to me, but that doesn't mean much.One possible thought:One of the best single predictors of longer run future returns ishistoric growth in book value per share, which for Kraft has beenrunning around 10% since their 2001 listing. I like the way thatValue Line calculates it, being the smoothed average of rolling 5year periods. For example, the average of the 99-04 and 00-05 bookgrowth rates was 13.3% per year, but a bit slower lately.Meanwhile, the price has pretty much gone net nowhere--a couple of percent per year, barely more than the dividend, despite a lot ofshares having been repurchased. In effect, the book value growthrate was probably much higher, since the over 10% of shares whichwere repurchased at prices above book value decrease reported book valueper share, even though they may increase intrinsic value per share.If these two trends (high book growth and low price growth) remain true long enough, the stock is at some point an extremely good deal.It would appear that Berkshire has spotted some sort of crossover point,where the margin of safety has become irresistible. There is certainly a lot of unassailable brand value, and who knows, perhaps some untapped pricing power, in tune with your comments about a margin trough.The debt is high, but not unsustainable. A good rule of thumb istotal debt less than 5 years' profits makes for a conservative balancesheet. As you point out, they owe a lot, but it isn't wildly out ofproportion: they would be running at around 7.8 years, which isn't exactly running on the ragged edge of overleverage. This is aboutas sustainable as a business can get, and I have little doubt thatthey will still be around in a century. Leverage is sensible if itis not anywhere near enough to cause a risk of distress. So longas interest is tax deductible, prudent returns per share are often maximized at the highest gearing that is absolutely safe and sustainable.Historically, the stocks that I buy and understand why they shoulddo really well in the next few years have substantially underperformedthe stocks that Berkshire buys and for which I do not understandthe reasoning behind the purchase (except for Berkshire itself).Based on batting average, the odds favour Kraft being worth four timesas much per share in a decade on an NPV total return basis, even ifI don't really know why. I'm OK with that---a new learning opportunity!Jim
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