When Warren Buffett speaks, investors tend to listen. In the case of Kraft Foods, they should pay more attention to where he invests his money, reports The Wall Street Journal. On Saturday, Buffett took another opportunity to rail against Kraft's acquisition of Cadbury and the sale of its frozen-pizza business to Nestlé, calling the deals "dumb."
Shareholder votes weren't required for either deal, and Berkshire Hathaway's 8.8 percent stake in Kraft prevented Buffett from blocking the deals. Why the criticism? Kraft may have overpaid for Cadbury and did not structure the pizza deal ideally, so the company shares have suffered. Kraft trades at 12.8 times concensus 2011 earnings, compared with Kellogg at 13.9 and General Mills at 14.3.
Nevertheless, chances are Buffett has no plans to sell Kraft stock, and Kraft shares are unlikely to drift much lower. Private-label has hurt the giant, and Cadbury has demonstrated it can raise candy prices faster than Kraft can raise packaged food prices. With the acquisition of Cadbury, Kraft will improve its presence in emerging markets more quickly than its U.S. competitors.
