Aside from today’s revelations about an intentional depressing of wheat pricing back in late 2011, it’s not been bad news for Kraft Foods. The stock surged more than 35% on the announcement it reached a deal with Heinz, creating the third-largest food company in the United States and the fifth-largest in the world.
The new entity will be a difficult one to control, as any new big entity requires many considerations with corporate culture and integration. There is a strong incentive in liking the KRFT stock and this is related to the field the company is active in – food.
There is a strong shortage of food in the world, and the trend is going to be steeper by each year making companies active in the food supply appealing to investors.
It depends very much on the time horizon of an investment but usually with stock investment medium and long term periods should be considered. The fact that stock price jumped by more than 35% showed that investors cheered the announcement but not everyone was happy about the deal.
Goldman Sachs announced it is removing the company from the buy list following the announcement as it has difficulties growing more over the short and medium-term. However, this may be due to profit-taking from their own part and now just switching/aligning the portfolio to other opportunities.
From a technical point of view, the share price looked to be exiting a pattern that indicates a top is to come, and I am talking about a special type of a contracting triangle.
In this triangle, the b wave is the longest one and all the other waves are shorter but in such a way that the b-d and a-c trend lines are still contracting (apex is projected somewhere in the future).
Fibonacci projections out of such a triangle indicate a top somewhere around 161.8% when compared with the length of the b wave, and that is around the 80$ mark the stock is trading right now.
Therefore, I tend to agree with Goldman and grow bearish on the KRFT with the recommendation being put options with as big an expiration date as possible, a one month/end of the month expiration date for April.
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