Institutions Hungry for Kraft?

If institutional investors take an interest in the recent Altria spinoff, retail investors could benefit.

Author:: Debra Borchardt
Publish date:: Jun 19, 2007 11:22 AM EDT

Retail investors could benefit if institutional interest in recent

Altria

(MO) - Get Report

spinoff

Kraft

(KFT)

increases to levels relative to its peer group.

Kraft has failed to attract significant institutional investment since leaving Altria's fold earlier this year. Just 17% of the company is owned by institutions and funds, according to

Reuters

. But money managers see signs that interest in Kraft from big investors could increase, which would drive demand for the stock and gains for current shareholders.

"Money managers would not look at

Kraft stock before, with the Altria connection," says Victor Hawley, co-manager of Reed Conner & Birdwell's large-cap investment team, explaining the stock's tobacco exposure through Altria made it a "toxic stock."

Now, Hawley says, he knows a lot of big investors that are interested in Kraft. In the last three months, institutions have purchased 112 million shares of the stock, but it is still a long way off the food processing industry's 52% average for institutional ownership, according to

Reuters

Institutional money managers and mutual fund managers are feeding on large-cap stocks in order to put cash inflows to work. Financial advisers tell their clients which money managers to use and where to allocate assets. Large-cap stocks, regardless of performance, tend to get the bulk of institutional allocations.

Kraft has a market capitalization of $54 billion and 1.6 billion shares outstanding. Tamro Capital Partners, whose Large Cap Value Composite portfolio grew from $3 million to $629 million in six years, does not own Kraft stock and has no plans to buy it, said President and CIO Philip Tasho. But he didn't rule out the possibility of increased institutional interest in Kraft, noting a steadier flow of funds from financial planners into large-cap stocks.

"If they were to look at it, it would be because it has potential for restructuring," Tasho says. "It's also the biggest in its group."

Avon Products

(AVP) - Get Report

and

Kellogg's

(K) - Get Report

each are more than 80% institutionally owned.

Clorox

(CLX) - Get Report

Kimberly Clark

(KMB) - Get Report

, Altria and

General Mills

(GIS) - Get Report

are all over 70% owned by institutions and funds, according to

Reuters

. These solid stocks have all tracked the

S&P 500

over the last five years.

Kraft, meanwhile, has slumped. It's off 1% so far this year; the S&P 500 is up 7.3% over the same period.

Kraft's average trading volume has risen from 5 million shares per day to 18 million shares per day currently. That increase coincided with the stock's inclusion in the S&P 500 and S&P 100 on March 31.