NEW YORK ( TheStreet) -- Earlier this week we saw Kraft spun-off its domestic grocery division, which will keep the Kraft name, from its global snack business, which is now known as Mondelez. Stephanie, I know you traded it this year and you bought some right before the spit, so what's the trade now?Stephanie Link:
Yeah. I think you can own both positions. You're going to get both positions, most likely. Mondelez has the highest growth. They are the company that has 75 percent of their revenues tied to the fastest growing products in packaged food. So gum and candy and chocolate and biscuits -- where they have a number one and number two market share in all of these. Also, 44 percent of their exposure is tied to emerging markets, which are faster growing regions -- 33 percent are BRICs, so they've got a lot of good exposure. They've got a lot of good products, and decent geographies. So I think they're going to expand their market share and I believe that they'll be able to grow 5-7 percent organically in revenues and low double digits in earnings. The stock trades about 17 times forward estimates, so that's not cheap, but about 1.5 times PEG (price/earnings/growth), that is cheap relative to its peers and relative to what its peer's growth rates are. So it's going to grow much faster. The North America piece is why I say it's kind of boring. It's your North America package food company. They are the fourth largest in the US. They have size. They have scale. They have good brands. They don't have a lot of growth. They've got about 2-3 percent organic growth. They've got about mid-single digit earnings growth. So to me, 16 times forward estimates for that is less interesting, but I think if you get it, you hold onto it because you have the 4.5 percent dividend yield, which will grow 7-8 percent over the next several years. Lindsey Bell:
Looking at the Mondelez business and Kraft, I guess, how are commodity costs going to impact these going forward? How is each business addressing them? Stephanie Link:
Well it's interesting that you mention that. So back in September before the company split, the company lowered guidance on their various pieces. A lot of that was tied to currency, but also, it was tied to raw material cost pressures. So in my view, you've actually seen commodity costs come down in the last couple of weeks, particularly oil, but in other commodities as well - Ags, etc. So maybe their guidance is on the conservative side, which is definitely something to keep in mind. Currency is also something to keep in mind. I think the strong Euro might actually give upside to the Mondelez piece. And on the flipside, North America, if you really believe currency is going to be an issue, they're not going to have it as an issue because they're 100 percent USA. So I think there are a lot of gives and takes. And I think at the end of the day, you focus on fundamentals. I think this company is doing an amazing job at creating shareholder value by splitting up these two businesses, which I think will do better as separate entities versus one entire group. Lindsey Bell:
Now if you had new money and you wanted to focus on the domestic piece, I know that the Kraft domestic grocery business has the 4.5 percent dividend yield, but it has a high payout ratio and a high P/E as well. Would you put new money to work in Kraft or would you look at something else in the space, like maybe a Kellogg, I don't know, General Mills? Stephanie Link:
No. I mean, I think that you hold. I think that the North America Kraft business is a hold. Lindsey Bell:
Okay. Stephanie Link:
Because of the valuation. I would rather see it pull back. But I understand why right out of the gate it's been strong, because people are starved for yield, 4.5 percent, you know it's very well covered and pretty safe, and it's going to grow 7-8 percent. So I do not think you chase it. I think you hold it and you wait for any pullback to buy it. But for me, the Mondelez piece has come out of the gate kind of soft, and I actually like that. So that's why we've been adding to that position.