Kraft is the largest packaged food company in North America and the second largest in the world, behind Nestle. The breadth of its product offerings makes it a key supplier for retailers.
Kraft Foods Inc. (KFT) has been selected to replace American International Group Inc. (AIG) in the Dow Jones Industrial Average. “When you think of a Dow stock, you think of a company with a stable, solid business model and an enduring franchise representative of the American economy. Kraft clearly fits that bill,” Christian Andreach, who helps oversee $18 billion at Manning & Napier Advisors in Fairport, New York, told Bloomberg News. “It should give the stock a short-term kick.”
New Dow components often get a short-term boost as fund managers purchase shares of the addition to rebalance portfolios that are managed against the index. Similarly, stocks that are replaced face downward price pressure as shares are sold.
Dow components are generally seen as the cream of the crop of the large-cap U.S. market. Kraft certainly fits the bill in terms of size with a market capitalization of $50 billion and sales of over $37 billion last year. But as a rather recent spin-off of former parent company Altria Group Inc. (MO), Kraft just doesn’t have the distinguished history of some of its new Dow peers.
