Kraft Foods Group Inc (KFT), AbbVie Inc (ABBV), Zoetis Inc. (ZTS): Three Stocks to Profit from Zombie Apocalypse Thinking

Kraft Foods Group Inc (NASDAQ:KRFT)The rationale behind the popularity of  doomsday zombie scenarios is that the future is so bleak even zombies come as a welcome alternative. That’s the theory of author, Doug Rushkoff, whose “Present Shock” details the hurry up world that is traumatizing us.

One example of his was the Facebook Inc (NASDAQ: FB) IPO. People expected to make immediate bucks and when they didn’t they fled the stock. “When everything happens now” is the subtitle of the book, but long term investors know it takes time to make money.

Most IPOs underperform by an average -3.3% for the first five years. Understandably, traders abandon them after their initial profits. These spinoffs and splits with yield have compelling reasons to buck that trend and make money longer term.

Spinoffs can be thrilling

Several spinoffs this last year that are promising and have settled lower are  AbbVie Inc (NYSE:ABBV) and Zoetis Inc. (NYSE:ZTS), spinoffs from  Abbott Labs and Pfizer, respectively. These are the higher growth divisions that the parents felt were ready to move out of the house. They can be considered somewhat defensive as well.

Zoetis Inc. (NYSE:ZTS), the animal health company, commenced trading on February 4 in a widely-anticipated IPO and ran up19% on the first day. Its IPO was second in size to Facebook’s. Zoetis Inc. (NYSE:ZTS) products treat agricultural livestock (66% of revenue) as well as pets. It holds leadership positions in market share globally with its vaccines and medicines.

Pfizer still holds an 83% stake in Zoetis Inc. (NYSE:ZTS) and estimates the addressable market for Zoetis is worth $22 billion. Not surprising since a worldwide demand for animal protein coupled with a surge in pet ownership creates an ever growing pool of profits making it the most profitable of Pfizer’s divisions pre-spinoff.

Zoetis Inc. (NYSE:ZTS) trades at a 37.81 P/E but its forward P/E comes down to 20. Its operating margin is 19.90. Although the short interest is only 1% it has been increasing by more than 10%. The company is reporting on April 30.

AbbVie Inc (NYSE:ABBV), the  research-based proprietary drug maker, has a super yield for a spinoff at 3.7% and this name hasn’t really settled lower since its January IPO due to the all-consuming search for yield. It also has a very low P/E for a new debut of 12.84.

The company’s pipeline has seven products in Phase II trials and six in Phase III with treatments for: rheumatoid arthritis, multiple myeloma, advanced Parkinson’s disease, multiple sclerosis, cancer, and renal disease. Humira, used to treat rheumatoid arthritis is its cash cow and was responsible for 2012 sales of $7.93 billion.

Several of its primary care products for chronic conditions such as high cholesterol are going off patent this fall and have prompted the company to move its focus to specialty drugs. According to Bloomberg, it is reportedly firing hundreds of their sales staff for those drugs facing generic competition.

But not to worry, the company has an operating margin of 35.95% and a return on equity of 68.98%. The stock has moved from a low of $33.33 to a high of $43.77 on April 10. The stock has surpassed its median price target of $39.00 and three analysts have a strong buy, two a buy, and seven a hold. It is not growing as fast as its industry with analysts expecting single digit growth of 6.90% compared to the sector’s 12.54%.

AbbVie Inc (NYSE:ABBV) reports 2013 Q1 results on April 26.

Kraft Foods Group Inc (NASDAQ:KRFT) split from Kraft which changed its name to Mondelez International in October 2012. Did you follow that? Kraft Foods Group Inc (NASDAQ:KRFT), the domestic food manufacturer, has a yield of 3.9% and a P/E of 18.21. The P/E is below the industry average of 25.62.

While Mondelez kept most of the snacks including Cadbury’s, Kraft Foods Group Inc (NASDAQ:KRFT) kept the dairy, beverages, meats, dressings and spreads, and refrigerated meals. This included well-loved brands like Planters, Cheez Whiz, Jell-O, Oscar Mayer, Velveeta,  Maxwell House, Capri Sun, Gevalia coffee, and more. Their top ten “power brands” generate over $500 million in sales each.

Davenport downgraded it to neutral from buy on April 15. Analysts see 6.20% five year growth. Their opinions have been constant since the IPO with four strong buys, eight buys, and eight holds. It is a slower grower than Mondelez which at 12.2% is almost double the analyst expected growth rate.

All the defensive consumer staples have been running, especially ones like Kraft (absolutely no relation) with such a high yield. The PEG of 2.96 shows it’s somewhat overvalued here. But that gives you a chance to get a higher yield if it pulls back. That yield has a very sustainable payout ratio of 18%. The yield is also one of the highest among food manufacturers.

Kraft Foods Group Inc (NASDAQ:KRFT) is hanging here near its median price target of $51, so there’s no hurry nor much upside right here. The point is to hold on for that yield especially if you can get it on sale (maybe with a double coupon).

Kraft Foods Group Inc (NASDAQ:KRFT) should continue to benefit  from its strong brand loyalty as it was able to raise prices without too much consumer squawking last year.  They’ve also been rolling out interesting new products like their MiO liquid concentrate, Fresh Takes, cheese based seasoned coating mixes, and Cool Whip frosting.  Investors and analysts will find out exactly how much when they report 2013 Q1 earnings on May 2.

As you can probably guess Kraft’s biggest threat to margins is their commodity costs. Marketing is also a big expense and expected to rise this year to support these new products.

The Zombie takeaway

Kraft Foods Group Inc (NASDAQ:KRFT) is the leader when it comes to yield but is the slowest grower. AbbVie Inc (NYSE:ABBV) also has a high yield and a reasonable P/E. Its move into underserved medical conditions with specialized drugs is promising. Zoetis Inc. (NYSE:ZTS) is the beneficiary of two trends: the worldwide demand for animal protein and our love of pets.

All of these can be strong and long holds for the investor who can delay his gratification in a hurry up zombie world.

The article Three Stocks to Profit from Zombie Apocalypse Thinking originally appeared on Fool.com and is written by AnnaLisa Kraft.

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