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Kraft Foods Group Inc (KRFT), AbbVie Inc (ABBV): Should We Follow Dodge & Cox’s Two New Buys?

Dodge & Cox is famous for its outstanding performance, delivering an annualized return of 12.5%, beating the S&P 500’s annualized return of 10.8% for the past 30 years. Founded in 1930, Dodge & Cox is currently managing around $84 billion in its long portfolio. In the first quarter of 2013, Dodge & Cox initiated long positions in Kraft Foods Group Inc (NASDAQ:KRFT) and AbbVie Inc (NYSE:ABBV). Let’s take a closer look to see whether or not we should follow Dodge & Cox into those two companies.

Kraft Foods Group Inc (NASDAQ:KRFT)

A U.S. mature food play with nice dividend yield

In the first quarter, Dodge & Cox accumulate nearly 4,000 shares of Kraft Foods, quite a small position with around only around a fourth of a million dollars. After spinning off Mondelez International Inc (NASDAQ:MDLZ), Kraft Foods now focuses on consumer packaged food and beverage, mainly in North America. It has two main food brands including Kraft Foods Group Inc (NASDAQ:KRFT) and Oscar Mayer.

According to the company, Kraft has the leading position in 11 of its top 17 product categories in the U.S. and the number two position in its remaining six product categories. Kraft derived most of its revenue, or 31% of its total revenue, from Cheese and dairy products while meat and meat alternatives ranked second, accounting for 15% of total revenue. Kraft Foods Group Inc (NASDAQ:KRFT) has quite a customer concentration, with five biggest customers representing 42% of total revenue. Wal-Mart Stores, Inc. (NYSE:WMT) is its biggest customers, representing around 25% of its total revenue.

While Kraft Foods Group Inc (NASDAQ:KRFT) concentrates its business on the maturing U.S. market, its spin-off focuses on fast-growing emerging markets. Mondelez International Inc (NASDAQ:MDLZ), headed by the ex-chairman and CEO of Kraft Foods, is the owner of Chips Ahoy, Oreo, Club Social, Chiclets, Trident, etc. According to Mondelez, the company was the number one global player in Biscuits, Candy, Powdered Beverages and Candy while Gum and Coffee ranked second in the world.

45.4% of its total 2012 operating income was generated from the developing markets while Europe and North America accounted for 35.4% and 19.2%, respectively. In the first quarter, Mondelez International Inc (NASDAQ:MDLZ) experienced significant growth of more than 9% in the emerging markets. India, Brazil, and China have grown at double-digit rates.

At $54.40 per share, Kraft Foods is worth more than $32.3 billion on the market. The market values Kraft Foods Group Inc (NASDAQ:KRFT) at 12.15 times EV/EBITDA and as high as 3.34 PEG. Income investors might like Kraft Foods with its decent dividend yield of 3.60%. Mondelez International Inc (NASDAQ:MDLZ) is more suitable for growth investors. It is trading at $31 per share with a total market cap of more than $55 billion. The market values Mondelez International Inc (NASDAQ:MDLZ) at a higher EV multiple of 13.62 but lower PEG ratioat 1.93. The dividend yield is much lower than Kraft at 1.70%.

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