Buffett saves Kraft, Comcast dips & transports hit the Dow: What to watch

Here are three things worth keeping an eye on today...

Number 1:
 
Now starts the game of “Who’s next?” among the Big Food stocks.
 
Kraft Foods Group’s (KRFT) agreement to merge with Heinz in a deal backed by Warren Buffett and his partner 3G Capital is driving a pop of some 25% in Kraft shares. The pair will invest $10 billion in the merged company, essentially funding a planned $16.50-per-share special dividend going to Kraft shareholders.
 
In the two years since Buffett’s Berkshire Hathaway Inc. (BRK-B) and 3G teamed to buy Heinz, investors have viewed the pair as a possible rescuer of every slow-growth maker of packaged foods on the board.
 
Now that they’ve anointed Kraft, you can already hear traders chattering about what it could mean for any of the other owners of iconic but tired food brands. Campbell Soup (CPB) has already been eyed as a buyout or breakup target. What about Kraft’s former sibling Mondelez (MDLZ), or General Mills (GIS) or Kellogg (K)?
 
At minimum, investors and analysts will compare the value now assigned to Kraft as a target for peer companies.
 
But be careful about this sort of extrapolation.
 
The same sort of excitement for food pairings followed Buffett and 3G’s Heinz deal in early 2013. The whole group was bid up in subsequent weeks – and then the stocks have just sat there going sideways for two years.
 
These are companies with weak pricing power often on the wrong side of consumer’s emerging preferences for healthier, less industrial foods. The stocks are richly valued already and have been bolstered by the dividend cult. And, don’t forget, the biggest potential buyer will now be busy digesting Kraft for a long while to come.

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Number 2:
 
The Dow Jones Industrial Average (^DJI) just went digital by adding Apple (AAPL) to its roster. Yet plenty of traders still fixate on the Dow's companion index full of diesel-burning cargo movers for clues about the broad health of the stock market.
 
The Dow Jones Transportation Average – tracked by the iShares Transportation Average ETF (IYT)– has been lagging of late. The Transports were left behind in the Dow Industrials' latest run toward a new high.
 
The Dow Theory is a dusty but still-used bit of technical analysis that suggests the Transports and Industrials should "confirm" one another in a strong tape. So the slippage in the trannies has some on alert.
 
Those willing to offer alibis for indexes will say the railroad stocks are weighing on the sector, which is mostly a function of weaker demand for crude-oil transport. The truckers have stood out on the strong side, but the big package-freight stocks have joined the rails in trading heavily.  
 
Watch the IYT today as a way to monitor how the chart jockeys will be playing this choppy tape.

Number 3:
 
Another tentative sign of stealth weakness in an important group is being flashed by the media sector. Shares of the pay-TV stocks Comcast (CMCSA), Time Warner Cable (TWC) and DISH Network (DISH) were off around 2% yesterday, with weakness even extending to industry darling Walt Disney (DIS).
 
Is the market sniffing out potential trouble in the long-pending Comcast-Time Warner Cable merger? Is all the talk of alternative video services finally beginning to weigh on the industry incumbents?
 
Are investors feeling less comfortable over how the messy net neutrality debate might play out for broadband providers? Is all this just the flipside of Facebook’s (FB) utter domination of eyeballs and its newly potent role at the center of media?
 
It’s not clear just yet. That’s why you need to watch whether the group can turn it around or is on the losing end of a rotation by investors into other kinds of consumer stocks that Facebook and Apple aren’t gunning for.

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