- A recent spike in Kellogg's shares was thanks in part to short-lived speculation that Coca-Cola was considering a takeover of the cereal and snacks producer.
- Takeover talk aside, analysts feel that while Kellogg may not see massive sales spikes like startups, it is a "dependable company" that's attractive to more conservative investors in terms of financial progress. That includes predictions for a 5% profit increase this year and a 7.5% jump in 2017.
- Kellogg shares are up more than 5% in 2016 and approaching a record high.
There's nothing like an enticing takeover offer to make investors and traders salivate long enough for a food company's shares to spike. Earlier this month, Hershey saw a similar spike when rumors of a Nestle takeover emerged but were squashed just as quickly.
But as with the Nestle-Hershey rumors, a Coca-Cola takeover of Kellogg seems off for a few reasons. CNN Money argues that the deal "isn't that farfetched," citing PepsiCo's ownership of Kellogg competitor Quaker Foods. But when PepsiCo purchased Quaker Foods in 2001, it had long owned its Frito-Lay snacks division, which meant PepsiCo had the experience and logistics in place to merge Quaker into its supply chain.
That's not the case with Coca-Cola, which has for a long time been strictly a beverage manufacturer. Coca-Cola announced in March it was selling off all of its bottling plants and downsizing the company to focus on the more profitable concentrate sector. Leaping into unknown territory with the acquisition of a snacks and cereal company isn't a logical or lucrative decision for the company.
Plus, Coca-Cola is having enough issues poising soda for a turnaround. Having to turn around cereal too would be yet another challenge.
Still, the rumors didn't hurt Kellogg's share price. Rumors of the Coca-Cola takeover sent options volume on the stock soaring to 18 times its average daily call volume. Investors were able to turn the spike into as high as nearly 40% profit in one day.
This case illustrates that food and beverage stocks can still be attractive targets for investors, despite recent loss of interest as sales decline for processed food companies. This could be whether food stocks are the "dependable" stocks conservative investors can count on, or the volatile stocks caught in the rumor mill amid industry consolidation.