A Rich Aroma From The Twinkies Shop

Following Unilever's agreement to buy Bestfoods for $24.3 billion, the rush is on to pick the next acquisition target in foods. That has attracted heavy buying in Interstate Bakeries (IBC), trading at 15 a share. "It is one of the cheapest stocks in foods--based on its brand products and potential as a takeover target," says one New York money manager, who has been accumulating shares. Interstate, once one of the darlings of Wall Street, is the largest wholesale baker in the U.S., supplying baked goods to supermarkets and convenience stores. Its brands include Wonder bread, as well as Hostess and Dolly Madison cakes.

A Rich Aroma from the Twinkies Shop

Recent buzz that big food companies, including Unilever, are eyeballing Interstate prompted Interstate to adopt a poison pill. Interstate insists it doesn't aim to block a takeover--but wants any suitor to negotiate with the board first.

Value investor Mark Boyar, who describes Interstate as an attractive target, says the stock is worth 33 in a buyout. "It is selling at a substantial discount to its peer group and the food industry as a whole," says Boyar. He argues that even without a buyout, the market will ultimately reward IBC with a higher price-earnings ratio. In two years, says Boyar, who has accumulated shares, the stock will climb to 35.

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