Finance

This dirt-cheap Warren Buffett stock could make you richer


Do you like cheap stocks? Do you like Warren Buffett’s approach to stock picking? If you answered “yes” to both questions, you’re in luck!While true value stocks are rare these days, Buffett currently owns a handful of names Berkshire Hathaway This portfolio is very cheap.

One of these could make you richer for the foreseeable future. That stock? Kraft Heinz Company (NASDAQ:KHC).

Buffett’s long and painful journey with Kraft Heinz

If you regularly follow Buffett’s picks, you might be a little surprised to see Kraft Heinz recommended as a stock worth owning. This stock has been a disaster since its inception. merge Buffett acquired stakes in food giants Kraft and Heinz back in 2015, when Buffett helped engineer a deal to acquire his then-held stake in Heinz. The hoped-for synergies never materialized, ultimately leaving the stock well below its 2017 peak.

By 2019, Buffett was forced to admit: “We overpaid for Kraft.” In retrospect, it was a subtle statement from the Oracle of Omaha that neither company nor its brand name meshed well. together, and the anticipated cost savings were never realized.

Then the pandemic hit, inflation ran rampant, and competitors piled on the chips. The end result is that Kraft Heinz stock is still down more than 60% from its 2017 highs and has made no net progress since the start of 2021.

However, there’s a reason why Warren Buffett has let Berkshire Hathaway hold on to the 325 million shares of Kraft Heinz it’s owned since the two companies merged in 2015. Buffett still believes in Kraft Heinz’s potential. And he should, for several reasons.

Meet the new and improved Kraft Heinz

Chief among them is that there is finally light at the end of the tunnel after a long and tragic post-merger journey. Relatively new CEO Carlos Abrams-Rivera appears to have his finger on the pulse of Kraft Foods. Heinz Company has the most. This is a misunderstanding of what consumers really want from food brands.

Now, people just want low-cost but delicious convenience. That’s why the company’s popular macaroni and cheese products are being repositioned as meals, for example, while the launch of its 360 Crisp line of frozen food products allows consumers to make crispy grilled cheese sandwiches in the microwave rather than on a griddle. Kraft Heinz’s efforts are underscored by the fact that it was recently named one of the world’s most innovative companies by Fast Company.

Of course, product development is only half the battle to turn a company around. There’s also the financial aspect, which is where this merger is really disappointing. The company is finally taking a long, honest look at its expenses, which it didn’t need to begin with.To this end, Kraft Heinz aims to Reduce annual expenses A reduction of $2.5 billion by 2027; $700 million of which was eliminated last year. To put things into perspective, last year the organization turned $26.6 billion worth of revenue into net profits of just over $2.8 billion.

There’s another reason Kraft Heinz’s foreseeable future is brighter than its recent past: For the first time in a long time, the company is relying heavily on data rather than intuition or history to make strategic decisions.

Interested investors also shouldn’t wait for these efforts to start having an impact on the company’s top and bottom lines. Last year’s modest revenue growth still supported 20% net profit growth. Analysts expect more progress this year. Next.

It’s time to follow in Warren Buffett’s footsteps

still, Kraft Heinz?Even if the company is operating at full capacity, there are options for higher growth. However, these options are riskier and carry significantly higher valuations.

Apart from S&P 500 IndexCurrently, Kraft Heinz trades at a trailing P/E ratio of over 23 times and a forward P/E ratio of over 21 times (both above long-term norms), with Kraft Heinz stock trading at just its trailing P/E ratio. 15.5 times earnings. Earnings per share were less than 12 times this year’s estimates. That’s cheap by any standard in any market environment.

Even better, new investors will buy Kraft Heinz stock with a dividend yield of over 4.4%, compared with the S&P 500’s 1.35% dividend yield. That’s likely why Buffett remains so patient about Berkshire Hathaway’s stance on this troubled stock — it still pays out a lot of cash.

So connect the dots. The market is currently not pricing in any turnaround from Kraft Heinz Co. Still, investors can’t ignore these efforts forever, especially now that they’re coming into focus. You might want to try this Buffett-owned stock before a bunch of other investors figure it out.

Should you invest $1,000 in Kraft Heinz right now?

Before buying Kraft Heinz stock, consider the following factors:

this Motley Fool Stock Advisor The analytics team has just identified what they believe is 10 Best Stocks Investors can buy now… and Kraft Heinz isn’t one of them. Here are 10 stocks that could generate big returns in the coming years.

stock advisor Provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. stock advisor The service has more than tripled the S&P 500’s returns since 2002*.

View 10 stocks

*Stock Advisor returns as of March 25, 2024

James Brumley The Motley Fool has no position in any of the stocks mentioned. The Motley Fool owns and recommends Berkshire Hathaway. The Motley Fool recommends Kraft Heinz. Motley Fool owned disclosure policy.

This dirt-cheap Warren Buffett stock could make you richer Originally published by The Motley Fool



Source link

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button