We recently compiled a list titled Buffett Stock Portfolio: Top 10 Stock Picks for 2024. In this article, we will look at where The Kraft Heinz Company (NASDAQ:KHC) ranks among the top 10 stocks in Buffet’s portfolio.
Warren Buffet is one of the most accomplished investors in the history of Wall Street. According to Bloomberg’s Billionaire Index 2024, the Oracle of Omaha has a net worth of $143 billion, making him the ninth richest person in the world. His wealth would have been much more had he not decided to donate most of his vast fortune to charities. Since 2006, Buffet has donated over $55 billion to various charitable organizations, with a majority of the gifts going to the Bill & Melinda Gates Foundation.
Buffet rose to prominence in 1965, after transitioning his investment firm into a conglomerate that held stakes in companies belonging to a broad range of industries. Between then and 2023, his firm earned average annual returns of 19.8%, outperforming most stock indices that delivered returns around the 10 percent mark during this period. However, this year, Buffet seems to be in a defensive mode and is currently in the news for his sell-off spree, significantly reducing his investments in several notable companies.
There have been mixed opinions about Buffet hunkering down on stocks. Edward Jones analyst, Jim Shanahan, said that the actions make him ‘concerned’ about Buffet’s outlook for the stock market and the American economy. In contrast, Daniel Ives, a Wedbush analyst, is less worried and believes that despite the selling spree, Berkshire still holds the top positions in those stocks by large margins, which should not be viewed as a ‘smoke signal for bad news ahead’.
So what will Warren Buffet do with all that cash? Andrew Bary, the associate editor at Barron’s, recently stated that the billionaire has been on the look for a major acquisition for some while now, which has so far proven elusive. He believes the Berkshire CEO may just hold the cash for some while, earn interest on Treasury Bills, and wait for potential opportunities to grab in the stock market.
Another factor that has likely contributed to Warren Buffet dumping stake in some of his top stocks is the speculation around the increase in capital gains tax. The debate on the tax rate has been on for some time now and has even become a talking point in the run-up to the presidential elections. Vice President, Kamala Harris, during a speech in New Hampshire this month, proposed to raise the long-term capital gains tax for wealthy individuals to 28%.
The current tax rate is 21% when a gain is realized. Massive gains over the long term result in a large tax. Warren Buffet invested in stocks he is currently selling a long time ago, and hence, is sitting on handsome gains. The rationale behind selling these stocks could be to capitalize on the gains as much as possible on the current low tax rate, instead of paying hefty taxes later if the rate were to be increased.
Methodology
We scanned Warren Buffet’s portfolio, as of June 30, 2024, and picked the top 10 stocks according to their stake value. The figures were sourced from the Insider Monkey Database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
The Kraft Heinz Company (NASDAQ:KHC)
Stake Value as of Q2 2024: $10,491,953,836
The Kraft Heinz Company (NASDAQ:KHC) is a global food and beverage leader, formed in 2015 after the merger of Kraft Foods and Heinz Company. It manufactures and markets a wide mix of products, including condiments, dairy food, meat, beverages, and other grocery items.
The company reported mixed results In Q2 2024, with net sales of $6.48 billion, down 3% year-over-year, and also short of expectations of $6.55 billion. However, earnings beat estimates, with KHC logging an EPS of $0.78 for the quarter against forecasts of $0.74. Operating income stood at approximately $500 million, declining 62.1% compared to the same period in 2023, due to noncash impairment losses of $854 million. In contrast, driven by higher pricing, improved gross savings, and lower commodity and logistics costs, operating income for the quarter grew 2% to reach a total of $1.4 billion.
The Kraft Heinz Company (NASDAQ:KHC) faces intense pressure in the UK from high inflation and increased competition with private labels gaining traction. During the Q2 earnings call, CFO Andre Maciel, also expressed concerns about demand softness and consumer fatigue in emerging markets, most notably in China and Brazil.
Despite the dip in sales during Q2, the management is optimistic of gradual improvement during the back half of the year. CEO Carlos Abrams-Rivera shared the following remarks in the company’s Q2 earnings call:
As we enter the second half of 2024, many drivers are giving us optimism for improved top-line trends. We are anticipating a continued ramp-up of both innovation and renovation, particularly in North American retail, and we are increasing our marketing investment to continue to drive brand superiority across our portfolio. In Away From Home and Emerging Markets, we expect to increase distribution through our go-to-market strategy and global activations. Finally, understanding that the consumer is looking for value, we will selectively increase investments in promotions.
The Kraft Heinz Company (NASDAQ:KHC) has significantly ramped up promotions to attract value-seeking customers, offering them with different price tiers. One of the company’s key strengths is its competitive pricing. During the earnings call, Abrams-Rivera credited the team for their relentless efforts in unlocking efficiencies to drive productivity and hold prices below high inflation levels.
Wall Street analysts expect KHC to overcome the challenges it faces, and have a consensus on the stock’s Buy rating. They also anticipate a 10% appreciation in its share price over the coming months. The Kraft Heinz Company (NASDAQ:KHC) continues to remain one of the top picks from the Buffet stock portfolio, with the hedge fund having a stake valued at nearly $10.5 billion in the company as of June 30, 2024.
Overall, KHC ranks 7th among the Buffett Stock Portfolio: Top 10 Stock Picks for 2024. While we acknowledge the potential of KHC as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than KHC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published on Insider Monkey.
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