Warren Buffett Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) Has many names of eminent households in its portfolio. But not all have been doing well in recent years. An excellent example is Kraft Heinz (Nasdaq: KHC). Although it is a big name in the food industry, it has been a brutal investment to hold – its shares are down 17% in the past five years.
The company is not doing well, growth is stagnated and investors are concerned about the future, consumers rotate healthier food choices. And the company would consider a break in its activities. Here’s why it could be a good thing for investors.
Image source: Getty Images.
According to The Wall Street JournalKraft plans to turn a large part of its activities, which was worth around $ 20 billion. Currently, total market capitalization of the action is around $ 34 billion. Although the details are still not known for which brands could be in activities, the company would have sought a company that focuses on differences and sauces, while the other is likely to include transformed meats, cheeses and other basic products.
This could take weeks before the details were settled and there is also the possibility that a breakup does not occur. But with the stock and the company that behaves so bad in recent years, an upheaval could be in order. The sauces and propagations of the company, for example, which are basic products in households around the world, can have better growth potential than a company focused on processed food, which has been associated with health risks.
The Kraft upper line did not give investors a lot of reasons to be optimistic. Although it has been relatively stable in recent years, with around $ 26 billion in annual income, it is not terribly exciting for growing investors, especially since many brands of the company are synonymous with less than healthy food.
Data on KHC (annual) revenues by Ycharts
Prospective investors know that this downward trend may persist in the future because consumers eat healthier. And although the action offers a high dividend yield of 5.5% today, this may not be a sufficient reason to own it, especially if the losses of action compensate more than dividend income. In addition, the danger is that if the higher and lower capacities of the company decrease in the future, the dividend may not be durable.
For dividend and growth investors, there are a lot of concerns around Kraft these days, which is why the food stock did not go well.
Kraft’s stock seems cheap, trading its earnings at 13 times. But with many question points around its activities, the safest option is to adopt a waiting approach. A spin-off could open a good opportunity for investors, by dividing segments and brands that could have more potential to develop in the long term.
However, until all the details do not become repercussions and brands that each company can have, it would be difficult to assess how attractive the opportunity could be. And you would always need to wait After The spin-off takes place and then invests in the specific company you want, to make sure that you still do not have a position throughout the company as it is today.
For the moment, I would keep the purchase of Kraft stock. It seems obvious that a change of strategy can be inevitable, whether it is a breakdown of the company or another decision, and that you would better wait before making an investment decision on Kraft.
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David Jagielski has no position in the actions mentioned. The Motley Fool has positions and recommends Berkshire Hathaway. The Motley Fool recommends to Kraft Heinz. The Motley Fool has a policy of disclosure.
This stock of Warren Buffett would consider a huge movement was initially published by the Motley Fool
