Kraft Heinz Company (KHC)

They encountered accounting issues that the FCC is investigating. In 2017 they tried to merge with Unilever which began their demise. A lot of products have fallen out of favour, like Maxwell House and Oscar Meyer. To catch up to current health food trends requires a huge investment in R&D, and will it payoff and how long? Unlike QSR-T, KHC has fallen behind.

A company that he is starting to look at more closely. Valuation has come down. People are still eating Kraft dinner and so. 4.2% yield. (Analysts’ price target is $68.00)

People often invest in dividend-paying consumer staples stocks for the dividend because the bond market currently pays so little. However, the money flow into these companies, in search of yield, has driven their prices up. However, as yields have started rising, people have been leaving these companies. Kraft Heinz has dropped 29% over the past year. Many other companies in this sector have dropped substantially. There are many other sources of value to a company than dividends, such as capital growth.

It's trading below falling moving averages. Growth rate is 7x. Their 3.8% dividend is secure and likely will grow. But their sales are sluggish and profit growth is slowing. There's lots of competition in this space, while inflation is another
headwind.

The big story with this was on cutting costs. They have taken out almost $2 billion worth of costs in the last 3 years. That has largely run its course, so now they need to go out and buy something else. Management has shown the ability to extract the fat out of these big lethargic companies, and fall to the bottom line. Gives a good dividend yield.

He likes this company. They've done a good job of cutting costs, so have the best margins in that sector. In the last couple of quarters there has been very good organic growth, especially in Europe and Asia. The stock is worth somewhere around $95 and there will be some good margin improvements over the next little while. The big thing is that they make big acquisitions, and that is what you are waiting for.

This has languished lately. Trading at about 20X earnings. He likes this because 3G bought this deal with Warren Buffett. A couple of things are going to happen over the next little while. With all the cost cutting they've done recently, the benefits will show in 2018. Changes in product will also happen in 2018. Expects the cost structure will get a little better. Thinks that they might buy Mondelez (MDLZ-Q). Dividend yield of 3.2%. (Analysts' price target is $90.)