Kraft Heinz Company (KHC)

In the consumer staples space. There is going to be difficulty in terms of how it does relative to the more cyclical areas. Has performed poorly over the last while. P/E ratio is 20X Forward Earnings with about a 7%-8% growth rate. PEG ratio is about 2.6. That is at the high end of its 10-year historical record. He only owns Costco (COST-Q).

(A Top Pick Oct 27/16. Down 9%.) Has actually bought more of this. They are good at cutting costs and getting higher margins. What you have to expect from this company is a bigger acquisition. That’s how they operate.

(A Top Pick Sept 15/16. Down 1.02%.) Still likes the story. With the merger, there is some great ability for cost cutting.

Overpriced by about 18%. His model price is $71 and it closed at $86.51. Thinks it wants to come back to $74-$75, which would be a realistic valuation. If it rallied up to $102, he would be a Seller.

(A Top Pick Aug 4/16. Up 1.93%.) This was a merger of Heinz and Kraft. He really likes this because they buy low margin businesses and cut costs and drive margins higher. Now we need to see top line growth happen which, he expects will do so in the next little while.

He doesn’t have a lot of exposure to the consumers staple space. This is trading at about 23X forward earnings with an 8% long-term growth rate. That is pretty expensive when looking at a PEG to growth ratio. Decent dividend of about 2.7% and a decent growth rate on that dividend. In 2018 US regulations are going to require some of the food companies to label their products on sugar content, which could create some margin and sale pressures.

(A Top Pick June 16/16. Up 7%.) What he likes is that Kraft was a much more domestic US business and Heinz was much more global. Expects there will be a lot more Kraft products go through the Heinz network. There is still not a lot of revenue growth, but they are good cost cutters. We need to see revenue growth.

(A Top Pick June 16/16. Up 8%.) He still likes this. Putting Kraft and Heinz together they were able to cut costs, increase margins, and now it is time to start to grow the top line. Kraft is predominantly a US company where Heinz more of a global company. He would like to see them push North American Kraft products through the Heinz network, which is where there would be upside.

This industry is a very reliable cash flow generator and management here has a very good track record of being able to improve profitability. It is probably a reasonable investment if you have a long term approach.

Consumer staples is an area which has more defensive types of names, and is rather expensive. This is trading at 24X forward PE with a 15% growth rate. Their profitability has really come from the synergies of their merger. They’ve implemented zero based budgeting, which is accounting for expenses on an ongoing basis. In 2018, US regulations are coming in for new labelling highlighting added sugars, which could be a headwind.

(A Top Pick March 24/16. Up 22.19%.) You have a lot of top line growth, but they are really good at cutting costs. They have some of the highest margins in the industry. He thinks he can see some top line growth at some point and will give some really great margin expansion and some great bottom line. They are going to do another deal, even though it may not be with Unilever. Still a Buy.

They are going to take over UL-N. Companies are going up during an acquisition now. There is a nice general trend in this stock. We are probably just coming up to valuations. The down side is probably about $91. It is looking pretty good in its space.

(Market Call Minute) People are not going to stop eating. They have great brands. It is fairly priced and very solid.

A consumer staples name, and the stock has been a little bit weak in the last little while. Investors have been pulling money out of this space. However, it is one of the faster growing names in packaged food, growing at about a 20% clip in terms of EPS. Pays a decent yield of about 2.75%. Technically, it is probably one of the better consumer staple stocks and is still trading above its 200-day moving average. The only concern he has is that it probably generates quite a bit of its revenues from outside of the US, and will probably lose some money on the top line due to fighting foreign currencies coming in.

His model price is $71.65, a 17% downside. It is cheap in its balance sheet. The fundamentals are coming up to meet the stock price. He thinks the action will be elsewhere in 2017. There is potential upside as the earnings come in.