Title: Uncovering a Potential Warrior in Buffett's Arsenal: A Stock to Watch until 2025 and Beyond
It's a rarity to discuss a Warren Buffett-backed stock, Berkshire Hathaway's (BRK.A, -0.09% / BRK.B, -0.24%), skyrocketing higher. Most of Buffett's picks for this powerhouse are relatively tame and resistant to wild swings. However, occasionally, even one of these picks stumbles into a remarkable situation preparing for an equally remarkable reversal. Take Kraft Heinz Company (KHC, -0.37%) for example, a long-term Berkshire darling, which has struggled in recent years, but may be gearing up for a significant, sustained recovery.
Revitalization Plan in Place
Investors skeptical of Kraft Heinz's performance over the past few years might be justified. Following the company's merger in 2015, the anticipated synergies failed to materialize. Buffett himself acknowledged in 2019 that Berkshire "overpaid for Kraft" – a factor contributing to the stock's poor performance over the past couple of years. Despite these challenges, Warren Buffett hasn't wavered, retaining Berkshire's $10 billion stock investment in the company. Here's why: hope is on the horizon.
2023 marked the arrival of Carlos Abrams-Rivera as the CEO. He laid out a comprehensive plan to reinvigorate business growth by categorizing Kraft Heinz's products into three core areas, each requiring a unique strategy. For example, Mac and Cheese, the company's market leader, should focus on revenue growth, while less dominant businesses such as desserts should prioritize higher profit margins.
Innovation is also a central feature of Abrams-Rivera's plan, as evidenced by the recent introduction of pickle-flavored ketchup and "everything bagel" style mac and cheese. Furthermore, Abrams-Rivera aims to cull $2.5 billion in annual expenses by 2027, with approximately $1 billion already slashed.
Challenges and Opportunities Ahead
Despite these promising plans, Kraft Heinz’s recent performance has been lackluster. Last quarter's organic sales fell 2.2% year-over-year, while food volume sales dipped even further. While current circumstances, such as the economic environment and consumer spending habits, are contributing to these results, better days are ahead.
U.S. economy projections point to a 2.5% expansion in the coming year, while worker compensation budgets are set to increase by 3.9% in 2025 – contrasting the more modest 3.8% increase in 2024. As these trends manifest, Kraft Heinz investors can expect a more favorable environment.
Potential for Strong Rally
While it's uncertain when the planets will align for Kraft Heinz, the probability of a significant upside outweighs the downside. Even with many investors dismissing stagnant dividends and lackluster results, Berkshire Hathaway is still a major shareholder – a sign of its commitment to the long-term potential of the company.
For income-oriented investors, the stock's 5.2% dividend yield remains attractive. Over the coming year, as the strategy begins to materialize and the overall economic landscape improves, expect the tide to turn for Kraft Heinz. With investor sentiment changing, the stage will be set for a powerful self-fueling rally. Alternatively, the company's 10-year-plus underperformance may convince some investors to give Kraft Heinz a second look. In this case, its steady, undervalued stock price may make it an attractive, low-risk opportunity.
- Given the revitalization plan in place, investing in Kraft Heinz Company could be an opportunity for those seeking stable income, as the company aims to boost profits and revenue, and Berkshire Hathaway, a major shareholder, continues to support its long-term potential.
- As Kraft Heinz's cost-cutting measures start to yield results and the economic environment improves, finance experts foresee a potential surge in the stock price, attracting more investors and leading to a strong rally, making it an interesting choice for risk-adverse investors seeking steady returns.
