U.S. market indexes traded higher on Tuesday morning following Federal Reserve Chair Jerome Powell’s comments on rate hikes. He emphasized that “inflation is much too high” and promised to take the “necessary steps” to curb it.
The Dow Jones Industrial Average was up 0.72% on Tuesday, while the S&P 500 rose 0.95% and the Nasdaq Composite climbed 1.58%.
Having posted a loss for the year so far, the consumer defensive sector also recorded a small gain on Tuesday.
While volatility persists due to high inflation, the war in Ukraine and continued supply chain disruptions, gurus are still finding value opportunities among consumer defensive companies as their products are always in demand regardless of economic conditions. According to GuruFocus’ Hot Picks, a Premium feature based on 13F filings, the consumer defensive companies most-bought by gurus during fourth-quarter 2021 were Altria Group Inc. (MO, Financial), Sanderson Farms Inc. (SAFM, Financial), The Kraft Heinz Co. (KHC, Financial), Target Corp. (TGT, Financial) and Dollar Tree Inc. (DLTR, Financial), among others.
Altria Group
Held by 17 gurus with a combined equity portfolio weight of 3.95%, nine buys and five sells were recorded for Altria Group (MO, Financial) in the fourth quarter.
The Richmond, Virginia-based tobacco company, which is one of the largest producers and marketers of cigarettes, tobacco and related products, has a $96.19 billion market cap; its shares were trading around $52.93 on Tuesday with a price-earnings ratio of 39.79 and a price-sales ratio of 4.62.
The GF Value Line suggests the stock is fairly valued currently based on historical ratios, past financial performance and future earnings projections.
GuruFocus rated Altria’s financial strength 4 out of 10 on the back of adequate interest coverage and a high Altman Z-Score of 3.35, which indicates it is in good standing. The return on invested capital also overshadows the weighted average cost of capital, so value is being created as the company grows.
The company’s profitability fared even better with an 8 out of 10 rating, driven by operating margin expansion as well as strong returns on equity, assets and capital that are outperforming versus competitors. Altria is also supported by a moderate Piotroski F-Score of 6 out of 9, meaning conditions are typical for a stable company, and a predictability rank of one out of five stars that is on watch. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.
Of the gurus invested in Altria, Bill Nygren (Trades, Portfolio) has the largest stake with 0.33% of its outstanding shares. Jim Simons (Trades, Portfolio)’ Renaissance Technologies and PRIMECAP Management (Trades, Portfolio) also have large positions in the stock.
Sanderson Farms
Recording eight buys and two sells for the fourth quarter, nine gurus are invested in Sanderson Farms (SAFM, Financial). The combined weight in their equity portfolios is 0.80%.
The poultry producer headquartered in Laurel, Mississippi, whose products include fresh, frozen and value-added chicken, has a market cap of $4.01 billion; its shares were trading around $179.96 on Tuesday with a price-earnings ratio of 6.28, a price-book ratio of 1.97 and a price-sales ratio of 0.76.
According to the GF Value Line, the stock is modestly undervalued currently.
Sanderson Farms’ financial strength and profitability were both rated 9 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the robust Altman Z-Score of 8.99 indicates it is in good standing even though assets are building up at a faster rate than revenue is growing. The ROIC also eclipses the WACC, so value creation is occurring.
Although the company’s margins are in decline, its returns outperform a majority of industry peers. Sanderson Farms also has a high Piotroski F-Score of 8, which means operations are healthy, and a one-star predictability rank.
With a 2.35% stake, Bill Gates (Trades, Portfolio)’ foundation trust has the largest position in Sanderson Farms. Other gurus invested in the stock are Simons’ firm, Ray Dalio (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Primecap, Paul Tudor Jones (Trades, Portfolio), Caxton Associates (Trades, Portfolio) and Lee Ainslie (Trades, Portfolio).
Kraft Heinz
Kraft Heinz (KHC, Financial), which recorded eight buys and five sells for the fourth quarter, is held by 16 gurus with a combined equity portfolio weight of 9.06%.
The Chicago-based company, which is known for Heinz ketchup and Kraft mac and cheese, has a $46.06 billion market cap; its shares were trading around $37.67 on Tuesday with a price-earnings ratio of 45.91, a price-book ratio of 0.93 and a price-sales ratio of 1.78.
Based on the GF Value Line, the stock appears to be modestly overvalued currently.
Weighed down by weak interest coverage and a low cash-to-debt ratio of 0.16, Kraft Heinz’s financial strength was rated 5 out of 10 by GuruFocus. The Altman Z-Score of 1.01 warns the company could be in danger of bankruptcy if it does not improve its liquidity. It is also struggling to create value as the WACC surpasses the ROIC.
The company’s profitability fared better with a 7 out of 10 rating, though its operating margin is declining and returns underperform over half of its competitors. Kraft Heinz is also supported by a high Piotroski F-Score of 7 and a one-star predictability rank.
Warren Buffett (Trades, Portfolio) is Kraft Heinz’s largest guru shareholder with a 26.6% stake. First Eagle Investment (Trades, Portfolio), Simons’ firm, Dalio, Steven Cohen (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Jones, Greenblatt and Mark Hillman (Trades, Portfolio), among several others, also own the stock.
Target
With a combined equity portfolio weight of 11.73%, 15 gurus own Target (TGT, Financial) currently. Eight buys and six sells were recorded during the fourth quarter.
The big-box retailer, which is headquartered in Minneapolis, has a market cap of $102.83 billion; its shares were trading around $222.76 on Thursday with a price-earnings ratio of 15.81, a price-book ratio of 8.17 and a price-sales ratio of 1.03.
The GF Value Line suggests the stock is fairly valued currently.
GuruFocus rated Target’s financials strength 6 out of 10 on the back of adequate interest coverage and a high Altman Z-Score of 4.23. Value creation is occurring since the ROIC is higher than the WACC.
The company’s profitability scored an 8 out of 10 rating, driven by operating margin expansion, strong returns that top a majority of industry peers and a moderate Piotroski F-Score of 6. Consistent earnings and revenue growth contributed to a two-star predictability rank. GuruFocus data shows companies with this rank return an average of 6% annually.
Of the gurus invested in Target, Spiros Segalas (Trades, Portfolio) has the largest holding with 0.44% of outstanding shares. Simons’ firm and Dalio also have large positions.
Dollar Tree
Having recorded seven buys and seven sells during the quarter, Dollar Tree (DLTR, Financial) is held by 11 gurus with a combined equity portfolio weight of 3.59%.
The Chesapeake, Virginia-based discount retailer has a $35.15 billion market cap; its shares were trading around $157.04 on Tuesday with a price-earnings ratio of 26.92, a price-book ratio of 4.54 and a price-sales ratio of 1.37.
According to the GF Value Line, the stock is significantly overvalued currently.
Dollar Tree’s financial strength was rated 5 out of 10 by GuruFocus. In addition to sufficient interest coverage, the high Altman Z-Score of 3.48 indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. The ROIC also outperforms the WACC.
The company’s profitability fared better, scoring a 7 out of 10 rating. Although the operating margin is in decline, returns outperform a majority of competitors. Dollar Tree also has a moderate Piotroski F-Score of 4 and a one-star predictability rank.
With a 1.18% stake, Chuck Akre (Trades, Portfolio) is the retailer’s largest guru shareholder. Dollar Tree is also held by Primecap, Dalio, Cohen, Simons’ firm, First Pacific Advisors (Trades, Portfolio), Robert Olstein (Trades, Portfolio), Jones, Louis Moore Bacon (Trades, Portfolio), Richard Pzena (Trades, Portfolio) and Keeley-Teton Advisors, LLC (Trades, Portfolio).
