It’s finally a bargain. Big drop, Buffett loss, your gain. It’s that simple.
Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) didn’t divest its holding of Kraft Heinz (KHC, Financial), so picking up the stock at this bargain basement price now makes total sense. My first article on the holding wasn't well received, garnering 2.6 star rating. At the time, I was asking the question "Is Kraft Heinz Buffett’s Biggest Mistake?" last summer. At the time the stock was just below $60 a share. Now it’s at $35.Â
However, now that the market has acted irrationally, sending the stock price down 28% in a day, the multiples look more in line with slow-growth blue-chip companies. And, the dividend yield is super juicy! Finally, it’s a buy. And, all these downgrades just further the idea that it’s a bargain. Investment analysts are usually the last people to hop on or off the bagwagon. This time it’s no different and with the stock trading below $35 (pre-market), Buffett himself should be buying more down here.
Buffett even admitted to overpaying for the stock, a mistake that he should not be making on a company like this, but Mr. Market gets us all. Buffett told CNBC, ”I was wrong in a couple of ways about Kraft Heinz. We overpaid for Kraft.” And, “It’s still a wonderful business in that it uses about $7 billion of tangible assets and earns $6 billion pretax.” But, “we paid $100 billion in tangible assets. So for us, it has to earn $107 billion, not just the $7 billion that the business employs.” More importantly, Berkshire is not selling or lowering its stake in the company. What more vote of confidence do you need that the stock is on sale?
Aside from the 7.15% dividend yield, thanks to the 27% sell-off, the stock is now priced at less than book value and below 10x forward earnings. Is Kraft Heinz going out of business in 10 years? What about 20? Highly unlikely. That’s all investors need to know at this point. While we may not have a bear market, this is a bear price for an incredible company. Take advantage while you can.
Disclosure: I am not long or short Kraft-Heinz.
