My 'Fallen Angels' Favorites For 2020 Part 2: Kraft Heinz

Read Part 1: My 'Fallen Angels' Favorites For 2020 Part 1: IBM
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Fallen Angel #2: Kraft Heinz (KHC)

In a world of investing filled with amazing new battery technologies, cloud computing, artificial intelligence, nano-computing, etc. am I really going to suggest potential stock profits in ketchup and macaroni & cheese?

Yep.

It will be an uphill battle for KHC, but I think they will succeed. In February, the company decided to take a $15.4 billion write-down on Kraft and Oscar Meyer branding, delivered crummy earnings, and disclosed an investigation from the SEC.

That trifecta was enough to drop the stock, literally overnight, from $48 to $35. It drifted into the high $20s before closing at its current $31 and change. That is actually up a few cents this morning in a down market. Populating your growth portfolio with the occasional beaten-down value holding might well provide some much-needed ballast at times like these.

SOURCE: Fidelity.com

I look at the bad news from earlier in 2019 and see a silver lining. KHC has been a superb dividend-paying company with a (formerly!) great history of performance. Now trading at what I consider a sizable discount, this is the ultimate comfort food company, with brands like Kraft, Oscar Mayer, Heinz, Philadelphia, Lunchables, Planters, Maxwell House, Capri Sun, Ore-Ida, Kool-Aid, Jell-O, Cracker Barrel, and McCafe.

There are those who disparage KHC for being slow to enter the “healthier living” food business. Yo, you say twigs and weeds, I say macaroni and cheese!

Without intending to start a nutritional WWIII, I am one who actually reads the labels. A lot of the alleged health food has more fat, less fiber, and more hype than many of the foods we grew up with.

I love real fruits, real vegetables and real bread and I also buy some packaged foods and condiments. No matter how cleverly “healthy labeled,” packaged and boxed food is still packaged food. Read the labels and you will see what I mean. (I say as I am snacking on a big Gala apple and Kraft Heinz's Planters dry roasted peanuts and smoked almonds.)

So what’s the good news I see for KHC?

First, the bad news is already out there. OK, an occasional earnings miss might upset the analysts, but basically this is a company on the rebound.
It is cheap. And pays a very pleasant 5% dividend.
I like the possibilities the new CEO brings. (Yes, strangely enough, after the bad news came out, the board decided on a change at the top.)
Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) holds a 27% stake in the company.

All these are pretty self-explanatory except the bit about the new CEO. Miguel Patricio takes on the role directly from being the global chief marketing officer for Anheuser-Busch InBev (BUD). This is a man obsessed with consumer tastes, what appeals to them and how best to reach them.

One of the outside advertising execs working with BUD, Jason DeLand, says of Mr. Patricio, “Where I saw Miguel really change the conversation inside of AB is he looked at creativity as an investment. I never saw him sacrifice creativity in the name of cost, never saw him once do it.”

Before joining AB InBev in 1998, Mr. Patricio worked in marketing at Philip Morris International (PM), Coca-Cola (KO) and Johnson & Johnson (NYSE:JNJ), companies that certainly know how to brand, how to market, and how to get the biggest bang for the dollar spent on advertising and placement.

(Go ahead, tell me the animated polar bear holiday season commercial for Coke doesn't stick in your memory. You know what product that commercial was for. Now try to remember which clever commercial was for which car company...)

As importantly, Miguel Patricio has skin in the game. He has purchased a $20 million stake in KHC that he must hold for four years. I like investing alongside people with skin in the game, especially when they are people with skin in the game.

People like Miguel Patricio. Oh, and did I mention that other guy I will be investing alongside of - who might have an OK track record as well? If it is good enough for Warren Buffett, I suppose it may be good enough for some of the rest of us.

Do well in the market. Sleep well at night.

Read Part 3: My 'Fallen Angels' Favorites For 2020 Part 3: Pfizer