Kraft Heinz Co (KHC): Hedge Funds Are Snapping Up; Signs of Confidence in Post-Merger Synergies

There is a high variety of “time-tested” methods for successful stock selection, but most of them seem to be rather focused on short-termism. Retail investors usually use various quantitative filters in computerized screening tools to narrow down the pool of stocks that fit their investing strategies and styles. However, most quantitative stock screening tools or methods tend to have a strong style bias, which simply means that they focus too much on sales and earnings growth, P/E multiples, or price changes. There is another approach investors can use to select stocks, which involves tracking the basket of most-loved stocks among hedge funds or simply seekeing those stocks that receive the most attention from the smart money industry during a specific period of time. The Insider Monkey team has gone over 700 quarterly 13F filings that hedge funds and prominent investors are required to file each three-month period. The most recent round of 13F filings shows the funds’ and investors’ portfolio positions as of December 31. In this article, we look at what those funds think of Kraft Heinz Co (NASDAQ:KHC) based on that data.

Kraft Heinz Co (NASDAQ:KHC) investors should be aware of an increase in support from the world’s most elite money managers lately. At the end of this article we will also compare KHC to other stocks including Schlumberger Limited. (NYSE:SLB), Mitsubishi UFJ Financial Group Inc (ADR) (NYSE:MTU), and AstraZeneca plc (ADR) (NYSE:AZN) to get a better sense of its popularity.

According to most traders, hedge funds are seen as underperforming, old investment vehicles of yesteryear. While there are more than 8000 funds in operation at the moment, Our experts hone in on the top tier of this club, approximately 700 funds. These investment experts shepherd the majority of the smart money’s total asset base, and by keeping track of their first-class equity investments, Insider Monkey has brought to light many investment strategies that have historically outrun Mr. Market. Insider Monkey’s small-cap hedge fund strategy beat the S&P 500 index by 12 percentage points annually for a decade in their back tests.

Kraft Heinz Co (NASDAQ:KHC), one of the world’s largest food and beverage companies, has seen its stock gain nearly 5% since the beginning of 2016. Most market participants already know that Kraft Heinz emerged following the combination of food and beverage conglomerates H.J. Heinz Co. and The Kraft Foods Group; a multi-billion-dollar merger orchestrated by renowned investor Warren Buffet and investment firm 3G Capital. Nonetheless, the freshly-combined company has been struggling to drive up revenue growth in the subsequent months after the merger; Kraft Heinz’s pro forma net sales (assuming Kraft and Heinz were combined during both fiscal 2015 and 2014) decreased 5.8% during the fiscal year that ended January 3 to $27.45 billion. The decrease was mainly driven by unfavorable impacts of foreign exchange rates and divestitures. At the same time, the company’s pro forma organic net sales dropped by 1.6% year-on-year, partly due to lower shipments in refreshment beverages, frozen meals, foodservice and boxed dinners in the United States and Canada. However, investors may be well aware that the mega-merger between the two companies was not solely about driving revenue growth, but it was rather intended to achieve strong synergies through cost cutting measures. These cost savings could be mainly targeted at workforce reductions and closing down inefficient manufacturing facilities, so it might take a while until investors get to fully see the benefits of this merger.

Now, we’re going to review the recent action regarding Kraft Heinz Co (NASDAQ:KHC).

What have hedge funds been doing with Kraft Heinz Co (NASDAQ:KHC)?

Heading into 2016, a total of 60 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the previous quarter. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Berkshire Hathaway, managed by Warren Buffett, holds the biggest position in Kraft Heinz Co (NASDAQ:KHC). Berkshire Hathaway has a $23.69 billion position in the stock, comprising 18% of its 13F portfolio. Sitting at the No. 2 spot is York Capital Management, led by James Dinan, holding a $250 million position; 3.7% of its 13F portfolio is allocated to the company. Remaining professional money managers that hold long positions consist of D.E. Shaw & Co. L.P., founded by David E. Shaw, Boykin Curry’s Eagle Capital Management and John Griffin’s Blue Ridge Capital.

Consequently, key hedge funds were leading the bulls’ herd. Viking Global, managed by Andreas Halvorsen, created the biggest position in Kraft Heinz Co (NASDAQ:KHC). Viking Global had $151.5 million invested in the company at the end of the quarter. Lee Ainslie’s Maverick Capital also initiated a $106.5 million position during the quarter. The other funds with new positions in the stock are Richard Gerson and Navroz D. Udwadia’s Falcon Edge Capital, Ram Seshan Venkateswaran’s Vernier Capital, and Yen Liow’s Aravt Global.

The final page of this article discusses the hedge fund activity in several other companies that have market capitalizations similar to KHC’s market cap.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Kraft Heinz Co (NASDAQ:KHC) but similarly valued. These stocks are Schlumberger Limited. (NYSE:SLB), Mitsubishi UFJ Financial Group Inc (ADR) (NYSE:MTU), AstraZeneca plc (ADR) (NYSE:AZN), and United Parcel Service, Inc. (NYSE:UPS). This group of stocks’ market valuations are closest to KHC’s market valuation.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $1.13 billion. That figure was $26.20 billion in KHC’s case. Schlumberger Limited. (NYSE:SLB) is the most popular stock in this table. On the other hand Mitsubishi UFJ Financial Group Inc (ADR) (NYSE:MTU) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Kraft Heinz Co (NASDAQ:KHC) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None