We recently compiled a list of the 12 best long-term stocks to buy according to Warren Buffett. In this article, we are going to take a look at where The Kraft Heinz Company (NASDAQ:KHC) stands against the other long-term stocks to buy according to Warren Buffett.
Warren Buffett, the most famous investor on Wall Street, needs no introduction, having generated billions of dollars for himself and investors for decades. Throughout his investment career that began in 1965, the ‘Oracle of Omaha’ has averaged annual returns of 19.8%, trumping a gain of 9.9% for the S&P 500 over the same period.
The market-beating performance has propelled Buffett to the top of the charts as one of Wall Street’s most revered and followed investors. His investment portfolio is always tracked as investors scan for potential market opportunities.
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Likewise, Buffett is one of the most successful investors in Wall Street’s history, having accumulated a fortune of $138 billion. His total assets might have been significantly higher if he hadn’t donated large sums to different charitable causes.
Market participants have always applauded his disciplined approach, which entails a long-term perspective. His investment firm has become the latest company to cross the $1 trillion mark on market cap, underlining Buffett’s impressive stock-picking skills. According to Cathy Seifert, Berkshire analyst at CFRA Research, the $1 trillion milestone is a testament to Buffet’s investment firm’s financial strength and franchise value.
Buffett’s investment strategy has remained constant throughout his career, focusing on the concept of value investing. The strategy focuses on identifying companies that are undervalued but have the potential to increase in value over time. Buffett seeks out companies with a lasting edge over competitors, like a well-established brand, high barriers to entry, and a large and loyal customer base, and he buys into them at a price that ensures a safety margin.
Likewise, the billionaire investor is well-known for his cautious stance on investing in high-risk, high-reward sectors like technology. Instead, he prefers to invest in more stable sectors such as retail, insurance, and finance. He is recognized for his commitment to long-term investments, holding onto companies for extended periods, and steering clear of frequent trading. This strategy enables him to benefit from the compound interest effect and allows the companies he invests in to mature and produce significant profits.
Buffett’s cautious approach is evidenced by the fact that his investment firm had over $180 billion in cash as of the end of the first quarter. The cash reserves were expected to swell to over $270 billion as of the end of June.
The cash reserves have been building up as the billionaire investor only invests in finding attractive deals with eye-popping returns. In a 2023 letter to shareholders, Buffett reiterated he did not see the possibility of eye-popping performance.
Buffett has consistently included dividend stocks in his portfolio, which is a strategy that has effectively generated consistent passive income. This year alone, his investments are projected to generate around $6 billion in dividend earnings.
Nevertheless, Buffett has also been in defensive mode in recent months, opting to reduce stakes in some companies. He has trimmed holdings by up to half in some tech giants, concerned by valuations getting out of hand after a year of gains fuelled by the artificial intelligence frenzy.
While valuations have gotten out of hand going by the blockbuster gains over the past year, there are still opportunities to unlock. With the US Federal Reserve poised to end its monetary easing spree with a cut of interest rates, equity is poised to receive a significant boost.
The best long-term stocks to buy, according to Warren Buffett, are companies well poised to benefit from interest rates dropping. Low interest rates make it easier for companies to access cheap capital to accelerate their operations, generating more shareholder value.
Our Methodology
To compile our selection of the best long-term stocks to buy according to Warren Buffett, we began by analyzing Berkshire Hathaway’s 13F portfolio and chose to highlight the stock holdings that have remained within the portfolio for at least 5 years. Next, we assessed the number of hedge fund investors associated with each stock, as of the end of the second quarter of this year. Finally, the stocks were ranked in ascending order based on the value of Warren Buffett stakes in the companies.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A closeup of an assembly line worker inspecting a newly produced jar of condiments and sauces.
The Kraft Heinz Company (NASDAQ:KHC)
Warren Buffett’s First Major Purchase: 2015
Berkshire Hathaway’s Latest Investment Stake: $10.49 Billion
Number of Hedge Funds Holding Stakes as of Q2: 43
The Kraft Heinz Company (NASDAQ:KHC) is another consumer defensive investment play in Buffett’s portfolio for generating value regardless of the prevailing economic condition. The company manufactures and markets food and beverage products. Its product line includes sauces, cheese and dairy products, meals, meats, and refreshment beverages.
Under the current leadership, The Kraft Heinz Company (NASDAQ:KHC) has sold off its underperforming brands to generate funds, bought brands with higher potential for growth, and rejuvenated its traditional brands by introducing new items and advertising efforts.
These approaches positioned it favorably for expansion in 2020 and 2021, as the COVID-19 pandemic increased consumer demand for packaged goods. It mitigated the challenges posed by rising inflation in 2022 and 2023 by incrementally increasing its prices.
Reducing operating costs enabled The Kraft Heinz Company (NASDAQ:KHC) to enhance its gross profit margin by 190 basis points during the first six months of 2024 compared to the same period last year. While the quarterly outcomes were varied, the company’s leadership focused on critical areas, resulting in a surge in the stock price following the release of the second-quarter earnings.
Consequently, it expects its adjusted gross margin to expand 75 to 125 basis points and for its adjusted operating margin to rise by one to three percentage points. It also predicts its adjusted EPS to grow 1% to 3% to $3.01 to $3.07 per share.
The expected growth should allow the company to generate more shareholder value, therefore cementing its position as one of the best long-term stocks to buy, according to Warren Buffett. At $35 a share, The Kraft Heinz Company (NASDAQ:KHC) Stock trades at just 11 times its forward earnings, the midpoint of this year’s earnings estimate. The low valuation is further complimented by a high forward dividend yield of 4.55%.
As of June 2024 end, 43 out of the 912 hedge funds covered by Insider Monkey’s research had invested in The Kraft Heinz Company (NASDAQ:KHC). Warren Buffett’s Berkshire Hathaway owned the most significant stake, which was worth $10.49 billion.
Overall KHC ranks 5th on our list of the best undervalued cyclical stocks to buy. While we acknowledge the potential of KHC as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than KHC, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
