The Legend of Wall Street Warren Buffett. He is always a proponent of value investing. The Oracle of Omaha’s unparalleled success over the past decade has been built on knowing when a stock is trading below its natural value and then placing a large bet. Buffett is a master at looking at the benefits of patience and the long-term results of regrouping.
However, even the most successful investors’ portfolios include stocks that go through low periods. In those times, it’s safe to say that Buffett, known for his sage advice to “be greedy when others are afraid,” may be planning to increase his holdings if he believes that a certain stock will eventually recover.
We use this in mind Tipranks database To point out stocks that have underperformed this year in Buffett’s portfolio. These are not low prices; True to form, he has multi-billion dollar holdings in both, and has been a shareholder in each for over 5 years. Let’s see what Wall Street stock experts are up to now.
Kraft Heinz (KHC)
First on Buffett’s list of underperformers is consumer goods sector stalwart Kraft Heinz. It is one of the largest food and beverage companies in North America and owns popular brands such as Philadelphia Cream Cheese, Jell-O and Velveeta.
While food and beverage are important, Kraft’s stock has certainly underperformed in recent months — KHC is down as much as 15 percent year-to-date. That hasn’t slowed Buffett down, or reduced his holdings in the stock. The billionaire investment legend has owned shares in KHC since 2015, and his company currently owns 325,634,818 shares worth $10.89 billion. The stake makes Berkshire the largest shareholder in Kraft Heinz.
Kraft Heinz boasts 8 brands with the potential to generate over $1 billion in annual revenue, and is globally recognized as a trusted supplier of food and beverages that people love to eat. The company generated nearly $26 billion in total revenue last year, and both revenue and earnings showed year-over-year growth in its latest financial report from 2Q23.
That said, while Kraft’s Q2 top line reached $6.72 billion, growing 2.55% y/y, it missed forecasts by $81.9 million, with the company reporting a 7% decline in volume. At the latest, the company’s EPS came in at 3 cents per share, beating expectations of 79 cents, compared with last quarter’s figure of 70 cents.
Buffett has always liked dividend stocks, prioritizing high-yielding dividend payers to generate strong passive income from his holdings. KHC is set to pay 40 cents per share for its common stock on September 29. The annual dividend is about $1.60 per share and yields 4.74%. Kraft’s dividend has been held at its current level since 2019.
Turning to Street analysts, we find Deutsche Bank’s Stephen Powers taking a big position on Kraft Hienz. Powers notes headwinds in the industry, but sees the company as fundamentally strong.
We continue to acknowledge and understand the recent negative sentiment on packaged food stocks due to (i) uncertainty over demand/quantity, (ii) pushing up retail prices and (iii) increasing risks of trade or competitive changes. Build on KHC’s improved fundamentals (ie, structurally strong portfolio, clear growth/corporate strategy, expansion opportunities in foodservice and emerging markets, healthy reinvestment cost levels prior to the pandemic, improved capabilities within the company, better management performance, etc.) and supportive reviews. So we’re rated a buy,” Powers said.
That buy rating is supported by a $47 price target, which indicates a share appreciation of about 40% over the next year. (For a look at Powers’ record, Click here)
Overall, KHC stock has earned a Moderate Buy rating from Street analyst consensus, based on 15 recent reviews, which are divided into 5 Buys and 10 Holds. The shares are trading at $33.45, and their average price target of $40.47 indicates a potential upside of ~21% over the next 12 months. (look out KHC stock forecast)
Bank of America Corp.BAC)
Bank of America, the second stock on our list, is a big name in the global banking industry, and with total assets of $3.12 trillion, it’s one of the world’s largest banking companies.
That said, BAC shares are down 11 percent this year, even as the S&P 500 posted a net gain of 16 percent. The decline in stock prices hasn’t stopped Berkshire Hathaway from taking a large stake in BAC. The company owns ~1.033 billion shares, an 8.5% stake in Berkshire’s portfolio. Buffett’s stake in BAC is valued at more than $29 billion, and Berkshire Hathaway is America’s largest shareholder, holding a 13 percent outstanding stake.
Bank of America has extensive businesses in consumer and business accounts, small and middle market commercial banking, and large-scale institutional banking. The bank’s total revenue grew 11% y/y, according to its 2Q23 financial statement, to $25.2 billion, beating estimates of $258.8 million. That supported net income of $7.4 billion, up 19% y/y, with EPS of 88 cents, which beat forecasts by 4 cents per share. Bank of America ended Q2 with $198 million in total cash and liquid assets of $373.5 million at the end of 2Q22.
This banking company is known for its strong capital return policy, and in Q2 the bank returned $2.3 billion to shareholders through share buybacks and dividends. The stock’s dividend was last declared on July 19, compared to 24 cents per common share it paid on September 29, a 9% increase from the previous quarter. The annual dividend is 96 cents per share and yields 3.3%.
While Bank of America’s strong dividend history should be attractive to Buffett based on his own long-term preferences, Well Fargo analyst Mike Mayo takes a different tack. He was impressed by BAC’s size, seeing the bank’s massiveness as an overall positive, undeniable asset.
“In our view, Bank of America is one of the best-positioned large banks in terms of deposit (esp. consumer), expense management, credit quality and reputation for stakeholder capital leadership. In addition, BAC is a leader in technology among banks, accounting for one-quarter of the U.S. In order to achieve the goal, it should help in the efforts to further increase its leading deposit share and demonstrate superior operational capabilities. Indeed, the technological advantages should help BAC to show about the best 2023 revenue distribution and cost growth, which will lead to a significant increase in consumer banking profit margins. Overall, BAC is Goliath. When he wins,” Mayo commented.
Mayo maintains an Overweight (i.e., Buy) rating on the stock, and the $40 price target indicates confidence in a 39% return over the one-year horizon. (To see Mayo’s story, Click here)
Overall, BAC boasts an average consensus rating of Buy based on 16 recent analyst ratings, including 8 Buys, 6 Holds and 2 Sells. A trading price of $28.84 and an average price target of $35.13 combined suggest ~22% one-year upside potential. (look out BAC stock forecast)
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Disclaimer: The opinions expressed in this article are those of the featured analysts only. The content is intended for informational purposes only. It is very important to do your own analysis before making any investment.
