2 Reasons To Avoid Kraft Heinz
With new cases of the coronavirus spiking in the US and worldwide .
With the already historic unemployment levels and job losses in recent months .
And with many Blue Chip stocks looking vulnerable when they’re supposed to be among the best areas to invest your capital.
There are few safe places to invest today. And this number grows smaller every day this crisis lasts.
The key to continue compounding your investments and build wealth is to keep investing well over time.
But another huge part of this that few think of is also losing as little capital as possible.
The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you achieve your retirement goals.
In recent articles I’ve shown you several stocks to avoid investing in…
- 1 More Reason To Avoid Burlington Stores
- 2 Reasons To Avoid Home Depot
- 3 Reasons To Avoid Target
- 2 Reasons To Avoid Lowe’s
- 1 Reason To Avoid AT&T And Its 7% Dividend
- 4 Reasons To Avoid Kohl’s
- 1 Reason To Avoid Autozone
Today I want to show you another stock to avoid so you can grow your investment portfolio safely.
2 Reasons To Avoid Kraft Heinz
- It’s Got An Enormous Amount of Debt
As of this writing Kraft Heinz (KHC) is a $36.5 billion market cap food and drink manufacturer. It’s the 3rd largest food and drink manufacturer in North America… And the 5th largest worldwide.
Some of its famous brands include.
- Oscar Mayer
- Heinz Ketchup
- Kraft Macaroni and Cheese
- Kraft Mayonnaise
Among many others.
Its brands are so powerful that an estimated 89% of United States households have Kraft Heinz products in their homes.
So far during this pandemic food companies have done well because people are eating at home more.
And so is Kraft.
- Revenue was up 3.8% in the year to year 2nd quarter to $6.65 billion.
- And earnings per share was up 2.6% in the year to year 2nd quarter to $0.80 per share.
But Kraft’s got a major problem that’s plagued it since 2015…
An enormous amount of debt.
Its most recent quarterly data showed it has $2.8 billion in cash. While it has $28.9 billion in short term and long-term debt and capital leases.
Its debt is 10.3X higher than its cash levels. And 79.2% of its entire market cap as of this writing.
Most of this debt is related to the 2015 Warren Buffett backed merger between Kraft and Heinz.
On a debt to equity basis the stock looks fine at 0.57.
But this illustrates why you need to look further than just the metrics…
Because Kraft’s balance sheet is 81.9% in intangible assets. Which gets us to the 2nd reason to avoid its stock.
2. $15.4 Billion In Write Downs Already
Intangibles are things like brand names and trademarks.
Yes, these are valuable because Kraft has been around for so long that generations of people have grown up with the brands above.
Powerful brand names and trademarks allow companies to charge higher prices for their products. This leads to higher revenue, profits, and cash flows which are all wonderful.
But Kraft’s intangible assets are not as valuable as they used to be because there’s now more competition than ever. Often at cheaper prices than Kraft Heinz’s products.
This was shown last year when Kraft had to write down $15.4 billion worth of these intangible assets because they weren’t as valuable anymore.
When a company writes down an asset it removes that same amount – $15.4 billion in this case – from the balance sheet. And this lowers the value of the entire company.
Think of write downs like setting money on fire…
As soon as the pen ink dries on the write down, the money is gone immediately.
And due to enormous and growing competition its likely to write down these assets further.
Which will lower the value of the company and the price of the stock even more.
The write downs were so bad, that it led the Great Warren Buffett to admit that he overpaid for Kraft Heinz stock during the merger in 2015.
For the reasons of its large debt combined with its write down issues, I recommend you avoid investing in Kraft Heinz – even though it earns large profits and cash flows and pays you a 5.4% dividend.
Click the links below to see the stocks we recommend helping Depression Proof Your Portfolio.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.