KHC

[EricL]

An excellent blog post by SeeksQuality on KHC. Well worth a read for those considering whether to buy/hold/sell shares in the company.

LINK

[vbin]

@EricL thanks for sharing.

[fenders53]

(02-24-2019, 11:37 PM)EricL Wrote: An excellent blog post by SeeksQuality on KHC. Well worth a read for those considering whether to buy/hold/sell shares in the company.

LINK

Thanks Eric.  That is a good read.  If my memory serves, you shared a few of these points last fall, and were very skeptical of KHC.  I kept that in mind, and kept my position size reasonable.  What I never saw coming was the sudden and severe drop in a strong economy.  I admit the fact it is huge BRKA holding gave me some comfort.  They too are having a rough patch picking stocks.

[Kerim]

Anyone have updated thoughts about KHC? Another big down day -- anyone tempted?

[vbin]

Sam here. Thanks for.sharing the article. Helped me not to add more. I actually sold some last year for tax hedging.

[Dividend Growth Investing]

(08-08-2019, 01:10 PM)Kerim Wrote: Anyone have updated thoughts about KHC? Another big down day -- anyone tempted?

I'm beyond tempted. I have an average price of $34. I bought on the original dip which didn't end well.

[Otter]

(08-08-2019, 01:58 PM)Dividend Growth Investing Wrote:

(08-08-2019, 01:10 PM)Kerim Wrote: Anyone have updated thoughts about KHC? Another big down day -- anyone tempted?

I'm beyond tempted. I have an average price of $34. I bought on the original dip which didn't end well.

I'd wait at least until they file their 10Q, which is late. With their lousy credit, debt load, falling revenues and big earnings miss, I'd be curious whether the balance sheet and forecasts actually support that 5.7% yield . . .

Doubt it is going to shoot up in a hurry.

[EricL]

(08-08-2019, 01:10 PM)Kerim Wrote: Anyone have updated thoughts about KHC? Another big down day -- anyone tempted?

There are so many companies to choose from that are actually doing well; so I have no interest in a dumpster fire like KHC here.

It's fine as a speculative turn-around play, if you are into that sort of thing. But if I've learned one thing over the last 6 years of dividend growth investing, it's that sticking to high quality, consistently performing companies rarely fails. And buying "cheap" under-performers with poor credit ratings and declining growth rarely pays off.

[fenders53]

(08-08-2019, 03:31 PM)EricL Wrote:

(08-08-2019, 01:10 PM)Kerim Wrote: Anyone have updated thoughts about KHC? Another big down day -- anyone tempted?

There are so many companies to choose from that are actually doing well; so I have no interest in a dumpster fire like KHC here.

It's fine as a speculative turn-around play, if you are into that sort of thing. But if I've learned one thing over the last 6 years of dividend growth investing, it's that sticking to high quality, consistently performing companies rarely fails. And buying "cheap" under-performers with poor credit ratings and declining growth rarely pays off.

Completely agree.  I like to bottom fish like many others here, but if you build a basket of dumpster fire stocks, you will get burned so bad on a few that it might take you 5+ years to get back to even on the basket.  

If anyone can honestly rationalize  an entry into KHC now, I'd like to hear it.

[EricL]

Here's Chowder's comment this morning on KHC.


Chowder, Contributor
Comments18734 | Following
Author’s reply »
 
Recently we have had quite a conversation about KHC. At one time KHC was a good investment, an investment with such investment potential that even Warren Buffet took up a huge position.

My position in KHC was up over 100% when I decided to sell half of it to pay for a trip to London with the family and build a new multi-level deck. (My timing was pure luck, I had no idea at the time that KHC was about to fall.) But, as I and many others have said many times, you need to monitor your companies in the event they start performing poorly. This is why I keep up with earnings reports. When you see quarter after quarter after quarter of declining revenues and cash flows, you know your company is in trouble. This is why I suggest that people do not keep building positions on companies in the red. Wait until they turn green for you. There's no need to keep averaging down into losers.

KHC is now down 70% from its peak price a couple of years ago, and once it turned into the red, I no longer added to KHC and in fact, started selling off shares. When I see the dividend is unsafe, and KHC's dividend is unsafe, I no longer care about product lines, market share, or any other advantage one might think KHC has.

I pay attention to what analysts say when talking about the business. I ignore their buy, sell or hold ratings, it's their analysis of what's going on in the business that matters to me and has saved me from most dividend cuts.

This is just the latest of reports that came out today.

Kraft Heinz (NASDAQ:KHC) falls 2.6% in premarket trading after Guggenheim analyst Laurent Grandet downgrades the stock to sell from neutral following the food company's disappointing H1 results.

Sees potential for more "bad news" as the new CEO attempts a turnaround, noting the company's "precarious situation" due to high debt burden, brands in need of heavy investment, and cash flow that's "insufficient to fund all those urgencies concurrently."

In the past six months KHC fell 35% vs. consumer staples sector median performance of 0%.
---------
There you have it ...high debt burden, in need of heavy investment, and cash flow that's INSUFFICIENT to fund all those urgencies. ... What's that tell you about the dividend?

People, when market/company conditions change, we need to change our view on how we used to look at a company. If KHC ever gets their act together, you can always buy back in at a later date. Meanwhile, use your funds to buy quality companies or add to the ones doing well for you. It's as simple as that. Why complicate things?

[fenders53]

We share a lot of like views on the equity markets.  Unfortunately I suspect I got my nose bloodied a few more times than you did.  Free financial education resources are a lot easier to find now.

I've owned many dumpster fires over the decades.  I'll end up there again but not nearly as often.  There is a line where patient and fearless becomes gullible and stubborn.  When I get crushed these days I look at opportunity cost of staying the course.  To me there are different types of dumpster fires.

1. The company is clearly going bankrupt.  Look for something with more hope.  SDRL, JDSU and Nortel were these stocks for me.  Unfortunately there were more as I got bludgeoned when the tech bubble.  (luckily I didn't have a lot fo money to invest then so it was a cheap but still humbling lesson)  I hung around for the dividend cuts and eventual BK.  Lost 99% of my investment.  Had many chances to get out with half but refused to accept the reality these companies were toast.  This isn't KHC.

2. The company has made some horrible missteps, but they are in a good industry sector.  It's gonna be ugly but you'll be OK in a few years if you keep the faith.  Close your eyes and keep buying.  Oddly enough XEL was this stock for me.  Bought in about $15, backed up the truck at $7.50 when they were looking completely incompetent.  Today it's a 10 bagger with DRP.  This isn't KHC either.  

3.  These companies are often fallen blue chip stars.  Tired products in industries that can no longer grow.  Add a few bad management decisions and they are in a whole that will take many years to dig out of.  This is KHC.  You have to forget your mistake and look forward and not worry about teaching the market a lesson by blindly holding on, or worse yest average down for more pain.  What is the opportunity cost of waiting 10 more years and praying to just get back to even.          
I now choose to go find something with more hope with those dollars.  I don't want to use the money to overpay for another stock and suffer again.  Maybe it's a new dumpster fire, but one with a rational chance of rewarding your patience while you're still young 

If you paid over $50 for KHC, you are likely to years or decades for any hope of breaking even.  It might see $15 first.  As many advise, catch it on the way back up if you must.  You've already proven you can't pick the bottom.