This Ridiculously Cheap Warren Buffett Stock Could Make You Richer

Warren Buffett's Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) owns one of the world's most closely watched stock portfolios. Many investors follow Buffett's trades for investment ideas and to gauge the temperature of the broader market.

That's why it was alarming when Berkshire trimmed many of its top positions -- including Apple and Bank of America -- over the past year. Berkshire also stopped repurchasing its own shares, focused on buying short-term T-bills instead, and boosted its cash reserves to record levels.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. See the 10 stocks »

Image source: The Motley Fool.

All of those moves suggested that Buffett was bracing for a market pullback. The S&P 500 index and Nasdaq are still hovering near their all-time highs as of this writing, and plenty of those stocks are trading at historically high valuations. That caution might drive many investors to load up on stocks right now, but investors can still spot some bargains in Buffett's portfolio.

An oft-overlooked blue chip dividend stock

One of those value plays is Kraft Heinz (NASDAQ: KHC), which trades at just 9 times forward earnings and pays a hefty forward dividend yield of 5.5%. Buffett gained 326 million shares of Kraft Heinz in 2015 after driving Kraft Foods to merge with H.J. Heinz, and he hasn't ever sold a single share.

That around $9.5 billion in shares, which gives it a 26.9% stake in the company, now accounts for 3.2% of Berkshire's portfolio. It also receives about $521 million in annual dividends.

Why has Kraft Heinz underperformed its peers?

Along with its two flagship brands, Kraft Heinz owns well-known brands like Oscar Mayer, Ore-Ida, Philadelphia, Classico, Velveeta, Grey Poupon, Maxwell House, Capri Sun, and Kool-Aid. But over the past six years, Kraft Heinz's stock has declined 38% and underperformed many other blue chip consumer staples stocks.

Much of that decline occurred in 2019, when the company took a $15 billion write-down on its top brands, cut its dividend, and dealt with a Securities and Exchange Commission probe of its accounting practices. Then-CEO Bernardo Hees also stepped down following those setbacks.

Hees' successor, Miguel Patricio, drove Kraft Heinz to resolve those problems by cutting its weaker brands, acquiring higher-growth brands, refreshing its classic brands with new products and marketing campaigns, and streamlining its spending. Those steps set it up for a strong recovery during the pandemic in 2020 and 2021, which drove consumers to stock up on packaged foods. In 2022 and 2023, Kraft Heinz raised its prices to counter the inflationary headwinds. As a result, its organic sales are steadily growing again -- even though its divestments and currency headwinds are throttling its reported sales growth.

Data source: Kraft Heinz.

Its gross and operating margins declined in 2022 as the company grappled with inflation, but both metrics rose in 2023 as it offset that pressure with more aggressive price hikes.

What's next for Kraft Heinz?

Patricio handed the reins to Carlos Abrams-Rivera a year ago, and the new CEO continued to prune Kraft's portfolio, cut costs, and raise its prices. But for 2024, Kraft expects its organic sales to dip 0% to 2% as it runs out of room to raise prices in its international developed markets. It expects that pressure to offset its more successful price hikes in North America and its international emerging markets.

However, the company still expects its adjusted gross margin to expand for the full year, and for its adjusted EPS to grow "at the low range" of 1% to 3%. That growth might seem anemic, but the company is treading water in a difficult market -- and it could be a lot easier to swim forward once inflation cools off and the macro environment warms up again.

Until that happens, Kraft Heinz's low valuation and high yield should limit its downside potential. That's probably why Buffett hasn't trimmed his stake, even though he's admitted that he overpaid for its shares. It's definitely not a high-growth stock, but it could gradually make you a bit richer over the next decade.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $357,084!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,554!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $462,766!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

Learn more »

*Stock Advisor returns as of January 21, 2025

Bank of America is an advertising partner of Motley Fool Money. Leo Sun has positions in Apple and Berkshire Hathaway. The Motley Fool has positions in and recommends Apple, Bank of America, and Berkshire Hathaway. The Motley Fool recommends Kraft Heinz. The Motley Fool has a disclosure policy.