Today we are moving shares of The Kraft Heinz Company (KHC) from Buy to Sell. As the shares are approaching our price target and as part of our effort to reduce the number of names on our recommended list to focus only on the most attractive turnarounds, the shares no longer belong in the turnaround portfolio.
Kraft has capable leadership that has allowed the company to prosper during the pandemic and in the post-pandemic inflationary period. The turnaround in the company’s strategy (essentially a complete reversal) and in its fundamental execution has been impressive. Our Sell decision is not based on weakening fundamentals or a threatening risk. The dividend yield, at 4.0%, is attractive. The shares might continue to drive upwards, propelled by recession-averse investors or perhaps a surprisingly strong earnings report.
However, we find that the shares’ risk/return trade-off is not favorable enough to justify holding the position in a turnaround portfolio.
Since our initial recommendation in June 2019, KHC shares have generated approximately a 60% total return.