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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.
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.