In This Article:
Key Points
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Warren Buffett is a major shareholder in Kraft Heinz.
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Buffett has described his purchase of Kraft Heinz as a mistake.
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There's an attractive opportunity for investors to avoid the kind of mistake Buffett made with Kraft Heinz, and it's available right now.
Warren Buffett is known as the Oracle of Omaha because of how successfully he has managed his investment vehicle, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), over the years. But Buffett is very open that even he doesn't have perfect clarity when it comes to the future of stock prices. And he willingly tells investors when he's made a mistake, which is how he has described his purchase of consumer staples giant Kraft Heinz (NASDAQ: KHC).
Here's what happened and why you might want to avoid Buffett's mistake by buying this other deeply out-of-favor, high-yield, consumer staples Dividend King today.
What was Buffett's mistake?
A material part of Warren Buffett's investment training came from Benjamin Graham. Some people call Graham the father of fundamental analysis, and some people consider him one of the most famous value investors of all time. Regardless of which view you take, he had an interesting point of view on investing. To paraphrase one of his most important maxims, even a good company can be a bad investment if you pay too much for it.
This is where Warren Buffett's mistake lies with food maker Kraft Heinz. The company has a strong collection of brands and a long history of managing its brand portfolio to keep up with consumer buying habits. But even good companies go through difficult periods. When Buffett bought into Kraft Heinz it was basically in a transition period. In fact, part of the goal of Kraft and Heinz merging was to cut costs by reducing corporate bloat.
This is a fine goal, but cutting costs is not a long-term business plan, and management took their eyes off the ball. That resulted in a massive write-down in the value of some of Kraft Heinz's brands, which Buffett basically admitted was an indication that he overpaid for the consumer staples company.
Take a look at this down-and-out competitor today
The truth is that Kraft Heinz will likely muddle through to better days, but its turnaround effort is still ongoing. Most investors should probably stay away. But PepsiCo (NASDAQ: PEP), which is down around 30% from its highs in 2023, is a totally different story. This Dividend King stock looks cheap right now.
For starters, PepsiCo's 4% dividend yield is near the highest levels in the company's history. That should attract dividend investors and those looking for a stock that's on sale. The value proposition, meanwhile, is backed by the stock's price-to-sales, price-to-earnings, and price-to-book value ratios all being below their five-year averages.