Could This Be a Sign Warren Buffett May Be Unloading 1 of His Biggest Stock Holdings?

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a day ago

Berkshire Hathaway is no longer going to have a position on Kraft's board of directors.
This comes as the food company is evaluating strategic transactions.
Kraft has struggled to grow its business, and its future prospects don't look all that great.
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Warren Buffett's company, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), invests in many top blue chip stocks. They are mainly centered around financial services, consumer goods, and oil and gas. And while there may be some changes in smaller positions within Berkshire's holdings, the top 10 stocks don't normally see a lot of turnover.
But with Buffett stepping down as CEO this year, there could be some more significant changes on the way. And there's a move that Berkshire recently made that stood out to me, one that could signify the end of its position in one of its largest holdings: Kraft Heinz (NASDAQ: KHC).
In a press release dated May 20, Kraft announced that its board and leadership team are looking at "potential strategic transactions to unlock shareholder value." It also noted that Berkshire Hathaway's two representatives on the board -- Timothy Kenesey and Alicia Knapp -- would be stepping down.
Thus, at a critical time in Kraft's business, when the company is struggling to grow (its sales were down 3% last year) and possibly looking at making significant changes, Berkshire appears to be distancing itself from the consumer goods company.
It's not hard to see why Kraft may need to make a move. Its top line has struggled to grow in recent years, and as the government focuses on healthier eating options and people are using GLP-1 weight loss drugs to shed pounds and curb their appetites, the company's growth prospects aren't looking so great.
If Berkshire isn't involved in these critical strategic decisions, the writing may be on the wall for its investment in Kraft. For years, it hasn't made a whole lot of sense as to why Kraft remains one of Berkshire's top holdings. It makes up just over 3% of Berkshire's overall portfolio, making it the eighth-largest position, behind Occidental Petroleum, Moody's, and Chevron.
Kraft pays a dividend, which Buffett likes, but it has been a bad investment over the years, even despite the payout. In five years, the stock has declined by 12% and when you include its dividend, the total return is only 10%. That is a pitiful performance when you compare it against the S&P 500, which has more than doubled in value over that time frame when including dividends.
For a forward-looking investor such as Buffett, the future doesn't look all that promising for Kraft either, whose iconic Mac & Cheese brand has become associated with unhealthy eating habits due to its processed ingredients and high sodium. Given all the question marks around the business, it wouldn't surprise me in the least to see Berkshire finally exit its position in Kraft. Berkshire and 3G Capital (which has since sold its stake) bought Heinz back in 2013, a few years before it merged with Kraft.
If Berkshire sells its stake in Kraft, that could send the stock into a deeper free fall. But regardless of whether that happens or not, this is a stock that you may be better off avoiding. Simply because an investment is or isn't in Buffett's portfolio shouldn't determine whether you buy or sell it. Ultimately, it's important to make your own investment decisions based on your own goals and objectives, as they will be different from Buffett's and Berkshire's.
And if you're looking at where Kraft's business is heading, the outlook doesn't look terribly promising. Even the stock's 6% yield may not prove to be safe in the long run, especially if its sales and profits decline. Without more compelling growth prospects, this stock may continue to be a bad buy for the foreseeable future.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Chevron, and Moody's. The Motley Fool recommends Kraft Heinz and Occidental Petroleum. The Motley Fool has a disclosure policy.
Could This Be a Sign Warren Buffett May Be Unloading 1 of His Biggest Stock Holdings? was originally published by The Motley Fool