 Good day fellow investors. As I told you yesterday in the news, they were going to analyze Kraft Heinz, which is a stock that was very much requested for me to analyze on this channel and on other platforms. So, let's start immediately. The content, Kraft stocks, fundamentals, the business strategy, increasing dividends would make Kraft Heinz great again. I will go to the store with Kraft Heinz. You can't invest in Kraft Heinz with Buffett and my investing conclusion. I have already analyzed Kraft Heinz in April of 2018 when the stock price was 57 and in that video I discussed how the company has a significant amount of debt that becomes a burden as interest rates increase, how Kraft Heinz businesses positioned in the middle, Whole Foods catering to the selective, little to the cheaper and being in the middle is not that good. Higher input costs, weaker brands as consumer preferences have been changing, Buffett's ownership and analysis earnings forecast for 2018 was 3.83. This summarizes my negative findings, declining sales, rising interest rates, input costs, declining market, high competition, changing consumer preferences. But there were also positives, cost-cutting strategies, growth in emerging markets, strong brands, high dividend yield. So, my conclusion was that I will take another look at Kraft Heinz. If it hits 41 it was 57 and it did hit exactly that in the 52 week low in December 2018, which is pure coincidence, but it's time to take a look, another look at Kraft Heinz. At the current moment Kraft Heinz stocks is a bit higher but that doesn't really matter if the long story is strong and intact. Perhaps it will drop again depending on the market. Let's look at the fundamentals. The 52 week low, 41.60, 80 was the 52 week high, so big volatility there, high dividend forward, dividend yield of 5.26%, temporary price earnings ratio 5, but the forward is 13, so that should lead to a 7.6 earnings yield if they pay everything in dividends. We are there, 5% dividend yield. The price to book is 0.89, price to book 0.89 times the price earnings ratio 13 is a gram formula of what 1112 should be below 25, so it is looks like a value investment. However, it's not tangible book value. Goodwill is at 44 billion, intangible assets at 58 billion, together those make 85% of total assets, so the tangible book value is just 7 billion with 7.5 billion current assets. This doesn't make a value investment anymore because everything is intangible. The liability side looks okay with current liabilities equal to current assets and stable long-term debt. The long-term debt has always been around 30 billion. Total revenue is 26 billion, stable for the past years, stable for the past 10 years before the Heinz merger, so high margins signal, okay it's all about the brand, they can charge more for their brands, operating margins 23, 25, 22% high in the industry, high cash flows a little bit volatile in the last years as they are investing, buying other businesses, buying brands, so that doesn't leave much free cash flow, but okay it looks like good business. Their cash flows have been suffering because they are focusing on growth, they want to make a turnaround, so they want to turn around the stagnating revenue for the past 10 years, they do strong marketing, innovating pipeline, which is not really a value investment, not really something that you would say oh great they are trying to do their spending money to invest in growth. Now what would do well for Kraft Heinz and constantly increasing dividend and the question is okay will they be able to grow or have they have reached their plateau and therefore no increased dividends which might put the stock under the influence of simply interest rates. If they can hold the sales, the productivity, the margin stable this is what you can expect. If there is a recession less selling, less people going to restaurants, less consumption of catch up that might be also hit in forex issues, things like that global growth, wrong investment at the wrong time that is the risk. So there is the reward, the brands are strong but there is also the risk. With such companies always best to go to the store and see okay what is going on there, how does the company fit among the competition, are the brands really so strong that you can buy only that or it gets lost into the market. So we are in the store here my local Dutch store and you can see Kraft's products in this case are on the top shelf Philadelphia exactly above the competing products so which are not from Kraft also a lot of brands, special brands there for the cheese, the local stores unbranded brands how we would call them. So yes there is Kraft it is sold there it will have sales but that's also the reason of the stagnating sales it's not growing and the competition is high. In Heinz specialty catch up business so you have a big shelf at high level Kraft Heinz tomato but next to it you have the cheaper version much cheaper biological store brand then you have mayonnaise up and down also, Helmhans Kraft Heinz so again competing depending on price very hard to assess whether this will be growing brand modes you buy whatever you fancy and consumer preferences are difficult to grasp and it's the key here is it's difficult to grow in this environment you have your mode you have your castle but everybody's trying to attack your castle and growth is really difficult. You come to an environment okay where there are a lot of sources a lot of new things and an influencer in Instagrammer can start a new sauce or a new yogurt and simply take advantage take chip a little bit of your market of your margins of your profits and it's a very very competitive industry. On the cheese is how do I know which one is Kraft what is better so so much there and this also explains as I said the stagnating revenues the difficulties Kraft Heinz have had over the last few years when it comes to business growth and expansion. So my store conclusion would be brands are there this is a European Dutch store so Kraft Heinz is almost all over the place so it's practically inevitable that you don't come in contact with something however that costs to be so expanded over a store and you really don't have a mode because there is so much product this five categories so and the modern let's say modern people aren't really attached to brands to the marketing now a new influencer can start a new yogurt like this and there you have a little bit of your market share chipped off here chipped off there somebody goes organic somebody goes this hum but somebody goes like that so it's a really really tough industry and it's hard to forecast whether it will pick up for Kraft Heinz or not that's very hard and even Buffett wasn't able to forecast it correctly but what Buffett did was okay I can invest with a margin of safety as a value investment worst-case scenario I don't lose anything I actually make a little return great scenario I make a big return and that's how Buffett invests and I don't think the crowd invested and I don't think Kraft Heinz is in this position that you can invest like Buffett because Buffett really did it differently which we retail investors can't do so Buffett acquired his taking Heinz in 2013 because he thought that those companies fit Berkshire extremely well he paid not much money up front four billions in cash and eight billions in preferred shares that pay the 9% dividend 9% interest no retail investor can make such deals and the expected preferred yield was 12% to to become later so that's something that's the margin of safety you cannot have if you invest directly in this company similarly he added to the Coca Cola story Buffett was looking at the stock for a long time before buying this is my kind of deal and my kind of partner he added Heinz is our kind of company with fantastic brands I have a file on Heinz that goes back to 1980s in 2015 Kraft merged with Heinz and Buffett and 3G bought additional shares by giving 10 billion to Kraft shareholders in the form of a dividend Buffett still owns 27% of the company which cost him 9 billion in pure cash 8 billion in the preferred shares that gave him two or three years at 9 10% and let's say that the value of that investment is 8 billion to summarize Buffett invested 17 billion to get 27% of Kraft Heinz the market cap is 57 billion thus his stake now is worth 15.39 billion he will probably get 800 million in dividend he did get so much per year over the last six years so the capital invested is probably around 10 billion in the company so he's 50% still up and that's his margin of safety that is what he did you can't compare yourself with that because his entry level is much lower and he has already been collecting the cash that he will redeploy into other stocks and he will compound that because he did that in 2013 when interest rates were at zero and he invested in a company with a preferred yielding 9% that's Warren Buffett that's a margin of safety he didn't lose money if Kraft Heinz turns around he will make even more money if not he will be collecting the 4-5 for him 7% 8% 9% dividend on the 10 billion that are still remain invested in the company that's Buffett so you have to wait for a margin of safety for a value investment to be there to invest like Buffett to conclude off on Kraft Heinz yes it has strong brands but it is stagnating and the company has been increased spending to increase growth because you have to grow on Wall Street you have to do things you have to show that you are doing something but they are not growing that much not doing that much crazy things because Buffett they want the cash flows that they can redeploy elsewhere if this isn't growing so with Kraft Heinz I would say invest in it if you have to when there is a margin of safety when you are happy with the 5% yield that might become 4% that might become 3% so Buffett's entry point is what 33% below the current stock market price so if we are at 45 at 30 is where Buffett invested and you have to chip off every new dividend out of that price will Kraft Heinz be there in the next 100 years probably will it be a difficult business over the next 10 years yes because it's very difficult to predict consumer preferences consumer tastes six years ago it was a little bit easier perhaps to predict but the world is changing fast with Amazon entering Whole Foods etc and that's something you have to balance out for me I will not invest in the company because I don't really see it gaining traction in the highly competitive world I see it as a good business for Buffett as always margin of safety for him is there upside leave it to the upside if it comes good if not still good I get my 9% dividend so that's the message here I think I explain the story and it's really uncertain it can go up it can go down you will get the dividend 5% 4% dividend can be slashed if it happens the stock price will crater but Buffett doesn't really care about the stock price he's just calculating and piling his cash flows that will be reinvested in better places and that something we will discuss tomorrow when we discuss Warren Buffett investment letters from 1996 till 1975 to see how Buffett started building his empire which is an extremely interesting story so thank you for watching subscribe click that notification bell so that you are notified whenever that comes there comes a new video thank you and see you in the next video