Part 1

In order to help our followers maximize their profitability, we have decided to analyze the performance of some of the biggest companies within the two ETFs (XLP & XLK).

Kraft Heinz Company (KHC)

Company background and financial performance

Our first stock-pick from the XLP would be Kraft Heinz Company (KHC). Headquartered in Pittsburgh, United States, the Kraft Heinz Co. is among the largest consumer packaged food and beverage companies in North America.

The company manufactures and sells food and beverage products like sauces and condiments, cheese and dairy products, meals, meats, coffee, refreshment beverages, and other grocery products. Its popular brands include Heinz, Kraft, Oscar Mayer, Philadelphia, Planters, Capri Sun, Maxwell House and others. In fact, the company operates in around 190 different countries and territories and is a global player in the sector it operates.

By looking at the company’s financial performance we should say we are quite impressed by the great success Kraft Heinz has had in the past 4 quarters. In fact, they have managed to keep beating analysts’ earnings per share expectations in the past year since the 3rd quarter of 2019 and notably the company has managed to beat earnings expectations in each of the first 3 quarters this year, regardless of the coronavirus pandemic and the global economic slowdown that followed. The company delivered earnings per share of $0.7 in the 3rd quarter, while the analysts had expected $0.63 per share (11% surprise). That further confirmed the company’s solid financial performance. It is important to mention here that Kraft Heinz’s products are non-discretionary. In other words, the company sells basic necessities and such companies tend to perform well even during such tough times in the economy. That’s why we have also decided to look for Kraft Heinz as our first stock pick for today.

The company’s return on equity for the Q3 2020 is 6.8%, an increase compared to the 6.7% in Q2 and the 6.5% in Q1. The return on assets of 3.4% and its decent dividend yield of 5% give additional reasons to be looking at the stock as a great potential buying opportunity. Furthermore, the stock is trading at only 11 times earnings (P/E) at the moment and its book value if $40, while the share price is only trading at $31 at the moment, meaning that the recent profit-taking correction is giving us a great chance to own such a great stock and make high profits to the upside.

Technical analysis

By looking at the daily chart of the KHC, we could easily see the massive uptrend between the middle of March and the middle of August. The price bounced from the $20 lows to reach the $36 highs 5 months later, presenting an overall gain of 80%. In fact, that means KHC has been one of the best performing stocks in the sector during that period of time. The price then made a profit-taking correction following the overall market drop, where the stock fell to the $28.60 support mark and formed a double bottom just above the support level where traders were given a great entry level for their long positions. Currently, the price is standing at $31, just above the first support mark at $31. We believe the recent profit-taking correction is giving us a great chance to own KHC and boost our profits to the upside. Therefore, based on all above-stated facts we have decided to add KHC to our portfolio.

Chart: Kraft Heinz Co. (KHC)

We would start buying the KHC at the first key support mark at $31. In case of a further drop on the price we would be looking forward to buying more of the stock at the next key support at $29 which would give us a chance to get a better average price and further maximize our profitability when the stock starts rising. Our first take profit target is set at $34, followed by the next target at $36-$38 where we would be fully cashing in our profits.

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