Buffett Watch

  Wednesday, 18 Sep 2019 | 7:19 AM ET

The worst-performing stock in the S&P 500 this year could have more room to fall

Posted ByLizzy Gurdus

Kraft Heinz is getting squeezed.

The stock fell by over 4% on Tuesday after private equity firm 3G Capital — its second-largest shareholder after Warren Buffett — said it sold 25 million shares of the ketchup maker's stock.

The worst-performing stock in the S&P 500 for 2019, Kraft Heinz is now down over 34% for the year and nearly 52% off its 52-week high.

And unfortunately for shareholders, things look like they could get even worse, warns longtime technical analyst Mark Newton, president and founder of Newton Advisors.

"The only thing that we can say is that momentum has gradually gotten less bad, and that's really not sufficient to call a bottom in a stock that's just continued to move lower," Newton said Tuesday on CNBC's "Trading Nation," citing a four-year chart of Kraft Heinz stock.

"Unfortunately, the downtrend is very much intact," Newton said. "We have lower lows, lower highs, and in technical analysis, you want to see at least some evidence of that trend being broken before you can take a real stand. Saying it's oversold is just, unfortunately, not sufficient, even if it's a well-known brand name, to say that I want to take a real stab at trying to buy."

For Newton, the proof is in the ketchup.

"I want to see that proof, and unfortunately, it's just not there yet," he said. "We continue to hear negative news and more volume to be on the downside and people ditching it, so I want to avoid and/or wait before I take a step in the water."

Michael Binger, president of Gradient Investments, had a similarly dismal outlook on the consumer food giant.

"The playbook here when they put this merger together is that you lever up, you get a couple of big, strong, activist-type investors and ... Warren Buffett to come in, you cut a lot of costs, you talk about synergies and then you spur some growth in more niche and growth-oriented areas," Binger said in the same "Trading Nation" interview.

"Well, they cut costs, they got some synergies, but there has been no growth in their core — I'm even going to call it commodity — type of business: ketchup, cheese, mac 'n' cheese, those kinds of things," Binger said.

In addition, he noted, the company has cut its dividend as well as its profit forecasts, leaving investors with these questions that shouldn't go unanswered.

  1. What kind of value trap are Kraft Heinz investors facing?
  2. When might 3G and Buffett sell out of their positions?
  3. How can the company recapture growth?
  4. How can Kraft Heinz delever?

"You sum all these things together [and] it's just a no-growth company," Binger said. "They can't go out and acquire right now because they're levered up so much. I think it is kind of a value trap at this point in time. I'm with Mark; there's no proof that it's not."

Even with a price-to-earnings multiple of about 10 times next year's estimates, which is cheap for Kraft Heinz, it could still get cheaper, Binger said.

"I think it could still fall a couple of bucks," the investor said. "I certainly don't think there's any catalyst to drive it higher from here in the current time period."

Kraft Heinz is expected to issue its next earnings report on Nov. 7. It will be the second earnings release for CEO Miguel Patricio, formerly of AB InBev, who was tapped to lead the company earlier this year.

Disclaimer

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  Tuesday, 17 Sep 2019 | 7:29 AM ET

Kraft Heinz falls after second-largest shareholder 3G Capital sells more than 25 million shares

Posted ByThomas Franck

The second-largest investor in Kraft Heinz Company disclosed that it has again trimmed its stake in the food company.

Private equity firm 3G Capital Partners said Monday it sold 25.1 million shares at a price of $28.44 per share, bringing its stake down by about 9% to 245 million shares.

The Brazilian private equity giant founded by Jorge Paulo Lemann is the company's second largest shareholder, after Warren Buffett's Berkshire Hathaway. After the sale, 3G Capital still has 20% ownership of Kraft Heinz. The stock was down 4% Tuesday afternoon.

In a separate filing Monday, Lemann disclosed that he increased his personal holding of Kraft Heinz stock by approximately $100 million. The 3G sale was also sparked by periodic liquidity windows by 3G investors in the fund that holds Kraft Heinz stock and the private equity fund has no current intention to sell any additional shares, a spokesman for Kraft Heinz told CNBC.

Still, the latest disclosure by 3G comes amid a string of brand write-downs and financial woes at the packaged food giant.

The stock crated nearly 25% in February after Kraft Heinz wrote down $15.4 billion on two of its most iconic brands, Kraft and Oscar Mayer. It also cut its dividend by 36% to 40 cents at the time and announced it had received a subpoena from the Securities and Exchange Commission on its accounting policies and internal mechanics in 2018.

Last month, it sank to a new all-time low after it again delayed the filing of its financial results and wrote down the value of its business by an additional $1.22 billion.

The struggling performance also represent a rare loss for the bargain-hunting Buffett and Berkshire, who partnered with Brazil's 3G capital in the Kraft Heinz merger.

Shares of Kraft Heinz hit a record low on Aug. 28 and remains down more than 31% in 2019 and about 50% over the last 12 months. By early August, Berkshire had lost almost $5 billion this year on its investment.

3G Capital gained a successful reputation on Wall Street for scaling back costs through strict budgeting, layoffs and other changes at the companies it invests in or acquires. The firm bought Heinz in 2013 and merged it with Kraft in 2015. But that strategy hit a snag with a large consumer products company like Kraft, which is seeing a big competitive threat from a trend for fresher and healthier foods. Some investors believe 3G will be unable to revive Kraft through cost-cutting alone and may need to invest more to compete in this environment.

Despite speculation that tensions were mounting between Buffett and 3G Capital, the so-called Oracle of Omaha told CNBC in June that such reports were wrong and that Lemann was still "a good friend."

"I made a mistake in the Kraft purchase in terms of paying too much," Buffett said at the time, adding that the write-down of the Kraft and Oscar Meyer brands was an acknowledgement of that.

Buffett stepped down from the Kraft Heinz board in 2018, but Berkshire Vice Chairman Greg Abel remains on the board and has been actively involved, Buffett said in June.

3G Capital reported a similar sale as this one in August 2018, when it sold 20.6 million shares at a price of $59.85.

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  Friday, 13 Sep 2019 | 10:31 AM ET

Famous economist: Government should give all French citizens $132,000 in cash when they turn 25

What if you came into $132,000 in cash when you turned 25?

If it seems a pie-in-the-sky question, it's not completely fantastical.

Thursday, famous French economist and professor Thomas Piketty released his book, "Capital and Ideology" (in French; the English version comes out in early 2020).

In the 1,232 page tome, Piketty suggests all French citizens should receive a lump-sum cash payment of 120,000 euros ($132,000) from the government when they turn 25, according to Bloomberg. He calls this payment, "inheritance for all," the site reported.

The cash payment is part of Piketty's proposal for fixing wealth inequality.

It's not clear from the Bloomberg story how the "inheritance for all" payment would be funded and Piketty did not immediately respond to CNBC Make It's request for clarification. However, Bloomberg reports that in the book Piketty does suggest taxes as high as 90% on France's super wealthy.

"[T]hose with several hundred million euros, or several billion, will have to share power," Piketty told French magazine L'Obs, according to Bloomberg.

The idea of the government distributing cash — via a universal basic income (UBI) — in order to combat wealth inequality has been gaining attention in the United States.

Elon Musk, for example, has suggested UBI will become necessary as automation eliminates jobs, and Mark Zuckerberg sees it as a way to give people a safety net to support entrepreneurship.

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  Thursday, 12 Sep 2019 | 12:50 PM ET

America's richest could afford this investment to help fight climate change, scientist says

The technology exists to "green" America's electricity grid to fight climate change — and together, the country's richest people have enough money to pay for it. In fact, they could even make a profit on the investment.

That's according to a 2019 research paper on solar energy led by Joshua Pearce, a professor of materials science and engineering at Michigan Technological University.

Burning coal, oil or gas to produce electricity creates a lot of carbon dioxide, which contributes to climate change. Solar energy, meanwhile, is better for the environment and slows climate change. Replacing all carbon dioxide-generating fossil-fuel electricity with sustainable solar electricity in the U.S. would cost $1.59 trillion, a price that it would take just 79 of America's wealthiest billionaires to cover, according to Pearce's study.

Pearce, who heads Michigan Tech's Open Sustainability Technology Lab, says if a few dozen of the richest Americans (whom he identifies in his study) invested the $1.59 trillion, they could not only solve the problem but even make their money back and then some.

"With current solar technology, a remarkably small number of investors could effectively 'green' the U.S. electric grid," Pearce tells CNBC Make It. "The bottom line is: Solar costs have dropped so radically and wealth is now concentrated to such a degree, that only a few wealthy Americans could green the U.S. electric grid by making targeted investments in solar energy."

Each billionaire would, in Pearce's hypothetical calculation, invest all of their wealth except $1 billion, which they would keep to live on, Pearce says. Pearce's list of multibillionaires include a slew of technology inventors and executives such as Jeff Bezos, Bill Gates, Warren Buffett, Mark Zuckerberg, Larry Ellison, Michael Bloomberg, Larry Page, Sergey Brin, Jim Walton, Elon Musk, Laurene Powell Jobs, Ray Dalio and Eric Schmidt.

"To be clear, we analyzed the potential investment, not charity," Pearce says in a written statement from Michigan Tech.

The 79 billionaires would get a return on their investment because the electricity generated by the solar panels would be sold to a consumer or electricity reseller, Pearce tells CNBC Make It. "Sun shines, electricity is produced, buyer pays for it and the investors gets their money back with a handsome profit," Pearce tells CNBC Make It.

It's hard to predict when the investors would be paid back, though.

"It will be highly location dependent," Pearce tells CNBC Make It. "Here in Michigan it would vary between only a few years to about a dozen years for a payback period."

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  Tuesday, 10 Sep 2019 | 11:56 PM ET

We went inside Alibaba's global headquarters. Here's what we saw

Posted ByUptin Saiidi

HANGZHOU, China — Chinese tech giant Alibaba's global headquarters in Hangzhou is more than an office or corporate campus. It's an incubator for all things tech, testing everything from self-driving cars to automated hotels.

One hour away by train from Shanghai, Alibaba boasts six campuses around Hangzhou. It also has other offices across China, and globally, including Silicon Valley.

CNBC recently took a tour of the company's main Hangzhou headquarters — Xixi campus, which is home to about 22,000 of its 100,000 global employees. Its main campus is also where its corporate office, as well as its major e-commerce brands Tmall, Taobao, and AliExpress, are at.

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  Tuesday, 10 Sep 2019 | 8:15 AM ET

Millionaire in training: how to teach your kid to think like an entrepreneur

Posted ByMichelle Fox
Boys videotaping circuit board assembly in bedroom
Hero Images | Hero Images | Getty Images

Kids can come up with some pretty amazing ideas.

In fact, ear muffs, the popsicle and the trampoline were all invented by children.

Even Berkshire Hathaway CEO Warren Buffett, who is worth $81.7 billion, according to Forbes, began hustling as a child, going door to door selling chewing gum.

Yet, even if your kid isn't destined to be the next Buffett or Mark Zuckerberg, encouraging an entrepreneurial mindset will help them develop necessary life skills, as well as teach them important financial lessons.

"There are these unbelievable opportunities, as parents, that happen right under your roof to teach kids about money and entrepreneurship on the top of the list," said Thomas Henske, a certified financial planner with New York-based Lenox Advisors.

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  Wednesday, 20 Jun 2018 | 4:48 PM ET

Buffett, Bezos and Dimon's health-care pick is known as a thought leader, not a business leader

Dr. Atul Gawande writes and speaks about health care — a lot. But he hasn't actually spent nearly as much time changing it.

Despite that, the surgeon and Harvard professor soon will lead the most anticipated health-care company, a joint venture between three corporate titans: J.P. Morgan, Amazon and Berkshire Hathaway.

Those firms tapped Gawande on Wednesday to head the as-yet-unnamed health company. J.P. Morgan CEO Jamie Dimon, Amazon Chief Jeff Bezos and Berkshire leader Warren Buffett announced the venture in January.

Skeptics have questioned whether the trio's grand project can actually change the system or whether it will become just the latest failed attempt by employers to lower health-care costs. Many have tried unsuccessfully over the years on their own or through other alliances.

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  Wednesday, 14 Aug 2019 | 4:25 PM ET

Warren Buffett's Berkshire Hathaway raises Amazon stake by 11%, now worth $947 million

Posted ByKate Rooney
Warren Buffett
Bloomberg | Getty
Warren Buffett

Warren Buffett's Berkshire Hathaway has been loading up on shares of Amazon.

Berkshire upped its stake in the e-commerce giant by 11%, the Omaha, Nebraska-based holding company revealed in a government filing Wednesday. Berkshire now owns 537,300 shares of Amazon, worth $947 million. The holdings are as of the end of the second quarter.

Buffett announced his initial Amazon investment in May, but said he was not the one behind the share purchases.

"One of the fellows in the office that manage money" bought shares of Amazon on behalf of Berkshire, Buffett told CNBC's Becky Quick on the eve of the company's annual shareholders meeting in Omaha.

Buffett also slightly increased his bet on bank shares, which have been hit this month on concerns about an inverted yield curve hurting profits for the group. Berkshire's Bank of America stake was increased by 3.5% last quarter, according to the filing. It also raised its holding of US Bancorp by 2.4%. Other big bank holdings, including Wells Fargo and J.P. Morgan Chase, remained the same.

The famous value investor has historically avoided major technology bets, ending a rough chapter in IBM last year. But in February 2017, he announced that Berkshire was buying a large stake in Apple. In the the first quarter of 2018, Berkshire added 75 million shares of the iPhone maker and told CNBC at the time that he clearly likes Apple, and "we buy them to hold."

One of his two lieutenants, Todd Combs or Ted Weschler, who each manage portfolios of more than $13 billion in equities for Berkshire, is behind the original Amazon purchase and likely the increase seen last quarter.

The Berkshire chairman and CEO has long admired Amazon founder Jeff Bezos and is working with him on a joint health care venture. But the legendary investor has basically said that he missed his chance on Amazon.

Amazon has "far surpassed anything I would have dreamt could have been done. Because if I really felt it could have been done, I should have bought it," Buffett told CNBC in 2018. "I had no idea that it had the potential. I blew it."

Apparently one of his managers thinks there is still an opportunity for gains still in the shares, which are 12% in the last month amid a broader market sell-off.

Kraft Heinz, Berkshire's fourth largest holding, hit a record low last week after the company announced an additional write-down of $1.22 billion and missed revenue expectations. Buffett told CNBC in June that he "made a mistake in the Kraft purchase in terms of paying too much."

In its last major SEC filing, Berkshire Hathaway disclosed an 18% increase in its J.P. Morgan Chase stake to 59.5 million shares in its last quarterly filing, and a 22% increase to its Red Hat holdings to 5.1 million shares. Red Hat was acquired by IBM for $34 billion in July.

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  Wednesday, 14 Aug 2019 | 9:23 AM ET

Ray Dalio reveals the 'most important thing you need to do' to be a successful investor

If you are going to take investing advice from anybody, Ray Dalio is a good bet.

Dalio founded investment firm Bridgewater Associates out of his two-bedroom apartment in New York City in 1975. Currently, Bridgewater Associates has $160 billion in assets under management, making it the largest hedge fund in the world.

According to Dalio, "diversifying well is the most important thing you need to do in order to invest well," he wrote on LinkedIn on Monday.

By diversifying, Dalio means spreading out your money into different kinds of investments, such as stocks, bonds, commodities, real estate, etc.

Dalio said in the 2016 book "Money Master the Game: 7 Simple Steps to Financial Freedom" by Tony Robbins that a well-diversified portfolio might include 30 percent allocated to stocks, 40 percent to long-term U.S. bonds, 15 percent to intermediate U.S. bonds, 7.5 percent to gold and 7.5 percent to other commodities. A typical portfolio split of half stocks and half bonds is not really diversified, according to Dalio.

Diversification is important because there is so much you don't know when you are putting your money in an investment, Dalio said in his LinkedIn post.

"It's very hard to make money in the markets for the same reason that it's hard to make winning bets at the racetrack: because the unknowns are so large in relation to what is 'discounted' or 'priced in,'" Dalio wrote.

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  Thursday, 8 Aug 2019 | 6:40 PM ET

Uber's Q2 losses were bigger than total 2018 losses for all but three S&P 500 companies

Posted ByAri Levy

Uber's $5.2 billion second-quarter loss is big on its face.

But it seems even bigger when you consider this — only three companies in the S&P 500 lost that much money in all of 2018.

The ride-hailing company, which held its stock market debut in May, attributed most of its quarterly deficit to stock-based compensation. Excluding that expense, Uber's losses were around $1.3 billion, or roughly 30% wider than the prior period.

High stock-related compensation costs are normal for Silicon Valley companies. Equity packages are the price of luring talented engineers who could otherwise command bigger salaries at more established companies. Eventually those options and restricted stock units vest, and the companies then have to account for the costs.

Snap recorded a $2 billion expense in its first post-IPO earnings report in 2017. On Wednesday, Lyft reported a $296.6 million stock-compensation expense following an $894 million cost in the previous quarter.

Stil, Uber's quarterly loss is eye-popping for investors who are used to companies being well on their way to sustainable profits by the time they reach such a lofty market cap. As of Thursday's close, Uber was worth $67.3 billion, which would make it the 84th most valuable company in the S&P 500, if it were in the index.

Uber shares traded roughly 8% lower in premarket trading on Friday.

"We think that 2019 will be our peak investment year and we think that 2020, 2021, you'll see losses come down," CEO Dara Khosrowshahi told CNBC.

Among S&P 500 companies, only 26 lost money in 2018. The only three to lose more for the year than Uber lost in the second quarter were General Electric ($20.6 billion), Kraft Heinz ($10.2 billion) and Newell Brands ($6.8 billion).

GE's massive deficit was the result of a $23 billion charge taken in the third quarter last year for its struggling power business. At the same time of that announcement in October, the company abruptly removed CEO John Flannery after only a year on the job.

In the fourth quarter, Kraft Heinz slashed the value of its Kraft and Oscar Mayer brands by $15.4 billion, leading to a 27% plunge in the stock price in one day. The performance was even a shock to Warren Buffett, who admitted in February that "we overpaid for Kraft." In 2013, he teamed with Brazilian private equity firm 3G to acquire Heinz and two years later helped merge it with Kraft.

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About Buffett Watch

  • Warren Buffett is arguably America’s most-admired and most-followed investor. Buffett is the largest shareholder and CEO of Berkshire Hathaway and one of the world’s most famous and most generous philanthropists. Legions of investors - from all walks of life - follow Buffett's homespun investment philosophy: invest in what you know, invest in value. Here on CNBC.com's Warren Buffett Watch, we’ll keep you up to date on what the “Oracle of Omaha” is doing by following Buffett's trades, words and deeds.