When we asked Pierre Trottier of Industrial Alliance Investment Management Inc. to name his favourite stock in the food and beverage sector for the next five years, he chose Kraft Heinz Co.
The portfolio manager, who oversees the IA Clarington U.S. Dividend Growth Fund, profi ted nicely from owning Kraft Foods before its recent takeover by H.J. Heinz Co.
Now, he is betting the merged entity, controlled by Brazil’s 3G Capital and Warren Buffett’s Berkshire Hathaway, will swallow even more players.
THE STOCK: Kraft Heinz (KHC-Nasdaq)
Why are you bullish on Kraft Heinz?
› Management at 3G already has a strong track record in cutting costs at He inz and other companies. Kraft Heinz says it expects annual cost savings of $1.5 billl ion (U.S.) by 2017. I believe that estimate is conservative and could exceed $2-billion.
Everyone says consumers are turning toward organic and fresh foods. So isn’t it going to be difficult to increase sales of brands like Kraft Dinner and Oscar Mayer?
› The Kraft division sells nearly 90 per cent of its products in the United States, but Heinz has a stronger international presence, so it can help open up new markets for Kraft Foods in Europe and Asia.
Who could be its takeover targets?
› Kraft Heinz could look to buy snack giant Mondelez International Inc., or some of its non-core businesses. Mondelez split from Kraft Foods in 2012 to focus on the higher-growth emerging markets, but still licenses the overseas rights to certain Kraft brands or owns them outright, as in the case of Philadelphia Cream Cheese.
What are the risks?
› The risk is that management focuses too much on cost-cutting at the expense of sales growth.
More from this month's issue of Globe Investor magazine.