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STOCK OF THE WEEK: THIS FOOD PRODUCER IS CRAFTING A COMEBACK

ALPESH PATEL|APRIL 29, 2022

With the cost of living going up… interest rates rising… and a recession looking
more and more likely…

It’s critical to look for stocks with low volatility.

And I’ve got a household name for you this week that checks that box… and many
more.



Whether a recession comes or not… you’ll most likely be buying this company’s
products.

See why this food producer promises to be a strong player in the market in this
week’s Stock of the Week.

Click on the image below to watch it.

5:44










TRANSCRIPT

So it’s Stock of the Week time again for you. As you know, I’m Alpesh Patel. I’m
the person behind GVI Investor, where we take an in-depth look, thanks to my
team at the hedge fund of which I am chief executive.

What we also do is the Stock of the Week, just for those of you who aren’t
necessarily on the program, just to give you a little bit of a
tip-of-the-iceberg insight into the kinds of things we look for. And it’ll
hopefully educate you on how professionals look at individual stocks and how
they find them.

Well, the Stock of the Week I’ve got this week is one that will be a household
name. I wanted to go with a name that you might have heard of – but might not
have thought of in terms of a quality stock.

So let’s have a look at it.

In light of our concerns about cost of living expenses, rising interest rates
and a possible recession, the Stock of the Week is Kraft Heinz (KHC).

Now, you’ll remember back in 2015, Kraft and Heinz merged. They became the
third-largest food and beverage manufacturer in North America, behind Pepsi and
Nestlé, and the fifth-largest in the world. Come recession or not, you will
almost certainly be buying Kraft Heinz products. And that is unlikely to change.
Of course, they distribute through pharmacies, bakeries, drug stores, value
stores and a whole bunch of other institutions as well.

So what was it that I liked about this stock? Now, again, you’ll know that when
we pick stocks, the depth of research we do is based on every facet of that
company, all 360 degrees of research. So we want to look at their valuation –
that’s their profitability relative to their share price… their cash flow and
cash flow growth – are they generating enough cash to keep going and growing? –
their sales growth… the volatility of the share price. These are just some of
the things we look at.

Now, my growth-value-income indicator… so we look at dividend yields as income
as well… that’s got an 8 out of 10. That’s good enough for me. As long as it’s
7, 8 or 9, then it meets the minimum criteria that I set. So I’m really looking
for the best of the best. Valuation, revenue growth, dividend deals…

We also look at CROCI, cash return on capital invested. Now, 5% is a little bit
lower than what I normally like. It’s why it’s one of the Stocks of the Week and
not within my GVI Investor, which really picks companies which are at the
extreme end of good news.

The CROCI is a ratio which is used by Deutsche Bank Wealth Management and
Goldman Sachs Wealth Management for their richest clients – cash return on
capital invested. What it’s saying is, how good is a company at making new cash
from the capital that they’ve invested? So if they bought some machinery, if
they can keep that machinery going and they can just produce cash, then they’ve
got a cash-making machine. It’s what CROCI measures.

And what those investment banks, Deutsche and Goldman Sachs, realized is
companies with the highest CROCI tend to make the highest stock returns. Not
guaranteed, but they tend to – there’s an increased probability.

Now, this is a company which for several years was doing rubbish. And then,
2020, 2021 and 2022, it’s starting to get back into the rhythm of things. And
that’s really what I’m expecting to continue going forward. Volatility… only
15%. I really want lower-volatility stocks like this – under 20% volatility –
because in this market, the market’s providing enough volatility. I don’t need
to go looking for it in my stocks.

Alpha means it’s been outperforming the market as well. The Sortino is positive.
In other words, the risk or volatility of the stock relative to the performance
it’s giving, at least that’s positive. It’s good news. Again, when we’re looking
at the ones for GVI Investor, we really want that Sortino to be high, we want
that CROCI to be high. But this is the Stock of the Week because it’s been
trending higher, and it’s one which is always in the news, just because of the
brand names around it.

What are some of the other things we look at? Well, you see the CROCI there…
return on capital employed… return on equity… all of those are green lights. Not
much gearing or debt. Basically, they’ve got ample resources on that. In terms
of forecast priced-to-earnings ratios – so future valuations – I think that’s a
little bit still on the low side for the company, which is where I think the
share price growth could come. But at least it shouldn’t fall too far.

Turnover is holding steady, borrowing has been decreasing, cash flow has being
doing really well, which is good. Obviously, I’d always want to see profits
being higher and higher and higher, but they’ve now managed to get the good
steady stream of profitability into the company as well without increasing
borrowing or without too much capital expenditure. So they’re managing to take
the resources they’ve got and start making it more into a moneymaking machine.
So I’m optimistic for this one.

That’s my Stock of the Week. I hope to see you in GVI Investor. I’m Alpesh
Patel. I hope you enjoyed that, and I hope if nothing else, you learned a little
bit more about how professionals look at stocks and how they research, deep dive
and do their due diligence.

Thank you.


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