Best Stock to Buy Right Now: Altria vs. Kraft Heinz

Every single company eventually goes through a difficult period; that's just how the business world works. The rough patches, meanwhile, can provide long-term investors with good buying opportunities. However, you need to tread carefully so you don't end up buying a company that looks like it could go the way of the buggy whip. A comparison between Altria (NYSE: MO) and Kraft Heinz (NASDAQ: KHC) will help explain the tightrope that turnaround investors have to walk.

What does Altria do?

Altria is one of the largest tobacco companies in the world. It mostly sells cigarettes and has a focus on the U.S. market (it spun off its foreign operations into Philip Morris International (NYSE: PM) several years ago). Given the addictive nature of tobacco, Altria's customers tend to be very loyal. And it owns the Marlboro brand, which has a huge 42% or so market share in the United States. Overall, Altria's market share is nearly 46%. It is a giant in the cigarette business.

Image source: Getty Images.

What does Kraft Heinz do?

Kraft Heinz is one of the largest packaged food companies in the world. It was created via the merger of Kraft and Heinz, two of the most storied names in the food industry. Although it doesn't have a single dominant brand like Altria, you probably know many of the company's products, which include the obvious, like Kraft and Heinz, but also Philadelphia Cream Cheese, Lunchables, Kool-Aid, and Jell-O, among many others. The company's collection of brands, distribution system, and marketing abilities make it a valuable partner to retailers around the world.

There are big problems

While both Altria and Kraft Heinz are facing business headwinds, the issue Altria is dealing with is particularly troubling. Cigarette demand has been falling for years in the United States because of a societal shift away from smoking, as the habit has been clearly identified as a health hazard. To put some numbers on that, Altria sold 10.6% fewer cigarettes in the first nine months of 2024 than it did in the same span of 2023. In 2023, it sold 9.9% less smokes than it did in 2022. The downtrend has been going on for years.

Altria has been able to raise prices to offset the ongoing declines, thus allowing it to support its huge 7% dividend yield. This fact has kept investors interested in the stock, but it simply covers over the big problem: Altria's primary business (tobacco products, which account for nearly 90% of revenue) appears to be in secular decline.

The problem facing Kraft Heinz is a little bit different. The two companies merged with the idea of generating value by cutting costs. That didn't work out as well as hoped since it is very hard for a company to cut its way to growth. It is now working on a different plan, which includes culling out laggard products while focusing more on its most important ones. This is the same approach that has been successfully used by a number of other consumer staples companies in recent years, including Procter & Gamble (NYSE: PG).

That's not a guarantee that it will work for Kraft Heinz, noting that the company has posted weak results in the areas where it has supposedly been focusing its efforts. That weak execution, however, is why its dividend yield is 5% today compared to around 2.6% for the average consumer staples company. Given the company's brands, size, and distribution system, it seems like it will probably muddle through the transition it is working on, even if it is a bumpy ride.

How big a problem are you willing to take on?

Here's the question: Is roughly 2 percentage points of yield worth the risk of owning a company that is facing a secular decline in its most important business? That would be exactly the decision you would be making if you bought Altria over Kraft Heinz. Buying Kraft Heinz would mean buying a diversified food maker working on turning around a stable of iconic brands using the same approach that has worked successfully for other consumer staples companies. And since the yield is a lofty 5%, it isn't like you aren't getting paid very well to wait for Kraft Heinz to muddle through this business transition.

But remember, there's one key difference -- food isn't in a secular decline. If anything, food demand is likely to grow along with the world's population. So, Kraft Heinz's business is on a fundamentally stronger footing than Altria's. From a risk/reward perspective, Kraft Heinz's lower yield seems like the better choice for most investors.

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Reuben Gregg Brewer has positions in Procter & Gamble. The Motley Fool recommends Kraft Heinz and Philip Morris International. The Motley Fool has a disclosure policy.