Bye Bye Buffett Halo: Is Berkshire Ready To Dump Its Whole Stake In This Retail Behemoth?

Warren Buffett made some incredible investments for Berkshire Hathaway's (NYSE: BRKA) (NYSE: BRKB) stock portfolio during his six decades as the conglomerate's CEO. But not every Buffett-approved stock has been a long-term winner like Coca-Cola.

One of Buffett's worst-performing investments was Kraft Heinz (NASDAQ: KHC). Back in 2015, Berkshire Hathaway and 3G Capital orchestrated a merger between Kraft and Heinz to create the packaged foods giant. Berkshire reportedly paid an average price of $75.50 per share for its new shares, but they're now trading around $22. Berkshire still owns a $7.3 billion stake in Kraft Heinz, and it hasn't bought or sold any shares since the third quarter of 2015.

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Back in 2019, Buffett admitted that Berkshire "overpaid" for Kraft Heinz but said he had "no intention" of selling those shares. However, Greg Abel -- who succeeded Buffett as Berkshire's new CEO at the beginning of this year -- could liquidate that position soon.

What happened to Kraft Heinz?

Over the past decade, Kraft Heinz struggled as consumers shunned its packaged foods in favor of healthier alternatives and cheaper private-label brands. Instead of pruning its weaker brands, investing in its stronger products, and launching fresh marketing campaigns, Kraft Heinz's management focused too much on cutting costs and repurchasing its own shares.

Those short-sighted strategies caught up to the company in 2019, when it abruptly took a $15 billion writedown on its top brands, reduced its dividend, and disclosed that the Securities and Exchange Commission (SEC) was probing its accounting practices.

Four different CEOs have also led Kraft Heinz since its merger, and their inconsistent turnaround strategies drove away its investors. Last year, the company said it could undo the merger and split its business again. But this year, it walked back that plan and said it would focus on strengthening its core brands with fresh investments.

Why would Berkshire Hathaway finally sell Kraft Heinz?

Analysts expect Kraft Heinz's revenue to decline 2% in 2026, then grow less than 1% in 2027 and 2028 if those efforts pay off. On the bright side, they expect it to return to profitability in 2026 and grow its EPS at a 12% CAGR over the following two years.

Based on those estimates, Kraft's stock looks cheap at 11 times this year's earnings. But it's trading at that discount because investors don't have much faith in its turnaround plans -- especially as inflation drives up its costs and throttles consumer spending.

While Kraft Heinz isn't down for the count yet, it would make more sense for Berkshire to sell its stake and deploy that cash in more promising stocks. Back in January, Berkshire registered its 27.5% stake in Kraft Heinz in a filing that cleared the way for a full liquidation of that position. It hasn't pulled the trigger yet, but that massive sale would crush Kraft Heinz's depressed stock.

Leo Sun has positions in Coca-Cola. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Kraft Heinz. The Motley Fool has a disclosure policy.