When it comes to stocks, you're lucky to be able to choose your bets... In yesterday's essay, I talked about a lesson from my father and grandfather that helped shape how I think about risk in stocks.
The good news about this company is that demand for its products isn't going away anytime soon. But it's hard for me to see how this company ever grows.
Kraft Heinz reported 2026 second-quarter earnings earlier this month... with less-than-impressive results.
Net sales were down about 1%. Before some one-time charges, operating income fell 18%.
The company also reported a loss. But that loss came from a big write-down on the value of some brands. It was an accounting charge, not real money going out the door.
Strip that out, and the business still threw off a lot of cash. Free cash flow grew 10%... The company turned every dollar of adjusted profit into $1.23 of cash.
Even Warren Buffett has his hands in the mix. His company, Berkshire Hathaway (BRK-B), is Kraft Heinz's largest shareholder – with a 27.5% stake.
But the shine has worn off. Berkshire wrote down the value of that stake by $3.76 billion, a rare black eye for Buffett.
And back in January, Berkshire filed paperwork to sell the whole position. Though it hasn't pulled the trigger yet... As of the end of June, it still held every share.
In January this year, Steve Cahillane took the helm at Kraft Heinz. And he has been trying to turn the company around.
Cahillane paused a plan to split the company in two, and he's spending $700 million to breathe new life into the company's brands.
But do you really want to risk your retirement on some sort of sea change in the ketchup business?
To me, it's not a risk worth taking.
But with the Power Gauge, we can find plenty of worthwhile stocks...
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Using the Screener to Find Golden Opportunities
I ran our new stock screener to find names rated "bullish" or "very bullish," with an Earnings Quality ("EQ") rating of "high" or "very high." I also limited my search to stocks in the Russell 3000.
That search returned just more than 200 stocks. But the top five by market cap alone give you plenty to dig into.
They included a biotech company, a healthcare services company, an aerospace and defense company, and two software companies.
The two software companies both sell at 25 times sales or more, so I eliminated them from the mix. That's nosebleed territory for me in terms of valuation.
But the other three were worth a closer look...
In the first quarter of this year, the biotech company reported $15 billion in revenue – up 12% year over year ("YOY"). This beat Wall Street estimates by an impressive $300 million.
Since then, this biotech company raised its full-year revenue guidance to more than $67 billion, roughly 10% growth.
And the company's cash flow looks great too. Its operating cash flow grew to almost $20 billion.
The aerospace and defense company also had a great quarter. Its revenue jumped 14% YOY to $24.7 billion. That revenue figure beat Wall Street estimates by about $1.8 billion.
Alongside those results, this aerospace and defense company raised its full-year revenue guidance to as much as $96 billion. This means management is projecting roughly 9% growth this year.
The company's cash flow looks great, too. It threw off $2.9 billion in free cash flow in the quarter. And it expects up to $8.75 billion for the full year.
Moving on to the healthcare services company, its financials raise some red flags. Its revenue was $112 billion last quarter, roughly flat YOY. So the company isn't growing like the other two.
At first glance, the earnings look strong. Profits grew 56% YOY and beat Wall Street expectations by about 30%.
On the strength of that, this healthcare services company raised its full-year earnings outlook to $19.50 to $20.00 per share. This is up from the $18.25-plus projected earlier this year.
And the company's cash flow is strong – running at about $24 billion so far this year.
But it's always smart to look closer... That jump is mostly the company climbing out of a hole it dug last year when high costs crushed its profits. This makes the growth look bigger than it really is.
This company runs a solid business. But of the three here, it's clearly the laggard and might not be worth the risk.
The Spectrum of Risk
So there's your choice, laid out plainly...
On one hand, you're betting on a turnaround in the ketchup aisle.
On the other hand, you have two strong picks from a simple search using our Screener tool.
Both of these stocks are growing. Both make plenty of cash. And both keep raising their targets for sales, profits, and cash flow.
Kraft Heinz asks you to hope. The Power Gauge hands you results.
And when it's your retirement on the line – hope isn't a strategy.
My grandfather knew that. He was terrified of debt... and for good reason.
My father understood that too and never let go of it. Money can be tight, and there might not always be enough.
That's the inheritance they passed down to me. No family fortune, but a clear-eyed respect for risk.
And while I fear taking the wrong risks... I hope to always have the courage to seize the right ones when it counts.
Good investing,
Joe Austin
P.S. Over the years, the Chaikin Analytics team has developed some amazing tools to help everyday investors like you navigate the markets more safely...
The Power Gauge, the Screener, my Earnings Quality tool, and others help investors manage their risk.
In a special presentation last week, our founder Marc Chaikin and I went on camera to share the details of a market disconnect...
And to show you how to leverage these tools to manage risk in a volatile market.
— According to the Chaikin Power Bar, Small Cap stocks and Large Cap stocks remain somewhat Bullish. Major indexes remain all bullish.
* * * *
Sector Tracker
Sector movement over the last 5 days
Health Care
+4.58%
Staples
+3.27%
Materials
+2.57%
Communication
+1.35%
Discretionary
+1.33%
Real Estate
+1.12%
Financial
+1.11%
Energy
+0.85%
Utilities
-2.17%
Industrials
-3.93%
Information Technology
-5.40%
* * * *
Industry Focus
Semiconductor
2
38
4
Over the past 6 months, the Semiconductor subsector (XSD) has outperformed the S&P 500 by 23.22%. However, its Power Bar ratio which measures future potential is Weak, with more Bearish than Bullish stocks. It is currently ranked #16 of 21 subsectors and has moved down 2 slots over the past week.
Indicative Stocks
RGTI
Rigetti Computing, Inc.
NVTS
Navitas Semiconductor Corporation
POWI
Power Integrations, Inc.
* * * *
Top Movers
Gainers
EXPE
+5.44%
CHD
+3.78%
MO
+3.60%
GDDY
+3.55%
IT
+3.51%
Losers
STX
-6.51%
SNDK
-6.45%
CIEN
-6.02%
MU
-5.83%
JBHT
-5.65%
* * * *
Earnings report
Earnings Surprises
No significant Earnings Surprises in the Russel 3000.
* * * *
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