The Kraft Heinz Company (KHC) lifted to a 15-month high on Thursday, signaling the end of a three-year downtrend that shaved more than 80% off the stock's value. Even so, this isn't a good play for the short-term trading crowd because the embryonic rally could spend months filling February 2019's 13-point unfilled gap between $35 and $48. In the meantime, long-term shareholders can sit back and collect a healthy dividend yield that is now paying 4.65%.
The company got battered and bruised between 2017 and 2020 after a botched merger between the former Kraft Foods and H. J. Heinz, accumulating high debt loads while market share dwindled. The COVID-19 pandemic has offered a perfect opportunity for the troubled company to shake off highly bearish sentiment, providing the triple bonus of surging sales, a high dividend payout, and a long-standing reputation as a defensive instrument.
Kraft Heinz Long-Term Chart (2012 – 2020)
The stock's current incarnation began in September 2012 when Kraft Foods spun off food and beverage operations into Mondelēz International, Inc. (MDLZ) and Kraft Foods Group. This entity came public at $35.42 and entered a narrow trading range, with support in the lower $30s and resistance in the upper $30s. A March 2013 breakout attracted healthy buying interest before topping out in the upper $40s about two months later.
Price action cleared that resistance level in March 2015, when the Kraft-Heinz merger news triggered a 15-point rally gap into the low $70s. It added to gains at a healthy pace into the first quarter of 2017, posting an all-time high at $97.77, and pulled back into October. Sellers returned in force in the first quarter of 2018, carving a long series of lower highs and lower lows into August 2019, when the stock bottomed out in the low $20s.
A bounce into the $30s got sold in November, giving way to a major downdraft in the first quarter of 2020. The stock posted an all-time low at $19.99 and bounced strongly, completing a 100% retracement into horizontal 2019 resistance in June. It broke out this week and is now stretching toward the bottom of the big unfilled gap in the mid-$30s. Despite the breakout, that resistance wall tells market players to wait for a lower-risk buying opportunity.
Kraft Heinz Short-Term Chart (2018 – 2020)
The on-balance volume (OBV) accumulation-distribution indicator has booked modest progress off March's all-time low, remounting broken August 2019 support in April. It is now headed into the 2019 peak, which also marks resistance. The stock could reach gap resistance at the same time, triggering a reversal that generates months of consolidative price action. A pullback into the lower OBV line in this configuration could offer a perfect opportunity to get on board at an advantageous price.
Summing up the short-term outlook, the massive gap is blocking the path into the .382 Fibonacci selloff retracement level, raising the odds that it will take considerable time for price action to stretch between the mid-$30s and the lower $50s. The most bullish scenario will be a rally "gap into the gap," perhaps in reaction to the July 30 earnings release. Even so, it isn't wise to expect this traditionally slow mover to transform overnight into a momentum favorite.
The Bottom Line
Kraft Heinz stock has entered a new uptrend, but healthy returns may require considerable patience.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.