Kraft Heinz has been one of the “widow and orphan” stocks that routinely pay dividends year after year and are rock solid stable. That is no longer the case! Warren Buffett’s Berkshire Hathaway holds just over a fourth of KHC stock and Berkshire Hathaway lost more than $4 billion in one day as Kraft Heinz fell by 27.5%. What happened and, with his famous business acumen, can Buffett fix Kraft Heinz?

What Happened at Kraft Heinz?

Investor’s Business Daily dissects the Kraft Heinz meltdown.

Kraft Heinz (KHC) plummeted Friday after writing down the value of some of its best-known brands by $15.4 billion, an acknowledgment that changing consumer tastes have destroyed the value of some of the company’s most iconic products.

The packaged-food giant’s charge to reduce the goodwill value of the Kraft and Oscar Mayer trademarks and other assets came with disappointing fourth-quarter earnings and an accounting subpoena from securities regulators. The charges resulted in a net loss of $12.6 billion, or $10.34 a share.

Kraft Heinz stock fell 27.5% to 34.95, hitting a record low.

Changing tastes in the packaged food world, a desire for more organic or apparently organic products have severely eaten into and destroyed value in the Kraft Heinz product line. The admission of such problems and the acceptance by investors destroyed a fourth of the company’s value in a heartbeat.

An Understandable Investment That Was Not Well Understood

Kraft Heinz came into being in a move set up by Berkshire Hathaway and the 3G Capital private investment firm. They merged Kraft Foods and Heinz to create the third largest food and beverage company in the USA. The parent companies go back to the 19th century.

Buffett has been quoted numerous times to the effect that he does not invest in a company unless he understands what they do, how that makes money, and how that will continue to make money over the long term. A business whose products are known and consumed by millions every day and whose products are the center of the supermarket business would seem to be a natural as a Buffett investment. Furthermore, he is a master at merging and cutting costs. Unfortunately, investors in this company did not see the demographic trends that send shoppers to look for organic foods, “healthy food choices,” and other competitors of Kraft Heinz and its stable of old products.

The company misled investors, intentionally or unintentionally, with rosy forecasts which turned out to be widely off the mark. The bottom line is that the Kraft Heinz line of products is not as popular as it once was and the company did not see that coming or intentionally closed their eyes to the truth!

Can Buffett Fix Kraft Heinz?

Warren Buffett is perhaps the most famous and most successful investor in the world. He routinely vies with Bill Gates and Jeff Bezos for the claim to be the wealthiest man in the world and that includes his donating about $7 billion to charity every year! His investment results over the years border on the miraculous. So, can Buffett fix Kraft Heinz? Because, if he can, this is a fantastic stock to buy on the dip and either cash in for short term profits or hold forever.

Unfortunately, a big part of Buffett’s strength is putting together big deals and the cutting costs and improving operational efficiency. He has already done this with Kraft Heinz. His other major strength is seeing into the mind of the consumer and understanding what will sell and make money for years to come. In the case of Kraft Heinz, he has used the efficiency card and simply missed the call on how well Kraft Heinz products will sell. This is probably not a stock to buy on the dip because it has simply corrected to its real intrinsic value.

The US stock market is just finishing its most volatile week ever. Automated trading programs seem to be driving stocks up and down in large steps. This is dangerous territory for investors and an ideal opportunity for short term day traders. Trading volatile stocks with technical analysis may result in significant profits during such times.

What Is Volatility?

According to Investopedia, volatility is the range of prices for a given stock or index.

It is quantified by short-term traders as the average difference between a stock’s daily high and daily low, divided by the stock price.  A stock that moves $5 per day with a $50 share price is more volatile than a stock that moves $5 per day with a $150 share price, because the percentage move is greater with the first. Trading the most volatile stocks is an efficient way to trade, because theoretically these stocks offer the most profit potential.

The key to trading volatile stocks with technical analysis and making money is finding the stocks to trade and correctly using technical indicators to trade them. One only needs to run a stock screen for volatility and volume to find stocks to trade.

What is Technical Analysis?

Technical analysis is the reading of price patterns in order to predict the next market movement. These price patterns have statistical significance and are based on many previous market situations.

Volatile stocks are prone to sharp moves, which require patience in awaiting entries but quick action when those entries appear. As with any stock, trading volatile stocks that are trending provides a directional bias, giving the trader an advantage. Certain indicators can be used to trade volatile stocks, but the trader must also monitor price action – watching if the price is making higher swing highs or lower swing lows relative to prior waves – to determine when indicator signals are taken and when they are left alone.

There are many technical indicators but knowing how to use one or two to their best advantage is a better approach than trying to use too many and becoming confused by their predictions.

Trading Volatile Stocks with Technical Analysis in Today’s Market

The eventual price of a stock is determined by its earnings and prospects of future earnings. But, the short term price of the stock is based on the market’s opinion of how likely earnings are to rise or fall. Over the last few years the big tech stocks have led the market and always were the most likely to take a hit when the market corrected. A smart technical trader will keep this in mind when trading the ups and downs of the current market. Business Insider looks at how tech stocks got mauled and which ones are likely to be hurt worse.

The losses were widespread, and even the FAANG basket – Facebook,Apple, Amazon, Netflix, and Google parent Alphabet – wasn’t spared. Apple (-12%) and Google (-5%) are down for the year, and Facebook (-27%) has fallen off a cliff. Meanwhile, Amazon (+18%) and Netflix (+21%) are still higher, but they’re well off their highs.

And while FAANG stocks have been hit hard, there are other names that have fared far worse. Two types of companies – Chinese tech and semiconductors – were among the hardest hit, as uncertainty around the US-China trade war and slowing global growth weighed on investor sentiment.

Here is where knowledge of stock fundamentals is important. The day to day and even minute to minute market fluctuations are driven by technical traders and by the greed or fear of individual investors. But, eventually a stock will end with a price consistent with its fundamentals. A technical trader trading volatile stocks with technical analysis will do well to keep this fact in mind.

Trading Volatile Stocks with Technical Analysis PPT

In the last couple of days the US stock market has fallen by several percent, having its worst days since early in the year. Is the stock market going to correct or crash? Technical analysis shows that stocks have fallen through several support levels. Fundamentals are troubling with the trade war a major issue, followed by huge levels of debt in the USA and across the globe. Money Morning writes that this could be the beginning of a 2018 stock market crash.

One investing expert predicts 2018 will be the year of the greatest economic crisis of the century.
Jobs will suffer, the housing market will spiral downward, and millions of American seniors will face bankruptcy.
The average stock traded on Wall Street is poised to plunge by at least half during the coming 2018 stock market crash.

All of this comes on the heels of the Fed raising interest rates by a quarter of a percent! There is no question that many investors are fully aware that the market has had a long bull run and that there are lots of issues that could drag stocks down. However, the stocks that have been driving market growth have done so based on persistently higher earnings. Unemployment is at historic low levels. And, the smaller trade wars with everyone except China are getting settled slowly but surely.

What Would Cause a Crash Instead of a Correction?

Our sister site, ProfitableInvestingTips.com wrote about the likelihood of a permanent trade war with China.

Moody’s is predicting that US growth will slow to 2.3% next year and China’s to 6.4%. Why is this happening and why is there a danger of a prolonged trade war and diminution of the global economy?

The trade war with China is not just about balance of trade, currency manipulation, and tariffs. The trade war with China is part of a struggle for global dominance.

Many in the USA long for the “good old days” of American dominance. Those days occurred because WWII destroyed so much of the global economy and left the US economy intact. Nevertheless, many Americans are really angry and thus elected Donald Trump. Trump is under pressure to “get a better deal” for his constituents and is not known for backing off. And, even when Trump is no longer in office, US leaders will need to address the trade imbalance with China in order to preserve a strong US economy, manufacturing base, and defense.

A recent Bloomberg article described how Chinese military intelligence put tiny chips in US-bound computer boards to spy on major US tech firms. If you look at Washington wanting to force US industry to move manufacturing out of China for defense reasons you will not be far off.

China does not want to go back to its period of isolation and has global ambitions as seen in its Silk Road project to create rail and sea links to markets across Eurasia. China needs to sell it products to the world in order to further its global ambitions. There will be a level of tariffs and loss of markets that China will not be able to agree to in their leadership wants to maintain control of the country. Meanwhile wealth Chinese are causing a flight of capital from the new Middle Kingdom.

China is in a pickle. Their debt load is skyrocketing. The populace in China tolerates the Communist Party because of the current period of prosperity. If China’s grow levels off or declines money will flow out of the country and social unrest will ensue. The Chinese leadership aims for global dominance on a par with or above that the USA. The USA is not likely to give up all that easily. If the “permanent trade war” is not handled well in China, more so than in the USA, a market crash would be more likely than a market correction.

The US stock market has been in rally mode ever since the recovery from the Great Recession began. But, all rallies come to an end, right? The question for traders is will the stock market rally ever stop? Investor’s Business Daily writes that price targets on FANG stocks are going higher as the stocks themselves hit record highs.

Three of four FANG stocks had their price targets raised Friday, following a survey of 70 ad buyers in which 40% said they’ll boost ad spending above previous expectations for the rest of 2018.

Moreover, 27% of ad buyers said they spent more in the first half than anticipated.

The three FANG stocks receiving price-target increases were Facebook (FB), Amazon.com (AMZN), and Google-owner Alphabet (GOOGL). All three are well positioned for the boost in digital advertising.

Traders worry about a trade war between the USA and virtually everyone else, but the economy continues to grow and high tech stocks continue to make money. Will the stock market rally ever stop and, if so, what will be the cause.

An Isolated America

The USA is part of an integrated global economy. According to President Trump, we have been in various trade wars with other nations for years and have been steadily losing. One of the possible scenarios of protracted trade war could be a massive reordering of trade relationships and a shift of global growth away from the USA. America has the largest economy when measured in dollars but not the largest economy when it is measured in purchasing power parity.

An America that cuts itself off from the world would be largely self-sufficient, but not the global power it has been. American companies will need to shift production offshore in order to compete. Our sister site, ProfitableInvestingTips.com, noted this problem in two recent articles, Why Is Harley Davidson Moving Production Out of the USA and Will Boeing Have to Outsource Production in Order to Remain Profitable.

In both cases, the problem is being cut off from foreign markets. The problem for Harley Davison is that the old American icon is struggling and cannot afford to lose more customers. The problem for Boeing is the company is a target for retaliation by the Chinese and the Europeans. Boeing is the largest single US exporter and ranks up with all of US agriculture for exports.

Is It Time to Buy Foreign Stocks?

The problem for investors and traders is that a full-fledged trade war will have many casualties. The worst hit will be emerging markets that are dependent on the export of commodities. If and when the rally stops it might be precipitous. In that case the issue will be how to profit from a market pullback.

Stock traders make their money on short term market movement instead of investing for long term growth. And a short term correction followed by higher stock prices could result in profits two times for a smart trader. The two ways to take advantage of this scenario are fundamental and technical analysis. The fundamentals are clear in that stock prices are at historic highs. Where traders will profit is from reading technical signals of both a correction and a recovery. Another approach is to use stock options to hedge risk and lock in opportunity for both up and down markets.

The beauty trading stocks instead of investing in them is that traders can profits either direction the market goes.

When Trump announced increased tariffs on imported steel and aluminum the markets fell. A trade war would be the nail in the coffin for an already-aging bull market. Specifically, the Chinese have been selling low price steel and aluminum to US buyers for years. This is unlikely to stop because the Chinese are deeply in debt both public and private debt. In order to avoid a Japan-like-1989 collapse of their economy the Chinese need to keep their factories producing and keep bringing in at least some income. But if Trump escalates the trade war the Chinese and others will in all likelihood increase tariffs on goods sold to China, such as Boeing jets and US agricultural products. But for the investor are there trade war-proof stocks? To be protected from a trade war with China these companies need to be ones that do not do a lot of business in or with China. It turns out that the FANG tech darlings that have helped drive the US market higher and higher are somewhat trade war-proof stocks at least when it comes to China.

CNBC quotes Cramer of Mad Money as saying that Facebook, Amazon, Netflix, and Google (Alphabet) are pretty much trade war-proof when it comes to China tariffs because none of them does business there!

Facebook’s shares rose by more than 2 percent in Monday’s trading session due to the fact that the social media company doesn’t have a lot of Chinese business, Cramer said.
Amazon, shares of which climbed 1.6 percent on Monday, was safe from fears of Chinese retaliation because the People’s Republic has its own e-commerce colossus: Alibaba.
China doesn’t have Netflix, either. That, along with positive notes from two Wall Street analysts, helped shares of the entertainment giant soar to a new 52-week high on Monday, closing up 4.6 percent.
Finally, Google parent Alphabet’s search service is prohibited on the Chinese mainland, making it one of the safer international stocks out there, Cramer said. Shares of Alphabet rose 0.98 percent on Monday.

Owners of these stocks know that they do not do business in China and so they are buying more of these US-China trade war-proof stocks. But who else is safe from retaliation by the Chinese or other foreign nations?

Totally Domestic US Companies

Although a trade war would slow the US economy, companies that do business exclusively in the USA will be safe from the effects of foreign tariffs. Fox Business discusses companies that only sell in the USA.

A handful of the larger players whose revenues were generated solely in the U.S. at the end of its last fiscal year included:  AT&T (NYSE:T), with over $132 billion in revenue; Kroger (NYSE:KR), $108.5 billion; Wells Fargo, (NYSE:WFC) $82.9 billion and Target (NYSE:TGT), $72.6 billion.

Depending on how the Trump tariffs work out and on foreign responses traders and investors may be well advised to investigate trade war-proof stocks. And, as we wrote last month, discipline and rules result in trading profits so pay attention and deal with this issue now, before you experience tariff-related losses.