Best Stock to Buy Right Now: Constellation Brands vs. Kraft Heinz

Key Points

• Constellation Brands faces tough near-term and long-term challenges.

• Kraft Heinz’s core brands are struggling, and it plans to split itself up again.

• Both companies are in trouble, but one has a clearer shot at a recovery.

• 10 stocks we like better than Constellation Brands ›

Constellation Brands (NYSE: STZ) and Kraft Heinz (NASDAQ: KHC) were both once considered stable blue chip stocks. Constellation is one of the world's largest producers of beers, wines, and spirits. Kraft Heinz owns a massive portfolio of packaged foods.

Warren Buffett also holds both of these stocks in Berkshire Hathaway's (NYSE: BRK.A) (NYSE: BRK.B) portfolio. Buffett started a fresh position in Constellation a year ago, and that $1.96 billion stake now accounts for 0.6% of Berkshire's portfolio. As for Kraft Heinz, Berkshire and 3G Capital orchestrated the original merger between Kraft Foods and H.J. Heinz in 2015, and Berkshire still holds an $8.8 billion stake, which accounts for 2.9% of its portfolio.

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But over the past 12 months, Constellation's stock tumbled more than 40% as Kraft Heinz's stock declined about 25%. The S&P 500 rose nearly 20% during the same period. Let's see why both of these stocks underperformed the market -- and if either one is still worth buying.

Image source: Getty Images.

Constellation Brands faces near-term and long-term challenges

Constellation generates most of its revenue from its beers, which include popular brands like Modelo, Corona, and Pacifico. That core business faces two major challenges: the Trump administration's tariffs and softer demand from its younger and Hispanic consumers.

Constellation imports all of its leading beer brands from Mexico. While the beer itself is exempt from the broader 25% tariff against Mexican goods, 39% of its beer shipments from Mexico still come in aluminum cans, which are subject to rising tariffs. Therefore, the Trump administration's tariffs on overseas aluminum -- which were raised from 25% to 50% this June -- will crush Constellation's near-term margins.

Meanwhile, younger consumers in the U.S. are drinking less beer. The company is addressing that shift by launching new types of alcoholic beverages (like hard seltzer) and alcohol-free drinks. But at the same time, many of its consumers are reducing their discretionary spending as they deal with macro-headwinds across the construction, agricultural, manufacturing, and hospitality industries.

As for the smaller wines and spirits segments, Constellation has been divesting many of its lower-end brands to focus on growing its higher-end brands. That strategy might strengthen its long-term gross margins, but it's throttling its near-term revenue growth.

For fiscal 2026 (which ends next February), Constellation expects organic sales to dip 4% to 6% as comparable earnings per share (EPS) drop 16% to 18%. That's why its stock plummeted over the past year and why it still can't be considered a bargain at 12 times forward earnings.

Kraft Heinz will split again next year

In addition to its two namesake brands, Kraft Heinz owns other well-known brands like Oscar Mayer, Ore-Ida, Philadelphia, Velveeta, Maxwell House, and Kool-Aid. But after the 2015 merger, the company focused too much on cutting costs and buying back its own shares instead of refreshing its aging brands or launching fresh marketing campaigns.

In 2019, Kraft Heinz took a $15 billion write-down on its top brands, cut its dividend, and faced a Securities and Exchange Commission probe of its accounting practices. But over the following years, the company recovered by divesting weaker brands, acquiring faster-growing brands, refreshing its classic brands, and streamlining its expenses. It grew again throughout the pandemic, and successfully raised prices several times over the past few years to counter inflation.

But in 2024, Kraft Heinz's organic net sales dipped 2% as its adjusted EPS rose 3%. For 2025, it expects organic net sales to drop 1.5% to 3.5% as adjusted EPS declines 13% to 18%. The company's growth stalled again as it ran out of room to raise its prices, its core brands failed to stay competitive, and it struggled to secure enough capital to expand its business. That's why its stock still doesn't look cheap at 10 times forward earnings.

It also wasn't surprising when Kraft Heinz recently said it would split itself into two companies again by the second half of 2026. The first company will house its higher-growth brands, while the second one will tackle its slower-growth brands. But in a recent CNBC interview, Buffett -- who previously admitted Berkshire overpaid for Kraft Heinz -- said that "it certainly didn't turn out to be a brilliant idea to put them together, but I don't think taking them apart will fix it."

Which is the better stock to buy right now?

Constellation Brands and Kraft Heinz both need to overcome formidable threats to impress investors again. I wouldn't rush to buy either of these stocks today, especially when there are plenty of other reliable consumer staples stocks which are growing at more stable rates.

But if I had to pick one over the other, I'd buy Constellation because it has clearer plans for resolving its long-term challenges. Assuming the tariffs are reduced, its consumers buy more beer, it locks in younger consumers with new products, and it right-sizes its wine and spirits business, Constellation could grow at a slow but steady rate again. I can't say the same for Kraft Heinz, which could stir up more problems by splitting into two companies.

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Leo Sun has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Constellation Brands and Kraft Heinz. The Motley Fool has a disclosure policy.