2 Blue Chip Stocks That Missed Thursday's Big Rally

Wall Street is finally starting to build up some bullish momentum after months of declines. Thursday brought continued optimism about the economy's ability to overcome inflationary pressures without falling into a recession, and that caused an upsurge in stock prices. The Dow Jones Industrial Average (^DJI 0.06%), S&P 500 (^GSPC -0.22%), and Nasdaq Composite (^IXIC -0.52%) quickly rose and added to their gains throughout the day on Thursday.

Data source: Yahoo! Finance.

Yet even though the market was up sharply, a few blue chip names posted some surprisingly large declines. In the food industry, Kraft Heinz (KHC 0.57%) got some negative comments from analysts that caused a substantial drop in the stock price. Meanwhile, medical device specialist Medtronic (MDT 0.14%) failed to impress investors with its latest financial results.

Kraft Heinz gets a downgrade

Shares of Kraft Heinz were down more than 6% on Thursday. The company behind Jif peanut butter and many other well-known food brands had a couple of news items that might have contributed to selling pressure for the stock.

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Analysts at UBS downgraded Kraft Heinz stock from neutral to sell. They also cut their stock price target by $6 per share, with a new figure of $34. Like many food companies, Kraft Heinz is going through considerable cost pressure as ingredient prices are on the rise. Even though the company does have some brand power, analysts believe it could be difficult for Kraft Heinz to pass through all of those costs to its retail distribution partners and eventually to consumers. UBS thinks that customers might eventually switch to private-label alternatives, especially in light of Kraft Heinz's strategic move to limit promotional activity to try to keep margins up.

In addition, major shareholder 3G Capital Partners announced that it will distribute some of the Kraft Heinz stock it owns to its fund investors. If those investors end up selling the shares they receive, then it could add to the recent share-price declines.

Kraft Heinz saw its stock fall sharply from 2017 to 2019, and it never really recovered. The current environment isn't too favorable for an immediate turnaround, and shareholders seem to recognize that reality.

Medtronic disappoints on its latest financials

Shares of Medtronic were down almost 6% on the day as well. The medical device maker saw mixed results that reflected some challenging conditions.

Medtronic's financial results included a 1% drop in revenue for the fiscal fourth quarter ending April 29. The company managed to eke out a modest gain in adjusted earnings, which rose just 2% to $1.52 per share. That closed a fiscal year in which sales climbed 5% and adjusted earnings climbed at a healthier 26% rate.

Medtronic blamed the poor results on supply chain issues and zero-COVID policy moves from China. CEO Geoff Martha said he expects the company to resolve these root causes of Medtronic's problems quickly while keeping its attention squarely focused on maximizing growth from its innovative technologies.

However, investors weren't entirely comfortable with the guidance for fiscal 2023, which included revenue growth of 4% to 5% on an organic basis and adjusted earnings of $5.53 to $5.65 per share. Even an 8% dividend increase wasn't enough to change traders' minds, but things may well change for Medtronic when supply chain issues finally start to resolve themselves.