Sweet craving for profits.
If Wall Street has a sweet tooth for profits, then what better place to indulge it than in confectionery companies? Now investment metaphors swing both ways, thus the company that causes a rush one minute can eat up your profits the next. But unlike a kid about to sugar crash from an overdose of immediate gratification, the wise investor knows that holding onto those candy bars in the portfolio jar can bring rich rewards over time. The question is, which stocks have performed well versus going stale on the shelves? With the sugar coating kept to a minimum, here is a look at eight candy sector stocks.
Rocky Mountain Chocolate Factory (RMCF)
Call it a Rocky Mountain sugar high: RMCF’s trailing 12-month price-to-earnings ratio is sound at 20.3. True, its tiny market cap amounts to just $70 million. “But RMCF’s dividend yield is a robust 4.09 percent,” says Bob Johnson, president and CEO of the American College of Financial Services in Bryn Mawr, Pennsylvania. With operations in North America, Japan, South Korea, the Philippines and United Arab Emirates, RMCF trades near $12 per share, up 22 percent from July 2016.
Hershey Co. (HSY)
With a legendary history — Hershey, Pennsylvania, remains a company town — Hershey also has an impressive brand portfolio that includes Reese’s, Jolly Rancher, Kit Kat, Twizzlers and that eponymous chocolate bar. But in the investment portfolio, Hershey melts with a weak price-to-earnings ratio near 50. “Investors receive a dividend of 2.1 percent but the payout ratio of 83 percent is troublesome,” says Brent M. Wilsey, who owns and operates San Diego-based Wilsey Asset Management and rates HSY a “sell.”
Mondelez International (MDLZ)
Oreo, Toblerone, Cadbury, Trident and Halls anchor the Mondelez brand. But its 2012 spinoff of Kraft Foods proved a losing move, and its attempt to buy Hershey ended in August as a financial and public relations debacle. And just days ago, Mondelez fell victim to the Petya ransomware attack, which crippled its IT operations worldwide. Still, MDLZ is up a modest 14 percent over the last five years and is rated a “strong buy” by 9 out of 15 analysts.
General Mills (GIS)
Though the cereal kingpin makes Fruit by the Foot, that doesn’t mean loot in the hand. “Its current price-to-earnings ratio of 21 is below an expensive industry average,” Wilsey says. Yet while the company pays an attractive dividend of 3.4 percent, “it uses nearly 70 percent of earnings to pay that dividend.” GIS also has a weak balance sheet, which reflects little liquidity and may explain why 9 out of 12 analysts rate it a “hold” or “underperform.”
1-800-Flowers.Com (FLWS)
Yes, its chocolate sales spike on Valentine’s Day and Mother’s Day, but investment bonbons are another story. The owner of Fanny May candies has shed 12.5 percent since Thanksgiving, but remains up 16.5 percent from last year and trades at $9.80 per share. Wilsey says that sales have grown 1.9 percent over those same 12 months “but earnings per share have fallen 36 percent.” The mixed bag of sweets means good news for candy lovers but caution for candy stock lovers.
Nestlé SA
Since Dec. 1, Nestle is up a third; the OTC stock trades at $89 per share. Yet between March 2012 and 2017, Nestle endured a flat-price funk. What’s behind the new cocoa motion? Also in December, Nestle announced it could slash chocolate’s sugar content 40 percent without changing its taste — a huge move to win over health-conscious consumers. Meanwhile, Ulf Mark Schneider became Nestlé’s first outsider CEO on Jan. 1. Or, credit those desperate winter chocolate cravings.
Tootsie Roll Industries (TR)
In 1980, a fistful of Tootsie Rolls cost the same as a share of company stock, about a quarter. That candy might cost 50 cents today — but the stock has soared more than 12,000 percent to $35. The Chicago-based business hasn’t abandoned its namesake 1896 chewie, nor does it ditch executives like candy wrappers. CEO Melvin Gordon served from 1962 until his death in 2015. His wife Ellen immediately took over, and she’s been TR’s president since 1962.
Barry Callebaut
Even if you’ve never heard of this Swiss company, you’ve probably tasted the beans of its labor: It cranks out nearly 2 million tons of cocoa power annually. Investors endured a two-year roller coaster until the stock bottomed out in January 2013 — then bounced up 54 percent. But as Barry Callebaut notes in its last annual report, key raw materials such as cocoa beans and milk powder are climbing in price, while chocolate demand (at least among non-chocoholics) remains sluggish.
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8 Sweet Stocks to Unwrap originally appeared on usnews.com
