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4 Candy Companies to Consider Ahead of Halloween

- By Sydnee Gatewood

With the spookiest night of the year upon us, investors may want to consider companies that profit from Halloween.

According to the National Retail Federation, total Halloween spending, which encompasses costs of candy, costumes, decorations and greeting cards, is projected to reach $9 billion for 2018. In 2017, celebrants of the autumn holiday spent an average of $86.13 per person getting in the spirit.


As children across the U.S. look forward to trick-or-treating for candy and other sweets, confectioners are among the companies that benefit most. The GuruFocus All-in-One screener found popular candy companies in the U.S. are The Hershey Co. (HSY), Mondelez International Inc. (MDLZ), Rocky Mountain Chocolate Factory Inc. (RMCF) and Tootsie Roll Industries Inc. (TR).

Hershey

The Pennsylvania-based confectioner, which is known for its chocolate treats like Kisses, Reese's Peanut Butter Cups and Kit Kats, among others, has a market cap of $22.39 billion; its shares were trading around $106.72 on Tuesday with a price-earnings ratio of 21.96, a price-book ratio of 18.08 and a price-sales ratio of 2.91.

The Peter Lynch chart shows the stock is trading higher than its fair value, suggesting it is overvalued.

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GuruFocus rated Hershey's financial strength 5 out of 10. While the company has issued $1.6 billion in new long-term debt over the last three years, it is at a manageable level as a result of sufficient interest coverage. In addition, the Altman Z-Score of 4.99 indicates the company is in good financial standing.

Boosted by an expanding operating margin, a good net margin and strong returns, the company's profitability and growth scored an 8 out of 10 rating. In addition, its Piotroski F-Score of 7 implies business conditions are healthy. Hershey also has a business predictability rank of three out of five stars. According to GuruFocus, companies with this rank not only have consistent earnings and revenue growth, but typically see their stock prices gain an average of 8.2% per year.

Of the gurus invested in Hershey, Jim Simons (Trades, Portfolio)' Renaissance Technologies has the largest position with 1.01% of outstanding shares. Pioneer Investments (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Mairs and Power (Trades, Portfolio), Ray Dalio (Trades, Portfolio)'s Bridgewater Associates, Tom Gayner (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Tom Russo (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Yacktman Asset Management (Trades, Portfolio) are also shareholders.

Mondelez

Headquartered in Deerfield, Illinois, the company known for its Cadbury, Milka and Sour Patch Kids candy products, among others, has a $61.38 billion market cap; its shares were trading around $41.85 on Tuesday with a price-earnings ratio of 20.72, a price-book ratio of 2.43 and a price-sales ratio of 2.39.

According to the Peter Lynch chart, the stock is overpriced.

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Mondelez's financial strength was rated 5 out of 10 by GuruFocus. While the confectioner has sufficient interest coverage, the Altman Z-Score of 1.97 indicates it is under some financial pressure since its revenue per share has declined over the last five years.

Supported by an expanding operating margin and a high Piotroski F-Score of 8, the company's profitability and growth scored a 6 out of 10 rating. It also has a one-star business predictability rank. According to GuruFocus, companies with this rank typically see their stock prices gain an average of 1.1% per year.

Activist investor Bill Ackman (Trades, Portfolio) is Mondelez's largest guru shareholder with 1.12% of outstanding shares. Other gurus who hold the stock include Hotchkis & Wiley, Pioneer Investments, First Pacific Advisors (Trades, Portfolio), Steven Romick (Trades, Portfolio), Sarah Ketterer (Trades, Portfolio), Gabelli, Simons, Jerome Dodson (Trades, Portfolio) and Greenblatt.

According to the industry overview page, Mondelez is also one of the largest companies in the consumer packaged goods industry, behind Procter & Gamble Co. (PG) and The Kraft Heinz Co. (KHC).

Rocky Mountain Chocolate Factory

Based in Durango, Colorado, the company, which makes premium chocolates, toffee, truffles and caramels, as well as a seasonal favorite, caramel apples, has a market cap of $52.82 million; its shares were trading around $8.88 on Tuesday with a price-earnings ratio of 18.90, a price-book ratio of 2.55 and a price-sales ratio of 1.46.

Based on the Peter Lynch chart, the stock appears to be overvalued.

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GuruFocus rated Rocky Mountain Chocolate's financial strength 8 out of 10 as a result of good interest coverage and a high Altman Z-Score of 7.29.

The company's profitability and growth scored a 7 out of 10 rating. Although the operating and net margins are declining, they still outperform competitors. The confectioner also has good returns, a moderate Piotroski F-Score of 6 and a one-star business predictability rank, which is on watch since Rocky Mountain has seen a decline in revenue per share over the last 12 months.

Simons is the only guru invested in the company, holding 8.57% of outstanding shares.

Tootsie Roll Industries

The Chicago-based manufacturer of Tootsie Rolls and Tootsie Pops has a $1.22 billion market cap; its shares were trading around $31.22 on Tuesday with a price-earnings ratio of 26.03, a price-book ratio of 1.68 and a price-sales ratio of 3.89.

The Peter Lynch chart suggests the stock is overpriced.

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Tootsie Roll's financial strength and profitability and growth were both rated 7 out of 10 by GuruFocus. Not only does the company have a comfortable level of interest coverage, but its Altman Z-Score of 4.74 indicates it is in good financial standing.

The company is also supported by an expanding operating margin, strong returns and a moderate Piotroski F-Score of 6. It also has a 2.5-star business predictability rank. GuruFocus says companies with this rank typically see their stock prices gain an average of 7.3% per year. Despite having consistent earnings and revenue growth, the rank is on watch.

Of the gurus invested in Tootsie Roll, Gabelli has the largest position with 2.67% of outstanding shares. Chuck Royce (Trades, Portfolio), Simons, Pioneer Investments, Murray Stahl (Trades, Portfolio) and Jones are also shareholders.

Disclosure: No positions.

Read more here:

  • Yacktman Asset Management Buys The Hershey Co., Berkshire Hathaway
  • Bill Ackman Comments on Mondelez International


This article first appeared on GuruFocus.