With the spookiest night of the year once again upon us, investors may want to consider looking for value among companies that profit from Halloween activities.
According to the National Retail Federation, total Halloween spending, which encompasses the costs of candy, costumes, decorations and greeting cards, is projected to reach $8.05 billion this year, down slightly from $8.8 billion in 2019 as the Covid-19 pandemic will keep some of the usual participants indoors. Celebrants of the autumn holiday are expected to spend an average of $92.12 per person this year getting in the spirit.
As children across the U.S. look forward to dressing up and going trick-or-treating for candy and other sweets, confectioners are among the companies that benefit most. The NRF survey reported that consumers will spend an estimated $2.4 billion on candy this year.
As of Oct. 23, the GuruFocus All-in-One screener, a Premium feature, found popular candy companies that profit from Halloween include The Hershey Co. (HSY, Financial), Mondelez International Inc. (MDLZ, Financial), Rocky Mountain Chocolate Factory Inc. (RMCF, Financial) and Tootsie Roll Industries Inc. (TR, Financial).
The Pennsylvania-based confectioner, which is known for its popular chocolate treats like Kisses, Reese's Peanut Butter Cups and Kit Kats, among others, has a $30.46 billion market cap; its shares were trading around $146.40 on Friday with a price-earnings ratio of 28.71, a price-book ratio of 17.36 and a price-sales ratio of 3.88.
With a GF Value of $119.53 and a price-to-GF Value ratio of 1.22, the stock appears to be modestly overvalued. The GuruFocus valuation rank of 2 out of 10 also supports this assessment since the share price and price-sales ratio are approaching 10-year highs.
GuruFocus rated Hershey's financial strength 5 out of 10. While the company has issued approximately $1.5 billion in new long-term debt over the last three years, it is at a manageable level as a result of adequate interest coverage. In addition, the robust Altman Z-Score of 4.29 indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing
Boosted by an expanding operating margin, a good net margin and strong returns, the company's profitability scored an 8 out of 10 rating. In addition, its moderate Piotroski F-Score of 5 implies business conditions are stable. Hershey also has a predictability rank of one out of five stars, which is on watch as a result of slowing revenue per share growth over the past 12 months. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% annually over a 10-year period.
Of the guru invested in Hershey, Jim Simons (Trades, Portfolio)' Renaissance Technologies has the largest stake with 2.42% of outstanding shares. Pioneer Investments (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Mairs and Power (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Yacktman Asset Management (Trades, Portfolio), Ray Dalio (Trades, Portfolio) and Caxton Associates (Trades, Portfolio) also have positions in the stock.
Headquartered in Deerfield, Illinois, the company known for its Cadbury, Milka, Toblerone and Sour Patch Kids candy products, as well as Oreo cookies, has a market cap of $80.92 billion; its shares were trading around $56.67 on Friday with a price-earnings ratio of 23.8, a price-book ratio of 3.1 and a price-sales ratio of 3.16.
Based on the GF Value of $48.52 and price-to-GF Value ratio of 1.18, the stock appears to be modestly overvalued. The GuruFocus valuation rank of 2 out of 10 aligns with this assessment since the share price, price-book and price-sales ratios are all near 10-year highs.
Mondelez's financial strength was rated 4 out of 10 by GuruFocus. Although the company has issued approximately $680 million in new long-term debt over the last three years, it is at a manageable level due to having sufficient interest coverage. The Altman Z-Score of 2.32 also suggests the company is under some financial pressure since its revenue per share has been in decline for the last five years.
Supported by an expanding operating margin, strong returns that outperform more than half of competitors and a moderate Piotroski F-Score of 5, the company's profitability scored a 6 out of 10 rating. It also has a one-star predictability rank, which is on watch.
With 0.53% of outstanding shares, Diamond Hill Capital (Trades, Portfolio) is Mondelez's largest guru shareholder. Other top guru investors include Pioneer, Hotchkis & Wiley, Simons' firm, Mario Gabelli (Trades, Portfolio), Cohen, David Carlson (Trades, Portfolio), Warren Buffett (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Greenblatt, Lee Ainslie (Trades, Portfolio), the Signature Select Canadian Fund (Trades, Portfolio) and Grantham.
Rocky Mountain Chocolate Factory
The Durango, Colorado-based confectioner, which produces gourmet chocolates, fudge as well as a seasonal favorite treat, caramel apples, has a $17.91 million market cap; its shares were trading around $3 on Friday with a price-book ratio of 1.15 and a price-sales ratio of 0.75.
Sporting a GF Value of $6.10 and a price-to-GF Value ratio of 0.48, the stock appears to be a potential value trap. The GuruFocus valuation rank of 9 out of 10, however, leans more toward undervaluation.
GuruFocus rated Rocky Mountain Chocolate's financial strength 5 out of 10. While the cash-to-debt ratio is outperforming in comparison to its industry, it is underperforming compared to its history. In addition, the Altman Z-Score of 1.64 warns the company could be in danger of going bankrupt if it does not improve its financial position.
The company's profitability fared better, scoring a 7 out of 10 rating despite having declining margins and negative returns that underperform a majority of industry peers. Rocky Mountain Chocolate also has a low Piotroski F-Score of 2, which indicates its operations are in poor shape, and its one-star predictability rank is on watch as a result of declining revenue per share over the past several years.
Simons' firm is the only guru invested in the stock, holding an 8.6% stake.
The manufacturer of Tootsie Rolls, Tootsie Pops, Caramel Apple Pops, Dots, Junior Mints and Andes Chocolates, which is headquartered in Chicago, has a market cap of $2 billion; its shares were trading around $30.60on Friday with a price-earnings ratio of 17.99, a price-book ratio of 2.71 and a price-sales ratio of 4.07.
According to the GF Value of $33.05 and the price-to-GF Value ratio of 0.92, the stock is fairly valued. The GuruFocus valuation rank of 4 out of 10, though, leans more toward undervaluation since the price-earnings and price-book ratios are both approaching multiyear lows.
Tootsie Roll's financial strength and profitability were both rated 7 out of 10 by GuruFocus. Despite issuing approximately $0.56 million in new long-term debt over the past three years, it is at a manageable level since the company has comfortable interest coverage. The high Altman Z-Score of 6.48 also indicates the company is in good shape.
Although the company's operating margin is in decline, it is still outperforming versus competitors. Tootsie Roll also has strong returns that outperform a majority of industry peers, a high Piotroski F-Score of 7, which indicates business conditions are healthy, and a one-star predictability rank.
Disclosure: No positions.
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