With the spookiest night of the year swiftly approaching, investors may want to consider companies that profit from Halloween.
According to the National Retail Federation, total Halloween spending, which encompasses the costs of candy, costumes, decorations and greeting cards, is projected to reach $8.8 billion this year, down from $9 billion in 2018. Celebrants of the autumn holiday are expected to spend an average of $86.27 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 and retailers are among the companies that benefit most. The NRF survey reported that consumers will spend an estimated $3.2 billion on costumes and approximately $2.6 billion on candy this year.
As of Oct. 21, the GuruFocus All-in-One screener found popular candy companies that profit the most from Halloween are The Hershey Co. (HSY, Financial), Mondelez International Inc. (MDLZ, Financial) and Tootsie Roll Industries Inc. (TR, Financial). Offering a wide selection of costumes, decorations, party supplies, candy, greeting cards and other popular seasonal products like pumpkins and caramel apples, retailers like Walmart Inc. (WMT, Financial), Target Corp. (TGT, Financial) and Party City Holdco Inc. (PRTY, Financial) are positioned to benefit from the holiday as well.
Hershey
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 market cap of $32.12 billion; its shares were trading around $153.73 on Monday with a price-earnings ratio of 26.51, a price-book ratio of 19.18 and a price-sales ratio of 4.12.
The Peter Lynch chart shows the stock is trading higher than its fair value, suggesting it is overvalued.
GuruFocus rated Hershey’s financial strength 5 out of 10. While the company has issued approximately $482.5 million 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 robust Altman Z-Score of 6.12 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 scored an 8 out of 10 rating. In addition, its moderate Piotroski F-Score of 4 implies business conditions are stable. Hershey also has a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank typically see their stock prices gain an average of 1.1% per annum over a 10-year period.
Of the gurus invested in Hershey, Jim Simons (Trades, Portfolio)’ Renaissance Technologies has the largest position with 2.02% of outstanding shares. Pioneer Investments (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Mairs and Power (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Yacktman Asset Management (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio) are also shareholders as of the end of the second quarter.
Mondelez International
Headquartered in Deerfield, Illinois, the company known for its Cadbury, Milka and Sour Patch Kids candy products, as well as Oreo cookies, has a market cap of $78.57 billion; its shares were trading around $54.29 on Monday with a price-earnings ratio of 21.4, a price-book ratio of 3.04 and a price-sales ratio of 3.13.
According to the Peter Lynch chart, the stock is overpriced.
Mondelez’s financial strength was rated 5 out of 10 by GuruFocus. Although the company has issued approximately $1.3 billion in new long-term debt over the last three years, it is at a manageable level due to adequate interest coverage. The Altman Z-Score of 2.23 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 6, the company’s profitability scored a 7 out of 10 rating. It also has a one-star business predictability rank.
With 0.44% of outstanding shares, Simons’ firm is the company’s largest guru shareholder as of the end of the second quarter. Additional guru investors include Hotchkis & Wiley, Pioneer, Sarah Ketterer (Trades, Portfolio), Gabelli, George Soros (Trades, Portfolio), Jerome Dodson (Trades, Portfolio), Warren Buffett (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Greenblatt, Grantham and the Signature Select Canadian Fund (Trades, Portfolio), among others.
Tootsie Roll
The Chicago-based manufacturer of Tootsie Rolls, Tootsie Pops, Caramel Apple Pops, Dots, Junior Mints and Andes Chocolates, has a $2.30 billion market cap; its shares were trading around $34.82 on Monday with a price-earnings ratio of 37.93, a price-book ratio of 3.07 and a price-sales ratio of 4.35.
Based on the Peter Lynch chart, the stock appears to be overvalued.
Tootsie Roll’s financial strength was rated 8 out of 10 by GuruFocus. Despite issuing approximately $106 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 7.83 also indicates the company is in good shape financially.
The confectioner’s financial strength scored a 7 out of 10 rating on the back of strong margins and returns that outperform a majority of industry peers. Tootsie Roll also has a moderate Piotroski F-Score of 6 and a one-star business predictability rank.
Gabelli is the company’s largest guru shareholder with 2.39% of its outstanding shares as of the end of the second quarter. Chuck Royce (Trades, Portfolio), Simons’ firm and Pioneer also own the stock.
Walmart
One of the world’s largest retailers, the company, which is headquartered in Bentonville, Arkansas, has a market cap of $339.07 billion; its shares were trading around $119.36 on Monday with a price-earnings ratio of 26.85, a price-book ratio of 4.86 and a price-sales ratio of 0.67.
The Peter Lynch chart suggests the stock is overvalued.
GuruFocus rated Walmart’s financial strength 6 out of 10. Although the company has issued an estimated $8.8 billion in new long-term debt over the past three years, it is at a manageable level due to adequate interest coverage. It also has a robust Altman Z-Score of 4.16, which indicates financial stability.
The retailer’s profitability scored an 8 out of 10 rating. Although the operating margin is in decline, Walmart is supported by strong returns that outperform over half of its competitors, a moderate Piotroski F-Score of 5 and a 4.5-star business predictability rank on the back of consistent earnings and revenue growth over the past decade. GuruFocus says companies with this rank typically see their stocks gain an average of 10.6% per year.
Of the gurus invested in Walmart, Bill Gates (Trades, Portfolio)’ foundation trust has the largest stake with 0.41% of outstanding shares. Other top guru shareholders include Ken Fisher (Trades, Portfolio), Pioneer, Simons’ firm, Richard Pzena (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Greenblatt, Dodge & Cox, Jeff Auxier (Trades, Portfolio), Ainslie, Philippe Laffont (Trades, Portfolio), Gabelli, Tom Russo (Trades, Portfolio), Mairs and Power and Cohen.
Target
The Minneapolis-based company, which is the eighth-largest retailer in the U.S., has a $57.94 billion market cap; its shares were trading around $113.44 on Monday with a price-earnings ratio of 18.75, a price-book ratio of 4.94 and a price-sales ratio of 0.77.
According to the Peter Lynch chart, the stock is overvalued.
Target’s financial strength was rated 5 out of 10 by GuruFocus on the back of adequate interest coverage. In addition, the Altman Z-Score of 3.52 suggests the company is in good financial health.
The company’s profitability scored a 7 out of 10 rating. Although the operating margin is in decline, it still outperforms more than half of its industry peers. Target is also supported by strong returns, steady earnings and revenue growth, a moderate Piotroski F-Score of 6 and a 3.5-star business predictability rank. GuruFocus says companies with this rank typically see their stocks gain an average of 9.3% per year.
With 0.69% of outstanding shares, investment firm Barrow, Hanley, Mewhinney & Strauss is the company’s largest guru shareholder. Simons’ firm, Pioneer, Mairs and Power, the Smead Value Fund (Trades, Portfolio), Ken Heebner (Trades, Portfolio), Dodge & Cox, Greenblatt, Louis Moore Bacon (Trades, Portfolio), Grantham, Richard Snow (Trades, Portfolio), John Hussman (Trades, Portfolio), Jones, Cohen and Fisher also own the stock.
Party City
Headquartered in Rockaway, New Jersey, the party supplies retailer, which also operates Halloween City pop-up shops, has a market cap of $629.9 million; its shares were trading around $6.66 on Monday with a price-earnings ratio of 5.62, a price-book ratio of 0.57 and a price-sales ratio of 0.25.
Based on the Peter Lynch chart, the stock appears to be undervalued.
GuruFocus rated Party City’s financial strength 3 out of 10. As a result of issuing approximately $132.85 million in new long-term debt over the past three years, the company has low interest coverage. In addition, the Altman Z-Score of 1.07 warns the company could be at risk of going bankrupt.
The company’s profitability fared much better, scoring a 6 out of 10 rating on the back of an expanding operating margin and strong returns that outperform over half of competitors. Party City also has a low Piotroski F-Score of 3, which suggests it has poor business conditions.
Ron Baron (Trades, Portfolio) is the retailer’s largest guru shareholder with a 1.59% stake. Royce, Barrow, Hanley, Mewhinney & Strauss and Greenblatt also have positions in the stock.
Disclosure: No positions.
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