Sugar rush! Chocolate stocks soar this Halloween
If Willy Wonka were a hedge-fund manager, he'd probably tweet suggestive messages about adding more sugar in chocolate bars while making the occasional appearance on CNBC's "Squawk Box," saying something market-moving about the confection. And why shouldn't he? Chocolate is a big business and investors are making some sweet profits these days.
Of course, this is the happiest time of the year for guys like Willy Wonka. With Halloween arriving tomorrow, it's a good idea to take a look at the hyper-growth world of chocolate and all its bliss.
Americans love their chocolate. We love it so much we'll spend close to $20 billion this year alone on chocolate products. If you convert this figure to weight, we're consuming 100 pounds of the confection every second. Yeah, it seems the fun size is a teeny bit unpopular these days.
And Americans aren't the only ones sporting a sweet tooth. Wall Street analysts are forecasting global sales of chocolate to reach $100 billion by 2016, with the bulk of this acceleration coming from Asia. In a few short years, this region is expected to hold a 20 percent market share of chocolate bars.
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The biggest benefactor from global growth is going to be Hershey as its stock is on a clear sugar rush these days. Going into Halloween week, HSY clipped its 52-week high and has posted a solid 40 percent year-to-date return. Now that's a tasty profit. And, while the company is publicly expecting double-digit percentage growth from international sales alone, shareholders aren't expected to slim down any time soon.
But Hershey isn't just about equity valuations. The company has boosted its dividend at an annual rate of 11.5 percent over the past decade, and the distributions have tripled during that time. Hershey's most recent dividend move occurred in July, when it increased its payout by 15 percent — a clear sign the folks in Pennsylvania are bullish on its future.
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Not to be considered a diet for investors, Mondelēz International has also posted some delicious numbers, with a solid year-to-date return of 33 percent while also setting a fresh 52-week high. Mondelēz, a result of the split of Kraft Foods, manufacturers many popular brands, such as Cadbury, Trident, and the always-awesome Toblerone; and even though the company's core products are cookies and crackers, roughly 43 percent of its sales are in candy and gum. A whopping $15.5 billion earned in 2012, to be exact.
The real luscious story for Mondelēz, though, is its commitment to expansion in Asia. The company has announced plans to spend $200 million in expansion costs in 2014 and another $300 million by 2015. This initiative in the region is expected to help expand the company's margins by improving productivity, while taking advantage of the growth story. Wall Street analysts are quick to acknowledge gross margin improvement in fiscal 2013 and 2014, with margins reaching 38.1 percent by the end of 2014.
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As you can tell, the prospects for companies like Hershey and Mondelēz are as sweet as a chocolate river flowing through Willy's factory. But don't take my word for it, though. Ask the trick-or-treaters what they think about chocolate and all it has to offer.
— By Todd Schoenberger
Todd M. Schoenberger is the founder and managing partner of LandColt Capital LP, and serves as Portfolio Manager of the LandColt Onshore and Offshore Funds. Follow him on Twitter @TMSchoenberger.
Disclosure: Schoenberger has a position in HSY and a box of Mr. Goodbars in the pantry. No other conflicts at this time.