Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Chocolate, Not Diamonds Are Forever: The Hershey Company (HSY), Tiffany & Co. (TIF)

Valentine’s Day has recently passed and the staple gifts like chocolates, flowers, jewelry, and cards were purchased in extremely large quantities around the world.  Average annual Valentine’s Day spending in fact is now over $13 billion annually.  Imagine how much junk food, soon-to-be dead plants, unworn necklaces and bracelets, and recycled paper that much money can buy.  Actually don’t.  Instead realize that no matter how many commercials you see on TV of men coming up with creative ways to drop months of salary on a tiny rock that is usually over a billion years old to give to their future wives, chocolate is forever, not diamonds.

The Hershey Company (NYSE:HSY)Life is Like A Box of Chocolates

You never know what you will get for Valentine’s Day or any other holiday celebration where you exchange gifts, but I’m willing to bet that chocolate is a lot more attainable in the minds and wallets for far more people than diamond jewelry.  Latest statistics show that based on gifts given on Valentine’s Day alone, candy (which includes chocolate) is given 47.5% of the time.  Jewelry (which includes diamonds) is given only 17.3% of the time.  However, this chocolate purchasing trend is definitely not exclusive to Valentine’s Day.  Easter actually hops over Valentine’s Day in terms of pounds of chocolate sold and Halloween beats both!  For these reasons, and more below, I feel a chocolate company like The Hershey Company (NYSE:HSY) is the superior buy when compared to a jewelry retailer like Tiffany & Co. (NYSE:TIF).

In the past 5 years, Tiffany & Co. (NYSE:TIF) has gone up in share price over 68% while The Hershey Company (NYSE:HSY) soared over 124%, not including dividends.  There are many reasons why this happened.  Starting with Tiffany, problems like sales growth, innovation, lower-priced competitors, economic slowdown, brand dilution, and alternatives have plagued the company.  Quarterly net income for the retailer has been on a decline on a year-over-year basis recently.  Being historically a very seasonal company in terms of sales, one should expect the growth to occur in the winter months around Christmas and New Year’s.  However, for the US division, which makes up half of all their revenue, the segment recently performed poorly pushing total revenue up only 4% in November and December for 2012.  Profit margins have been in the single digit range recently as well after seeing double digit values for much of 2010 and all of 2011.

Speaking of alternatives, Tiffany & Co. (NYSE:TIF) is fighting back at those ‘alternatives’.  They are now suing Costco Wholesale Corporation (NASDAQ: COST) over counterfeit jewelry sales that were advertised as Tiffany jewelry.  This lawsuit in some ways shows how out-of-touch Tiffany is with reality.  Tiffany was quoted as saying they “would never sell its fine jewelry through an off-price warehouse retailer like Costco.”  So much for making friends or possible partnerships in the future to increase sales.  Companies whose net earnings are decreasing 30% on a quarterly basis and nearly 10% on a year-to-date basis shouldn’t be so quick at burning bridges.

52% of US adults can’t all be wrong when they vote chocolate as their favorite flavor.  The Hershey Company (NYSE:HSY) stock shows the trend is real and spectacular with their 2012 4th quarter beating estimates and increasing 2013 outlook driven by volume.  4th quarter and full-year 2012 net sales increased 11.7% and 9.3%, respectively.  2013 net sales are expected to grow 5-7% along with increased margins due to improvements in productivity and cost savings.  Where Tiffany & Co. (NYSE:TIF) lacks creativity, Hershey is all about innovation, putting chocolate on and in anything and everything, changing designs of classic brands, and creating all new varieties.  Kit Kat mini’s, Twizzlers Bites, Hershey Kisses Deluxe, and Jolly Rancher Bites are some of the changes proposed in the near future.  Whether they are capitalizing on the fitness trends and reducing portion sizes or just adding more to the already powerful arsenal of candy and chocolates, Hershey in my opinion is only going to go higher from here.

TIF Total Return Price data by YCharts

Wild Cards

Flowers, like chocolate, are bought throughout the year and the biggest sales day is also not Valentine’s Day, even though 196 million roses are currently produced for the day of love.  Christmas and Mother’s Day, take the top 2 spots with 30% and 24% of all flower sales annually, respectively.  Cards usually take the top spot for all holiday occasions, and Valentine’s Day is no exception with 52.1% of all gifts given for the day being cards.  In terms of publicly traded stocks, the selection is limited with 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS) and American Greetings Corporation (NYSE:AM) representing both categories.  I call both of these stocks ‘wild cards’ because the stocks have performed overall mediocre at best, the potential is always there based on society’s trends, and I’m a Hallmark guy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.