Attractive yield
It’s important to remember that each of these companies is a little different – Mondelez and Hershey both have dairy segments, while Tootsie focuses strictly on candy. This difference is most pronounced when comparing the others to Nestle, which markets frozen food (including Digiorno, Hot Pockets, and Lean Cuisine), ice cream (Haagen Dazs and Skinny Cow), juice (Juicy Juice), water (Perrier), and pet food (Purina), in addition to candy and coffee. The macro situation for Nestle will therefore be a little different from the other companies.
Sales were up 4.3% overall for Q1 of 2013. Double-digit growth in China and 5.3% sales growth in the U.S. were tempered by anemic results in Europe and the Middle East. Nestle saw a significant drop in demand in the Middle East, which will impact revenue as suppliers “have found themselves with too much stock” and will have to sell what they already have before they purchase more Nestle products. Nestle also lost a factory in Syria, which may affect the supply chain in the Middle East.
Nestle pays a nice dividend (yielding almost 3%), and has a bundle of brands, which provide a good hedge against one sector or another doing poorly. The diversification of its portfolio is, to my mind, a big strong point. Watch for expansion in the pet-care, coffee, and water lines (water had a disappointing first quarter, but I still see plenty of future growth there.) Valuation is a piece of this as well; with a P/E ratio of 18.7 and a forward P/E of 15.7, Nestle is reasonably cheap compared to the others.
Investing Foolishly
To keep things short and sweet (pun intended), I feel best about Hershey Co (NYSE:HSY) for the long term. I think it has the most credible growth plan, and management has shown their ability to keep the business chugging along even in the adverse environment of the last couple years. If you have money left over after investing in Hershey Co (NYSE:HSY), buy Nestle for its broad and diverse portfolio and dividend yield. Mondelez International Inc (NASDAQ:MDLZ) is worth keeping an eye on, but I would hold off until we see sustained EPS growth. Tootsie is overpriced and should be avoided for now.
The article Candy Industry Winners – and Great Opportunities for Your Portfolio originally appeared on Fool.com and is written by Michael Douglass.
Michael Douglass has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Michael is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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