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The Hershey Company (HSY), Tootsie Roll Industries, Inc. (TR): Warren Buffett’s Sweet Tooth

The Hershey Company (NYSE:HSY) guided for a 310 to 330 basis-point expansion to gross margins on a reported basis for 2013 and a 7% increase in net sales.

Global happiness
After the Kraft spin-off, Mondelez International Inc (NASDAQ:MDLZ) kept Oreo, Tang, Nabisco, Philadelphia Cream Cheese, Cadbury, and Trident gum. It sells to 165 countries and has leading market share globally in biscuits, candy, gum, and powdered beverages.

The company offers 1.8% yield, but growth of 11% is expected to compensate for the lower yield and the company recently raised the yield by 8%. It also authorized a $6 billion share repurchase.

Activist investor Nelson Peltz took a stake in Mondelez International Inc (NASDAQ:MDLZ) worth $474 million even as Buffett shed 92% of his position . For several months, it has been rumored Peltz wants PepsiCo, Inc. (NYSE:PEP) to buy Mondelez and that has generated interest in the stock.

Mondelez International Inc (NASDAQ:MDLZ)’s price-to-sales ratio 2.2 and is lower than The Hershey Company (NYSE:HSY). Its price-to-book ratio at approximately 1.8 is lower than the industry average of 2.6. Overall, margins are higher at Hershey, though. And price to free cash flow is much higher at Mondelez at 144.0 compared to Hershey.

Mondelez International Inc (NASDAQ:MDLZ) recently reported second-quarter adjusted EPS of $0.37 for a 5.6% increase year-over-year. The investment thesis on Mondelez is its international and in particular, emerging market growth, with impressive double-digit revenue growth in BRIC markets reported.

Slowwww happiness
Harvard grad students invented a licking machine to determine how many licks it would take to get to the center of a Tootsie Pop (2,255).Tootsie Roll Industries, Inc. (NYSE:TR) seems to grow as slowly, with brands the Wall Street Journal characterized as “antique.”

The company’s yield is 1.0% and the price-to-sales ratio is the highest of these at 3.7. Tootsie Roll Industries, Inc. (NYSE:TR) has been under control of members of the Rubin-Gordon family since the Great Depression. The board has been characterized as secretive and a crony culture by The Wall Street Journal with average tenure of three decades.

Mario Gabelli increased his stake in 2008 to 6%, anticipating Tootsie Roll Industries, Inc. (NYSE:TR) would be a buyout target. Total revenue for 2012 was $549.9 million, and with $214 million in the first half of 2013 it may have trouble beating 2012’s number.

The company isn’t compelling to a long-term investor. It has little innovation, secretive management, and a ho-hum yield. Not to mention it trades at a trailing P/E of 37.6. Hoping for a buyout already wasted five years for Gabelli.

Sleep happy at night
Put a little The Hershey Company (NYSE:HSY) under your pillow and sleep at night with its yield and international growth prospects. Mondelez International Inc (NASDAQ:MDLZ) is interesting only as Peltz pushes for a buyout and its emerging market growth. As for Tootsie Roll Industries, Inc. (NYSE:TR) it is just too opaque and old fashioned.

The article Warren Buffett’s Sweet Tooth originally appeared on and is written by AnnaLisa Kraft.

AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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