There's some sweet action behind Halloween candy, and these are some of the biggest players.
PORTLAND, Ore. (TheStreet) --Every time a piece of candy goes into a costumed kid's pillowcase or shopping bag this Halloween, that could be money going into your wallet.
One of the most foolproof ways to make investments is to fill your portfolio with things you love. Beer lovers who like a Samuel Adams every now and then can make back their beer money by investing in SAM. If you know you're going to buy a new F-150 every few years, it's worth investing in Ford. Love gorging yourself on soda and chips while watching football every Sunday? You sound like a PepsiCo (:PEP) and DirecTV (:DTV) shareholder in waiting.
If you're resisting the urge to disconnect the doorbell, dim the lights and play dead this Halloween, chances are you'll be investing in candy of some sort. (Unless you're that weird pennies and raisins house. Don't be that house.) Since you're splurging on sugar anyway, it may be worth investing a little extra in the candy companies selling you the stuff.
We took around the market and found a handful of candy stocks worth considering:
Hershey's has been a pretty sweet deal for investors in the past half-decade or so. The Hershey, Pa.-maker of its namesake chocolate, Kisses, Reese's, Krackel and Mr. Goodbar has watched earnings grow over the past five years as share prices jumped more than 70%. That price is up more than 17% this year alone and has paid dividends of $1.52 a share and yielded about 2.2%.
The 2008 financial crisis and 2009 market collapse had just about no effect on the share price, but that doesn't mean Hershey doesn't have problems ahead. It's been racking up debt, has a long-term debt/equity ratio of 175% and its free cash flow is just about nonexistent. Neither issue has been a problem so far, but fattening up on this stock too much now could lead to some discomfort later.
With a candy lineup that expands beyond Tootsie Rolls and Tootsie Pops to acquisitions such as Charleston Chew, Dubble Bubble Bubble Gum, Razzles, Dots, Junior Mints and Charms Blow Pops, Tootsie Roll is a bigger deal in the candy world than its tiny $1.5 billion market cap would suggest.
The best part? It's a mom and pop shop that wants nothing to do with the investment community. Ninety-two-year-old CEO Melvin Gordon has run the company for five decades. He and his 80-year-old wife Ellen have brushed off journalists and shunned earnings calls to maintain their control of the company and avoid takeover. Meanwhile, its share price has grown nearly 11% in the past year and sales have nearly doubled in the last two decades with very little help from advertising. It has increased its annual dividend payment for 47 years, but just 3% annually over the past five years despite low debt and a payout ratio of 41%.
While a company as affordable as Tootsie Roll seems ripe for a takeover that could make shareholders extremely well off, don't expect it to happen on the Gordons' watch.
Trying to sort out what ended up where after the big Kraft Foods Inc. split?
It's simple: Mondelez operates globally and focuses on the snack brands acquired in the $19.5 billion Cadbury acquisition back in 2010. Kraft Foods is restricted to North American grocery products.
Even in North America, however, Mondelez oversees candy brands such as Swedish Fish, Sour Patch Kids and Stride Gum. Since both of these stocks just came into being within the past month, though, there's a lot of potential to both but not a whole lot of history behind either. If less adventurous investors want to sit this Halloween out and see what comes of this shakeup, that's as wise and beneficial as eating your kids' first few candy pieces to "check for needles."
Rocky Mountain Chocolate Factory(:RMCF)
This isn't really the kind of chocolate you'll find in plastic porch pumpkins or goody bags this Halloween. Rocky Mountain's Halloween-themed boxes of assorted chocolates and caramel apples seem more at home on a receptionist's desk or a holiday gift basket for someone you don't feel too strongly about.
That said, the mall clientele that frequent Rocky Mountain literally eat this stuff up. Revenue is up 2% from this time last year, while sales have increased 6.3%. That growth coupled with the addition of chocolate shops and affiliated Aspen Leaf Yogurt outlets helped boost the company's share price 42% over the last year.
That's good growth, but the company's market cap of $72.4 million still makes it as prone to takeover offers such as that made by Whitman's Chocolates back in the 1990s. That might sweeten the deal for investors willing to wait it out.
Remember what we said about investing in what you love? Forty years ago, Warren Buffett was so taken with See's candies and chocolates that he bought the company and folded it into Berkshire Hathaway.
That Berkshire Hathaway was a textile company for the majority of its existence leading up to that purchase was of no consequence. Buffett was building a multinational conglomerate that would have nothing to do with textiles a mere 13 years later. See's, meanwhile, still sells assorted chocolates, but it cranks things up during Halloween and offers orange chocolate wafers, pumpkin spice lollipops, orange twist candies and chocolate marshmallow jack-o'-lanterns.
The stock? Oh yeah, it's doing just fine at more than $90 a share and has jumped 24% in the past year.
-- Written by Jason Notte in Boston.
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