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Tootsie Roll: A Sweet Play with Takeover Appeal

10/17/2019 5:00 am EST

Focus: CONSUMER

Mike Larson

Editor, Weiss' Safe Money Report and Under-the-Radar Stocks

Leo Hirschfield founded Tootsie Roll (TR) in 1896, naming it after his 5-year-old daughter who went by the nickname Tootsie, notes Mike Larson, growth stock specialist and editor of Under the Radar Stocks.

Naturally, the candy and confection company has grown and changed over the years. It moved to the Chicago area from New York in 1968 and has expanded its lineup of products to include Charms Blow Pops, Andes Mints, DOTS, Junior Mints, Charleston Chew, Dubble Bubble, and more.

Those products are sold through 30 candy and grocery brokers, as well as by the company itself, to roughly 3,100 customers around the United States. That includes supermarkets, dollar stores, drugstore chains, vending machine operators, and warehouse club companies. It also sells into the Mexican and Canadian markets internationally.

Unlike other larger food and beverage companies, Tootsie Roll is essentially controlled by the Gordon family. Ellen Gordon became CEO after her then-95-year-old husband passed away in 2015, and she controls more than 53% of the outstanding common stock.

The firm also shuns many of the trappings of other public companies. It doesn’t hold investor conference calls, for instance, or interact much with the media. That’s why it’s not widely followed by analysts, despite its $2.4 billion market capitalization.

Here’s something else to consider: Company officials have said for a long time that Tootsie Roll isn’t for sale. But we’ve seen a wave of acquisitions sweep through the industry over the past few years.

Mars Inc. took full control of Wrigley in 2016 (after teaming up with Warren Buffett’s Berkshire Hathaway to buy it in 2008). The Hershey Co. bought Amplify Snack Brands for $1.6 billion in 2018 and announced the $397 million purchase of ONE Brands LLC last month.

Plus, Italy’s private confectionary giant Ferrero bought Nestle’s U.S. candy operations for $2.9 billion last year. That move added the Baby Ruth and Butterfinger brands to its portfolio, which already included Nutella hazelnut spread and Ferrero Rocher praline candies.

I don’t know when or if controlling family members or the board would decide to sell. But if they were to do so, it would likely be at a nice premium to where the shares are trading. That’s another reason it makes sense to buy Tootsie Roll shares at the market.

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