Two Stocks for a Gradual Recovery

07/21/2009 1:00 pm EST

Focus: STOCKS

Louis Navellier

Editor, Blue Chip Growth and Emerging Growth

Louis Navellier, editor of Blue Chip Growth, says a Latin American utility and a US candy maker should provide steady earnings growth as the economy slowly recovers.

Enersis (NYSE: ENI) is the largest utility in Latin America. Based in Chile, the company distributes power to almost 12 million customers (approximately 45 million people) in Chile, Argentina, Brazil, Colombia, and Peru. Enersis also owns 60% of Empresa Nacional de Electricidad (NYSE: EOC), Chile's largest power generator, with 13,700 megawatts of generating capacity. The company's other operations include real estate, electrical engineering, energy trading, and support services.

In the first quarter, Enersis's earnings rose 50.5%, to $257 million, [over] the same quarter a year ago. Since Enersis generates electricity using water, coal, oil, or natural gas, and wind resources, it has a distinct advantage over other utility companies. There is an abundance of hydroelectric power generation facilities in Chile that Enersis can [use,] and this makes the company more competitive than other utilities, which have to burn fossil fuels to generate electricity.

Also, thanks to a growing middle class in Latin America, electricity demand is expected to rise steadily for the next decade, and Enersis should be a big winner. The fact that Chile's currency has been appreciating strongly against the US dollar is also helping the stock post extraordinary returns. (It closed above $19 Thursday, near its 52-week high—Editor.)

Hershey (NYSE: HSY) makes well-known chocolate and candy brands such as Hershey's Kisses, Reese's peanut butter cups, Swizzles licorice, Mounds, York Peppermint Patty and Kit Kat (licensed from Nestle).

The company also makes grocery goods such as baking chocolate, ice-cream toppings, chocolate syrup, cocoa mix, cookies, snack nuts, hard candies, and lollipops. Hershey products are sold throughout North America and exported overseas. The Hershey Trust, which benefits the Milton Hershey School for disadvantaged children, controls approximately 99% of Hershey's voting stock.

In the first quarter, the company's earnings rose 17.9% to $75.9 million, or 33 cents per share, compared with $63.2 million or 28 cents per share in the same quarter a year ago. Excluding costs to streamline its operations, Hershey says its operating earnings were $86 million or 38 cents per share, which was 11.8% better than analysts' consensus estimate of 34 cents.

During the past four quarters, the company's sales rose 6.9% to nearly $1.24 billion, compared with $1.16 billion [over the previous four quarters,] 4.2% better than analysts' consensus estimate of $1.19 billion in sales. Interestingly, in the first quarter, Hershey [said] the strong US dollar impeded its earnings, but with a dramatically weaker US dollar, its upcoming second-quarter earnings announcement should be significantly stronger due to positive currency conversions. The stock is a great buy. (It closed above $38 Monday—Editor.)

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