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Pullback Creates Opportunity at Hershey
11/06/2015 7:00 am EST
This new recommendation is the largest producer of chocolate, confections, mint, and gum in the US, explains Annell Danczyk, senior portfolio manager of Stack Financial Management and editor of Jim Stack's InvesTech Market Analyst.
The Hershey Company (HSY) reaches back more than 120 years and today the firm makes some of the best loved and most recognized brands in the world.
In addition to its iconic milk chocolate bars, its major brands include Kisses, Reese’s, York, Twizzlers, and Almond Joy; treats that are enjoyed regardless of the economic condition.
As a quality stock with defensive characteristics, HSY provides the opportunity to add desired stability to a portfolio.
It’s a member of the consumer staples sector, which is favored for being more resilient than most others in the latter stages of a market cycle.
Brand strength is also a key attribute fortifying Hershey’s position, evidenced by the firm’s ability to maintain a dominant 45% share of the US chocolate market.
Moreover, the stock’s dividend has grown at an average 9.5% per year since 1993 and the current yield is an appealing 2.4%.
The chocolate maker is attractive not only for its defensive nature; there’s a growth aspect to discuss as well.
Hershey is making ongoing efforts to expand sales in China; however, the integration of a Shanghai-based confectionery company acquired at the end of 2014 has proved more difficult than first expected.
Fortunately for those seeking to invest, it was this news that prompted a pullback in the price of HSY stock during the first half of this year, providing an attractive entry point.
Though this recent misstep has weighed on the company, efforts to expand internationally should prove beneficial longer-term.
Further, recent acquisitions have also been in line with more nutritious snack alternatives; Brookside makes healthier snacks containing nuts and dried fruit, and KRAVE is an all-natural, premium meat jerky producer.
Bottom line, Hershey is uniquely positioned to provide the stoic defensiveness of a century-old consumer staples company, yet is taking nimble steps to grow and change with the shifting consumer environment.
With recent market volatility triggering increased investor stress, a bit of Hershey chocolate and a few shares of the stock could be a good antidote to have on hand.
With its attractive dividend, brand strength, and opportunity for growth, HSY could be both a soothing and sweet addition to a portfolio.
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