Hershey Foods Corp (HSY)

In recent years, pricing (shrinkflation) was egregious, volumes weakened and these stocks got punished. But now volumes are normalizing. He wouldn't add now. No, weight-loss drugs haven't stopped people buying chocolate bars.

Has become a hated stock, struggling for the past 2.5 years. The GLP-1 weight-loss drug have hammered the entire packaged food industry. Also, HSY has struggled with sky-high cocoa prices. The worst is behind Hershey. Their new CEO spent 3 decades at Pepsico. Before the new CEO, their July report delivered a top and bottom line beat, but cut their full-year earnings forecast because of tariffs. Shares spiked on reports of a takeover by Mondelez. Since then, share have been choppy and terrible. They just reported organic sales growth and adjusted EPS beats, though net sales missed. Also, adjusted gross margins missed. It raised their full-year forecast only slightly. In their conference call, they said the Hallowe'en season is slow due to warmer weather, and the Mexican business isn't doing well. That said, the future looks cautiously good, and they were just upgraded by an analyst. Is pricey, selling at 28x PE, but management is being deliberately cautious in its numbers, so it's likely next year's numbers will beat.

Peaked in 2023 and then downtrend until middle of this year. Chart shows really nice base forming, with early-stage accumulation. Watch to see if it continues or levels off; so far so good. Made a higher low back in the summer and now steadily climbing. Resistance ~$200 -- if it breaks out above, looks really exciting.

The CEO of Wendy's left to lead this. Why? Wendy's is an ailing company. This CEO introduced dynamic pricing in fast food which failed. Shares are sinking.

Decent company. Driven by acquisitions. He's not knocking it, but he owns LISP instead, which has done significantly better (unfortunately, it's $20k a participation share, with a common share being over $200k CAD). There's also the currency benefit on LISP.

Sold in September. Drought drove cocoa prices up. Passing prices on to consumers eventually made people close their wallets.

Sold early September last year. Thesis was negated by the facts. Inflation in cocoa; iconic brand carried them only so far, and eventually consumers pared back purchases. 

In the face of a stock-picking mistake, try not to compound it by digging in your heels and making up a narrative to support holding the stock. Rip off the Band-Aid, choose again, and avoid the opportunity cost of further drawdowns.

It hit a 52-week low today. Pays a 3.6% dividend, which can't compete against interest rates. Still sells at 16x PE. Maybe he will consider it at 14x PE. Look at Mondelez instead.

Didn't work out, sold around $200. Thought brand was bulletproof. Input inflation was endemic to the whole industry, but then volumes started to be affected. Accounting transition hiccups. Cocoa prices spiked, but have relaxed. K-shaped economy has lower-income consumers really picking spots for indulgences.

(Note the short timeframe.) He has about a 2% position. Likes that it has support ~$190 or so. Will be resistance ~$200. If it breaks out, lots of space ahead to move. Increasing price of chocolate caused stock to tumble, but now chocolate's moving down, so he's hoping for a breakout.

But if it breaks his stop-loss support level, he'll be out.

Iconic brand with many subsidiaries. However, recent M&A has not panned out well. Salty "snack" business not panning out as well as planned. Owns shares and will continue to hold. Expecting higher margins, sales and cash flow going forward. Cocoa prices are expected to fall as well. 

All 3 picks today are contrarian value propositions. Stock was crushed by skyrocketing price of cocoa. Nothing lasts forever. Cocoa's rounded over, and now the chart for HSY is ticking up after it based for a while and broke out. Fundamentally, the problems will get sorted, cocoa will be cheaper, and HSY profits will go up. Yield is 2.6%.

An example of how the fundamental story and the technical chart work together. 

Added to dividend growth fund. Seasonal business with 45% market share in North America. Also has "salty snacks" brands business. Earns excellent margins on business with very strong profits. Leading ESG rated consumer packaged goods company. Tripling of coco prices expected to fall in the coming months. Very good time to buy at 20x earnings. 

Expensive, and he's never understood why. Trades around 25-30x earnings. Most competitors trade 10-12 points lower. Pass.

Within its sector, one of the best on organic growth and margins. Weight-loss drugs are turning people off snacking. Not the growthiest company, trades at a big multiple. With interest rates coming down, investors are moving toward better growth profiles.