Matt Barasch Hershey Foods Corp HSY-N HOLD Feb 19, 2004

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.

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

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. 

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. 

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. 

(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.

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.

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.

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.

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