From the economic toll associated with Sandy to Euro-Area unemployment figures to mixed earnings, today brought some unsettling numbers for Wall Street. Even so, the indices are holding somewhat steady as institutional investors rush to rebalance their portfolios at month’s end. With the indices under control, I want to turn to something much more pressing: Halloween.
If you have young children, or at least some in your neighborhood, you know how big this holiday is for them and how expensive it can get. From costumes to candy to decorations, this year, the average American is expected to spend nearly $80 in preparation for today. This totals to a record $8 billion spent nationwide! This is just the kind of push we need to see before holiday shopping picks up, and I think it puts some interesting buying opportunities on the table that deserve a closer look…
The first confectioner that comes to mind is The Hershey Co. (HSY), which commands 43% of the U.S. chocolate market and 29% of the total U.S. candy market. With a legacy that reaches back 118 years and a reputation for quality ingredients, Hershey’s remains the nation’s milk chocolate of choice. But it’s not just chocolate—Hershey’s sports dozens of candy brands, running the gamut from the coconut center of an Almond Joy to the white fudge shell of the ZERO bar. So Hershey is in a great position to capture some of the $2.4 billion in Halloween candy sales forecast for this year. Analysts forecast 8.4% sales growth and 14.5% earnings growth for this year—this, combined with this stock’s 2.1% dividend yield—makes HSY a buy right now.
Tootsie Roll Industries Inc. (TR) isn’t quite as large as Hershey, but it still has a firm footing on Halloween candy sales. After all, in addition to its namesake candy, this company is responsible for Junior Mints, Dubble Bubble gum, Charms Blow Pops and Sugar Babies caramels. Last week, management announced 7% net sales growth and 20% earnings growth for the third quarter. Much of the increase was fueled by families getting ready for the Halloween sugar rush. While TR is currently a B-rated buy, I would proceed with caution before buying because some of its fundamentals need some work, especially sales growth, cash flow and return on equity.
PetSmart Inc. (PETM) is a one-stop shop for pet lovers across America, even for Halloween costumes for our four-legged friends. From superman to policemen to pumpkins, a glance at the PetSmart.com website reveals a staggering array of costume options. What’s even more shocking is that Americans are expected to shell out $370 million to outfit their pets for Halloween this year—a 19% jump over last year. With 20% earnings growth forecast for this quarter, PETM is currently a strong buy.
Target Corp. (TGT), or "Tar-zhay" as some loyalists affectionately refer to the store, is the nation’s second-largest discount retailer. Parents looking for affordable costumes can find hundreds of options at Target locations as well as on its website. Target is also looking to capture some of the pet costumes market—this year, it is offering a dozen new canine costumes. Adding in this stock’s 2.3% dividend yield—the second highest in the industry—TGT is a buy.
Walmart Stores Inc. (WMT), as the largest public corporation by sales and as the largest private employer in the world, hardly needs an introduction. But what should be said about Walmart is that when it comes to prices and selection for Halloween merchandise, it’s hard to top. While the average person will spend nearly $30 on their costume, Walmart’s costumes start just $6.97. With single-digit sales growth and double-digit earnings growth forecast for this quarter, and a 2.1% dividend yield, WMT is a strong buy.
Keeping these stock recommendations in mind, have a safe and happy Halloween!