Hershey Co (HSY), Tootsie Roll Industries, Inc. (TR): Sweetening the Pot with Candy Stocks

Tootsie Roll

Who doesn’t love Tootsie Roll Industries, Inc. (NYSE:TR)? Evidently a lot of Fools, as Tootsie Roll Industries, Inc. (NYSE:TR) only has a CAPS rating of 1 out of 5. Why? A price-to-earnings ratio of 35.96 showing overvaluation. Balance this with a 41+% price growth last year and it may mean that the company is ripe for a fall, especially now that sugar prices are heading upwards again. Why would this Fool think that it is a good stock to watch?

The company has historically been less than cordial to the investment community. 92 year old Melvin Gordon has run the company since dinosaurs were young, and he has never liked the idea of having investors have any say in his company whatsoever. He did report a slight increase in earnings per share in the last investors conference call, but not enough to justify the high share price. So why again does this Fool think this stock makes sense as a buy?

Because it is a very strong brand, and Gordon will have to relinquish control at some time in the near future. When that happens, Tootsie Roll Industries, Inc. (NYSE:TR) will make a wonderful strategic acquisition for Nestlé/Hershey or perhaps another food company that needs to diversify into the candy space.

Conclusion

In conclusion, candy stocks make stable, long term investments not only because America’s sweet tooth will never die, but also because of the strong possibly of consolidation of the space through mergers and acquisitions. The long term growth potential is there, and the proof can be seen in the charts over time. Only Tootsie Roll Industries, Inc. (NYSE:TR) seems highly overvalued now, meaning setting a lower target price on our buy order would be the best advice.

The article Sweetening the Pot with Candy Stocks originally appeared on Fool.com and is written by Brenda Johnson.

Brenda Johnson has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Brenda is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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