We recently compiled a list of the 10 Best Chocolate Stocks to Buy Now. In this article, we will look at where The Hershey Company (NYSE:HSY) ranks among the best chocolate stocks to buy now.

Chocolate is a sweet treat made from cocoa beans that are harvested, fermented, dried, roasted, and ground into cocoa mass, the core ingredient in chocolate. This mass then undergoes further processing to produce various types of chocolate.

The Confectionery Sector’s Performance

The confectionery sector saw a modest 3.74% year-to-date (YTD) increase compared to the broader market’s 18.13% rise. Rising input costs have driven up prices, particularly cocoa prices which have tripled in the past 12 months due to crop diseases in West Africa, which contributes around 80% of the world’s cocoa output, as reported by Food & Drink Digital. According to a report by J.P. Morgan, chocolate brands are grappling with higher cocoa costs (reached $10,000 per metric ton in March 2024) and are passing these increases on to consumers through price hikes. Ken Goldman, lead equity research analyst for U.S. Food Producers and Retailers at J.P. Morgan, made the following comment about this:

“In the U.S., Hershey has been very clear that list pricing is still one of the most important arrows in their quiver to offset inflation. Over the next year or two, they will probably pass on more cocoa inflation, and consumers will see higher prices for their chocolate as a result.”

The broader economic environment, including inflation and interest rates, also impacts consumer spending patterns, which further affects the confectionery sector. Increased prices in essential goods, such as food, can lead to reduced discretionary spending, impacting sectors like confectionery.

However, cocoa prices are expected to ease slightly in the medium term and may stabilize around $6,000 per metric ton. This could result from improved weather conditions and increased planting of cacao trees, which may provide some relief to the chocolate market.

The Chocolate Market Outlook

Despite the ongoing cost and pricing concerns, the global chocolate market has experienced significant growth, reaching an estimated $119.39 billion in 2023. According to Grand View Research, the market is projected to continue growing at a compound annual growth rate (CAGR) of 4.1% from 2024 to 2030.

According to a report by Dame Cacao, approximately 7.5 million metric tons of chocolate are consumed globally each year, equivalent to nearly 2.2 pounds (1 kg) of chocolate per person. The U.S. leads as the largest chocolate importer, with $955 million in chocolate-related imports in 2023, followed by France at $772.5 million during the same period, according to IndexBox. 

Rising Consumer Awareness in the Chocolate Industry

Consumer awareness is reshaping the chocolate industry, driving a surge in demand for specialty chocolates. In the National Confectioners Association’s State of Treating Report 2021, we find that there is a growing interest in organic, vegan, gluten-free, and sugar-free chocolates. Single-origin and bean-to-bar chocolates are gaining popularity for their distinctive flavors. Research highlights the health benefits of dark chocolate, including improved blood circulation and high flavonoid content, which further fuel its popularity.

Leveraging Chocolate as a Marketing Tool

In a competitive marketing landscape, chocolate is proving to be a powerful and versatile tool. Custom-branded chocolates not only create memorable experiences but they also enhance brand perception and boost client loyalty. Personalized chocolate gifts featuring logos or tailored messages offer a personal touch that fosters deeper connections. In addition, the visual appeal of chocolate makes it ideal for social media, driving engagement and brand visibility. This showcases chocolate’s powerful appeal to global consumer segments.

Methodology

For this list, we scanned Insider Monkey’s Q2 2024 database and selected companies involved in the chocolate industry, focusing on areas relevant to chocolate production and distribution. From that group, we picked 10 companies with strong balance sheets and solid financials and ranked them in ascending order of hedge funds having stakes in them.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

The Hershey Company (NYSE:HSY)

Number of Hedge Fund Holders: 39

The Hershey Company (NYSE:HSY) produces and markets chocolate, sweets, and snacks across three segments: North America Confectionery, North America Salty Snacks, and International. The company now employs 20,000 people in the U.S. and operates in 80 countries, offering a wide range of products including chocolate, non-chocolate confectionery, gum, mints, protein bars, baking ingredients, snack items, and spreads.

In Q2 2024, consolidated net sales for The Hershey Company (NYSE:HSY) declined by 16.7% to $2.07 billion. This downturn was primarily driven by inventory reductions across the North America Confectionery and International segments, largely due to the implementation of a new ERP system and unfavorable shipment timings.

Despite the overall decline in sales, Hershey’s Salty Snacks portfolio showed positive momentum, with Dot’s Homestyle Pretzels retail sales increasing by 42.3% in the quarter. Gross margin was significantly impacted, falling to 40.2% from 45.5% due to higher costs and inefficiencies, and operating profit also declined.

Regarding liquidity, The Hershey Company (NYSE:HSY) remains committed to strategic investments, projecting capital expenditures of between $600 million and $625 million for 2024. The ongoing implementation of a new ERP system and product innovations in the second half of 2024 is expected to energize key categories and support long-term growth.

The Hershey Company (NYSE:HSY) is focusing on sustainability and social impact through its ‘Cocoa for Good’ strategy. The company has already reduced emissions by 43% and aims for 50% by 2030 through sustainable farming of cocoa while eliminating 1.7 million pounds of packaging, and accelerating its deforestation commitment to 2025.

Despite revenue and earnings declines, investments in digital marketing and customer loyalty programs have bolstered its market share. As such, Hershey’s stock saw an uptick of 3.58% in the past month and 8.24% on a YTD basis. Moreover, strategic investments in digital infrastructure and a commitment to innovation provide a promising foundation for future growth.

Consequently, 39 hedge funds have collectively invested $506 million in the company, as per Insider Monkey’s database.

Overall HSY ranks 3rd on our list of the best chocolate stocks to buy now. While we acknowledge the potential of HSY as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than HSY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published on Insider Monkey.