McCormick & Company, Incorporated (MKC), The Hershey Company (HSY), Tootsie Roll Industries, Inc. (TR): Are These Consumer Goods Stocks Overvalued?

Put simply, there aren’t enough margins of safety to justify such lofty valuations for these three companies. Investors are asking for trouble paying such high prices for companies with relatively modest sales growth. Profits are being grown at higher rates, thanks to cost cuts, but cost cuts can’t continue to juice EPS forever.

Moreover, while each of these stocks has paid a dividend for decades and will raise their dividend from time to time, none of these stocks yields more than 1.9% at recent prices, which is less than the yield on S&P 500 Index.

In the end, while each of these three companies represents a solid business, Foolish investors should wait for much better entry prices before jumping in. Specifically, I wouldn’t be willing to pay more than the market multiple for firms with these growth profiles. That means I’m not going to pay more than 16 or 17 times earnings for these businesses, and I’d recommend cautious investors to act similarly.

The article Are These Consumer Goods Stocks Over-Valued? originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.