The Hershey Company (HSY): Protect Yourself With This Ultimate Inflation Hedge

The trend is clear to see. Chocolate bars have beaten inflation easily over the past 100 years and are likely to continue and do so in the future.

But you might say to yourself – perhaps it’s not the chocolate, it’s only the company (Hershey) that led to these phenomenal pricing dominance. Well, it’s not. All across the board, global chocolate manufacturers have been able to exercise pricing dominance. You know this by looking at how their shareholders have fared. As you can see from the graph below, the chocolate manufacturing sector has easily beaten the Dow Jones Index.

Hershey, priced at a P/E of 27x and price/sales of 2.7 is the clear winner by 60% (!). Nestle SA Reg Shs. Ser. B Spons (NASDAQOTH:NSRGY), priced at a P/E of 21 and price/sales of 2.4 comes in second with a 30% beat. Third comes Rocky Mountain Chocolate Factory, Inc. (NASDAQ:RMCF), priced at a P/E of 28 and price/sales of 2 with a 20% beat. At fourth place and in line with the Dow comes Kraft Foods Group Inc (NASDAQ:KRFT), priced at a P/E of 14 and price/sales of 1.4. For the sake of clarity, it is worth mentioning that Kraft is only posted here due to its buyout of Cadbury, the giant British chocolate company two years ago. I believe that Kraft will only truly experience the tasty results from this buyout a couple of years down the road. In specific, I believe that following the assimilation of Cadbury, Kraft’s gross profit margin (currently- 10%) stands to improve towards the 12%-15% area as a result of the highly lucrative chocolate business.

It’s also worth noting that not only the mega-cap chocolate companies benefit from the chocolate trend. Even smaller companies such as Rocky Mountain above have been able toincrease their total revenue by 4.3% and 6.2%, in the third quarter and nine-month period, respectively. This increase in revenues did not come at the expense of gross profit margins. The gross profit margin improved to 34.9% and 37.8% in the third quarter and nine-month period, respectively. This goes to show you just how profitable these chocolate businesses really are.

The Fool looks ahead

Where ever you turn, you might face the danger of slowly eroding the value of your money. I believe that chocolate and global chocolate manufactures, and not necessarily precious metals, present an interesting hedging opportunity.

The article Protect Yourself With This Ultimate Inflation Hedge originally appeared on Fool.com and is written by Shmulik Karpf.

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