How Sweet It Is When Chocolate Is Everywhere

Meryl is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

It is the holiday season and time for chocolate. As an investor I prefer to buy products and services I understand, and I understand chocolate. I also like to invest in things I like and believe others will like and therefore buy. Perusing the grocery store this week there was, in the center of the first aisle, in the middle of all the healthy produce, a large display of chocolates filled with boxes of expensive and less expensive chocolates. Included were chocolate coins, candy bars, and fancy truffles (not the fungus kind – the chocolate kind). All this chocolate started me thinking. I could buy a box and feast, but that would cost money and be rather decadent. Or I could research chocolate companies, which is less fattening and guilt-free.

There are a lot of chocolate companies around the world. Many are small, boutique firms producing expensive, wonderful tasting, organic, and free trade products. Most are privately held businesses. I must settle for buying stock in public companies, although there are not many pure chocolate manufacturers. Most are mega-corporations producing a wide variety of food and non-food products.

Two of the the top ten chocolate manufacturers in the world are U.S.-based public companies. Kraft (NASDAQ: KRFT) produces Cadbury, Toblerone, and other chocolate brands. Hershey (NYSE: HSY) brands include Hershey Kisses and chocolate bars, Almond Joy, Mounds, Reese’s Peanut Butter Cups, York Peppermint Patties, and more. Kraft is not a dedicated chocolate business, producing a variety of food and non-food products.

Two smaller domestic chocolate companies include Rocky Mountain Chocolate Company (NASDAQ: RMCF) and Tootsie Roll (NYSE: TR).

Rocky Mountain Chocolate Factory is a small company based in Durango, Colorado. A venture capital firm, PST Capital, is in the process of negotiating to acquire the company.

Tootsie Roll is an interesting company and possible takeover candidate. Products include, besides the company's namesake brand, Junior Mints, Andes mints, Double Bubble gum, Charms Pops, and other candy items. The 116-year old company, headquartered in Chicago, is steered by the oldest CEO on the NYSE and NASDAQ, Chairman and CEO Melvin Gordon, 92 years young, and his wife Ellen, 80, President and COO. Mr. and Mrs. Gordon managed the company for 50 years. Although a public company, management is secretive about its operations and finances and currently no analysts cover the company for this reason. Company sales and revenue growth has been anemic over the past few years. The company will be ripe for change when the Gordons retire, and at that time shareholders may reap the rewards of their Tootsie Roll stock. The company pays a small dividend, and in December Tootsie Roll paid the regular eight cent dividend per share plus an additional 50 cents a share payout.

Hershey experienced a difficult period a couple of years ago when it revamped factories and did not have enough inventory for the holidays. The company solved their manufacturing problems and the stock price has risen steadily over the past couple of years. The company raised their dividend payment in December to 42 cents a share.

The following chart compares the stock price of Hershey, Rocky Mountain Chocolate Factory, and Tootsie Roll over the past ten years. Tootsie Roll and Rocky Mountain show flat lines while Hershey's stock price has increased since the end of the recession (the gray area in the chart). 

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HSY data by YCharts

Rocky Mountain Chocolate Factory may be taken private very shortly. Traders may want to take a chance and buy the stock now; currently trading around 10.84, hoping another suitor comes forward and bids the price higher. Tootsie Roll, current price about 26.65, is an opportunity for gains if and when the company becomes an acquisition candidate. Hershey, trading around 73.65, is a potential buy, offering a 2.28% dividend payout, slowly but steadily rising stock price, and additional growth potential.

mercyn owns Nestle. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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