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Readers of this space know that the investment bias is toward large-cap companies with demonstrated business models and who have a competitive advantage in established markets, preferably with a favorable, global trend as a support. And with the aforementioned in mind, The Hershey Company (NYSE: HSY) is worth a review. In general, analysts see only modest revenue growth for HSY for FY 2009. However, an improved supply chain should reduce costs, and also free-up more capital for strategic growth initiatives at home and abroad.
Other strengths: Hershey's core brands comprise some of the best known products in the U.S., and the company's presence in the key emerging markets of India, China, Mexico, and South America bode well, once global growth resumes. Meanwhile, product development / new produce launches remain more than adequate.
The risks? A failure of the U.S and global economies to begin to recover in the second half of 2009 would weigh on revenue. Still, with shares having straddled $35, including the pivotal 50-day moving average, for about six months, the view from here argues now is good time to establish or add to an HSY position, before any signs of increasing demand surface. The First Call FY 2009/FY 2010 EPS estimates for HSY are $1.95 to $2.07.
Stock Analysis: Hershey is a moderate-risk stock. Consider buying a 25% position in HSY now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your HSY position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $26.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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