The past few weeks have seen several snack food companies take a big hit. Part of the move may have been from rising bond yields, which compete with dividend yields. Another factor is the use of Ozempic, a weight loss drug.
Either way, shares of these companies have dropped off considerably in recent weeks, and now look like long-term buys. Weight loss drugs are nothing new, and many will still want to enjoy snacks or satisfy their sweet tooth.
While headlines have focused on beverage companies like
Coca-Cola (KO), the oversold opportunity now may be in a confectionary company like
Hershey (HSY).
The candymaker is now down 30 percent from its 52-week highs. That’s pushed the valuation of shares to 22 times earnings, a reasonable valuation. Most Hershey shares are held in a trust, and the company tends to trade at a premium as a result.
Action to take: The drop in shares has pushed Hershey’s dividend yield to 2.5 percent. That’s about 20 percent higher than its five-year average.
And it’s a sign shares could trend higher, even in a slowing economy, as consumers continue to spend on small-budget items like candy. That makes shares a buy today.
For traders, shares look oversold from here, and could be set up well for a year-end rally. The January 2024 $200 calls, last going for about $6.00, could leverage a move higher into mid-double-digit returns.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.
