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It’s been a tough year for chocolate lovers. Prices of chocolates are going up because of high cocoa prices. And even if they are willing to fork up more dollars for a bite, there could be a scenario where chocolates might not be available. Cocoa prices have doubled last year to $6,500 a tonne as of March 31, 2024. Why?
Ivory Coast and Ghana, the world’s top cocoa producers, which contribute around 80% of global output, have seen their crops ravaged by drought linked to El Niño and the harsh, dry Harmattan winds. This has significantly reduced cocoa bean harvests. Cocoa farming is often done by smallholders who struggle to make ends meet. This lack of profit makes it difficult for them to reinvest in their farms, leading to aging trees and lower yields. And this has had a bad impact on chocolate stock prices. Almost all chocolate stocks have been down in the last year. But this also presents a good buying opportunity for value investors. Cocoa prices are expected to stabilize and fall in the second half of the year.
While higher cocoa prices affect consumer wallets, they also affect stock prices. Chocolate companies have been beaten down for the last year. And this throws up buying opportunities.
Here are 4 Chocolate Stocks for 2024
Top 4 Chocolate Stocks to Buy in 2024
The Hershey Company
Hershey stocks have fallen over 29% in the last 12 months thanks to rising cocoa prices. While the stock price has fallen, its revenues have continued to rise. The company, which also owns brands like Hershey’s, Reese’s, Almond Joy, Heath, Milk Duds, and York Mint Patties, saw a 7% increase in sales for 2023, closing the year at $11.16 billion. Net income grew 13% to $1.86 billion as well.
In its Q1 2024 fund letter, Heartland Mid Cap Value Fund has the following to say about The Hershey Company, “We believe Hershey simply needs to demonstrate to investors that these headwinds are cyclical and temporary in nature, while once again showcasing its ability to balance superior profitability with modest growth and stable market share.” The stock is trading at around $186 levels, and the one-year target price for the stock is $208. The stock also increased its dividend payout by 15% to $1.37 for the quarter. It now sports a dividend yield of 2.94%.
Nestlé
KitKat, Smarties, Aero, Milkybar, L’Atelier, and many other brands make up Nestlé’s chocolate stables. The Swiss giant reported a drop of almost 6% in sales for the January-March 2024 quarter compared to last year. Sales came in at $24.45 billion compared to $25.99 billion. A significant reason for this was a drop in the US frozen food and dairy numbers. Nestlé’s frozen food brands include DiGiorno pizza, Stouffer’s frozen dinners, and Hot Pockets sandwiches.
The company is also facing a backlash in India and other low-income countries in Asia and Latin America when news emerged that Nestlé’s baby food products contain added sugar in these countries. However, similar products in Europe and North America don’t have sugar. Nestlé has also increased its prices as it deals with increasing cocoa prices and continued high inflation.
Nestlé CEO Mark Schneider said Nestlé is “spring loaded for a significant rebound” concerning its RIG or “real internal growth.” He added, “In North America, we have stepped up our innovation intensity and commercial activities, primarily in frozen food, which lost ground in the first quarter.”
The stock is at $101.34, and the expected 12-month target is $132, a potential increase of over 30%.
Mondelez
The owner of Cadbury’s gets around 75% of its sales from outside the US, and around 40% is from emerging markets. Unlike the US, where obesity is a significant issue, emerging markets are just starting the consumption journey. Mondelez also owns Oreos, which is probably the only cookie to claim the title of “universal cookie.” It is sold in over 100 countries and exceeded $4 billion in sales in 2022 for the first time.
Mondelez’s “Snacking Made Right” report, based on a global consumer survey in March 2024, throws up some interesting numbers. Chief among them was, “snack spending remains unchanged with two-thirds (66%) of consumers agreeing they have not made significant changes to their spend on snacks, despite being more conscious of price.” Another was “88% of consumers reporting that they indulge in snacks daily.” Mondelez customers are not going to stop or even reduce snacking anytime soon. Statista figures in 2021 say Mondelez has a 33% share in the global confectionary market. While snacking and chocolates are important for Mondelez, the company has also expanded its health food portfolio.
For the year ended 2023, net revenues increased by 14.4%, and Mondelez increased its dividend payment by 10%. This number has significant room for growth as Mondelez’s debt-to-capital ratio is just 34%. The stock is at $70.61 and has a target price of $82.75, a potential upside slightly lower than 20%. The stock is one of the most stable and is currently trading around 10% below its fair value price. It could be a sweet addition to your portfolio.
Lindt
Lindt & Sprüngli has been around for 175 years and is the last company in the article. The company recently reported strong financial performance, achieving 5.2 billion Swiss francs in group sales for the past fiscal year, a 10.3% year-over-year increase. Lindt is the quintessential gifting stock. A pack of Lindt chocolates in emerging markets is generally given on a special occasion. Its stores are at airports and other touristy places. The company’s brands include Lindt, Ghirardelli, Russell Stover, Caffarel, Hofbauer, and Küfferle.
While Lindt & Sprüngli’s growth in its core European market faced some headwinds due to macroeconomic factors, the company has been strategically expanding its presence in emerging markets. This is similar to what most chocolate companies have been doing. Emerging markets experienced a significant 12.9% year-on-year growth in 2023, surpassing growth rates in North America and Europe.
Looking ahead, Lindt & Sprüngli projects continued value creation for its shareholders. The company anticipates annual revenue growth between 6% and 8%, coupled with an operating profit margin expansion of 20 to 40 basis points annually.
Lindt is the only stock on this list that has grown in the last 12 months. It’s not a great dividend payer like the other stocks, but its growth rate compensates for that.
Conclusion
In the tantalizing world of chocolate investments, opportunities abound for discerning investors. From the velvety allure of milk chocolate to the bold richness of dark chocolate, and the irresistible charm of chocolate bars to the exquisite indulgence of caramel-infused delights, the market offers a myriad of delectable options. Whether it’s the artisanal craftsmanship of gourmet truffles or the time-tested allure of Belgian chocolate, each stock presents its own unique flavor profile for investors to savor. With careful consideration and strategic insight, these chocolate stocks hold the promise of sweet returns in 2024, making them a tempting addition to any investment portfolio.
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