We recently compiled a list of the 10 Best Chocolate Stocks to Buy Now. In this article, we will look at where Mondelez International, Inc. (NASDAQ:MDLZ) ranks among the best chocolate stocks to buy now.
Chocolate is a sweet treat made from cocoa beans that are harvested, fermented, dried, roasted, and ground into cocoa mass, the core ingredient in chocolate. This mass then undergoes further processing to produce various types of chocolate.
The Confectionery Sector’s Performance
The confectionery sector saw a modest 3.74% year-to-date (YTD) increase compared to the broader market’s 18.13% rise. Rising input costs have driven up prices, particularly cocoa prices which have tripled in the past 12 months due to crop diseases in West Africa, which contributes around 80% of the world’s cocoa output, as reported by Food & Drink Digital. According to a report by J.P. Morgan, chocolate brands are grappling with higher cocoa costs (reached $10,000 per metric ton in March 2024) and are passing these increases on to consumers through price hikes. Ken Goldman, lead equity research analyst for U.S. Food Producers and Retailers at J.P. Morgan, made the following comment about this:
“In the U.S., Hershey has been very clear that list pricing is still one of the most important arrows in their quiver to offset inflation. Over the next year or two, they will probably pass on more cocoa inflation, and consumers will see higher prices for their chocolate as a result.”
The broader economic environment, including inflation and interest rates, also impacts consumer spending patterns, which further affects the confectionery sector. Increased prices in essential goods, such as food, can lead to reduced discretionary spending, impacting sectors like confectionery.
However, cocoa prices are expected to ease slightly in the medium term and may stabilize around $6,000 per metric ton. This could result from improved weather conditions and increased planting of cacao trees, which may provide some relief to the chocolate market.
The Chocolate Market Outlook
Despite the ongoing cost and pricing concerns, the global chocolate market has experienced significant growth, reaching an estimated $119.39 billion in 2023. According to Grand View Research, the market is projected to continue growing at a compound annual growth rate (CAGR) of 4.1% from 2024 to 2030.
According to a report by Dame Cacao, approximately 7.5 million metric tons of chocolate are consumed globally each year, equivalent to nearly 2.2 pounds (1 kg) of chocolate per person. The U.S. leads as the largest chocolate importer, with $955 million in chocolate-related imports in 2023, followed by France at $772.5 million during the same period, according to IndexBox.
Rising Consumer Awareness in the Chocolate Industry
Consumer awareness is reshaping the chocolate industry, driving a surge in demand for specialty chocolates. In the National Confectioners Association’s State of Treating Report 2021, we find that there is a growing interest in organic, vegan, gluten-free, and sugar-free chocolates. Single-origin and bean-to-bar chocolates are gaining popularity for their distinctive flavors. Research highlights the health benefits of dark chocolate, including improved blood circulation and high flavonoid content, which further fuel its popularity.
Leveraging Chocolate as a Marketing Tool
In a competitive marketing landscape, chocolate is proving to be a powerful and versatile tool. Custom-branded chocolates not only create memorable experiences but they also enhance brand perception and boost client loyalty. Personalized chocolate gifts featuring logos or tailored messages offer a personal touch that fosters deeper connections. In addition, the visual appeal of chocolate makes it ideal for social media, driving engagement and brand visibility. This showcases chocolate’s powerful appeal to global consumer segments.
Methodology
For this list, we scanned Insider Monkey’s Q2 2024 database and selected companies involved in the chocolate industry, focusing on areas relevant to chocolate production and distribution. From that group, we picked 10 companies with strong balance sheets and solid financials and ranked them in ascending order of hedge funds having stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Mondelez International, Inc. (NASDAQ:MDLZ)
Number of Hedge Fund Holders: 47
Mondelez International, Inc. (NASDAQ:MDLZ) is a global leader in the snacking industry, with its products reaching over 150 countries. Its diverse portfolio includes beverages, biscuits, chocolate, gum, candy, cheese, and groceries. Mondelez owns renowned brands such as Ritz, LU, Clif Bar, and Tate’s Bake Shop, along with popular chocolate brands like Cadbury Dairy Milk, Milka, Toblerone, and Oreo. It tops our list of the best chocolate stocks to buy now.
In July 2024, Mondelez International, Inc. (NASDAQ:MDLZ) announced the recruitment of 48 sensory panelists at its Bournville site to help refine the taste profiles of iconic brands like Cadbury, Toblerone, and Milka. The goal is to stay competitive and adapt to changing consumer preferences in the chocolate industry.
In Q2 2024, Mondelez International, Inc. (NASDAQ:MDLZ) reported a 1.9% dip in net revenue to $2.8 billion, largely due to unfavorable currency impacts and the 2023 divestiture of its gum business. However, organic net revenue grew by 2.5%, driven by effective pricing strategies. Operating income decreased by $571 million, mainly due to unfavorable YoY changes in hedging activities, divestitures, and higher integration costs. EPS rose 25% to $0.86, boosted by product innovations and strong investments in emerging markets.
Furthermore, in the first six months of 2024, the free cash flow generated was $1.5 billion, showcasing a healthy liquidity position that enabled Mondelez to raise its dividend by 11% in Q2 2024. It returned $2.2 billion to shareholders in cash dividends, translating into a quarterly dividend payment of $0.47 per share.
On the other hand, Mondelez International, Inc. (NASDAQ:MDLZ) experienced a 7.21% increase over the past month and a 4.37% rise YTD. This growth is largely due to the company’s strategic divestitures and acquisitions. Additionally, cost-saving measures under the Simplify to Grow Program further strengthen Mondelez’s position for continued growth.
Despite strong Q2 results, the company faces challenges with softness in the U.S. biscuit segment, rising cocoa costs, and competitive pressures in markets such as India, which may impact profitability going forward.
Analysts have projected an upside potential of 5.63% from the current price of $75.53. As of Q2 2024, 47 hedge funds, holding a combined investment of $1.6 billion, remain bullish on the stock, as per Insider Monkey’s database.
Overall MDLZ ranks 1st on our list of the best chocolate stocks to buy now. While we acknowledge the potential of MDLZ as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MDLZ but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.