We recently compiled a list of the 10 Best Chocolate Stocks to Buy Now. In this article, we will look at where The Kraft Heinz Company (NASDAQ:KHC) 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).
The Kraft Heinz Company (NASDAQ:KHC)
Number of Hedge Fund Holders: 43
The Kraft Heinz Company (NASDAQ:KHC) is a global food and beverage leader, offering products like condiments, sauces, cheese, and beverages. One of its long-standing brands is Baker’s, a trusted name in baking chocolate. Baker’s remains a key player in Kraft Heinz’s diverse portfolio, serving both home bakers and professionals with high-quality baking products.
In Q2 2024, The Kraft Heinz Company (NASDAQ:KHC) reported a 3.6% decline in net sales to $6.5 billion, primarily due to foreign currency impacts and divestitures. The Retail segment, which includes brands such as Baker’s, experienced mixed performance, with a 1.0% price increase in key areas like North America and Emerging Markets, helping to offset higher input costs. However, volume/mix declined by 3.4% due to weaker consumer sentiment. Despite these challenges, adjusted operating income rose by 2.0% due to cost reductions, and adjusted EPS of $0.78 surpassed analysts’ expectations of $0.734.
Meanwhile, net cash from operating activities rose by 8.1%, driven by improvements in working capital, and free cash flow increased by 8.7% to $1.2 billion in the first half of 2024. Despite increased capital expenditures, The Kraft Heinz Company (NASDAQ:KHC) returned value to shareholders by paying $969 million in dividends and repurchasing $537 million in stock during the first half of 2024, which makes KHC one of the best chocolate stocks on our list.
On August 2, Kraft Heinz announced a partnership with Major League Baseball’s Chicago Cubs, making HEINZ the official condiment of Wrigley Field, providing flavor-enhancing products in the stadium. The goal is to boost brand visibility and offer fans unique food experiences, including a Kraft Mac & Cheese stand on Kids’ Sundays.
The recent 2.53% price increase over the past month can be attributed to a combination of strategic pricing actions and cost management efforts. However, YTD movement was -3.77%, largely due to weaker consumer demand, volume/mix declines, and foreign currency impacts. Still, the company’s focus on improving operating efficiency and repurchasing shares is likely to boost investor confidence going forward.
Hence, analysts have projected an upside potential of 5.95%, and as of Q2 2024, 43 hedge funds, holding a combined investment of $11.0 billion, remained bullish on the stock, as per Insider Monkey’s database.
Overall KHC ranks 2nd on our list of the best chocolate stocks to buy now. While we acknowledge the potential of KHC 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 KHC 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.