Valentine’s Day And The Stock Market
On Monday, I promised to give you a good trading idea. Being a man of my word, I plan to deliver. I found a great company outperforming the market. They’re able to pass along price increases to customers… even as their costs fall. And the recession is even driving customers to their products.
But before I tell you about this wonderful company, I want to take a moment and remind all the guys out there about Valentine’s Day. Now, I don’t mean to be sexist, but in my experience, it’s normally the guys who struggle on this romantic holiday.
I know it’s strange to talk about Valentine’s Day in this newsletter.
But I want to look out for all of my readers. Some of you may have forgotten the big day. Others might be stymied over what gift to buy. I have a few simple ideas.
Linda (my infamous girlfriend) and I will be going out to dinner with friends on Valentines. When planning our evening, I discovered something interesting…
It’s virtually impossible to get reservations for two people at a nice restaurant on Valentine’s Day. However, ask for a table of four or six, there’s surprisingly plenty of room!
That leads to my first big tip. If you’re struggling to get reservations for dinner, partner up with a friend and make it a double date. You’ll get those last minute reservations, and I bet have a good time.
Now, if you’re struggling with what to buy for your significant other… I have a few simple ideas on that as well.
Jewelry is always a good choice for you big spenders, but candles, pajamas, or a nice perfume also do nicely. For those of you focused less on the material things (read cheap!) you could even write a poem or cook a romantic dinner for two at home.
This leads to my second big tip… do something. If you bury your head in the sand and pretend Valentine’s Day doesn’t exist, you might be spending the next one alone. So make an effort… any effort!
My third and final tip is this: When in doubt, go with the classics. You can’t go wrong with flowers and chocolates on Valentine’s Day.
And that’s what brings me to my trading idea.
One area of the market has shown considerable strength of late. That’s the consumer staples sector. Think about all the companies making your everyday products… toothpaste, deodorant, soap, cleaning supplies, even food and chocolate!
The industry’s outperformed the market by more than 18%. In the last year it lost about 20% of its value. Not bad considering the whole market is down more than 38%.
One company in this industry has been incredibly strong.
While the entire industry lost 20%, this company actually went up 2%! The company is none other than chocolate manufacturer Hershey (HSY).
So, why Hershey?
First is the recession. It seems strange to think that a recession helps Hershey, but it does. Here’s why… Consumers are looking for a little escape right now. If you’re denying yourself a big vacation (or putting off buying that big screen TV), what’s the harm indulging in a simple pleasure. It’s easy to justify spending a buck or two on a chocolate candy, especially if you’re not buying the big TV. That means more sales.
Another advantage is the price.
Hershey’s bread and butter, if you will, is low priced chocolate. The high end stuff can be quite costly. This means as consumers look to cut corners, out goes the high end stuff and in comes Hershey products. Spending trade-offs are inevitable. Buying a less expensive brand of chocolate is a reasonable cost cutting measure. It ultimately means more business for Hershey.
Management’s not resting.
Instead of cutting back on marketing, Hershey’s trying to capture market share. Recent news indicates their marketing spend may increase by 20% in 2009. Clearly capturing more market share is good… even as other competitors cut back.
The commodity angle.
For Hershey, some of their biggest costs are sugar and milk. Last year commodity prices were on a tear. They seemed to skyrocket every day. How did Hershey react? They raised prices to cover the additional costs. Now commodity prices are falling…
You think they’re about to start cutting prices. Not on your life! That means higher prices and lower costs. I see fatter margins in Hershey’s future. And, fat margins mean fat profits for shareholders!
So there you have it.
Three tips on having a great Valentine’s Day, and four reasons to buy Hershey’s stock. Think about it as you pick up that box of Hershey’s chocolate for your sweetheart.
Category: Technical Analysis
