Chocolate is one of the most favored sweet foods worldwide. Global sales are getting close to $150 billion annually. As the affluence of people in developing nations increases, so does their chocolate consumption. According to some predictions, cocoa product sales may exceed $200 billion annually by the end of the 2020s, reflecting an average yearly growth rate of approximately 5%.
Chocolate is also a favorite among many financiers. However, a handful of snack food giants dominate the market, and their average growth rate is mediocre. However, if you are looking for slower but more predictable growth together with dividend income, chocolate stocks are worth a look right now.
Table of Contents
Altering Tendencies in the Chocolate Industry
The chocolate industry has evolved swiftly in response to consumers’ shifting tastes and preferences in recent years. The popularity of dark and expensive chocolates dominates the U.S. chocolate market. American chocolate firms such as Kraft Heinz, Mondelez, Hershey’s, Mars, and General Mills dominate the global market. Unique items and opulent consumption experiences keep people returning for more. The expansion of the chocolate market can be linked to Asia-Pacific nations whose consumers are adapting to western tastes. According to Grand View Research, the demand for cocoa will increase by 30% by 2020 due to the burgeoning desire for chocolate.
There is an increasing demand for chocolate products with low sugar levels and organic components. In 2019, Mars Wrigley Confectionery introduced a new line of low-calorie, single-serving bars with increased protein and decreased sugar. In addition, the packaging of chocolates has grown even more inventive, working wonders for the gift-giving industry. The Ferrero Group’s Ferrero Rocher chocolate is wrapped in tin gold foil, making it a luxurious appearance and a popular gift.
The advantages of eating dark chocolate with a high cocoa content for health reasons, as well as the rising trend of buying dark chocolate as gifts. The increased regulation of seasonal chocolates by manufacturers, and the expansion of marketing initiatives are some of the noteworthy developments in the industry. More excellent knowledge of chocolate’s health advantages has also expanded the industry. Mondelez is one of the many famous firms that have responded to the increased demand for chocolate by developing innovative and delectable goods that customers adore.
Top 10 Chocolate Stocks You Should Consider in Your Profolio
1. Nestle
Nestle is a vast food and household goods conglomerate and a leading chocolatier. The Swiss corporation sells a variety of candies under the Nestle brand and controls the international rights to candy bars, including Butterfinger, Milky Way, and KitKat.
In 2018, Nestle sold the U.S. rights to its confectionary and candy bar business, which includes Baby Ruth, 100 Grand, and Crunch bars, for $2.8 billion to the private Ferrero Group.
Nestle is a leading brand for investing in basic consumer staples, and despite selling its U.S. chocolate business, it maintains a significant influence in the industry. The food company’s growth prospects are limited, yet its products are crucial for millions of households worldwide. Additionally, Nestle stock has a lengthy history of gradually increasing its dividend payout to shareholders over time.
2. The Hershey Co
Hershey (HSY) controls roughly half of the $25 billion domestic chocolate market in the United States. The company’s brand portfolio includes over 80 names, including Reese’s, Kisses, Cadbury, and KitKat (for the last two, the company owns the U.S. license). Even though the candy manufacturer’s products are distributed in 80 countries, the majority of revenue is created in the United States; just around 15% of total sales are generated outside of the United States, primarily in Brazil, China, India, and Mexico.
Hershey’s holds a 45% market share in the chocolate aisle in the United States. According to a Morningstar stock analysis, the company controls over 30 percent of the U.S. confectionery industry.
This suggests that, despite indulgent offers being the foundation of Hershey’s niche, the company remains a trusted brand among customers and retailers unwilling to forgo flavor.
The confectionery has increased investments in critical domestic brands while simplifying its domestic brand portfolio. These approaches ought to increase income and profits. “These efforts should ultimately allow Hershey to more effectively focus its financial and human resources on the highest-return opportunities, ultimately supporting the brand intangible assets that underpin our wide-moat rating,” says Lash, who recently increased the stock’s fair value from US$126 to US$129 due to improved cash generation.
Hershey is introducing new goods to differentiate itself from the competition. Lash observes that the company has included new trendy product categories into its portfolio while enhancing its profitability by raising the prices of its chocolate bars and candies.
3. Mondelez International
Mondelez is another snack food behemoth, and on the chocolate side, the corporation owns well-known brands, including Oreo, Cadbury, Chips Ahoy!, and Milka. Mondelez was spun off from Kraft Foods (now Kraft Heinz (NASDAQ: KHC)) back in 2012.
This snacking company is another slow-growing company, but it has reduced expenses and increased profitability over the previous decade. Mondelez has also expanded its footprint in the health food market as global awareness of healthy eating increases. It also pays a dividend, steadily increasing since becoming an independent corporation.
4. Lindt & Sprungli
We will conclude this list with a leader in premium chocolate: Switzerland’s Lindt & Sprungli. It is the minor stock mentioned here, but one of the largest confectionary companies with the fastest growth. Lindt, Ghirardelli, Russell Stover, Caffarel, and Hofbauer and Küfferle are owned by the holding firm.
Lindt distributes its chocolates globally through retail partners, but its store presence is a significant point of differentiation and attracts customers in high-traffic tourist and shopping regions. Since 2014, when Lindt acquired Russell Stover and became the leading maker of luxury chocolate in the United States, total sales have increased by 50%. The company is not currently paying out a large dividend, but the faster growth rate more than compensates for this.
5. Berkshire Hathaway (BRK.A)
Berkshire Hathaway is a holding company formed and managed by the American business magnate Warren Buffett. It is noted for its long-term financial performance and ownership of shares in some of America’s top companies. It appears on this list as the owner of See’s Candies. See Candies was created 101 years ago and sells a variety of confections, including chocolates in boxes and other presents.
Berkshire Hathaway is legendary in the investing world and is headed by Warren Buffett, one of the country’s most well-known stock and financial gurus. It continues to do exceptionally well based on all of its assets, including See’s Candies. Berkshire Hathaway allows investors to purchase stock in high-performing industries, including Bank of America, Coca-Cola, Apple, and more. See’s Candies has historically outperformed the market, and buying Berkshire Hathaway gives investors access to some of the biggest stocks on the market right now.
6. Chocoladefabriken Lindt & Sprungli AG.
Chocoladefabriken Lindt & Spruengli AG of Kilchberg, Switzerland manufactures and sells premium chocolates. It sells chocolate under various brands, including Lindt, Ghirardelli, Russell Stover, Caffarel, Kufferle, and others.
For the fiscal year ending December 31, 2021, its revenue was 4.95 billion Swiss francs (5.24 billion U.S. dollars), compared to 4.02 billion Swiss francs (4.25 billion U.S. dollars) in the prior fiscal year. The net income was 490.5 million Swiss francs ($519 million) compared to 321.7 million ($340 million) in the fiscal year 2020. Chocoladefabriken is worth $28.93 billion according to its market capitalization. It has a P/E ratio of 57.02 and a dividend yield of 1.08 percent.
7. Rocky Mountain Chocolate Factory, Inc. (RMCF)
Rocky Mountain Chocolate Factory creates chocolate confections and candies. The company operates through various divisions, including franchising, manufacturing, retail stores, U-swirl operations, etc. The portfolio of a company established in Durango, Colorado, comprises caramels, creams, mints, toffees, and truffles.
The third quarter ending November 30, 2021, recorded US$8.5 million in revenue, a 17.7% rise from US$7.23 million in the same quarter of the previous year. The company’s consolidated net loss was $1.48 million, or $0.24 per share, compared to a net income of $0.523 million in the third quarter of 2020. The market capitalization of RMCF is $42.58 million, and the company’s P/E ratio is 29.96.
8. Pladis
Pladis Global is an English confectionary and snack food manufacturer headquartered in London. It was established in 2016 as a subsidiary of Yildiz Holding and has since purchased several food companies, including United Biscuits, Godiva Chocolatier, DeMet’s Candy Company, and Ulker. Pladis has 34 manufacturing facilities in 13 countries, and its products are distributed to about 4 billion people in 120 nations. Pladis has established itself as a global leader in the chocolate industry, producing both sweet and savory confections. The company’s annual revenue of £3.5 billion has established it as one of Europe’s most notable businesses. There are now 26,000 employees working for Pladis in various countries.
9. General Mills, Inc. (NYSE: GIS)
The American multinational firm General Mills manufactures well-known food products for the mass market. It is one of the most renowned chocolate producers in the entire globe. Totino’s, Haagen-Dazs, Betty Crocker, Annie’s Homegrown, Cheerios, Cocoa Puffs, and Lucky Charms are just a few of the 89 top U.S. brands in its portfolio. According to Statista, the firm’s central worldwide operational sector will generate $10 billion in net sales in 2020. The company, founded over 150 years ago, has become a leader in the chocolate industry. In 2020, the largest division of the corporation was the US Meals and Baking division, which generated $4.5 billion in net sales. The company’s most famous chocolate goods include cereals such as Chocolate Toast Crunch, Cocoa Puffs, Count Chocula, Cookie Crisp, etc.
10. The Kraft Heinz Company (NASDAQ: KHC)
The Kraft Heinz Manufacturer is an American food company with a Chicago, Illinois, headquarters. It is ranked sixth among the top 12 chocolate companies in the world. Since the merger of Kraft Foods and Heinz, it has become the third largest food and beverage corporation in North America and the fifth largest globally, with projected annual sales of $26 billion in 2020. The company’s brand portfolio includes Oscar Mayer, Philadelphia Cream cheese, Wattie’s, and Planters, among others. Based on its sales, Kraft was placed number 114 on the 2018 Fortune 500 list of the largest firms in the United States. Baker’s chocolate, Daim, Freia, Jet-puffed, Cote D’or, Lacta, Marabou, Milka, Toblerone, Terry’s, Prince Polo, and Trakinas are among its most popular chocolate products.
Are Chocolate Stocks an Attractive Investment?
As a component of the market’s consumer staples category, chocolate is not the most significant growth investment theme. However, demand for chocolate and other sweets will persist for the foreseeable future. Chocolate sales continue to rise as customers in developing nations enter the middle class and formerly unattainable products such as chocolate become more readily available. If slow growth and dividend income are what you seek, these chocolate stocks may be a good fit for you.
Is Chocolate a Safe Investment?
Due to its widespread popularity, cocoa is a significant commodity and a popular market investment. Nonetheless, there are risks associated with every investment, including cocoa:
Cocoa develops under specific climatic conditions, and a sudden change in these variables can significantly impact crop productivity and commodity supply. Moreover, environmental changes affect pollination and plant growth, impacting the general supply again.
As stated above, cocoa is occasionally employed as a political bargaining chip to influence international choices and wars. Many major cocoa-supplying nations have only recently established themselves on the world market, and they are eager to capitalize on this highly desirable product.
Long ago, cocoa harvesting was dependent on either low-cost or child labor. Recently, there has been a tremendous shift toward fairer working conditions and wages, which has boosted production costs, causing cocoa prices to reach their highest point since the commodity was initially transformed from a luxury item to a staple. The shift toward improved welfare circumstances is desirable regardless of cost.
Final Thoughts
The industry’s total market value is expected to surpass about $187 billion by 2026. Western Europe accounts for one-third of the worldwide chocolate market, making it the largest market for chocolate confectionery in the world. Currently, the stock market is volatile. Before investing in the equity market, investors should evaluate the stocks and the broader market thoroughly.
