It may not be the
time of the year, but with warmer temperatures, the opening days of baseball and the spring holidays of Easter and Passover, it's still a pretty decent season.
So with the holidays in mind, let's take a look at stocks of companies whose products you might buy for Easter. Note that it was difficult to find any stocks relevant to Passover -- and if Manischewitz were public, it would have to be a short solely on the basis of the taste of the wine.
Forget Creme Eggs, Go With Kisses
, the maker of the holiday favorite Creme Eggs, is up 24% since March 12, the last trading day before the company announced plans to split its candy business from its soft-drink side.
The separation has led to speculation that either or both companies would be acquired, and
name has been tossed around as a potential candy merger partner. While that's possible, especially considering Hershey's need to bolster its position in Europe, I think most of the gains at Cadbury have already been realized.
I'd rather go with Hershey, which is in the early stages of a turnaround after a string of quarterly earnings misses.
The company's restructured supply-chain management should boost margins. Futhermore, it is taking advantage of the "dark chocolate as a health food" fad with several new products. With the greatest brand recognition in the space, I expect Hershey to be able to execute on that strategy.
From a technical perspective, the stock, trading around $56, looks like it's trying to carve out a rounded bottom. I wouldn't be surprised to see Hershey back near its top at $66 in the next year as its initiatives take hold.
In Fact, Forget the Eggs Entirely
It's not just Creme Eggs you should leave out of your Easter portfolio. Forget all eggs. There just aren't any appealing plays in the space.
, which sells eggs in 29 states, is too inconsistent.
Whether you're looking at margins, days sales outstanding, revenue growth rates or other figures, the numbers are all over the place over the past 10 years. With the stock trading at 33 times trailing 12-month earnings, I want a better track record than Cal-Maine offers.
Moreover, the company has a fairly high debt-to-equity level and is facing rising corn prices (corn is used to feed the chickens).
, while more of a poultry producer, also is in the egg business. The stock looks strong from a technical perspective, but I don't like Pilgrim's Pride's disclosures about the money it gives to Chairman Bo Pilgrim.
Securities and Exchange Commission
filings, the company paid Bo Pilgrim's Pilgrim Poultry G.P. business $790,000 in 2006 and a whopping $54 million in 2005 for chickens produced. It also pays this separate entity more than $62,000 a month for the rental of egg production facilities.
If I don't trust the way management is using its money, I want nothing to do with the stock.
For the cholesterol conscious who like Egg Beaters, don't bother putting the stock of the product's maker,
, in your basket. ConAgra is attempting to turn itself around and may be in the early stages of doing just that. However, with rising commodity prices, the need to invigorate several brands and a recall of its Peter Pan peanut butter due to salmonella tainting, the company still has a long way to go.
ConAgra's stock trades at 18 times consensus earnings for fiscal 2007 (ending in May). But with a projected long-term growth rate of just 7%, there is little reason to be in the stock at this point.
Keep Your Bunny Happy
If you want to ensure the Easter Bunny brings you a basket full of goodies, you might want to leave him some
Nutriphase Rabbit Food from
. The pet-supplies retailer reported solid same-store sales growth of 4.6% in the fourth quarter, which it attributed mostly to an increase in traffic.
As someone who does frequent "channel checks" at my local PetSmart in an effort to keep my son's aquarium a going concern, I can vouch for the traffic. I usually have to wait in line to talk to an employee, as well as at the cashier. Despite competition from
, PetSmart provides excellent service that makes the wait worth the time spent.
The recent recall of Menu Foods' pet food should not hurt PetSmart's bottom line. According to a PetSmart representative, the manufacturer will reimburse the retailer for all returns, as well as costs associated with removing the items from the shelves.
The wet-food segment that was affected by the recall makes up only 1.5% of the items sold in the store -- and not all wet food was recalled. Furthermore, wet food is one of the lowest-margin items. Its possible some pet owners will switch their pets to dry food, and that would help boost margins.
Americans have a love affair with their pets, and there is no indication that the torrent of spending on their pooches will slow down anytime soon. At just 1.1 times the projected 17.7% long-term growth rate, and 1 times sales, PetSmart's stock is a good value in a sector that should continue to see strong growth.
Enjoy the holidays.
In keeping with TSC's editorial policy, Lichtenfeld doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships.
Marc Lichtenfeld was previously an analyst at Avalon Research Group and The Weiss Group and a trader at Carlin Equities. He holds NASD 86, 87, 7 and 63 licenses. His prior journalism experience includes being a reporter/anchor for On24 in San Francisco and a managing editor of InvestorsObserver, a personal finance Web site. He is a graduate of the State University of New York at Albany. He appreciates your feedback;
to send him an email.