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3 Reasons To Buy Hershey (HSY) – When This Happens…

Over the last couple months, I’ve shown you many stocks to avoid.  Here are a few…

Stocks to consider buying.  Here are a few of them…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

Doing both will help you earn higher than average investment returns and build your wealth.

But most only think of investing well. 

Today, I want to show you 3 Reasons To Buy Hershey – When This Happens…

Hershey (HSY) is the leading candy maker in the United States.  And controls around 45% of the chocolate candy market share here.

Some of its popular brands are…

  • Hershey
  • Reese’s
  • Kit Kat
  • Kisses
  • Ice Breakers

And more.

It run for 85 years now.  Owns more than 80 brands.  And operates in 85 countries worldwide.

It’s based in Hershey Pennslyvania.  It has a $32 billion market cap. And it pays a 2.1% dividend… Which is reason #1 to consider buying its stock.

Hershey’s 2.1% Dividend

Over the last decade Hershey paid out a total of $21 per share in dividends.

At today’s share count of 210 million shares that’s equal to $4.4 billion paid out to shareholders in that time.

It also grew its dividend 144% from $1.28 per share in 2010 to $3.12 per share now.  This is an annual dividend growth rate on average of 14.4% per year.

These dividend payments will help you in normal times earn cash if you take the money out.  Or allow you to buy more shares over time if you reinvest the dividends.

These regular payments will help you earn more money for your retirement.  And the solid, stable, and growing dividends will help in any kind of prolonged economic issues like we’re dealing with today.

It can do this because it earns solid profits.  Which is reason #2 to buy Hershey to Depression Proof Your Portfolio.

Hershey Earns Huge Profits

Over the last decade it earned an average operating income margin of 19% per year.

I look for anything above 10%. 

Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 11.5% per year on average.

I call this the “Cash Machine” metric.

I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above.  If a company surpasses both thresholds it makes it a great operating business that is safe and potentially valuable.

And Hershey falls into this category.

These profits also allow it to continually reinvest in operations to keep competitors away.

These huge profits also allow Hershey to have reasonable debt which is reason #3 to buy its stock.

Hershey Has Reasonable Debt

As of this writing Hershey has $1.2 billion in cash compared to $5.2 billion in debt.

As a percentage of its balance sheet total liabilities make up 77.7%.

And its debt to equity ratio is 2.07.

These are all above my normal thresholds for what I look for in an investment, but they aren’t horrible like I’ve shown you in many other articles.

Plus, because of Hershey’s large profits and cash flows it can sustain more debt without it becoming an issue.

Does it give me some pause?  Yes.  But its not a deal breaker like some other stocks I’ve shown you.

But what about its valuation?  Is it cheap? 

This is the only reason to wait to buy its stock…

Hershey IS NOT Cheap

With the markets at or near all-time highs you’d expect a fantastic stock like Hershey to be selling at an enormous valuation.

And it is.

As of this writing its P/E is 27.2.

Its P/CF is 17.4.

Its forward P/E is 23.3.

And its enterprise value to operating income – EV/EBIT is 22.7.

On all three metrics at the top I look to buy investments below 20 to consider them undervalued.

And on EV/EBIT I look to buy stocks below 8.

This means, Hershey is overvalued by a decent amount now.

And this means owning its stock gives you no margin of safety in investing terminology.

When you invest in stocks that have a margin of safety it makes the investment safer.  And it also means you should expect to earn higher returns owning in the coming years.

The inverse of this is also true…

When you invest in a stock without a margin of safety it makes the investment riskier.  And it also means you should expect to earn less owning its stock going forward.

With Hershey being overvalued it makes the investment riskier.  Even with the other wonderful things above.

Conclusion

If you’re looking for a solid, safe, stable, and enormously profitable investment to buy – consider investing in Hershey. But only when it’s cheaper.

Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times. 

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.


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