Hershey's finds sweet spot

Chocolate stock hits 52-week high, proving many analysts wrong.

By Jim Cramer Jun 4, 2010 9:34AM

Jim CramerBy Jim Cramer, TheStreet

 

Something amazing happened at Hershey's (HSY) this spring. The company, hated by nearly all analysts -- 11 holds, two sells, one buy -- stood its ground.


It chose not to compete with Kraft (KFT) in a bidding war for Cadbury. It chose not to put itself up for sale, even though analysts were pretty certain that the company didn't have the earnings power or the vision to lift the stock from the mid-$30s level.

 

But this is a different Hershey from the one they followed. Beginning with some management changes last year, Hershey's stopped being paternalistic. It started closing plants, moving manufacturing to where labor was cheaper, slaughtering sacred cows.

 

The analysts, meanwhile, kept crowing that it wasn't big enough, or kept looking at the rising prices of cocoa and writing it off, dismissing every change. They were begging these guys to give up. But James Nevels, the chairman -- an activist chairman -- and David West, the CEO, thought they could do better alone.

 

The result? A $49 stock price, one of the best-performing stocks in the S&P 500, up an astonishing 38% for the year. Ask yourself, when the stock was in the $30s, do you think that someone would have paid up 38% for the company? Do you think Hersey’s would be better off if it had listened to the Street and levered up to bid for Cadbury?

This company went on its own, cleaning up its own act, making tough decisions, with each move all the while being derided as a reason to sell -- and the sell-rated players are extremely vocal.

 

Yesterday the stock hit a 52-week high. I am sure that the sell side will say it is because of falling commodity prices.

 

I say, give credit where credit is due. They got it right. The Street was wrong. The difficult decision to stay independent, to say they could hold out to make more money for shareholders than if they sold out, has paid off big. Hershey's deserves something only Citigroup (C) seems to be giving it. It deserves buy recommendations.

 

It's tough to recommend up here after this run, especially when General Mills (GIS) is hitting new highs every day, and GIS is the best-run player in the industry. But if you think we are double-dipping, you might be hard pressed to find a better story to dip into than the venerable chocolate maker.

 

At the time of publication, Cramer held no positions in the stocks mentioned.

 

Jim Cramer is co-founder and chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.

 

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