For Halloween – Treat yourself to this stock

Bernie Madoff masks are flying off the shelves for Halloween. But making money from this holiday is no joke -- if you're smart.

By InvestorPlace Oct 28, 2009 3:41PM

By Louis Navellier

Louis NavellierHalloween is this Saturday, and guess what the hottest selling mask is? None other than Wall Street fraudster Bernie Madoff. Perhaps it’s appropriate the Americans now associate fright night with Wall Street. Given the past year, I can hardly blame them.

Still, investors should remember that Halloween is big business. Here are some numbers to consider: Over $2 billion will be spent on candy this week. That’s not one year—that’s one week! Approximately 600 million pounds of candy will be sold. That's even more than what’s sold for Valentine’s Day.

Whenever I see numbers like this, I instantly look for stocks that are poised to benefit. Fortunately, the candy industry is a good business to be in. Even Warren Buffett owns See’s Candies in Berkshire Hathaway (BRKA), although it’s a minuscule portion of the Berkshire’s overall portfolio. Buffett has often used the example of See’s to describe the kind of well-run business that he loves to buy.

Let’s run down some of the candy makers, and I’ll give you my thoughts on which ones are good buys.

Tootsie Roll (TR) is a neat little stock. Most people assume that Tootsie is a product of a large company, but it’s not. They’ve been their own business for many decades.

Tootsie Roll, of course, is known all over the world for its Tootsie Rolls and Tootsie Pops. The company also makes other candies like Charleston Chew and Junior Mints. There’s a lot I like about the company, and earlier in the year I rated it a Strong Buy. However, in recent months I’ve had to downgrade TR to a hold.

It seems some of the buying pressure for the stock has dried up, and today's earnings didn’t give buyers much reason to come back in force. Tootsie reported Q3 earnings of 49 cents a share, which is 40% over last year’s Q3. That’s certainly good news, but the problem I have is that sales were down slightly. This means that the earnings gain came from higher prices. TR can’t raise prices forever so I don’t want to raise TR to a buy until we see strong numbers at the top and bottom lines.

There’s a Smile in Every Hershey Bar”

Until very recently, my favorite candy stock was Hershey (HSY). Hershey makes well-known chocolate and candy brands like Hershey’s Kisses, Reese’s peanut butter cups, Swizzles licorice, Mounds, York Peppermint Patty and Kit Kat (licensed from Nestle). You can be sure that something from Hershey will find its way into your kids’ candy bag this Saturday night. To be honest, I’m not much of a chocolate lover myself, but if there’s a bowl of Hershey Kisses with almonds, well…I have to eat at least one.

I should add that Hershey isn’t just about candy. The company also makes grocery products, such as baking chocolate, ice-cream toppings, chocolate syrup, cocoa mix, cookies, snack nuts, hard candies and lollipops. Hershey products are sold throughout North America and exported overseas. As much as I like this stock, I recently downgraded it to Hold, due to increased volatility.

The one confectioner I rate as a Buy is Britain’s Cadbury (CBY). The company is the world’s largest candy maker, in business for over 150 years.

Here’s why I like the stock. Last month, Kraft Foods (KFT)—a stock no one should own right now--launched a $16 billion bid for Cadbury, but Cadbury shot down the offer. There was even talk that Hershey would jump in and make a counteroffer. Nothing came about, and Cadbury has repeatedly rejected Kraft. Now Kraft has just two weeks to make a higher bid for Cadbury, or then they have to wait for six months.

I see the situation as a win-win for Cadbury. If Kraft comes back with a higher price, the shares will rally. If not, then CBY is still a strong company, and investors will know that the board is out for shareholders best interest.

Remember: The best way to protect yourself from the ghosts and goblins on Wall Street is by having a portfolio of fundamentally superior stocks. My Portfolio Grader stock rating tool will help you separate the best from the rest. Click here to access Portfolio Grader for free.

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