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Cocoa prices just hit a record high of nearly $5,800 per ton. All thanks to supply concerns, and an outbreak of cacao swollen shoot virus, which can decrease cacao yield, and has already compromised a good chunk of supply. Ghana and Nigeria are seeing dry weather conditions, which threatens soil moisture levels, and production yield. This backdrop has led to this list of stocks to avoid.
“Cocoa futures have skyrocketed, doubling in the past year and surging 40% since January; sugar, labor, and other factors have also gotten pricier. That means higher prices down the line for consumers, who will shell out more to fill up on their chocolate treats,” added CNN.
Worse, some analysts don’t expect the chaos to subside any time soon. That being said, investors want to avoid chocolate stocks thanks to higher cocoa prices, such as:
Hershey (HSY)
Source: shutterstock.com/VG Foto
Since topping out mid-2023 at around $270, Hershey (NYSE:HSY) now trades at $191.16. All thanks to inflation-hit consumers, and fears that weight loss drugs could upend the industry. Plus, cocoa prices are expected to limit Hershey’s growth this year, says CEO Michele Buck, as noted by Yahoo Finance.
Earnings and guidance aren’t helping much either. In fact, in its most recent report, HSY did post EPS of $2.02, which beat expectations by six cents. Unfortunately, revenue of $2.66 billion – up just 0.4% year over year – missed by $60 million. With guidance, HSY expects to see net sales growth of 2% to 3%, which is below estimates for 3.43%.
Analysts at Morgan Stanley also downgraded HSY to an underweight rating. The firm expects for softer demand, and higher cocoa prices to weigh on 2025 profits. They also cut their price target on HSY to $183 a share. This makes it one of those stocks to avoid.
Nestle (NSRGY)
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Shares of Nestle (OTCMKTS:NSRGY) aren’t looking so hot either. After topping out around $130, it now trades at $110.23.
It’s also dealing with inflation, softer consumer demand, and higher cocoa pricing at the moment. In its last earnings report, the company did see lower-than-expected growth. In fact, its organic growth rate of 7.8% was lower than expectations for 8.1%.
Analysts at BNP Paribas also downgraded the stock to an underperform rating. Deutsche Bank also lowered its price target in recent months. Until issues with cocoa and inflation start to fade, I’d avoid Nestle at current prices, too.
Mondelez (MDLZ)
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Investors should also avoid Mondelez (NASDAQ:MDLZ) until the cocoa issue subsides. The company is planning to hike prices even more. Not helping, “Retailers in Europe may push back against the hikes, leading to lower sales in the region,” as noted by Reuters. “Prices of Mondelez chocolate in Europe, its biggest market, rose 12% to 15% last year.” This makes it one of those stocks to avoid.
In addition, on its last earnings call, “Mondelez management said it expects high single-digit price hikes in 2024, mostly driven by a significant increase in cocoa prices that have reached a four-decade high of more than $4,700 per metric ton,” as noted by Barron’s.
Until the pricing chaos dies down, I’d avoid MDLZ here, too.
On the date of publication, Ian Cooper did not hold (either directly or indirectly) any positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999.
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