Kudos to FoodDive.com for its article today about the work that goes into Valentine’s Day being a big success for chocolate manufacturers in the U.S.

According to data from the National Confectioners Association, Valentine’s Day results in about $4 billion in confectionery sales, which amounts to approximately 10% of annual retail sales. Furthermore, 93% of Americans would love to receive candy or chocolates on this special day. 

However, don’t call Valentine’s Day a holiday because that would insult essential days such as Christmas Day and Martin Luther King Jr. Day. While there is a long history to Saint Valentine’s Day, it has never been a paid or unpaid holiday in the U.S. or Canada. 

But I’ll stop with the cranky-old-man routine and get into the heart of this story: chocolate and candy are big business. As a result, the public companies that benefit from Valentine’s Day should always be on an investor's watchlist.

Here are my three favorites.

It's Got an Excellent CEO

Michele Buck is the CEO of The Hershey Company (HSY). She joined the Pennsylvania-based company in April 2005, becoming CEO in March 2017. Not only has she run the company Milton Hershey founded 128 years ago, but she’s also been one of 41 women running S&P 500 companies for the past six years. 

So, why buy its stock?

For starters, the fact the Hershey Trust Company controls it (80.3% of the voting shares), which is the trustee for the Milton Hershey School Trust -- the sole beneficiary being the Milton Hershey School, a non-profit school for disadvantaged children -- means that not only will your investment make you money over the long haul, you’ll be benefiting a most worthy cause. 

Secondly, the 15 analysts covering its stock, according to Barchart.com data, give it a Moderate Buy rating (3.47 out of 5) with a mean target of $246.40, above where it’s currently trading. And don’t be put off by the fact nine of the 15 give it a Hold rating. That’s the analysts' way of saying they’re unsure of the economy in 2023. 

Lastly, Hershey reported its Q4 2022 results earlier in February. Its sales for the year increased by 16.1% to $10.4 billion, with 12 percentage points organic in nature. On the bottom line, its adjusted EPS was $8.52, 18.5% higher than in 2021. In 2023, it expects sales and adjusted EPS growth of 7% and 10%, respectively, at the midpoint of its guidance.

Its free cash flow in 2022 was $1.73 billion. Based on its market cap of $49.2 billion, it has a free cash flow yield of 3.6%. It’s not cheap, but you’re buying a quality company at a reasonable price. 

Is Bigger Better at Mondelez?

Mondelez International (MDLZ) has a market cap almost twice Hershey’s. According to SnackandBakery.com, it is the world’s second-largest candy company by confectionery sales, behind only the Mars Wrigley division of Mars Inc. 

Analysts are more enthusiastic about Mondelez’s business at the moment. The 17 analyst ratings, according to Barchart, have it as a Strong Buy (4.59 out of 5) with a mean target price of $73.88, 11% higher than where it’s currently trading.

At the end of January, Mondelez announced a new $6 billion share repurchase program. The authorization lasts until the end of 2025. Over the past five years, it’s repurchased an average of $1.8 billion annually, so it shouldn't have any problem filling the $6 billion authorization. 

So, for 2022, it had a free cash flow of $3.0 billion, or 9.5% of its $31.5 billion in revenue. Hershey’s free cash flow margin of 16.6% was 710 basis points higher than Mondelez’s. That’s something to consider when comparing the two.

Another thing to remember: Mondelez’s net debt in 2022 was $21.7 billion, or 24% of its market cap, compared to 8.7% for Hershey. In times of uncertainty, I’ll always bet on a company with a stronger balance sheet. 

You Can’t Go Wrong With Nestle

According to SnackandBakery.com, Nestle (NSRGY) ranks fifth on its list of the world’s largest confectionery companies, just behind Hershey. Its global brands include Aero, KitKat, Smarties, and Baci Perugina.

Through the nine months ended Sept. 30, Nestle’s confectionery results accounted for less than 9% of its overall revenue, making it the second-lowest contribution by segment other than water, at 4.0%. By comparison, PetCare, Nutrition & Health Science, and Powdered & Liquid Beveverages all accounted for more than 10 billion Swiss Francs ($10.9 billion) in revenue. 

So, when you buy Nestle stock over the counter, you’re not getting a pure-play confectionery business like Tootsie Roll Industries (TR). However, you are getting other well-known global brands such as Alpo (dog food), Purina Cat Chow (cat food), Coffee-Mate (non-dairy creamer), DiGiorno (frozen pizza), Gerber (baby food), Haagen-Dazs (ice cream), and many more. 

Of the three stocks, however, Hershey’s had the best performance over the past five years, up 138.1%, compared to 49.3% for Mondelez and 48.7% for Nestle. 

In my opinion, until Mars goes public, I don’t think there’s any question Hershey is the best chocolate stock to own for Valentine’s Day and beyond.

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