Cocoa prices are still pushing aggressively higher, and may still have room to run. Recently passing $10,000, cocoa is up about 120% this year. All thanks to harsh weather conditions, black pod disease, swollen shoot virus, underinvestment and supply shortages. These factors have led investors to look at some of the top cocoa stocks to sell.
Hershey (HSY)
Since topping out mid-2023 at around $270, Hershey (NYSE:HSY) now trades around $194. All thanks to inflation, fears that weight loss drugs could upend the industry and sky-high cocoa prices.
In fact, the company recently warned that historic cocoa prices could limit its earnings upside for the year. 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.
While we’ll get a better idea of growth with its April 25 earnings release, fourth quarter earnings and guidance weren’t that great. 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%.
Nestle (NSRGY)
Nestle (OTCMKTS:NSRGY) is another one of the top cocoa stocks to sell.
After topping out around $130 in early 2024, it’s now down to around $102 and sinking. Should it break below $100 a share, it’s next line of support is $97.57. Granted, RBC Capital Markets recently upgraded the stock to “sector perform” on the idea that pricing headwinds were normalizing. But with higher cocoa prices likely, the stock could see further declines.
Unfortunately, the company’s 2023 results did fall short of expectations. It missed its targets for full-year 2023 real-internal growth, and delivered weaker margins in the second half of the year. Earnings per share were about 2% lower than estimates.
Mondelez (MDLZ)
Until prices cool off a bit, I’d also avoid Mondelez (NASDAQ:MDLZ).
Since topping out at around $76.73 earlier this year, the stock has sunk to a recent low of near $67. From here, if it breaks below its current price, it could fall to less than $66. All with higher cocoa prices likely to weigh on margins.
It’s also passing on its higher costs on to consumers. CEO Dirk Van de Put noted, “cocoa, sugar, and hazelnuts are really going up in a quite significant way. So, it obliges us, again, to do price increases. We would prefer not to, but unfortunately, the inflation on the cost side for us is not stopping.”
Plus, it’ll be interesting to see how obesity drugs impact the stock as well. At the moment, U.S. companies across sectors such as food and beverage makers are facing questions over the risk to future sales from the growing popularity of promising weight-loss treatments.
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.
