If there are two surefire ingredients to a happy holidays, they'd have to be chocolate and cocktails. But there's another way to indulge in these treats: in your portfolio. So this year, put your money where your mouth is to enjoy appetizing returns.
Sweet Returns
The U.S. may have been in a recession in 2008, but the U.S. Department of Commerce (DOC) reported that the average U.S. consumer spent 1.1% more on candy ($92.91). The increase appears to have been caused by escalating confection ingredient prices, because the actual amount of candy purchased decreased 4% to 23.8 pounds. According to the National Confectioners Association (NCA), candy makers reaped a 35% profit margin on retail sales. The industry thrives on holiday purchases, with most sales occurring around Valentine's Day, Easter, Halloween and Christmas. What does this mean for investors? The cyclical candy sector may be a tasty portfolio treat.

The Industry
The returns may be tantalizing, but don't just grab at the first sweet opportunity; the $28 billion retail candy industry is very competitive. New and improved products keep consumers coming back, and many companies are working on offering more sugar-free and lower calorie choices. But the biggest seller is chocolate. The recent increased media hype around the health benefits of dark chocolate have given the industry a boost. According to recent research, chocolate containing 70% or more cacao is said to have high levels of antioxidants, which help fight heart disease. Now that's a sweet deal!

Merger and acquisition is a common growth strategy for the confection industry. There are more than 300 major American candy producers. Some of the biggest names are privately held, like Mars and Jelly Belly, but investors can buy shares in The Hershey Company (NYSE:HSY), which currently holds 42% of the U.S. market. The company's recent share price reflects operations struggles, but with a price-to-earnings ratio of 20 - compared to an industry average of 33 - it appears to be a good value. Earnings per share growth is actually down 11% over the last three years, and the company is currently in talks to buy European competitor Cadbury (NYSE:CBY).

American candy exports increased 20% last year, so investors who are looking to diversify may also consider European American depositary note (ADR) Nestle (OTC:NSRGY). Other companies also profit from candy sales. Discount retail giant Wal-Mart (NYSE:WMT), for example, is the leading American candy retailer, with 12.8% of the market according to NCA and DOC shipment reports.

What's the best beverage for washing down a fine piece of chocolate? A glass of wine, of course! In 2009, the Wine Institute reported data from Gomberg, Fredrikson & Associates, which indicates that U.S. consumption of sparkling wine or champagne bounced back to pre-recession numbers, with 8.2 million cases sold in 2008. Americans enjoyed 2.48 gallons of wine per person. Wine imports to the U.S. account for 25% of consumption, mostly from Europe, but wine is increasingly imported from Australia, New Zealand, Canada, South Africa, Argentina and Chile. U.S. wine exports are also increasing. (For background reading, see Parched For Profits? Try Beverage Stocks.)

The U.S. wine industry is highly fragmented. The Department of Commerce reported an 81% increase in the number of wineries since 1999 to about 5,000. The Department of the Treasury Alcohol and Tobacco Tax and Trade Bureau's November Wine Report documents that more than 400 million bottles of wine were produced from January to September, 2009.

New York based Constellation Brands (NYSE:STZ) is the largest wine company in the world, with numerous domestic and international holdings which include beer, wine and spirits. Constellation Brands holds 15% of the U.S. wine market with popular wine brands like Robert Mondavi and Arbor Mist. Competition has made it increasingly difficult to make a profit. The company has been selling off brands and paying down debt.

The U.S. government carefully controls the manufacture, distribution and sale of alcoholic beverages. Ongoing regulation tweaks address concerns such as sales directly from manufacturers to consumers, internet purchases from retailers and widely differing state laws. Most wine distribution and wholesale companies are privately held, with companies like Costco (Nasdaq:COST) blurring the line between retail and wholesale. The $25 billion wine retail industry is flourishing, with new wine-tasting franchises increasing the availability of products to consumers. Retailers are also cutting out the middle man. Wal-Mart and E&J Gallo inked a deal s to offer "store-brand" bottles of wine to customers.

The Bottom Line
The wine and candy industries are complex and fluid, but worth tasting. Investors should consider the entire supply chain. When paired with a diverse portfolio, sugar and alcohol should satisfy a discriminating investor's palate.

Related Articles
  1. Investing

    The Risks & Rewards of Penny Stocks

    Penny stocks can make you a lot of money in a short period of time, but this is a very dangerous game that almost always will leads to losses.
  2. Investing News

    Should You Invest In Fannie Mae Stock?

    If you're risk-adverse, you might want to avoid investing in Fannie Mae. But if you're up for it, high risk could translate to high reward.
  3. Investing

    The Over-The-Counter Market: An Introduction To Pink Sheets

    Being early to a party may not be hip, but being early on a rising stock certainly is.
  4. Personal Finance

    5 Richest Women In The U.S.

    Here's a list of the richest women in the U.S.
  5. Insurance

    Credit Default Swaps: What Happens In A Credit Event?

    The credit crisis of 2008 prompted important changes to the settlement of credit default swaps.
  6. Investing

    Spot Hotshot Penny Stocks

    Don't flip a coin to find your next investment.
  7. Personal Finance

    5 Everyday Items Invented By Nasa

    NASA innovation is responsible for some amazing feats. Many technologies invented by NASA have been applied to common, everyday items.
  8. Investing Basics

    The Dirt On Delisted Stocks

    Listed securities are "the cream of the crop". Find out how a firm can lose that status and why you should be wary.
  9. Investing

    Power Up Your Portfolio With Video Game Stocks

    Level up your winnings by investing in this fast-paced, highly skilled industry.
  10. Fundamental Analysis

    The Unique Ways Women Approach Finance

    Understanding gender differences and how they are changing is fundamental to understanding the investing world.
  1. What is a "pink sheet" in the context of an OTC (over-the-counter) transaction?

    In the over-the-counter (OTC) market, pink sheets are daily publications with bid and ask prices of over-the-counter stocks. ... Read Full Answer >>
  2. What are the SEC (Securities And Exchange Commission) rules about OTC (over-the-counter) ...

    Market trades that occur over the counter (OTC) are less regulated by the Securities and Exchange Commission than those that ... Read Full Answer >>
  3. Where do I go to make an OTC (over-the-counter) transaction?

    Over-the-counter (OTC) markets are where market makers hold inventories of nonlisted stocks for investors to trade. Unlike ... Read Full Answer >>
  4. Who trades in primary and secondary capital markets?

    Securities are sold on the capital market. Primary and secondary markets for securities trading have different purposes. ... Read Full Answer >>
  5. How is a penny stock created?

    A penny stock, like any other publicly traded stock, is created through a process called an initial public offering, or IPO. ... Read Full Answer >>
  6. What happens to a company's stocks and bonds when it declares chapter 11 bankruptcy ...

    Filing for chapter 11 bankruptcy protection simply means that a company is on the verge of bankruptcy, but believes that ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  2. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  3. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  4. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  5. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!