For immediate release
Chicago, IL – March 4, 2022 – Today’s Zacks Investment Ideas feature highlights Hostess Brands, Inc. TWNK and The Hershey Company HSY.
Why it pays to be an active investor this year
It has been a difficult year for passive equity investors, with major indices remaining vulnerable and unpredictable. Volatility is back as the VIX index (commonly known as the “fear” gauge) has hit levels not seen in over a year in recent weeks. It’s just not an easy money market environment, as countless worries linger in the current investment landscape – including foreign unrest with Russia and Ukraine, inflationary pressures, ongoing problems of the supply chain and a Fed ready to embark on a rate hike.
In recent years, passive investors in mutual funds and ETFs have been treated quite well, with the S&P 500 and Nasdaq posting double-digit returns for three years in a row. This year should prove more of a hurdle for passive investors; naturally, this opens the door to the savvy active investor and offers them a greater possibility of outperformance.
How can we begin to identify leading stocks in the current market environment?
The first step is to identify the major industry groups. Quantitative research studies suggest that about half of a stock’s price appreciation is due to its sector grouping. Focusing on stocks in the best performing sectors provides a constant ‘tailwind’ to our investment results. Including this step in our selection process also allows us to refine the investment universe and select stocks with the best profit potential.
The most successful industrial groups are dynamic and constantly evolving. Investors would therefore be wise to keep up to date with these groups. Stocks within these groups will generally lead the market – and it is these stocks that we want to target for long trade initiations.
Luckily for investors, at Zacks we offer you an exclusive industry group ranking system called Zacks Industry Rank. This system harnesses the power of the Zacks Ranking, meaning that higher ranked industries contain more stocks that receive upward revisions to earnings estimates. Simply put, your most profitable stocks will be those with upward revisions to earnings estimates in industries benefiting from the same.
Starting with this bottom-up approach and identifying the top industries ranked by Zacks is a great place to start identifying top stocks. Let’s look at an example of an industry group that is outperforming in the current market environment and whose constituents are receiving positive earnings estimate revisions.
The Zacks Food-Confectionery industry, part of the Staples Consumer segment, is currently ranked in the top 9% out of more than 250 industries. Below, we will analyze two constituents that are part of this leading industry group and whose stocks are significantly outperforming the market.
Hostess Brands, Inc.
Hostess Brands is a packaged food company that develops, manufactures and distributes snacks primarily in the United States. TWNK offers a wide range of sweets such as donuts, pastries, cookies and wafers under various recognized brands such as Twinkies, CupCakes, Donettes, HoHos and Cloverhill. Hostess Brands was founded in 1919 and is headquartered in Lenexa, KS.
Zacks Stock No. 2 (buy), TWNK has exceeded earnings estimates in every quarter for the past three consecutive years. The company recently reported fourth-quarter EPS earlier this week of $0.25 for the quarter ending last December, an 8.7% surprise on consensus estimates. TWNK delivered a surprise 5.95% over the last four quarters in average earnings, contributing to the stock’s 52.08% return over the past year.
What the Zacks Model Reveals
The Zacks Earnings ESP (Expected Surprise Prediction) seeks to identify companies that have recently experienced positive earnings estimate revision activity. This Zacks exclusive technique has been very useful in finding positive profit surprises. In fact, combining a No. 3 or higher Zacks ranking with a positive earnings ESP, stocks produced a positive surprise 70% of the time according to our 10-year backtest.
TWNK is currently showing a positive ESP (+0.47%) for the current quarter. A beat could be in the cards when the company releases its first quarter results on May 16and.
As we head into 2022, analysts covering TWNK have raised their full-year EPS estimates by 1.06% over the past week. Zacks Consensus’ EPS estimate is $0.95, representing growth of 7.95% over last year. Sales are expected to increase 7.96% to $1.23 billion.
The Hershey Company
The Hershey Company is a world leader in confectionery, providing items such as chocolate, candies, mints and other snacks. HSY offers its products under well-known brands such as Hershey’s, Reese’s, Jolly Rancher and Kit Kat. The company markets and sells its products to wholesale distributors, grocery chains, mass merchants, vending machines, pharmacies and convenience stores. HSY was founded in 1894 and is based in Hershey, PA.
HSY reported strong fourth quarter results in February for the quarter ending December last year, posting EPS of $1.69, resulting in a surprise +3.68% per compared to estimates. Strong consumer demand for its brands contributed to the good performance. HSY’s market share remained above pre-pandemic levels.
The confectionery business posted an average surprise profit of 4.31% over the previous four quarters. The stock has outperformed over the past year, offering investors a 47.57% gain over the period.
Analysts have raised their HSY earnings estimates for the current year by 4.34% over the past 60 days. The Zacks consensus estimate for 2022 EPS stands at $7.94, a growth rate of 10.58% over 2021. HSY continues to overdeliver and is one of the leaders in the market in a cautious investment climate.
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Zacks Investment Research
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Past performance is not indicative of future results. The potential for loss is inherent in any investment. This document is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold any security. No recommendation or advice is given as to whether any investment is suitable for any particular investor. It should not be assumed that investments in the securities, companies, sectors or markets identified and described have been or will be profitable. All information is current as of the date hereof and is subject to change without notice. The views or opinions expressed may not reflect those of the company as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management of securities. These returns come from hypothetical portfolios composed of stocks with Zacks Rank = 1 that have been rebalanced monthly without transaction fees. These are not the returns of actual stock portfolios. The S&P 500 is an unmanaged index. To visit https://www.zacks.com/performance for more information on the performance figures displayed in this press release.
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Hershey Company The (HSY): Free Stock Analysis Report
Hostess Brands (TWNK): Free Inventory Analysis Report
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