Sarah Travers
In the dynamic world of stock investments, discerning investors often seek opportunities that promise long-term value, even among stocks that might seem deceptively unattractive at a glance. Currently, two companies—Chewy, the online pet care retailer, and The Hershey Company, the established confectioner—stand out as potential candidates for those willing to invest modest sums for substantial future gains.
Chewy’s Unseen Potential Despite Recent Gains
Chewy’s recent stock performance might give the impression that the investment window has passed, following a striking 60% increase in share price over the last month. However, a broader perspective reveals a different story. Despite this surge, Chewy’s stock remains significantly below its peak levels of 2021—nearly 80% off its all-time highs. This suggests that recent gains might merely be the beginning of a more extended upward trend.
Operationally, Chewy has never been stronger. The company’s gross margin stood at 30% and its net-profit margin at 2.3% in the first quarter of 2024, indicators of its robust financial health. A key factor in this profitability has been Chewy’s efficient logistics network, which now ensures rapid delivery across the continental United States, thereby reducing the average miles traveled per package by 28% between 2022 and 2023.
Moreover, the company has been diversifying its revenue streams. Chewy’s move into high-margin areas such as Chewy Health, where it recently opened its first four veterinary clinics, sponsored advertising, pet insurance partnerships, and private-label products, showcases a strategic pivot towards sectors with higher profitability. With autoship sales now accounting for 78% of total revenue, Chewy’s model of predictable, recurring income offers a stable financial outlook, further enhanced by logistical efficiencies.
Hershey: Sweetening the Deal with Value
On the other hand, Hershey presents a case of enduring value masked by temporary market pessimism. Despite the challenges of tripling cocoa prices due to erratic weather in West and Central Africa, Hershey has managed to sustain growth in sales and earnings per share. Currently, Hershey’s shares trade at a compelling 18 times earnings, significantly lower than the S&P 500’s average of 25, and offer a 2.8% dividend yield, matching the highest level seen in the past decade.
Hershey’s strategic acquisitions, including Skinny Pop popcorn and Dot’s Pretzels—now among the company’s top-selling products with a combined $860 million in sales in 2023—demonstrate Hershey’s capability to integrate and grow its product offerings effectively. Furthermore, the popularity of Hershey’s mainstays like Hershey’s, Reese’s, and Kit Kat continues to dominate the U.S. chocolate market, cementing the company’s position as a favored brand among consumers.
A Sweet Spot for Investors
Both Chewy and Hershey illustrate the potential benefits of investing in companies that are currently perceived as undervalued by the market. For Chewy, the combination of recent price jumps and a still considerable gap from its peak prices indicates a possibly undervalued stock set for further gains. Simultaneously, Hershey’s enduring brand strength and strategic market maneuvers provide a buffer against ongoing market challenges, making it a potentially undervalued stock offering a valuable opportunity for dividend growth.
For investors ready to commit $500 with a long-term horizon, these stocks not only promise growth but also demonstrate how strategic investments in ostensibly undervalued stocks can lead to substantial returns. As both companies continue to innovate and adapt to market demands, their journey might just be starting, suggesting that now could be an opportune moment to invest.
