Face-Off on Stocks: Hershey, American Greetings, Blue Nile

Valentine's Day has come and gone, but an expected boost in sweetheart-holiday spending could still help a few stocks show your portfolio some love over the longer term.

Hershey (HSY), the leading U.S. candy company; American Greetings (AM), the largest publicly traded greeting card company; and fast-growing online jewelry retailer Blue Nile (NILE) all stand to benefit from a rebound in Valentine's Day sales. Indeed, IBISWorld expects sales linked to Cupid's holiday to jump nearly 6% year-over-year to $18.6 billion.

However, as always, whether shares in these companies are attractive at current levels is a matter of debate.

Hershey's stock is up 33% over the last year vs. a 24% gain for the S&P 500 ($INX), and yet the relative valuation remains favorable on a forward earnings basis. Return on equity is a robust 60%, and ample cash generation makes the 2.7% yield on the dividend reliable. Of more concern are surging supply costs. Sugar futures are at an all-time high, and energy is creeping up, too. That leads some investors to worry that the confectioner's margins have no place to go but down.

American Greetings' sales have been like a slowly melting iceberg for years. The company has gone from $2 billion in revenue a decade ago to about $1.5 billion today -- but it may have finally arrested that slide. The stock offers deep discounts to its own five-year average on both a forward and trailing earnings basis. It also sports a generous dividend yield of 2.6%. On the other hand, shares are volatile and heavily shorted by professional investors, making American Greetings look either cheap -- or cheap for a reason.

Blue Nile's stock was on a tear up until missing Wall Street's quarterly earnings estimates in early February. The online retailer disappointed traders with its outlook, too. But the stock isn't is volatile as recent price action would suggests, and it has an enviably high return on equity. Analysts forecast the company to generate a compound annual growth rate of nearly 20% over the next five years. The question for investors is whether that growth rate is torrid enough to justify paying more than 40 times forward earnings.

For more on the bull and bear cases on Hershey, American Greetings and Blue Nile, see Face-Off on Stocks above.

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Blue Nile is a company on the run. Over the past few months the company has resorted to censorship on its Facebook page in an attempt to block their customers from posting questions about the provenance of their so-called conflict free diamonds. In November Blue Nile imposed a ban on anyone using an Irish IP address from accessing their page after many people from Ireland posted questions on the company's wall asking where their diamonds are cut & polished. On the same day the CEO and Executive Chair/company founder sold 50% and 75% of their stock respectively. Two weeks later the CFO resigned suddenly. In the days leading up to Valentine's Day, following more queries from their customers the company blocked all of their 90,000+ subscribers - potential customers - from posting new threads. See report here - http://tiny.cc/z1kby What has Blue Nile got to hide? Could this be a reason for it's declining outlook?

February 18 2011 at 10:26 AM Report abuse +1 rate up rate down Reply