Mondelez: Stock of the Week

Andrew Willis: It's surprising to see one of the sweetest stocks out there around or below its fair value estimate in the runup to Halloween. Especially as the stock has a wide moat and a repertoire of major brands that help make for a low uncertainty rating on an investment in uncertain times.

From Cadbury to Wheat Thins and Sour Patch Kids, an array of consumer staples--or at least addictive consumer favorites--help give Mondelez a stable economic moat. But keen investors should become familiar with the makeup of this moat because the spookiest thing surrounding this stock could be the competition.

We're talking about the likes of Nestle NSRGY, Hershey HSY, and Kraft KHC when addressing the company's persistent competitive angst. But thankfully Mondelez appears to have an enduring edge on cost and sales. Sector director Erin Lash says the company benefits from economies of scale and mutually beneficial relationships with retailers. With such a wide array of brands, Mondelez has become an important retail partner, helping to plan sales strategies to maximize volumes and profitability, while prioritizing its brands and becoming further entrenched in a product’s supply chain.

Looking forward, we see some inflationary headwinds and supply chain disruptions, but little to change expectations of low-single-digit growth annually over the long term. Regarding margins, we think one way to improve costs would be parting ways with some unprofitable brands, although saying goodbye to a snack is usually easier said than done.

For Morningstar, I'm Andrew Willis.