For his second Executive Decision segment of Friday's "Mad Money" program, Jim Cramer spoke with Andy Callahan, president and CEO of Hostess Brands (TWNK) , purveyors of Twinkies and Ding Dongs and the No. 1 cupcake brand in the U.S.
Callahan said Hostess has the brands consumers love and grew by 12% in the most recent quarter. It also continues to innovate with new products such as caffeinated Donettes.
When asked about inflation, Callahan said both inflation and supply chain issues are real at Hostess, but fortunately the company has pricing power and has been able to stay ahead of it. A new business model allows it to have the cash to invest back into the company and ensure growth for years to come.
Let's check out the end-caps in the supermarket and TWNK's charts and indicators.
In this daily bar chart of TWNK, below, we can see an uptrend that may be getting close to a pullback or correction. Prices are in an uptrend above the rising 50-day moving average line and the rising 200-day line. The trading volume does not increase in the direction of the trend and that is not a positive. The On-Balance-Volume (OBV) line shows a rise to the end of January and then spike higher. In the past month the OBV line has been flat as prices pushed still higher; this is a bearish divergence as the OBV line has not kept up with the price action. The 12-day price momentum study shows declining highs from December. This, too, is a bearish divergence as the pace of the rally has slowed as prices have rallied higher and higher. This implies that some traders and investors are selling into the price strength.
In this weekly Japanese candlestick chart of TWNK, below, we see an overall positive picture though the latest candle does show us an upper shadow, telling us that traders have rejected the highs. This is not a top reversal pattern, but it has our attention in light of the slowing momentum study on the daily chart (above). The slope of the 40-week moving average line is positive. The weekly OBV line and the MACD oscillator are both positive at this point in time.
In this daily Point and Figure chart of TWNK, below, we can see a potential upside price target in the $24 area, rounding up.
In this weekly Point and Figure chart of TWNK, below, we can see a price target in the $27-$28 area.
Bottom line strategy: We looked at TWNK way back on Nov. 9, 2020, and wrote at that time, "Aggressive traders with a sweet tooth could go long TWNK at current levels risking a close below $12.50. The $15-$16 area is our price objective for now." Traders who followed this advice have done well and now is the time to look to become a profit taker on available strength.