The stock market can be a scary place, especially for those plagued with a portfolio of rotten apples

JOHN HEINZL

We're still putting the finishing touches to our Kim Jong Il costume. But with Halloween less than two weeks away, some investors are already going trick or treating.

Brent Wilsey, president of Wilsey Asset Management in San Diego, was kind enough to send over a list of Halloween-related stocks investors might want to embrace -- or avoid -- this year.

"The stock market can be a scary place, especially for those plagued with a portfolio of rotten apples," he says. Thanks for reminding us. With that in mind, here are his Halloween picks and pans, along with a few extraneous comments of our own and from analysts who follow the stocks.

Hershey Co. Kit Kat, Reese's, Eat-More, Oh Henry! -- a pillow case weighed down with Hershey's chocolate is great for fighting off would-be candy bullies. And with sales expected to top $5-billion (U.S.) this year, you'd think Hershey would be sweet for investors, too.

Only one problem: Mr. Wilsey reckons the stock is too expensive. Hershey trades at a hefty 26 times trailing 12-month earnings, and its current ratio -- current assets minus current liabilities -- is "frightening" at less than 1.

For Wall Street, a key concern is whether the candy giant can achieve its revenue growth target of at least 4 per cent in 2006, Deutsche Bank analyst Eric Katzman said in a note this week. That's critical for investors, because top-line growth is what drives Hershey's stock.

Hershey is expected to release third-quarter results today, which will reveal the extent to which higher sugar, cocoa and energy costs have hurt its bottom line. Mr. Wilsey's recommendation: Sell.

Tootsie Roll Industries Inc. The company is virtually debt free, enjoys fat profit margins and its long-struggling stock has rebounded recently.

But growth is proving to be a challenge for the 110-year-old candy maker, whose other brands include Junior Mints, Dubble Bubble and Charms. Sales plunged 8.4 per and earnings fell 4 per cent in the second quarter, hurt by higher costs for ingredients, energy and transportation.

"There was little good news in the Tootsie Roll release," Stifel Nicolaus analyst George Askew said when the results were reported last summer, noting that "earnings quality seemed suspect."

There may be more bumps ahead, given that Tootsie Roll has introduced new package sizes and prices as it tries to cope in a higher-cost environment. Third-quarter revenue is expected to rise just 1 per cent, while profit is expected to be flat from a year earlier, according to Thomson Financial.

Mr. Wilsey's verdict? "This one may be worth letting it roll away."

William Wrigley Junior Co. Even after tumbling about 18 per cent in the past year, the maker of Juicy Fruit still trades at a multiple of 23 times estimated 2006 earnings. Too juicy, Mr. Wilsey says.

Dollar General Corp. Shares of the retailer, which operates neighbourhood discount stores, have also fallen sharply. But the stock trades at just 14 times trailing 12-month earnings -- a 50-per-cent discount to the industry average. It also pays a dividend of 1.5 per cent.

Earnings are expected to fall 18 per cent in the current fiscal year but are seen rebounding 15 per cent next year. What's more, Dollar General stands to grab a piece of the more than $3-billion Americans spend on Halloween costumes, decorations and candy annually. Mr. Wilsey thinks the stock is a bargain -- especially if it dips bellow $13. Yesterday, it gained 15 cents to $13.76.

Given the enormous volume of candy kids will be consuming on Halloween, we offer a couple of other suggestions: Procter & Gamble Co. and Colgate-Palmolive Co. Both are big players in toothpaste.