Time to Short Twinkies?

Last week it was reported that Hostess Brands, maker of Twinkies and other popular snacks, was going out of business. Over the weekend, reports say stores around the country experienced a frenzy of buying as shopper scrambled to get their hands on dwindling supplies of Ding Dongs and Ho Hos, but buyers had more than desert on their minds – they were thinking profits.

How much profits? According to the New York Times, one investors with a $100 cost basis in Twinkies said he planned to sell the lot for a cool $1000 – not a bad ROI by an measure.

However, investors planning to flip Twinkies for massive profits should be advised – Twinkies may not be dead after all. According to reports, Hostess is in talks with several companies who may consider reviving the brands.

If true, Twinkie hoarders may find they have invested in little more than a pot belly and a sugar high, making it the second worst investment this year, behind the Zynga (Nasdaq: ZNGA) IPO.

While buying Twinkies might not be a good bet, one stock expected to benefit from Hostess Brands' demise is Flowers Foods (NYSE: FLO), which makes a number of bakery brands including Nature's Own breads and buns. "We now have a favorable view of the bakery industry - specifically, we expect the industry profit pool to expand owing to the expected liquidation of Hostess Brands, and believe FLO will get at least its fair share of the expanding profit pool," analyst at KeyBanc said. "Furthermore, FLO could also benefit from share gains (sales growth - either organic or by acquisition) as a result of the aforementioned liquidation." The firm upgraded the stock today.

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