Consumer preference for natural sources of nutrition and chemical-free foods has fueled the global market for organic foods and plant-based alternatives.
Organic food and beverage sales are predicted to more than quadruple between 2020 and 2027, from around US$160 billion to nearly US$400 billion.
Investors searching for long-term health-food investment may wish to consider these companies.
Before we get into this burgeoning subindustry, it's critical to define organic food precisely. Organic produce, according to the USDA, is "grown on soil that has not been treated with any prohibited substances for three years prior to harvest. The majority of synthetic fertilizers and insecticides are prohibited."
Organic meats, on the other hand, are characterized as "animals raised in settings that support their natural behaviors (such as the capacity to graze on pasture), fed exclusively organic grain and forage, and not given antibiotics or hormones."
Crucially, no plant or animal product derived from a genetically modified organism (GMO) or fed GMOs may be labeled organic. While some say that GMOs will aid in feeding the planet, others warn that they will usher in an age of Frankenfoods that pose serious threats to our global ecology.
Whichever side of the debate you take, if investing in significant organic players is a priority, the limitations on GMOs and pesticides eliminate many attractive agricultural plays. This includes BASF, Bayer, Dupont, Dow Chemical, Monsanto, and Syngenta, according to SourceWatch.
To qualify as organic food in the United States, organic production, handling, and labeling must comply with the Organic Foods Production Act of 1990 and the National Organic Program's guidelines. Organic growers and handlers are required to be certified by a third-party state or private agencies or other organizations approved by the United States Department of Agriculture (USDA).
Organic food must contain at least 95% organic ingredients to be certified organic and approved to display the USDA organic logo. These limits do not apply, however, if the label indicates that the product is "natural" or includes "natural components," a widely used marketing approach to attract health-conscious people to regard the product positively.
How popular is organic food?
Organic food has grown in popularity over the years, with consumers steadily migrating away from conventional foods in favor of organic alternatives, which they believe are healthier. Notably, organic food is farmed with fewer synthetic or chemical fertilizers and pesticides, and organic animal products are hormone- and antibiotic-free. Additionally, growing environmental concerns are encouraging customers to switch to organic foods.
While specific figures are difficult to come by on a global scale, the Organic Trade Association keeps a close eye on the movement's progress domestically. The figures indicate a strong and continuous upward trend.
The figure at the bottom is self-explanatory: For over two decades, organic food sales have increased by an incredible 14% each year. Despite this pace, organic items still represent slightly more than 5% of total food sales in the United States. Clearly, the growth runway is lengthy.
Interest in the finest organic food stocks is unsurprising, given the dramatic increase in demand for organic foods over the previous few years and the hope that organic foods will continue to appeal to consumers' taste buds. According to a 2008 survey conducted by the Organic Trade Association of more than 200 manufacturers, distributors, and retailers, sales of organic products, both food and non-food, increased from $1 billion in 1990 to an estimated $24.6 billion in 2008. Organic food sales alone increased 15.8 percent to $22.9 billion, accounting for 93 percent of all organic product sales. These figures indicate that the public's opinion of organics as "must-haves" is gaining traction. Many detractors, however, continue to wonder if organics are too pricey to attract more budget-conscious consumers who emerged as a result of one of the worst recessions since the Great Depression.
The organic food market is being pushed by a number of socio-economic factors, implying that market stocks could benefit from a long-term trend. Bank of America forecasts that the global food solutions market will reach a value of more than $300 billion by 2025.
While investing in trends is a golden rule of successful investing, finding the proper stock might be more challenging when the market is in its development. If a sector's enterprises have a limited track record, this might also make them more difficult to assess.
Investing in organic food stocks makes sense for investors looking to diversify their portfolios with eco-friendly products. Green-chip investments can be profitable, even during a recession, as an increasing number of consumers become aware of the environmental consequences of their purchases. In the last two decades, organic food and beverage sales in the United States have increased from $1 billion to $25 billion, with global sales exceeding $51 billion in 2008.
Not only is the organic food market expanding in terms of overall size, but the demographics of its key participants also make it attractive to investors.
Young customers dominate the market, with 36% of 18-29-year-olds preferring organic foods, compared to only 12% of 50-64-year-olds. Given the significant disparity in life expectancy between the two groups, there is a compelling case to be made for investing in organic food stocks as a long-term strategy.
Organic food consumers are not just younger but also more likely to come from higher-income groups. Any premium product confronts the danger that an economic downturn will have an adverse effect on discretionary spending on high-value items. However, considering that the market is centered on food that people consume, it's reasonable to expect organic foods to be more resilient than other luxury commodities.
While the COVID-19 pandemic may have served as a spark for sustainable food firms, it currently appears as though consumer behavior has been hard-coded. While the industry appears to be gaining market share, this does not indicate that all stocks will benefit equally.
Major multinational foods are already altering their business models to cater to organic food customers, and their critical mass and large budgets will make them formidable competitors for smaller firms.
Top Organic Food Stocks to consider
1. Hain Celestial (HAIN)
As one of the biggest companies in organic food stocks, you may be unknowingly consuming Hain Celestial products. That is, at least, my experience. My family, in particular, is a great admirer of Celestial's herbal teas. Additionally, the company offers a variety of healthy food and skincare items that appeal to a broad demographic of consumers.
As a result, it's unsurprising that HAIN stock is one of the greatest performers in the organic market. Currently, shares are up over 40% year to date, indicating robust customer demand. With the pandemic essentially encouraging a sedentary lifestyle, there has never been a more critical time to seek healthy grocery store options, boosting Hain Celestial's case.
Additionally, HAIN's Yves Veggie Cuisine brand taps into the burgeoning plant-based meat market. The company's claim to fame is that its goods are free of synthetic colors and flavors and have a decades-long track record. Additionally, Yves burgers have only three to four grams of fat, outperforming plant-based meat competitors.
2. Lifeway Foods, Inc. (NASDAQ: LWAY)
Lifeway Foods, Inc. (NASDAQ: LWAY) has entered the healthy and sustainable food business with the launch of Kefir, a probiotic cultured dairy product. The company has also established a presence worldwide and recently announced ambitions to expand distribution into France. Lifeway Foods, Inc. (NASDAQ: LWAY) has grown rapidly over the last two years and has continued to do so in the first quarter of the fiscal year 2021. The company increased quarterly net revenues for the sixth consecutive quarter, totaling $4 million in the current quarter. Additionally, net income climbed by roughly 800 percent to $1.3 million during the quarter, up from only $150,000 in the preceding year's first quarter.
This outstanding achievement has also earned Lifeway a spot on Forbes' list of the Best Small Companies. Additionally, the corporation announced the repurchase of 250,000 shares in its most recent news statement. With a market capitalization of $96.13 million and a gross profit margin of more than 30%, Lifeway Foods, Inc. (NASDAQ: LWAY) is without a doubt one of the top healthy and sustainable food stocks to purchase.
3. Lifeway Foods, Inc. (NASDAQ: LWAY)
Beyond Meat (BYND), a market leader in plant-based meats, sells vegetarian burgers (64% of 2019 sales), sausage (23%), ground beef (13%), and chicken. The items are extensively available in the United States of America and Canada, as well as 83 other countries. International revenue accounted for 33% of total revenue in 2019.
Unlike other vegetarian alternatives, Beyond Meat's products look and taste like meat and are intended for both omnivores and vegetarians. Apart from the benefits associated with the rosy prospects of the global PBM market, Morningstar forecasts will rise from US$12 billion in 2019 to US$74 billion in 2029 (a 19 percent CAGR). "We forecast Beyond's market share increasing from 2.5 percent in 2019 to nearly 9 percent in 2029, as PBMs gain a greater share of the overall meat category and as Beyond's brand continues to win favor with consumers, as evidenced by its strong performance in taste tests and ongoing R&D investments," according to a Morningstar equity report.
No-moat Beyond products are GMO-free, giving it an advantage over competitors who employ GMOs in their offerings. "This is critical because GMOs are prohibited in Europe, and according to a survey conducted by the International Food Information Council, 46% of American consumers avoid GMOs, which have been linked to a variety of diseases," says Morningstar equity analyst Rebecca Scheuneman, who recently reduced the stock's fair value from US$156 to US$146 due to weaker sales and increased expenses associated with the pandemic.
4. WhiteWave Foods Company
WhiteWave Foods is the parent company of two organic food industry behemoths. Horizon Organic is the first, with 4.2 percent of the organic market (the most of any single brand). Horizon was founded on the production of milk, cheese, and other dairy goods but has since expanded its product line to include snack crackers and macaroni and cheese.
Earlier this year, WhiteWave bought Earthbound Farms. This organic food producer based in California specializes in fruits, veggies, and salad greens but also sells herbs and snacks such as cookies and granola. Earthbound accounts for approximately 1.2 percent of the organic market, giving WhiteWave a combined market share of 5.4 percent.
5. Kroger Inc. (KR)
When the pandemic initially struck, demand for groceries of all types increased dramatically. While some of that has subsided recently, the threat of a second wave lurks large in the backdrop. That is especially true now that President Donald Trump has been diagnosed with Covid-19. And it bodes well for Kroger and KR stock in the long run, as the coronavirus has proved that it is virtually unstoppable in several instances.
However, I view the grocer as a feasible play inside the organic food sector. True, Kroger sells a diverse range of products as a grocery behemoth. However, the majority of households desire healthier food options — it's simply that many are struggling to afford them as a result of this terrible crisis. That is where Kroger's Simple Truth plant-based meat can make a difference.
Personally, I was curious to learn more about alternative meats. As a result, during a recent supermarket trip, I purchased Simple Truth's ground meat product. I must say that it was rather tasty, albeit with an odd aftertaste. Nonetheless, the overall flavor and price point were nicely balanced, implying that KR stock could be an unexpected organic bet.
6. SunOpta Inc. (NASDAQ: STKL)
SunOpta Inc. (NASDAQ: STKL) is a well-known food firm specializing in plant-based foods and beverages. The company recorded total sales of $207.6 million for the first quarter of 2021, an increase of 12.4 percent year over year. Revenues from plant-based products increased by a stunning 47% year over year. Additionally, gross margin grew by 130 basis points to 14.4 percent this quarter, up from 13.1 percent in 2020. Adjusted earnings per share were $0.01, compared to a loss of $0.06 per share in the first quarter of 2020.
SunOpta Inc. (NASDAQ: STKL) has recently purchased another popular plant-based beverage brand, Dream and WestSoy, which will help the company's plant-based foods division continue to thrive. SunOpta Inc. (NASDAQ: STKL) was held by 21 hedge funds in the first quarter of 2021, according to Insider Monkey's database. The company is ranked 11th on a list of the 12 finest stocks to purchase in the healthy and sustainable food sector.
SunOpta Inc. (NASDAQ: STKL), like The Kroger Company (NYSE: KR), Amazon.com, Inc. (NASDAQ: AMZN), General Mills, Inc. (NYSE: GIS), and Beyond Meat, Inc. (NASDAQ: BYND), is a notable healthy and sustainable food stock to invest in.
7. Sprouts Farmers Market (SFM)
As many anticipated, the supermarket industry outperformed throughout the new coronavirus's initial wave. What may have surprised some was the performance of luxury food shops such as Sprouts Farmers Market. While Sprouts' focus on higher-quality organic goods may appeal to a part of society, the store is nevertheless more expensive than a typical grocery store. Despite this evident pressure, the SFM stock has performed admirably.
Going forward, there may be some doubts about Sprouts' ability to maintain its momentum in comparison to other organic food stocks. After all, the pandemic is not solely a health catastrophe; it is also an economic one. However, the coronavirus has benefited educated Americans. For example, the unemployment rate for people with a master's degree is 3.9 percent in September 2020.
Let's face it — these are the types of people who frequent Sprouts, Farmers Market. As a result, the underlying story for SFM stock is essentially immune to the pandemic.
8. General Mills Inc (GIS)
General Mills (GIS), the world's largest packaged food manufacturer, manufactures snacks, cereal, easy meals, yogurt, dough, baking ingredients, pet food, and ice cream. Nature Valley, Cheerios, Old El Paso, Yoplait, Pillsbury, Betty Crocker, BLUE, and Haagen-Dazs are some of the company's most well-known brands. Around three-quarters of the firm's revenue came from the United States, with the remainder coming from Canada, Europe, Australia, Asia, and Latin America.
"As at-home food consumption continues to rise during the pandemic, consumers are gravitating toward offerings such as those in General Mills' portfolio, as evidenced by increases in household penetration and repeat purchase rates in the majority of categories," a Morningstar equity report notes, adding that "even with fluctuations in consumer health preferences, General Mills will report outsized returns for the next decade."
The firm's tight moat is derived from its preferred retailer status, brand equity, and cost advantage. Due to the company's dominance in the cereal, dessert mixes, refrigerated dough, and natural pet food aisles, the company increased or maintained market share in eight of its ten largest food categories in the United States and its brands continue to fetch premium prices. "These strong brands have resulted in excellent connections with retail partners and a scale-based cost advantage," Scheunemann writes, noting that the stock's fair value was recently increased from US$53 to US$57.
Summary
Organic food consumption in the United States is expanding, but domestic supply has not kept pace with the increase in demand. While the advancement of precision agriculture has been good, the primary disadvantage is that producing organic food using traditional agriculture is more complex and expensive than producing conventional food. Organic agriculture is set for development and expansion, owing to a consumer base willing to pay a premium for products they believe in.
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